The opposition has different ideas about what the Japanese economy looks like. That means you should be buying different Japanese stocks, not the well-known names.

The Liberal Democratic party (LDP), in power since 1954 except for 11 months in the 1990s, hasn’t done a bad job. After all, Japan is hugely richer than in 1954. However, after a successful period in 2001-06, the country has had three prime ministers in three years. The current leader, Taro Aso, believes in heavy government spending, particularly on infrastructure. That reflects the party’s traditions, which have favored exporting companies and the construction sector. Those traditions and priorities have also made Japan’s public debt 180% of gross domestic product (GDP).

The opposition Democratic Party of Japan includes the Socialists, and favors higher social spending. However, it also wants to encourage domestic consumption, and to kill the big construction projects on which the LDP has spent so much. Economically, the Democratic Party’s platform makes sense, certainly given its shift in emphasis away from the programs focused on in the last few years. Politically, voters are tired of the LDP and badly want a change. Hence the DPJ is likely to win a majority in next month’s election.

That probable victory has major implications for investors.

• For starters, let’s consider the big exporting companies. Such players as Panasonic Corp. (NYSE ADR: PC), Sony Corp. (NYSE ADR: SNE) and Hitachi Ltd. (NYSE ADR: HIT) – may become less prominent, as they won’t have such strong backing from the government bureaucracy. The construction companies – Komatsu Ltd. (OTC ADR: KMTUY), Kajima Corp. (OTC ADR: KAJMY),Sumitomo Realty & Development Co. Ltd. (OTC: SURDY) and the like – will do less well.
• On the other hand, domestic-oriented companies, particularly in consumer products, should benefit. Low-end consumers may do better than high-end, so we’ll look for basic goods.

The Japanese market is still down more than 75% from its 1990 high, although it has rebounded about 30% from its March lows. Japan had a bad recession: The Economist expects 2009 GDP to be 6.1% below 2008. Nevertheless, the economy looks poised for recovery. If that happens, the market will do well, and consumer-oriented stocks will do especially well. Many Price/Earnings (P/E) ratios look high – as is common in Japan – but Japanese accounting is conservative and a real economic recovery could bring rapid earnings growth. Still, in searching for the most-promising profit plays, I will look for P/Es of 20 to 22, or less, to keep values reasonable. How to buy them: Most Japanese companies these days trade as American Depository Receipts (ADRs), that trade only on the “Pink Sheets.” Those are not very liquid in New York. However, some brokers – such as E-Trade (Nasdaq: EFTC) – now allow you to trade directly on the Tokyo stock exchange. So I’ll give you both the Tokyo symbol and the OTC ADR symbol, and you can choose which way to go. Here are the seven ways to play Japan’s election (with one bonus pick for good measure):

• Kao Corp. (4452; OTC ADR: KCRPY) is a classic consumer-products company – kind of like a Japanese version of The Procter & Gamble Co. (NYSE: PG) here in the United States. Kao produces cosmetics, laundry and cleaning products, making it a domestically oriented company that should do well as Japan’s consumer spending improves. Stock stats: The company’s stock trades at 17 times earnings and yields 2.7%.

• Kirin Holdings Co. Ltd. (2503; OTC ADR: KNBWY) produces beer, soft drinks, food products, whiskey and pharmaceuticals. In addition to its strong position in Japan, Kirin is a major player in the East Asian market. Stock stats: P/E ratio 16; stock yields 1.6%.

• Circle K Sunkus Co. Ltd. (3337; PINK: CLKSY) is a nationwide convenience store chain that sells food, beverages and gaming software. Stock stats: P/E ratio 13; dividend yield 2.7%.

• QP Corp. (2809; OTC ADR: QPCPY) produces mayonnaise, salad dressing, egg products and health foods. Stock stats: P/E ratio 17; dividend yield 1.5%.

• Showa Sangyo Co. Ltd. (2004; OTC ADR: SHSGY) produces and sells flour, cooking oils and confectionary products. Stock stats: P/E ratio 19; dividend yield 2.4%

• Seven and I Holdings Co. Ltd. (3382; PINK ADR: SVNDY) is a merger of Ito-Yokado, 7-11 Japan and Denny’s Japan. It operates convenience stores, food stores and fast food restaurants.Stock stats: P/E ratio 22; dividend yield 2.5%.

• Eisai Co. Ltd. (4523; OTC ADR: ESALY) produces and sells prescription drugs and medical equipment in Japan and overseas. Stock stats: P/E ratio 19; dividend yield 4.2%.

Check the companies carefully before investing (most have Web sites), but the above are some suggestions of companies in interesting sectors that appear solid and not overpriced. If you don’t feel confident about investing directly in Japan, you could also consider investing in the largest Japan-focused exchange-traded fund (ETF), iShares MSCI Japan index (NYSE: EWJ). The EWJ ETF currently has a P/E ratio of 15. 

Source: Eight Ways to Profit From Japan’s Game-Changing Election

Editor’s Note: When it comes to global investing, longtime market guru Martin Hutchinson is one of the very best – because he knows the markets firsthand. After years of advising government finance ministers, crafting deals with global investment banks, and analyzing the world’s financial markets, Hutchinson has used his creative insights to create a trading service for savvy investors.

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While the long-term outlook for oil prices remains bullish, don’t be surprised to see a near-term correction. After tumbling to a low of $33.98 a barrel on Feb. 12, crude oil more than doubled in price, soaring to $69.82 on the New York Mercantile Exchange (Nasdaq: CME) – before tumbling nearly 4% on Thursday on a worse-than-expected jobs report.

Indeed, Money Morning predicted precisely that kind of a run-up for crude oil, first in January and then again on April 16.

As a basis for those previous analyses of the oil market, we cited the declining value of the U.S. dollar, falling production, and the possibility that demand for oil would soar as the global economy emerges from the worst financial crisis since World War II. And those factors continue to suggest that the price of oil will rise over the long-term.

However, while we still believe the long-term outlook for oil prices is bullish, it’s important to note that the recent oil price rally is not supported by supply/demand fundamentals. It is the result of a shift in market sentiment and a corresponding reversal in U.S. stocks, not a material change in the global economy.

And because the five-month rally has proceeded at an exceptionally quick pace, it’s made prices more volatile. That means prices could experience a significant correction in the short-term.

So here’s what you need to know as we approach a major inflection point for one of the world’s most volatile commodities.

What to Make of Oil’s Recent Rally

Prior to Thursday’s stumble, oil prices had soared about 106% since sliding below $34 a barrel in February. The main reason for this jump has been the so-called “green shoots” of economic recovery led investors to believe oil was oversold and that the global economy will return to growth much sooner than originally predicted.

This is highlighted by the fact that the U.S. stock market has experienced an almost simultaneous recovery. The Dow Jones Industrial Average is up about 5% from February, and 30% from mid-March. Meanwhile, the Standard & Poor’s 500 Index has climbed about 11% since Feb. 12 and is up more than 30% from its March lows.

“Historically, equities have been a leading indicator of economic growth and commodities have been a coincident indicator,” Hussein Allidina, head of commodities research at Morgan Stanley (NYSE: MS), toldCNNMoney.com. “Right now, you’re seeing commodities and equities move up together as money comes back in at the same time.”

However, there are other factors at work, including the declining value of the U.S. dollar and a shift in the futures market.

Because oil is priced in dollars, any decline in value of the U.S. currency drives crude oil prices higher.   During last year’s huge run-up in oil prices, the U.S. dollar fell to a record low of $1.59 against the euro, though it subsequently rebounded. Since oil began its current rally on Feb. 12, the dollar has fallen about 10%, declining to about $1.40 against the euro.

Additionally, many speculators reversed their positions on oil from short to long, and that can also pull prices higher.

“Prospects for equity markets and the global economy, backed up by exchange rate fluctuations, expectations about future oil market tightness, and, by inference, a shift of money into or out of futures markets can all influence short-term prices,” the International Energy Agency (IEA) said in its June Oil Market Report. “Indeed, it is tempting to conclude that the shift in [New York Mercantile Exchange] WTI noncommercial positions from a net 11,000 short in early May to 40,000 net long a month later is sufficient explanation for the surge in prices” of more than 20% during May and into early June.

On top of that, some $3.8 billion has flowed into oil-and-gas exchange traded funds (ETFs) this year, compared with $1.4 billion in the first half of 2008, Goran Trapp, head of global oil trading at Morgan Stanley, toldBusinessWeek.

“Considering that supply seems ample and demand is weak, the fact that oil is going up looks kind of weird,” Adam Sieminski, chief energy economist at Deutsche Bank AG (NYSE: DB), told CNN. “But those factors are being overwhelmed by a huge sigh of relief that we’re not going to have the Great Depression. A lot of money is coming out of mattresses.”

But while investors’ perceptions of the economic recovery – and, by extension, the oil market – have changed, the underlying supply and demand fundamentals have not. There is still a glut of oil on the market and not enough demand to soak it up.
Investors seemed to undergo a min-epiphany of that reality on Thursday, when disappointing jobless numbers raised concern “about the strength and timing of a recovery,” James Williams, an economist at energy-research firm WTRG Economics, told MarketWatch.com.

August crude futures dropped $2.58 a barrel, or 3.7%, to settle at $66.73, the lowest closing level for a front-month contract since June 3,MarketWatch said.
That development supports the conclusions put forth in some recent research.

In its five-year forecast for the worldwide oil market, the IEA last week cut its five-year forecast for global crude demand and predicted that consumption won’t rebound to last year’s levels until 2012 – at the earliest.

“The deep economic recession that has spread worldwide in the past year has taken a severe toll on oil demand,” the IEA said in its Medium-Term Oil Market Report. “This marks a break after several years of strong oil demand growth.”

The IEA cut its oil demand estimates for every year through 2013 by about 3 million barrels per day (bpd). According to the agency, world oil demand would grow at an average annual rate of 0.6%, or 540,000 bpd, annually over the 2008 to 2014 period, reaching 89 million barrels a day by 2014.

Those estimates are based on the International Monetary Fund (IMF) forecast for global economic growth of about 5% a year between 2012 and 2014. In the IEA’s “lower GDP scenario,” in which the global economy expands by 3% a year, demand won’t reach 2008 levels until 2014.

With oil demand not expected to reach 2008 levels for another three years at least, the fact that oil prices are climbing more rapidly than they did in last year – when demand was high, supplies were tight, and the U.S. dollar was trading at significantly lower levels than it is today – is a red flag for many analysts.

“There may be enough momentum to carry us up to just $72.50 [a barrel], but then I think the correction is going to be just that dramatic,” Guy Gleichmann, president of the United Strategic Investors Group, told The Wall Street Journal.

Additionally, a continued rise in oil prices could threaten the economic recovery by raising production costs and hurting consumers at the pumps.

Oil prices between $30 and $40 per barrel were like an “additional stimulus package,” Fatih Birol, the IEA’s chief economist, said last month. “But now this stimulus package is losing its strength and it will be definitely a problem for the global economy if prices continue to rise.”

Prices at above $70 a barrel “may well strangle the economic recovery,” Birol said.

If that’s true, oil prices, should they continue to rise, would only be setting themselves up for a bigger tumble when the economy slips back into recession later in the year.

Still Bullish Long-Term

While the short-term outlook for oil remains murky, if not bearish, the long-term outlook for crude is still strong, thanks to the weakness of the U.S. dollar and the probability that demand will eventually return.

In fact, the IEA estimates that oil demand will strengthen in India and Saudi Arabia this year, despite a 3% decline in global consumption.

And China, which has been using low commodities prices to stock up on resources, plans to increase strategic crude oil reserves by 160% to 270 million barrels during the next five years. Citing an unidentified official from China’s National Energy Administration, Nikkei English News said that Beijing would spend $4.39 billion (30 billion yuan) on stockpiling facilities with a capacity to hold 169 million barrels of crude oil.

“The wild card is really the Chinese,” said Money Morning Investment Director Keith Fitz-Gerald. “Don’t forget the Chinese are trying todiversify away from the dollar, and there are only two ‘non-currency currencies’ on the planet: gold and oil.”

And with the expansive monetary policy being employed by the U.S. Federal Reserve, the value of the dollar seems destined to retest the lows it reached in 2008.

The U.S. Federal Reserve has cut its benchmark lending rate to a range of 0.0% to 0.25%, and the central bank plans to purchase up to $300 billion in long-term U.S. Treasury securities and $750 billion of mortgage-backed securities as it pursues a policy of quantitative easing.

“Our forecast has been that oil will be at $100 in 2015 and it could happen faster if the economy recovers,” Deutsche Bank’s Sieminski toldCNN.

Goldman Sachs Group Inc. (NYSE: GS) raised its 2009 oil price forecast to $85 a barrel from $65 and said prices would reach $95 a barrel in 2010. Other analysts agree.

J.P. Morgan Chase & Co. (NYSE: JPM) lifted its forecast for the average price of oil in 2009 to $55.63 a barrel from $49.38, though the investment bank noted “global demand and inventory levels look horrendous.”

“We’re concerned about oil prices rising so rapidly in the near-term,” Hussein Allidina, head of commodities research at Morgan Stanley, toldCNN. “But the bet in the long-term is one way, and that’s just up.”

Source: Oil Prices Due for a Short-Term Setback, Although Long-Term Outlook Remains Bullish

Editor’s Note: This oil preview is the latest installment of a new Money Morning series that will make economic projections for key U.S. sectors for the last half of 2009. As part of that series, look for forecasts for housing, energy, U.S. stocks and the emerging markets. ]]> http://www.contrarianprofits.com/articles/oil-prices-due-for-a-short-term-setback-although-long-term-outlook-remains-bullish/18735/feed 0 http://www.contrarianprofits.com/articles/why-the-millionaires-club-see-no-green-shoots-ahead/18648 http://www.contrarianprofits.com/articles/why-the-millionaires-club-see-no-green-shoots-ahead/18648#comments Thu, 02 Jul 2009 21:20:42 +0000 Contrarian Profits http://www.contrarianprofits.com/?p=18648 But the surge in pay is still keeping millionaires on the sidelines.  Simon Mellon, of our new Bonner and Partners Family Office service, has been eyeing the sentiment of high net worth Americans.  And the picture ain’t pretty.

The latest Spectrem Millionaire Investor Index was released on Wednesday. It confirms the gloomy mood of investors. The index is based on interviews with a subset out of 250 high wealth families. After 3 months of growing confidence the index fell 18 points to -20. Its largest fall since it was started 5 years ago. A range of -11 to -30 is “mildly bearish”. This reverses a record 17 point advance seen in May. This shows just how volatile market sentiment is right…

Platinum dropped below $1990 in Hong Kong, then rode a roller coaster through the day, to end at $2013/oz., down $24. Overnight, platinum is slightly higher.

Silver declined gently until the New York open, after which it fell off a cliff, dropping 40 cents in less than an hour, but it too pushed higher after noon to close at $16.44/oz., down 41 cents. Overnight, silver is sharply lower.
(Click here for charts)

The precious metals’ rally lasted all of a day, as they reverted to a downtrend yesterday with a pickup in the dollar.

Gold was also pressured early in the session by oil prices that were off sharply and a stock market that rallied strongly. Even though both reversed trend later in the day, gold was unable to recover.

“The market’s roller-coaster pattern continued amid the high-noon standoff developing between the Fed and the U.S. dollar’s morticians,” said Kitco’s Jon Nadler.

The tension between the dangers of letting inflation run vs. raising rates in order to head it off does seem to be ramping up. Observers are watching the dollar’s relationship to the euro as an indication of market sentiment.

At the moment, “The perception … is that there will be higher interest rates,” said Frank McGhee, of Integrated Brokerage Services in Chicago. “Another break in the euro, and you’ll just see the world step on gold.”

Source: Precious Metals take it on the Chin Again – Interest Rate Uncertainty Driving Market