The extra spending is on top of the original 284.5 trillion won budget for 2009, and will be mostly funded by selling government bonds. The remaining 11.2 trillion won will be spent making up shortfalls in tax revenue, Korea’s Yonhap News Agency reported.

The government submitted the budget to the National Assembly parliament for approval, and a decision will be made next month.

“The global economic downturn is taking place at a faster pace than has been expected in terms of its depth and breadth,” Finance Minister Yoon Jeung-hyun told reporters. “Reflecting changed economic conditions at home and abroad, the government decided to draw up this extra budget to overcome the current crisis as quickly as possible.”

Yoon said he expects the additional measures – on top of deregulation and increased corporate investment – could create 550,000 new jobs in 2009 and add two percentage points to the country’s gross domestic product (GDP).

In the fourth quarter, Korea’s GDP shrank 5.6% from the previous three-month period. And for 2009, he expects about 200,000 job losses and a 2% GDP contraction.

“The key is how fast the government can get approval from the parliament and how efficiently the government will implement the plans,” Lim Jiwon, an economist at JPMorgan Chase & Co. (JPM) in Seoul, told Bloomberg.

South Korea, EU Free Trade Deal

Meanwhile, South Korea and European leaders are nearing the completion of what could be the largest free trade pact for both economic entities – and larger than South Korea’s current free trade arrangement with the United States.

Negotiators for both sides told Forbes that the “provisional” agreement will remove most tariffs on bilateral trade for the next five years.

Like the additional stimulus and budget, the sooner the pact is implemented, the better for export-heavy South Korea.

After China, the EU is South Korea’s second-largest trading partner, with bilateral trade eclipsing $98 billion last year. And European businesses are the biggest foreign investors in South Korea, The Wall Street Journal reported.

Both sides are expected to reach an agreement next week at the G20 Financial Summit, but a few issues could throw a stick in the spokes of a deal. Differences remain on auto and parts tariffs, rules of origin and duty drawbacks.

Source: South Korea Planning Additional $13 Billion Stimulus, Extra Spending to 2009 Budget

Asian stocks climbed nearly 4 percent on Monday on renewed hopes the U.S. automaker industry would be rescued, strengthening willingness to take risks and knocking the U.S. dollar to a two-month low against the euro.

Investors have been funnelling capital back to emerging Asia for the last few weeks and word the White House was considering using some of $700 billion meant to rescue financial institutions for the struggling car manufacturers extended the trend.

European stock index futures were also pointing to opening gains of at least 2 percent.

However, worsening U.S. economic data, a rapidly growing fiscal deficit and the likelihood the Federal Reserve will cut interest rates again this week all combined to weaken the dollar.

“The tide seems to have turned around in recent sessions, with bad U.S. economic news now rightfully hurting the U.S. dollar rather than helping it stronger,” said Nizam Idris, currency strategist with UBS in Singapore.

“Further commentary regarding any alternative solutions to the auto sector will be closely followed during the day, and hence be key to risk sentiment,” Idris said in a note.

Oil bounced back $1 to trade above $47 a barrel on signs that OPEC members might make a deep supply cut to boost prices when they meet later this week.

The MSCI index of Asia-Pacific stocks outside Japan rose 3.7 percent on the day and is up about 7 percent so far in December, trying to pull off its first monthly increase since April.

Japan and South Korea led the region in stock performance. The Nikkei share average rallied 5.2 percent, with Honda Motor Corp stock rose 8.5 percent, one of the biggest lifts to the Nikkei.

South Korea’s benchmark KOSPI share average was up 4.9 percent.

The risk of further declines based on earnings downgrades has been clearly outweighed by the cheapness of stocks at the moment. Toyota Motor Co stock is up 9.1 percent even after Japanese media reported the world’s top automaker is likely to further cut its earnings forecasts and report an operating loss of $1.1 billion in the October-March period.

Hong Kong’s Hang Seng index rose 3.1 percent, led by HSBC and China Mobile. China Construction Bank and Bank of China (Hong Kong) Ltd were the only stocks that fell.

“I am surprised that the equity market is still holding up so well in Asia. Mutual funds are probably putting their year end cash balance to work.” said Sean Darby, chief Asia Strategist at Nomura in Hong Kong, on the overall positive market movement.

In the bond market, the Asia excluding Japan benchmark iTRAXX investment-grade index tightened by 20 basis points, after widening sharply on Friday’s news of Senate’s rejection of auto bail out.

Asian benchmark dollar bonds have not kept pace with the rally in equity markets, trading near historically wide spreads, though the cost of insurance against corporate and sovereign debt default slipped as the environment for risk gradually improved.

The White House indicated last week it is open to using part of the bank bailout package for the Big Three car companies — Chrysler LLC, Ford Motor Co and General Motors Corp . A bill that would have provided $14 billion in loans for the firms failed in the Senate on Friday.

TOO EARLY FOR RECOVERY

With some equity valuations at distressed levels, some investors sitting on cash have begun to think about a recovery at some point in 2009. However, JPMorgan asset allocation strategists said it might be too early to let go of recession trades given the global economy is smack in the middle of the worst downturn since World War Two.

“There remains sufficient uncertainty about the timing of a recovery that it is quite easy for credit and equities to cheapen further, and bonds to rally more before we start the real recovery trade,” they said in a note. “We thus stay with a portfolio of recessions trades — long duration in global rates and defensive exposures in credit and equity markets.”

However, Nomura’s Darby said corporate bonds are already cheap, given how much they have sold off this year. For the time being, bond investors are not as worried about high returns as they are about staying safe, he said.

The yen was up slightly at 90.98 per dollar , having rallied to its strongest in 13 years on Friday at 88.10 after the U.S. auto bailout initially flopped.

The euro rose to highs around $1.3490 on electronic platform EBS, the highest in almost two months.

The rally in stocks sucked money out of the bond market, pushing up the yield on the benchmark 10-year U.S. Treasury note , which moves in the opposite direction of the price, to 2.59 percent from 2.58 percent late in New York on Friday.

Kevin Plumberg and Xi Chen

HONG KONG, Reuters

What’s tipping us off? The so-called Price/Earnings-to- Growth ratio, better known to investors as the “PEG” ratio.

Let me explain …

One of the most popular stock valuations is the Price/Earnings (P/E) ratio. If you take that calculation one step further and include a stock’s expected growth rate you hit on the P/E-to-growth ratio, or PEG ratio.

Analysts have been using PEG ratios for years, now, to pick undervalued stocks, but now you also can use that same ratio to determine which countries are trading at good value.

A recent Bespoke Investment Group report used the popular PEG ratio to identify which country’s stocks are currently undervalued.

“Late last year, we began performing this analysis on countries to get a better comparison of the valuations of both developed and emerging markets,” the B.I.G. Tips report read. “To do this, we divide the country’s [gross domestic product] growth estimate into the estimated P/E ratio of its major stock market index.”

Like an individual security’s PEG ratio, the lower the ratio, the more undervalued the stock.

The top-three spots on that list go to Russia (1.37), China (1.91) and India (2.06). Brazil clocks in at sixth with 2.80. Money Morning readers may recognize them as member of the “BRIC” nations – a term coined by Goldman Sachs Group Inc. (GS) in 2003 identifying rapidly growing emerging economies (Brazil, Russia, India, China). [For a complete listing of the PEG ratios of the respective countries, please see the chart below.]

Rounding out the top six are Malaysia (2.37) and South Korea (2.66), the latter of which is another investing favorite of both Money Morning and Warren Buffett, chairman of Berkshire Hathaway Inc. (BRK.A, BRK.B).

The United States, on the other hand, comes in near the bottom with an estimated PEG ratio for 2008 of 11.39.

When using the calculations to make investment picks, it’s important to remember that both the P/E ratio and the 2008 GDP growth are only estimates. Still, it’s easy to see how fast-growing economies have the leg up on more mature markets such as Japan and the United States.

How to Play the PEG for Profits

One of the easiest ways for U.S. investors to cash in on a foreign country’s expected stock market growth is with an American-listed exchange-traded fund (ETF) or exchange-traded note (ETN) that mirrors a foreign stock market index.

For the BRICs, you could try the iShares MSCI Brazil Index (EWZ), the Market Vector Russia ETF Trust (RSX), the Barclays IPath India Index ETN (INP), or the iShares FTSE/Xinhua China 25 Index (FXI).

If you prefer to stick to individual securities:

Russia: OAO Gazprom (OTC: OGZPY), the state-owned natural gas monopoly with ambitions to control Western Europe’s gas supplies.

Lukoil (OTC: LUKOY), the other obvious Russian heavyweight, is the largest state-controlled oil company.

China: A terrific way to play China is with the Region Opportunity Fund (USCOX), a mutual fund run by San Antonio-based U.S. Global Investors Inc. (GROW). Indeed, U.S. Global, itself, is a pretty good play on international growth. It manages some of the best emerging-market funds, and natural-resources funds, in the business. As global growth fuels global investments – and it will – U.S. global will see more money pour into its funds, boosting the management fees it collects, as well as its profits and stock price.

India: One of India’s titans is Tata Motors Ltd. (TTM), which recently sealed both ends of the consumer automotive spectrum with its forthcoming $2,500 Nano and its recent $2.3 billion acquisition of the Jaguar and Land Rover brands.

Another is option could be the pharmaceutical company Dr. Reddy’s Laboratories Ltd. (RDY). As many U.S. pharmaceutical patents expire in the next five years, this major generic-drugs manufacturer can expect to benefit.

South Korea: Back in October 2007, Buffett took a 4% stake in this country’s Number One steelmaker, POSCO Ltd. (PKX). Studies have shown that following Buffett’s investment moves, even months after the fact can be the pathway to profits.

Brazil: Companhia Vale do Rio Doce, now referred to only as Vale (RIO), is an iron-ore company with ancillary operations in gold, nickel, copper and other metals. It’s one of the true global blue chips, with a market capitalization of almost $200 billion.

Another Brazilian firm worth a look is Petrobras (PBR). It’s one of the few emerging market oil companies with access to modern technology – and the willingness to work with the oil majors.

Source: Popular Stock Indicator Tells Investors to Hit the BRICs

You may reasonably ask why you should care. There are, after all, about 183 countries in the world, perhaps 100 of which are more or less democratic in nature, which gives you roughly 30 elections a year to worry about. Figuring out who are the “good guys” in that number of races is absolutely impossible – even in Korea, which is one of our more-important trading partners.

Every now and then, however, an election brings a change that is truly significant, either politically or economically. In Korea, this election has brought significant positive economic change.

Since the Asian crisis of 1997, Korea has been run by the center-left. That group didn’t do too bad a job: Economic growth ticked along at an average annual rate of between 4% and 5%. The per-capita growth rate is about the same, given that Korea has only 0.4% per annum population growth. There’s a budget surplus, and the country also boasts a balance of payments surplus. Overall inflation is only 2.5%. The stock market is around double its 2003 level, which is when the previous [and now-outgoing] government came into power.

As nice a job as the outgoing government managed to do, its policies also included a few that held back growth. For instance, government spending rose from 21% of Gross Domestic Product (GDP) to 28% over the decade the left was in power. That increase in government outlays saps resources from the private sector by diverting the resources into less-productive public sector uses – reducing the economy’s overall productivity growth.

The outgoing government also imprisoned the chairmen of three of Korea’s top six chaebol conglomerates, and placed severe restrictions on their expansion. SK Telecom Co. Ltd. (SKM), for example, part of the Sunkyong Group, was not permitted to increase its cell-phone market share significantly above 50%. Only after Lee’s presidential election victory in December did restrictions start to relax. In February, SK Telecom was permitted to acquire 44% of its competitor, Hanarotelecom.Inc. (OTC: HANAY).

However, President Lee’s more free-market approach seems likely to ratchet Korean growth up a notch. He ran for election on the platform that Korea should expect a growth rate of 7% – not 5% – and with a budget surplus and low inflation rate he is well positioned to deliver his goal. Lee has promised both corporate and individual tax cuts, and a major program of privatization, starting with three state-owned banks – including the Korea Development Bank.

He is also likely to take a tougher stance toward the potentially volatile leadership in North Korea, cutting back on handouts and adopting a harder line against its northern neighbor’s alleged nuclear-weapons programs. This newfound aggressiveness by the South Korean leadership will save money both for the government and for the big conglomerates, since they had been expected to undertake unprofitable prestige projects in the North.

There are five Korean stocks that have American Depository Receipts (ADRs) that are fully listed on the New York Stock Exchange and that trade in reasonable volume. Some of these are more attractive than others-Kookmin Bank and SK Telecom in particular seem especially good bargains. Let’s take a look at each of the five, starting with an overview and including an investment rating on the shares:

• Kookmin Bank: (KB): The largest bank in Korea, KB has been hit by investor disillusionment with the financial services sector; at one point it was down 50% from its 2007 high. However, the stock has rallied recently. The bank’s earnings have continued to make steady progress and it has no exposure to the U.S. subprime mortgage market. Kookmin’s shares are trading at a Price/Earnings ratio of only 7.5 on trailing 12 months’ earnings, and its P/E on projected earnings for the next 12 months is a staggeringly low 6.6. Those earnings are expected to increase in a big way. One last benefit: Kookmin’s shares feature a dividend yield of 4%, which is more than you’ll get out of Treasuries these days. Rating: “Strong Buy.”

• Korea Electric Power Corp.: (KEP): Shares of the Korea’s electric power company are up slightly from where we recommended them back in December. The shares feature a P/E of 11 on projected earnings, and a dividend yield of 2.4%. KEP’s steady growth should benefit from any acceleration in Korea’s economic growth rate, but it is forced to buy coal from overseas, which has doubled in price in the past year. With an election in the offing, it suffered from price controls in the latter part of 2007, but should presumably have more freedom to raise its tariffs going forward. Rating: “Hold.”

• KT Corp.: (KTC): Formerly Korea Telecom, KT is now Korea’s leading “fixed-line” telecommunications provider, which was privatized in 2002. While the P/E ratio on trailing earnings is less than 9, its forward P/E is 11.5 as its margins are under assault from the hyper-competitive Korean telecom market. It has a dividend yield of 4%. Rating: “Hold.”

• Posco: (PKX): Korea’s largest steel company, and the world’s most-efficient steelmaker, Posco’s shares sport a Price/Earnings ratio of about 11, and a dividend yield of 2%. The company is a major exporter into China, making it a key participant in that country’s explosive growth. The company does buy its iron ore from Brazil’s Vale (RIO), and was socked with a 65% price increase in this crucial raw material. But don’t forget that investment guru Warren Buffett made Posco one of the 20 Korean companies he invested in last year. If nothing else, that’s a reminder that Posco will become very attractive when the commodities bubble deflates, even though it may be a tad early to make your move right now. Rating: “Buy/Hold.”

• SK Telecom: (SKM): It’s Korea’s largest mobile phone company, with operations in China and Vietnam. The stock is now trading at only 8.7 times estimated 2008 earnings, and has a hefty 4.9% dividend yield – so income investors do well from it, also. For many years, its market share in Korea was capped at 50%. But now the shackles are coming off; in fact, SKM recently got the green light to buy 44% of Hanarotelecom, Korea’s second-largest cell phone company. In 2006, SKM invested in a $1 billion convertible offering for China Unicom, Mainland China’s No. 2 mobile-phone company; in August 2007, the bonds were converted into a 6.6% in China Unicom with a current value of almost $2 billion. In Vietnam, SKM’s 73% owned Vietnamese subsidiary had 3.5 million subscribers in 2007, and it’s now aiming for 5 million in 2008. Only its U.S. operations are showing losses, but even those could turn around. Rating: “Buy.”

His most recent recommendation is the best pure-play on global infrastructure. When you buy this company, you get $800 million in timberland free – and it’s only a $600 million stock. His readers are up almost 20% in one week on this recommendation. We are currently offering a special price on Dividend Grabber, but only if you buy before midnight on Monday. To learn more about it, click here…

Our friend Chris Weber wrote up a note on why he thinks gold and silver are due for a pullback:

When you hear of metals detectors by Florida beach communities being sold out to people wanting to find Spanish gold in the sand; when you hear of people bringing their gold jewelry into pawn shops to cash in on the high gold price… that’s the sign that things are about to cool down. It’s been almost exhausting to watch the gold and silver prices rise without interruption over these past six months or so.

It would not surprise me to see now beginning a correction that may be long and even violent. That in fact would be in the normal course of things. People who’d waited to buy until just recently will panic and sell. That’s normal too. The precious metals market needs a rest, and I think it’ll get it. Let’s see how far down it goes. There may be some good opportunities to come.

Starting at 16, Chris Weber turned $650 earned from his paper route into $1.8 million in cash within a decade through a series of remarkable investments. Since then, he’s parlayed that wealth into a multimillion-dollar fortune, thanks to his ability to recognize developing trends.

South Korea’s National Pension Service, the world’s fifth-largest pension fund, will no longer buy U.S. Treasuries. The fund also plans on selling Treasuries to buy higher-yielding European government debt. In fact, 16 Asian central banks said last weekend they may invest $1 trillion in each others’ bonds instead of Treasuries.

From a reader: You should not be fully invested all the time if you want to make big money. Do I have it right?

You’ve got to remember one thing about mutual funds and mutual-fund managers: Mutual-fund shareholders always redeem (sell) at the worst possible time. Thus, fund managers who want to hold securities through down markets (like the value guys) must have enough ready cash to meet demands for redemptions without resorting to liquidating their positions. That’s not the most efficient way to manage your own account, and it’s not the way they’d choose to manage their funds… It’s a penalty they pay for being public mutual-fund managers. (And it’s yet another reason you should almost never invest in a mutual fund.)

As to how much cash you should hold… I can’t give personalized investment advice, and there’s no single right answer to this question. It simply depends on your situation and your goals. Consider my situation, for example. I have one tremendous advantage over most of my peers: I’m still relatively young (35). Because I have a 30-year time horizon, I’m unlikely to outperform long-term compounding investments with trading or market timing. Additionally, because I am still working and earning income, I am able to contribute substantially more capital each year to my investment account. It makes sense for me to be fully invested, all the time.

On the other hand, most of our readers are retired, most of them have relatively short time horizons, and most of them must generate income from their accounts. For these subscribers, it makes more sense to remain mostly in cash and safe fixed-income securities, except when the stock market provides truly exceptional and very safe opportunities.

At our last Spring Editors’ Conference in Naples, Florida, Tom Dyson recommended buying ice breakers – ships that can navigate icy, polar terrain. He argued global warming and rising oil prices would make this a feasible investment. We all laughed out loud. But Tom’s supercontrarian bet may pay off in the long run. Oil companies are now looking for crude off the coast of Greenland, where there’s an estimated 50 billion barrels. At $100 a barrel, that’s $5 trillion of oil.

Inside Strategist editor Brian Heyliger is another guy who’s not afraid to take contrarian positions. He recommended homebuilder Hovnanian last Wednesday, and his readers are up 15% in about a week (he expects total gains to come in around 50% by mid-year). As Brian proved, if you make smart bets in negative markets, you can make serious money. To learn more about Brian’s strategy, click here…

Regards,

Porter Stansberry and Dan Ferris

[Editor's Note: Dan Denning interviewed John Robb in September of 2007. A podcast is available here.]