Mittal is the chairman and largest owner of ArcelorMittal (NYSE:MT), the world’s largest steel company. Therefore, his words carry some weight in the steel markets. The fact that these words are so contrary to what everyone else seems to think is significant…

Mittal is singing a rosy tune that has the market atwitter. He thinks steel demand could grow more than 10% in 2010, which would be a strong rebound, indeed.

Whether Mittal turns out to be right or not will hinge on what happens in China. China makes up about half of the world’s steel demand. That’s where the controversy begins, because there is just a lot of uncertainty over China’s economy right now.

I think it’s noteworthy that even those who think Mittal is way too optimistic are still calling for a 5% increase in steel demand next year. The contraction in demand was so severe and happened so quickly in 2009, it is hard to imagine steel demand not rebounding some next year.

Source: Steel Sector: Still Suffering or Rebound Ready?

This from Smart Profits Report

A Healthcare Haven

It stands to reason that the sectors and companies that traditionally fare better during economic recessions are those that garner essential repeat business.

As my colleague Marc Lichtenfeld has pointed out many times here before, that includes the healthcare and biotech sectors. And far from procrastinating, Marc just issued his “Five Predictions For The Healthcare Sector In 2009″ for Xcelerated Profits Report subscribers in the January issue. If you’re not a subscriber, you should be! You can get more information on that here.

No matter what happens with the broader economy, people will still get sick and will still need drugs and medicines. With a growing population and people living longer, the long-term prospects for healthcare remain excellent.

But in a poor economic and investing climate, your best bet is to stick with the powerhouse pharmaceutical companies like Johnson & Johnson (NYSE:JNJ) and Proctor & Gamble (NYSE:PG), which are masters of the “razor-and-blade model” (basically, once a consumer buys a razor from the company, he/she needs to keep buying blades for it, thus generating repeat business). In the biotech world, look at big boys like Genentech (NYSE:DNA) and Gilead Sciences (Nasdaq:GILD).

Food, Glorious Food (And A Bunch Of Other Stuff, Too)

If people regularly require medicines and drugs, they need everyday essentials like food and drink even more. And while the retail sector is struggling overall, there are some companies that should fare well as the economy stumbles and consumers cut back.

You got it… discount retailers. Okay, so I know pretty much all retailers are slashing prices these days in a desperate bid to get folks to spend their hard-earned dough. But the ones who already boast a discount model as their bread-and-butter are better prepared. That includes sector bellwether Wal-Mart (NYSE:WMT), plus bulk goods stores like Costco (Nasdaq:COST) and BJ’s Wholesale Club (NYSE:BJ), which also offer a huge range of items at bargain-basement prices.

Switch On And Profit

Another favorite safe haven sector during economic downturns is utilities. Again, the companies within it produce goods that consumers can’t live without: Energy and power such as electricity.

The Dow Jones Utility Average (^DJU) includes major power producers like American Electric Power Company (NYSE:AEP), Exelon Corporation (NYSE:EXC), Consolidated Edison (NYSE:ED), and Southern Company (NYSE:SO), which generate reliable, repeat revenues and also pay hefty dividends.

And speaking of dividends, you could head to tiny Luxembourg this New Year and pick up a beefy one with steelmaker Arcelor-Mittal (NYSE:MT). A Business Week article cites the company as a potential turnaround performer next year, stating:
“Most analysts think it’s unlikely that Old World bourses will rally before the second half of 2009. Still, investors with more appetite for risk – and a willingness to pore over balance sheets – can find some good values even in cyclical businesses such as manufacturing. Bleak earnings outlooks have already been factored into many share prices.”

And having endured a brutal 2008, slumping from $78 to $24 a share, Arcelor-Mittal has announced widespread cost-cutting measures that includes shedding 9,000 jobs in a bid to save $1 billion. Its forward Price-to-Earnings ratio is just 2 and with Obama’s infrastructure revolution set to get underway in 2009, the global steel giant could be well poised to profit from it.

The “No-Hype” ‘09

As 2008 thankfully disappears, it will be more important than ever to stick to the tried-and-tested investing principles in 2009.

Right off the bat, that includes being very watchful for hype. In a down market, some companies will undoubtedly be keen to gloss over or downplay any bad news, for fear of causing harm to their stock prices in an already weak market.

Make sure the companies you invest in boast strong, honest management teams, with minimal spin and no excuses. It sounds simple, but look for companies with competitive advantages and which continue to grow revenues and earnings and even pay dividends as a key sign that they’re probably still in good shape.

Remember that with recession hanging over the economy – one projected to be the worst and longest since 1982 – upward momentum could be tough to achieve. Investors are still very skeptical and, among other things, are likely waiting for GDP growth to improve (or at least not be revised lower)… for corporate earnings to beef up… for job losses to ease… for Obama’s tax cuts… and to see what kind of effect Obama’s huge economic stimulus package proposal has. It will arguably take something around $750 billion to provoke much sustained, positive reaction.

So be very wary about bold statements, proclaiming that we’ve seen a bottom in the stock market. We probably haven’t yet. Meantime, consider some of the companies mentioned above and/or those that pay dividends.

Source: Three “Safe Haven” Sectors For Your 2009 Portfolio

The next three weeks are going to be very important ones for investors. Nearly a trillion dollars is up for grabs. Smart investors will do all they can to ensure they get their hands on a piece of the action.

On Monday, President-elect Obama and Nancy Pelosi are scheduled to meet and start formally discussing their plans for a massive stimulus plan. Their goal is to have legislation waiting for Obama when he takes over the Oval Office on January 20.

Current estimates have the total package worth about $675 to $775 billion in taxpayer money. Nearly every industry in the country is lobbying with all its might to ensure they get a mention in the massive measure.

It is time to repay the voters

The next few weeks will look like pigs feeding at a slop bucket. Industry leaders will be pushing through the mud and the waste jockeying for a top spot in the handout line. Already, the steel and the newspaper industries are turning up the volume of their cries for help.

After spending nearly $20 billion to “save” Detroit and $350 billion to “rescue” the banking industry, the nation’s newspaper publishers want to get their hands on a few billion bucks.

Instead of proving that they are vital to the nation’s manufacturing sector and national security, news outlets claim without them, a strong source of free speech and a voice of dissent would be eliminated. Therefore, they are crucial to the health of the country.

Once again, the nation’s newspapers overlook the power of the Internet.

Steelmakers are taking a different route. Knowing that an infrastructure based stimulus would send their revenues skyward, the steel industry is not asking for a check from Uncle Sam. Instead, they demand that Obama’s package have a “buy America” clause is a virtual tariff that forces builders to buy American steel (regardless of the fact that it will be more expensive).

Over the last four months, steel demand throughout the United States has fallen by about 50%, dragging prices down an equal amount. So far this year, the steel industry has fired thousands of American workers. If the situation does not get better, executives promise (or is it threaten) that more cuts are on the way.

Might as well get your share

No matter what Pelosi and Obama hammer out, hundreds of billions of dollars in taxpayer money will be spent over the next 24 months. Much of the cash will flow through the steel industry, making it a prime investment opportunity.

Look at companies like Nucor (NYSE:NUE), United States Steel (NYSE:X), and ArcelorMittal (NYSE:MT) to be amongst the leaders as the stricken industry returns to its feet and runs ahead of the pack.

The steel industry has typically been a strong leading indicator for the American economy. Thanks to help from Washington, it will gain a leadership position once again, whether it deserves it or not.

Source: Who Is Next For The Easy Money

According to World Steel Dynamics, a U.S. steel consulting firm, steel production could fall next year by 13.9% compared with this year. This downturn comes after a long period of growth in the steel industry. In fact, output has grown every year since 1998 – soaring from 777 million metric tons a decade ago to 1.34 billion metric tons in 2007.

The catalyst behind the expansion has been a robust world economy and a steep rise in demand in China – by far the world’s biggest steel producing and consuming nation, accounting for more than a third of global steel output.
But the sector has been among those worst hit by this year’s financial storms, with share prices in many steel companies having fallen by more than two-thirds since the middle of 2008.

“The reduction in demand we’ve seen in steel goes beyond typical cyclical downturns given the level of distress in global financial markets and tight credit conditions,” Carol Cowan, a U.S.-based analyst at Moody’s Corp.(MCO)credit rating agency, told the Financial Times.

Steel companies’ share prices have been hit hard. Severstal OAO, Russia’s biggest steelmaker, has seen its shares fall almost 90% since July, ArcelorMittal (MT) has dropped more than 70 per cent; and United States Steel Corp. (X), the United States’ biggest steel company is down 79% over the same period.
Meanwhile, China’s steel industry, the world’s largest, is sitting on a stockpile of 63 million metric tons, or about 13% of annual production.  Baosteel Group Corp. General Manager He Wenbo said in November that his company was facing the “most difficult” period since it was founded 30 years ago.

But China is making noise about a shift in trade policy meant to rekindle its steel mills and keep its economy humming.  The government is considering measures, including buying unsold inventory and raising export rebates, to help steelmakers weather the slowdown, Minister of Industry and Information Li Yizhong told Bloomberg News on Dec. 12.

That represents a dangerous shift in policy that could hinder international trade, according to Myron Brilliant, vice president for Asia at the U.S. Chamber of Commerce in Washington.  The economic crisis has prompted China to turn back to “export-oriented policies that could lead to an increase in the trade imbalance” and new tension with the United States.

Treasury Secretary Henry Paulson has spent more than two years smoothing over U.S.-China trade relations.  Part of those efforts focused on the value of China’s currency, the yuan, to redress what U.S. officials saw as an unfair price advantage for Chinese products.  The yuan rose 21% versus the dollar from 2005, but its steady rise stalled in July, and has barely budged since.

Before leaving for trade talks in Beijing this month, Paulson told business representatives his biggest concern was that China would revise policy and reverse moves it had made during the past year to cut aid to exporters and stimulate domestic consumption.

China’s five-year plan through 2010 aims to rebalance growth away from exports and increase domestic consumption, but so far it has met with dismal results. Household consumption declined to slightly more than 35% of China’s gross domestic product (GDP) last year from 45% in 1993.  By comparison, consumer spending represents almost 70% of the U.S. economy.

“What separates China from the rest of the world is its incredibly low level of consumption relative to GDP,” Brad Setser, a fellow at the Council on Foreign Relations in Washington, told Bloomberg News. “What can China do that would most directly help the world economy during a period of very severe weakness? Get its consumption back up to 40% of GDP.”

A shift in Chinese policy is bound to meet with resistance in U.S. business circles, especially among steelmakers.  Lawyers representing Nucor Corp, the second-largest U.S. steelmaker, and smaller steel pipe makers say they are considering new trade complaints against China.

Shift in China Trade Policy Could Accelerate Western Steelmakers’ Slump

This from Today’s Financial News:

This is turning out to be a big week for the energy markets. Prices for commodities like natural gas, coal, gasoline, diesel, and of course, crude oil are dropping precipitously. Right now, we are very close to some critical pricing levels. If we drop below them, even bigger declines could be on the way.

First off, let’s look at the king of all commodities, crude oil.

As I write, a barrel of crude is just $1.27 away from trading for less than $60. Many energy experts believe once oil drops below that crucial level, there is nothing stopping it from dropping drastically lower. With a little help from a strengthening dollar, we could see a barrel of crude trading in the $40 range by the end of the year. $30 is a stretch, but it is not out of reach.

Thanks to interest rate cuts in England and throughout Europe today, the dollar stands to continue its currency domination. When London announced it slashed its key interest rate by 150 basis points, the value of the dollar jumped almost immediately.

It now takes $1.58 to buy an English pound and $1.27 to buy a euro. Both figures were climbing over the past week, but thanks to today’s widespread increases in liquidity, European currencies are one again dropping in value. They will drag oil prices down with them.

But crude is certainly not the only source of energy on the decline. Even after a surprisingly low weekly build in natural gas inventories, the popular source of home heat is trading well into negative territory. Right now, a million BTUs of gas is trading for $7.19. Technical analysts believe if it does not close above $7.30 today, we are in for another major drop.

****** Oil at $50 a Barrel — Gold at $500 by Christmas?  ******

With stocks as volatile as nitroglycerin, gold should be trading above $2,000 an ounce! But the dollar insurrection has shaken up the commodities markets. Some experts now put gold’s downside at $500… even $400.

What if they’re right?

TFN’s options strategist Andrew Snyder has developed a gold hedge strategy that could make you money on your gold position either way. Find his Special Report on the Members Only Reports section of HotStockConfidential.com. To become an instant member, click here…

———————

According to a report by the energy department, natural gas supplies are not quite as high as most experts believed. Over the last week, inventories grew by 12 billion cubic feet. The consensus estimate was for growth of nearly twice that figure.

It is important to note that inventories are 3.7% below where they were a year ago. That is a clue that the fall in prices was not necessarily caused by a reduction in demand. It is a sign that speculators have been forced from the market.

The bullish side of energy

Finally, it is important to look at coal prices. Thanks to [stell producer] ArcelorMittal’s (NYSE:MT) announcement yesterday that it will slash its production capacity by as much as 35% in the coming months, the coal industry has suffered significant setbacks.

Coal giants like Massey Energy (NYSE:MEE) and Peabody Energy (NYSE:BTU) have been significantly wounded over the past two days. They have given back all of the gains they made last week.

Fortunately, there is a glimmer of hope on the horizon. ArcelorMittal promises it will boost production in mid-2009. That means coking coal will jump in demand and the companies that produce it will see their valuations increase significantly.

That is great news for James River Coal (NYSE:JRCC). Shares have been reduced by dramatic proportions and are dirt cheap today. I stand by my recommendation to buy the company’s stock.

The energy industry is in flux. For folks with a long-term bullish sentiment like I have, this is a great buying opportunity.

Remember… Buy when everybody else is selling.

Source:Oil nears $50: Is this a buying opportunity?

This from Money Morning:

While the U.S. government’s plan to invest $250 billion into U.S. financial institutions has been billed as a strategy that will bolster the health of the banking system and also jump-start lending, the recapitalization plan is likely to have a secondary effect – one that whipsawed U.S. taxpayers likely won’t be very happy to learn about.

Those billions are a virtual lock to set off a merger tsunami in which the biggest banks use taxpayer money to get bigger – admittedly removing the smaller, weaker banks from the market, but ultimately also reducing the competition that benefited consumers and kept the explosion in banking fees from being far worse than it already is.

One last point: Experts say that takeovers financed by the government infusions are likely to have less of a beneficial impact on the economy than an actual increase in lending levels would have. And because so much of this money will be used for buyouts, the reduction in the benchmark Federal Funds target rate announced yesterday (Wednesday) by central bank policymakers will likely do very little to actually spur lending, experts say.

Fueled by this taxpayer-supplied capital, the wave of consolidation deals is “absolutely” going to accelerate, Louis Basenese, a mergers-and-acquisitions (M&A) expert and the editor of The Takeover Trader newsletter, told Money Morning.

“When it comes to M&A, there’s always a pronounced ‘domino effect.’ Consolidation breeds more consolidation as industry leaders conclude they have to keep acquiring in order to remain competitive.”

Lining Up for Deal Money

Late last week, the Pittsburgh-based PNC Financial Services Group Inc. (NYSE:PNC) became the first U.S. bank to make use of the government’s Troubled Assets Relief Program (TARP), announcing plans to purchase the beleaguered National City Corp. (NYSE:NCC) for $5.2 billion. To help finance the purchase, PNC will sell $7.7 billion worth of preferred stock and warrants to the U.S. Treasury Department, as part of that department’s bank-recapitalization program.

With regards to that program, U.S. Treasury Secretary Henry M. “Hank” Paulson recently said – yet again – that the government’s goal was to restore the public’s confidence in the U.S. financial services sector – especially banks – so that private investors would be willing to advance money to banks and banks, in turn, would be willing to lend, The Wall Street Journal reported.

“Our purpose is to increase the confidence of our banks, so that they will deploy, not hoard, the capital,” Paulson said last week.

Whatever the Treasury Department’s actual intent, the reality is that banks are already sniffing out buyout targets, thanks to the TARP money. Indeed, they’ve been quite open about it during conference calls related to quarterly earnings, or in media interviews.

Take the Winston-Salem, N.C.-based BB&T Corp. (NYSE:BBT). During a conference call that dealt with the bank’s third-quarter results, Chief Executive Officer John A. Allison IV said the Winston-Salem, N.C.-based bank “will probably participate” in the bailout program, accepting federal infusions. Allison didn’t say whether the federal money would induce BB&T to boost its lending. But he did say the bank would probably accept the money in order to finance its expansion plans, The Wall Street Journal said.

“We think that there are going to be some acquisition opportunities – either now or in the near future – and this is a relatively inexpensive way to raise capital [to pay the buyout bill],” Allison said during the conference call.

Talk about brazen. However, he’s not alone. For instance, there’s also Zions Bancorporation (NASDAQ:ZION), a Salt Lake City-based bank that’s feeling the pain due to losses from bad real-estate loans. On Tuesday, Zions announced it would be receiving $1.4 billion in capital from the Treasury Department – cash it would use to boost lending and keep paying a dividend, albeit at a reduced rate.

“As a strong regional bank with a major focus on financing small and middle-market businesses, we are pleased to have this additional capital to better serve the lending needs of customers throughout the Western United States,” Chairman and CEO Harris H. Simmons said. “We expect to deploy this new capital in the form of prudent lending in the markets we serve. This new lending will be good for our country’s economy, our customers and our company.”

However, during a recent earnings conference call, Zions Chief Financial Officer Doyle L. Arnold said that while new capital might allow it to boost lending, the increase wouldn’t necessarily be a dramatic one. The Journal said. Besides, Zions will also use the money “to take advantage of what we would expect will be some acquisition opportunities, including some very low risk FDIC-assisted transactions in the next several quarters.”

Buyouts Already Accelerating

The reality is that – with all the liquidity the world’s governments and central banks have injected into the global financial system – the global game of “Let’s Make a Deal” has already become a reality.

Indeed, as WSJ.com reported a week ago, global deal volume for the year has already passed the $3 trillion level – only the fifth time that’s happened, although it took about three months longer this year than it did a year ago.

This time around, the new kings of deal making aren’t such highly compensated “Masters of the Universe” as The Blackstone Group (NYSE:BX) LP’s Stephen A. Schwarzman, or KKR & Co. LP’s Henry R. Kravis, The Journal’s blog reported. Instead, they are the much-lower-paid – but decidedly more powerful – civil servants of the U.S. and U.K. governments: Treasury Secretary Paulson, U.S. Federal Reserve Chairman Ben S. Bernanke, U.K. Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling, the Web site stated.

At a time when the global financial crisis – and the accompanying drop-off in available deal capital (either equity or credit) – has caused about $150 billion in already-announced deals to be yanked off the table since Sept. 1, liquidity from the U.S. and U.K. governments have ignited record levels of financial sector deal making.

According to Dealogic, government investments in financial institutions has reached $76 billion this year – eight times as much as in all of 2007, which was the previous record year. And that total doesn’t include the $125 billion the U.S. government is investing in the large U.S. banks as part of its rescue package, the similar amount it may invest in smaller banks, or other deals that the feds are helping engineer (JPMorgan Chase & Co.’s (NYSE:JPM) buyouts of The Bear Stearns Cos. and Washington Mutual Inc. (WAMUQ) are two such examples).

When the dust settles on this buyout boom, we may well have a record in hand that’s even less beatable than Joe DiMaggio’s 56-game hitting streak. That’s because with the Fed, the U.K. and other governments and central banks doling out the capital, there’s no financial-sector equivalent of Kenny Keltner to bring this buyout fest to an abrupt close. That means that the “hits” – the buyout deals – will just keep coming.
If You Can’t Beat ‘em… Buy ‘em?

When it comes to identifying possible buyout targets, M&A experts such as The Takeover Trader’s Basenese say there are some very clear frontrunners.

“I’d put regional banks with solid footprints in the Southeast high on the list, and for two reasons,” Basenese said. “First, demographics point to stronger growth [in this region] as retirees migrate to warmer climes – and bring their assets along for the trip. Plus, the Southeast is largely un-penetrated by large national banks. An acquisition of a regional bank like SunTrust Banks Inc. (NYSE:STI) would provide a distinct competitive advantage.”

With a lot of bigger deals already in the books, many analysts agree with Basenese’s assessment, and are now watching to see if regional banks will be the next to succumb to the dealmaker’s bid. Indeed, earlier this month, Matthew Schultheis, a senior analyst at Boenning & Scattergood Inc., told a reporter that he expected this to be a “trend that continues at least through the first half of ’09, unless some of these [companies] stabilize. It could even last beyond that.”

There’s a very good reason that smaller players may be next: Big banks and small banks have the easiest times – relatively speaking, of course – of raising capital. It’s toughest for the regional players. Big banks can tap into the global financial markets for cash, while the very small – and typically, highly local – banks can raise money from local investors. Regional banks have a tougher time, says Doug Landy, a partner in the U.S. banking practice of the law firm of Allen & Overy.

“A regional bank lacks both the international access and the local character,” Landy told The Associated Press.

Several big regional banks at least acknowledged the possibility of buyouts on recent earnings conference calls, The Journal reported.

The Cincinnati-based Fifth Third Bancorp (NYSE:FITB) talked about raising $1 billion in capital by selling non-core assets. Bank executives said that a difficult 2009 is “a view that continues to seem likely to us.” They confirmed discussions with a number of possible investors or asset-purchasers, and said they were “confident that an attractive transaction would be available to us as the opportunity and timing are appropriate including the ability to generate capital in excess of our original expectations.” Earlier this week, however, it announced that it was getting $3.4 billion in TARP funds, the Cleveland Plain Dealer newspaper reported.

Clearly, the bank isn’t thinking in terms of an outright sale, or at least doesn’t admit to that publicly.

One other potential buyout candidate includes Huntington Bancshares Inc. (NASDAQ:HBAN), a Columbus, Ohio-based regional that just received a $1.4 billion federal infusion of its own, the Plain Dealer said.

Who will be doing the buying? The Takeover Trader’s Basenese tells investors to “also look for banks with foreign ownership” to be on the prowl for acquisitions.

“Just like Spain’s Banco Santander SA (ADR: STD) [which earlier this month said it would buy the 76% of Philadelphia-based Sovereign Bancorp Inc. (NYSE:SOV) it didn’t already own for about $1.9 billion], foreign-based banks will likely jump at the opportunity to expand their U.S. presence at a discount,” Basenese said. “M&T Bank Corp. (NYSE:MTB) fits the bill, as Allied Irish Banks PLC (ADR: AIB) already owns a 24% stake.”

Then there’s the Minneapolis-based U.S. Bancorp (NYSE:USB), which is one of the few regionals still in a strong position. CEO Richard K. Davis has reportedly rejected the idea of buying large banks that are already in trouble and was asked if the new rescue plans might change his mind.

“It makes it a little easier to do those things,” Davis told The Journal. “But first and foremost, whether the capital is less expensive or the opportunity that TARP is present, we’ll continue to look at deals on an accretive basis where they make sense and where they would fit into this company’s long-term structure. So it would definitely make it more attractive, and so some of our positioning and our targets look more attractive and our valuation is easier now.”

There’s something else to consider, Davis said.

“To the extent that [a deal] has to hit all of the normal bellwether marks and the expectations we have for the near term and long term, it still has to be a good deal. So it doesn’t really change our philosophy, but it does make it easier to find our way to partnerships that might be more accretive sooner.”

Basenese, the M&A expert, believes that Goldman Sachs Group Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS) will be “big spenders,” using the TARP funds to help accelerate their conversions from an investment bank to a bank holding company – a transition that will require them to bulk up their deposit bases. And the quickest way to do that is to buy other banks, Basenese says.

“One thing [the wave of deals] does is to restore confidence in the sector,” Basenese said, “It will go a long way in convincing CEOs that it’s safe to use excess capital to fund acquisitions, and to grow, instead of using it to defend against a proverbial run on the bank.”

Source: Billions in Bank Rescue Funds are Fueling Buyout Deals, and not the Increase in Loans That Would Help Ease the Financial Crisis

• Crude oil for September delivery gained $4.58 yesterday (Wednesday) to close at $126.77 a barrel on the New York Mercantile Exchange, MarketWatch reported, after the Energy Information Administration announced crude supplies fell 100,000 barrels to 295.2 million barrels for the week ended July 25.

• Comcast Corp. (CMCSA), the largest U.S. cable television provider, announced yesterday (Wednesday) that net profit in the second quarter rose to $632 million, or 21 cents a share, from $588 million, or 19 cents a share, in the prior year, Reuters reported. Comcast stock gained 89 cents, a 4.64% increase, to close at $20.07 on the news.

• Navigation system maker Garmin Ltd. (GRMN) lowed its full-year outlook to $4.13 per share from an earlier estimate of $4.40 per share in light of the weakening U.S. economic conditions, Forbes reported. Yesterday (Wednesday), the firm missed earnings expectations for the quarter ended June 28, causing shares to plunge over 20%.

• UAL Corp. (UAUA), parent of United Air Lines Inc., filed suit yesterday (Wednesday) against the Air Line Pilots Association union, The Wall Street Journal reported. UAL is seeking an injunction against an unlawful sickout, which caused United to cancel an abnormal number of flights.

• Private employers added 9,000 jobs in July, a private report by ADP Employer Services said yesterday (Wednesday). In June, the private sector slashed 77,000, according to revised data. June was originally reported as 79,000 jobs lost.

• Nisssan Motor Co. Ltd. (ADR: NSANY) said yesterday (Wednesday) that it plans to offer buyouts to about 6,000 workers at its two Tennessee plants and eliminate a night shift at one of them, Reuters reported. Citing lower demand for pickup trucks and sport utility vehicles the company said it would offer technicians and salaried employees a lump sum of $100,000 or $125,000, depending on tenure, as well as medical and car purchase benefits.

• ArcelorMittal (ADR: MT) had a second-quarter surge in earnings, as high steel prices offset soaring mineral costs. Net income rose to $5.84 billion from $2.72 billion a year earlier. Revenue was $37.84 billion, from $27.2 billion a year earlier.

• Nintendo Co. Ltd.’s (OTC ADR: NTDOY) quarterly profit rose 31.5% on the runaway success of its Wii game console. The Wii outsold Sony Corp.’s (SNE) PlayStation 3 and Microsoft Corp.’s (MSFT) Xbox 360, putting Nintendo in the leading position in the three-way game console battle, Reuters reported. April-June net profit rose 33.7% to $1 billion (¥107.27 billion) on sales of $3.9 billion (¥423.38 billion), up 24.4%.

Source: Global Investing Roundups Thursday, July 31st, 2008

Today’s news gives little hope that oil is heading south anytime soon.

Oil futures contracts on the Nymex this morning stood at just over $141. And according to a report released by the International Energy Agency yesterday, demand for the black goo will grow, despite high prices. This means tigher supply and sustained high prices.

Free Trade Anchored By Surging Oil Prices…

By Byron King

Globalization was the key strategic change in the direction of world development in the 1990s. Fast-rising, and permanently-expensive energy prices are the key strategic change in the world of the first decade of the 2000s.

According to an article in the LA Times, it takes about 7,000 tons of bunker-fuel to fill the tanks of a 5,000-container cargo ship for a trip from Shanghai to Los Angeles.

Since 2005, the cost of that fuel has jumped 87% to $552 a ton, according to the World Shipping Council. This boosts the cost of filling the fuel tanks of a standard-sized cargo ship to not quite $4 million.

So is the price of fuel altering patterns of world trade? Of course it is. Another way of putting it is that rising fuel costs are acting like a “sea anchor” on globalization and world commerce.

Overall, the rising shipping costs from East Asia, due to higher fuel prices, are currently the equivalent of imposing a 9% tariff on East Asian goods entering North America, over the past two years.

If the trends keep on going, then at $200 per barrel the tariff equivalent rate will rise to 15%. So much for “free trade” and “most favored nation” status.

Really, even in a world of rising energy costs, the marketplace still works. Maybe it works with a vengeance. Or at least, the marketplace tells you what OUGHT to work. Public policy can always intervene to screw it up.

In the future, the “most favored” locale will be the one that can produce goods and get them to market at the lowest cost.

According to an official at the Port of Los Angeles headquarters, West Coast ports should gain business in an environment of rising fuel costs. This is because the West Coast ports are 10 to 12 days’ sailing time from Asia, versus the 18-to-20-dayroute from Asia to the East Coast through the Panama Canal. So far so good.

But then again, sea-shipping is still the cheapest way of moving heavy loads, based on cost per ton-mile. Barges are next-cheapest, followed by trains. Trucks are the least efficient part of the movement value chain.

And the discussion of using ports to move goods across the world ohly holds water (so to speak) as long as the Asian goods hold a fundamental production cost advantage.

But West Coast ports could also lose business under some scenarios, for some types of goods. If shipping costs get so out of hand that companies begin shifting production back to North America from Asia, then the ports will certainly lose that volume.

This reverse-migration of production is already happening. In the steel industry, for example, basic production of steel slabs (and also the higher-end value-added steel-making processes like hot-coiled strip), are moving back to North America. This phenomenon has contributed greatly to the rising asset values of U.S. steel-making plants and equipment. Why else would companies like Arcelor-Mittal (AMS: MT), or Severstal be paying premium rices for U.S.-located steel facilities that just a few years ago were wards of the bankruptcy courts?

And higher fuel prices are causing firms to re-think whether they should have large, centralized plants. The question is, should a firm build smaller plants in different areas of the country? The deterioration of the nation’s highway system, as well as clogged railways, makes trans-continental shipping more and more problematic. Hershey Candy (NYSE: HSY) may live to rue the day it decided to close up much of its shop in Pennsylvania and move major operations to Mexico.

Rising fuel costs are also altering local distribution patterns. High fuel prices are forcing restaurants, supermarkets, wholesalers, and upstream food manufacturers to look for suppliers closer to their operations.

Local food-sourcing is sparking a boom in some areas for arable farmland, to include dairy operations, orchards, vegetable-growing operations and smaller-scale feedlots. The benefit for vendors, and ultimately for consumers, is that they will not pay as much for freight. And the food might even taste better. Hey, “real food?” What a marketing concept.

Until we meet again,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: Free Trade Anchored By Surging Oil Prices…

Today Rio secured a massive 97% price increase from its Asian steelmakers – piling the pressure on BHP to get an even bigger increase. BHP claims that Rio’s agreement isn’t enough to cover extra shipping costs.

BHP Billiton, Rio Tinto and the American Civil War

Dan Denning

Let’s get the ugly part out of the way first. The S&P ASX/200 limped home yesterday to finish the fiscal year down 16.9%. Let’s call it 17. It was the first down year since 2002, or 1 BB (Before the Boom).

If not for the iron-ore solid performance of BHP Billiton (ASX: BHP)-up 24.7% on the financial year-it would have been much worse for the ASX 200. Rio Tinto (ASX: RIO) did its part to hold the line for the resource sector as well. Rio was up 38.2% for year, from $98 to $135.50.

But wait, why is BHP’s 24.7% gain more weighty than Rio’s 38.2%? Is this some weird new math? Some sleight of hand or trickery? No.

The ASX/200 is a market-cap weighted index. A stock is judged not by the colour of its performance but by the content of its market capitalisation. BHP’s market cap went from $194 billion to $244 billion in the last twelve months. Rio went from $98 billion to $135 billion.

You reckon Rio’s CEO Tom Albanese will not be happy to hear that BHP still means more to Australia – at least the performance of its share market index-than Rio. Yet Rio is not unattractive. The Financial Times reported yesterday that ArcelorMittal (AMS: MT) – the world’s largest steel company – may be interested in buying a piece of Rio.

Does that kind of deal make sense? Arcelor is trying to bring its resource supply chain back on to the balance sheet. Buying the world’s second-largest iron-ore maker sure would do that. But Rio’s biggest customer is China. So does Arcelor just want a piece of Rio’s growing earnings? Does it want the ore? Or does it want a piece of Rio’s assets in a post-BHP merger carve up?

Who knows? Lakshmi Mittal does probably. But he’s not telling.

Yesterday we mentioned we’d look at the markets geopolitically. What we meant by that is that most pundits are assuming the resolution to the credit crisis will come in form of a normal economic cycle or some change in monetary policy, or a currency readjustment. But maybe it will end in bullets.

This current state of affairs is not just a friendly tilt between inflating commodities and deflating financial assets. An allusion is in order. At the First Battle of Manassas on July 21st 1861 the American Civil War got underway. Everyone thought it would be a short, quaint affair. Manassas is not far from Washington D.C.

Today, you take Interstate 66 to Route 50 West, if memory serves (our brother used to live in the area). But back in 1861, day-trippers from DC took carriages out to watch the opening of the war. They brought picnic baskets and clapped. They anticipated a Union rout of the rebel troops led by Confederate General PGT Beauregard.

It was all going the Union’s way until a bunch of Virginians under General Thomas Jackson held the line at Henry House Hill. “There stands Jackson like a stone wall,” said Brigadier General Barnard Bee Jr. The Southerners rallied and won the battle and the war was much longer and bloodier than anyone expected.

We mention the battle for three reasons. One, it was a nice way to think of BHP and Rio in your portfolio, buttressing it against a larger route. Two, the Civil War was much worse than anyone expected because it was really the first war where industrial production mechanised warfare. You had tremendous firepower concentrated in large masses of men. The result was industrial scale slaughter and a preview of World War I fifty years later.

No one went into the war thinking it would be newer and deadlier. And no one has gone into globalisation believing that there were drawbacks as well as benefits. The obvious drawback now is that a synchronised global asset bubble has become a synchronised global asset bust, with falling asset values leading to reduced consumption, lower corporate earnings, and more falling asset values… all in a downward spiral.

The third reason brings us to Clausewitz, the German military strategist. He wrote many famous things. One of them is that, “war is a continuation of politics by other means.” Clausewitz used the German word Politik, which can mean either policy or politics.

One reader writes in that our theory of a seamless migration of wealth and capital from West to East is rubbish. “People never relinquish what they have easily,” he writes. “If Asia is to become rich and the West poor, we will see war, actually many wars, first. The history of man is war.”

This is the other possibility, then. The economic tensions created by globalisation turn into hot resource wars, via both politics and policy. It’s no coincidence that the oil price has gone up since the Iraq war began.

Will Americans under John McCain or Barrack Obama take their new position in the world with good grace? Or are they going to fight it? What is China’s ultimate resource policy? Does Australia even have one? Should it? Will markets take a back seat to geopolitics in the coming years?

Let’s not be so dire. We could be in the midst of a painful but necessary financial adjustment.

Dan Denning
The Daily Reckoning Australia

Source: BHP Billiton, Rio Tinto and the American Civil War

Africa is malnourished, politically impotent, overrun with disease, and teeming with warlords, so it’s no surprise the typical life expectancy is 20%-30% below the global average.

Despite such a daunting outlook, Africa will be the most hotly contested battleground for the two of the world’s most influential powers over the next 50-100 years.

That’s because Africa has become a key economic priority for both India and China – the two Asian powerhouses in the midst of major financial and industrial reformations.

China and India have been home to two of the world’s fastest-growing economies over the past several years, and that momentum is expected to carry through the rest of this year, as well. India’s economy is expected to expand by as much as 9.5% in the current (2008/2009) fiscal year. And China’s economy already has expanded by 10.6% in the first quarter of 2008, despite complications stemming from the U.S. credit crunch, the Chinese New Year, and the worst ice storm the country had seen in decades.

In addition to booming economies, China and India have the world’s two largest populations. The combined population of China and India (Chindia) is approximately 2.4 billion people. And it won’t be long before those 2.4 billion people evolve into the largest consumer class the world has ever known, making Africa – with its vast resources and close proximity – an ideal trading partner.

As a leading exporter of gold, silver, cotton, cocoa, copper and aluminum ore, and oil, Africa is an invaluable ally to emerging economies that will require vast amounts of raw material to sustain growth.

The bottom line: China and India will be vying for Africa’s favor in the years ahead.

Of course, China already has a head start.

“The Chinese Are Everywhere”

In 2006, Beijing hosted the China-Africa Cooperation Forum – an event attended by more than 40 African heads of state. At the forum, China unveiled $9 billion in preferential loans, export credits, and trade incentives – all part of a strategic plan to achieve a preferential status with key African nations.

The meeting was more than a mere publicity stunt to play up Beijing’s humanitarian efforts. It was a symbolic acknowledgment of growing cooperation between the regions.

Trade between Africa and China has grown 40% a year since 2001. In just seven years, trade volume grew from $4.5 billion to as much as $55 billion, meaning that China has emerged as Africa’s third-largest trading partner after the United States and France.

China also has invested tens of billions of dollars directly into African-infrastructure and social-development projects. Some examples:

• In Freetown, the capital of Sierra Leone, office blocks, military headquarters and a refurbished stadium are all the work of planners from Beijing.
• In Uganda, the new State House was built with Chinese money.
• In the city of Rwanda, Chinese companies built 80% of all new roads.
• And in Nigeria, China’s Civil Engineering Construction Corp. is building an $8.3 billion railroad linking Lagos and Kano.

While in Zambia, an “economic partnership zone” that will attract $800 million in investment was promised by the Chinese president on a recent state visit. Even Zimbabwe’s international pariah, Robert Mugabe, has declared: “We have turned East, where the sun rises, and given our backs to the West” – perhaps grateful for Chinese assistance in cultivating crops on land seized from white farmers.

In short, as Granta magazine put it, “the Chinese are everywhere.”

Chinese involvement also has received a slightly warmer welcome than efforts by Western nations. Where western powers have attempted to use aid and investment as bargaining chips to achieve certain political or social reforms, China employs a less-conditional “no-strings-attached” attitude that many African leaders find appealing.

“With the Chinese, we don’t feel any interference in our traditions or politics or beliefs,” said Awad al-Jaz, Sudan’s energy minister.

Most recently, China agreed to take on large-scale infrastructure projects in the Democratic Republic of Congo, in exchange for copper and cobalt reserves. To facilitate the exchange, Congolese and Chinese state-owned enterprises (SOEs) set up a joint venture known as Socomin. The mining company will invest $3 billion, mostly in new mining projects. The profits of Socomin will then be used to repay these mining investments, and also to find Chinese investment in other big infrastructure projects.

Under the agreement, Socomin will raise about ten million metric tons of copper to pay off $12 billion in total investments over a 15-year period.
And last year, the state-owned Industrial and Commercial Bank of China Ltd. took a 20% stake in South Africa’s Standard Bank Group Ltd. for $5.4 billion. Standard Bank is Africa’s largest lender, servicing 18 sub-Saharan countries. And now, China’s government will get a piece of every new loan, every ATM fee, every credit card taken from Standard Bank.

India Follows China’s Path Into Africa

With all China has achieved in the past few years, India is beginning to wake up to the potential benefits of a strong relationship with African nations, many of which are enjoying their fastest growth rates in 30 years.

The first-ever India-Africa summit concluded last week, having laid the groundwork for future cooperation between the regions. The two-day summit – attended by eight heads of African states and delegations from 14 African countries – culminated with the signing of the Delhi Declaration and the Africa-India Framework for Cooperation, two documents designed to build political and financial synergy. The accords stressed cooperation in agriculture, food security, technology, trade, energy and education.

At the summit, Indian Prime Minister Manmohan Singh announced duty-free access to Indian markets for the world’s 50 least-developed countries, 34 of which are located in Africa. Singh also said his nation would more than double India’s credit line to Africa, from $2.15 billion in 2003-2004 to $5.4 billion in 2008-2009, and boost grants and aid to the continent to $500 million in the next five to six years.

“It sounds like something Beijing did a few years ago,” Philip Aves, an economist at South Africa’s Institute of International Affairs, told the Financial Times. “It’s a mini-China approach to dealing with Africa. It has all the same elements, except on a much smaller scale.”

But Prime Minister Singh was careful to point out that, while China has clearly established economic and political inroads in the region, this is not a competition.