McLean, Virginia-based Paice LLC has filed a complaint with the U.S. International Trade Commission (ITC) that claims the Toyota Camry infringes on its patents, Bloomberg News reported. An investigation into the claim could be completed within 15 months and result in a ban of some Toyota imports.

Paice, a developer of hybrid electric power train technology, in 2005 won a similar case against Toyota involving the Japanese carmaker’s Prius, Highlander and Lexus RX400h hybrid models. Paice claimed those vehicles used its drivetrain technologies, and a jury agreed, awarding the company $4.3 million in damages.

U.S. District Judge David Folsom rejected Paice’s request for a court order to halt the sales of Toyota vehicles in the United States, but he did force Toyota to pay royalties based on the cars’ wholesale prices.

Toyota appealed the claim but lost.

A similar ruling in this instance could be a huge blow to Toyota, whose hybrid vehicles were the main beneficiary of a shift in U.S. auto sales toward more fuel-efficient vehicles. The Camry was the best-selling vehicle in the nation last month, benefiting greatly from the U.S. Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers.”

New Toyotas accounted for 19% of the cars bought through the Clunkers program, and the company reported a year-over-year sales increase of 6.4%.

The company has sold more than 2 million hybrid vehicles worldwide since their launch in 1997. Those sales were led by the Prius model.

Source: Toyota Faces Possible Import Ban Over Paice’s Patent Suit

Here in the United States, at a cost of a mere $3 billion, the “Cash-for-Clunkers” program appears to have given new hope to the U.S. auto industry.

But that new hope is destined to be short-lived.

It’s true that – in terms of value delivered for the money invested – “Cash for Clunkers” has eclipsed every other stimulus program that has been tried. But the program has a projected lifespan of only three months, meaning it can’t reverse the powerful global forces that are destined to turn the U.S. auto market from leader to laggard on the global stage.

Financial Crisis Fallout Reshapes Sector

Thanks to the financial crisis whose impact continues to be felt, worldwide automobile demand had dropped on an overall basis since 2008.

But regional differences are already emerging.

In the United States, for instance, the benchmark seasonally adjusted annual sales rate (SAAR) finally jumped up past the 11-million mark in July after failing to eclipse the “breakeven point” of 10 million vehicles in any prior month this year. But the actual year-to-date sales of 5.81 million vehicles through July was still 33% below the 8.55 million that had been sold by that point in 2008, and is 67% below the all-time annual record of 17.4 million achieved in 2000 and 65% below the decade average of 16.4 million.

(Prior to the global financial crisis and accompanying recession – which prompted the U.S. auto industry to restructure and shift its breakeven point down to 10 million vehicles – the breakeven point was actually 16 million vehicle sales in a year. Below that point, several or all of the U.S. “Big Three” would be spinning their wheels in red ink.)

It’s a much different story abroad, however, where several markets are in a long-term growth mode. In India, for example, sales were up 31% on a year-over-year basis, while auto sales in China were an astonishing 70% above those of a year ago. Even if U.S. auto sales continue to improve, China’s automobile market may outsell its U.S. counterpart for a full year for the first time ever.

Granted, India’s auto market – around 2.5 million cars and light trucks a year – is still much smaller than either China or the United States. However, its growth makes it comparable to the Japanese or German markets, the next largest automobile markets after its U.S. and China counterparts.

Thus, global automobile sales are undergoing a major reorientation towards Asia and away from the United States and Europe. This will inevitably have a huge effect on the structure of the sector.

That’s why Asia will become the new Detroit – the future center of the automaking world.

Gone For Good?

In the United States, General Motors Corp. and Chrysler Group LLC have lost market share because of the government takeover. They are unlikely to get it back in spite of the debt costs they have relinquished through bankruptcy.

For Chrysler, the partnership with Fiat SpA (OTC ADR: FIATY) is unlikely to help much. Fiat is among the weakest of the European companies, and has not been competitive in the United States since the 1980s. The U.S. market is undoubtedly moving toward smaller automobiles. That trend is being “fueled” by the new Corporate Average Fuel Economy (CAFE) standards for 2015 and probably by higher fuel taxes for environmental and budget reasons. Nevertheless, it seems unlikely that the Chrysler/Fiat partnership will have the models to compete.

General Motors has the model range to compete in the United States. However, GM is doing much better in China, thanks largely to its joint venture with Shanghai Automotive Industry Corp., which expects to sell 1.4 million vehicles in 2009. Since GM is also selling Opel, its European operation, GM (NYSE:GRM) will find itself driven primarily by the demands of the Chinese market. Given the growth of that market, it will probably make the most economic sense for GM to become Chinese-owned. Politics may delay this, but probably only for a few years.

The United States’ One “Better Idea”

Ford Motor Co. (NYSE: F) has picked up market share in the United States from GM and Chrysler’s problems. It should benefit both from “Cash for Clunkers,” and from the early stages of the U.S. market recovery. If GM and Chrysler continue to have difficulties, Ford may be in a good position here in the large U.S. market – as the most-effective manufacturer of the large automobiles that Americans continue to prefer – no matter what the government tells Ford to do.

Nor is that Ford’s only competitive advantage going forward. Ford Europe is big and viable enough to allow Ford to remain credible as a producer of smaller cars, primarily in the higher price brackets.

Outside the United States, European manufacturers will find themselves increasingly confined to the luxury end of the market. However, as global incomes rise and the newly wealthy become brand-conscious – particularly in the emerging economies of Asia – that upscale portion of the auto market should continue to be strong.

Japanese and Korean manufacturers will continue to dominate their domestic markets. And such companies as Honda Motor Co. Ltd. (NYSE ADR: HMC), Toyota Motor Corp. (NYSE ADR: TM) and Kia Motors Corp., will also do well in the United States and Europe, and in countries where they have been able to establish viable local manufacturing operations, and lower labor costs.

But it will be the players from China and India who are destined to be the big market-share gainers on a global basis.

The New Leaders

For U.S. investors, India’s Tata Motors Ltd. (NYSE ADR: TTM) is the best known of the newly emerging global auto elite. Tata’s $2,500 for-the-masses “Nano” car has been well received. Over the long term, the Nano may expand the entry-level portion of the worldwide auto market, forcing other manufacturers to produce equivalent low-price models.

Indeed, the introduction of $2,500 cars may greatly expand the market’s size in India and other emerging markets, much as Ford’s Model T did after its introduction in 1908, or the Volkswagen AG (OTC ADR: VLKAY) VW Beetle did in the 1950s and 1960s.

Tata looked to be in financial difficulty after it bought the loss-making Jaguar and Land Rover brands in 2008 at the top of the market. However, the $300 million loan for its Jaguar Land Rover Unit announced on Aug. 10 gives Tata the room it needed to maneuver. Market growth in India, combined with the strength of its Tata Group parent now suggest that Tata Motors has the strength to survive without dismemberment.

The bottom line: Tata and its India-based competitors – Maruti Suzuki India Ltd. (Mumbai: MSIL) and Mahindra and Mahindra Ltd. (London: MHID) – as well as such top China carmakers as Chery Automobile Co. Ltd. (still publicly owned), Geely Automobile Holdings Ltd. (OTC: GELYF) and Great Wall Motor Co. (OTC: GWLLF), are thus the companies that will see most growth in the automotive market of the decade to come.

By 2020, the global auto sector will look nothing like it does today. Given that most of the muscle will be in Asia, investors shouldn’t be surprised.

Source: Why Asia Will Supplant Detroit as the Global Center of the Auto Industry

Source: Another Dismal Earnings Season for U.S. Companies?

Mention Japan and many people think of Geisha, castles and samurai. Mention investing in Japan and the image of an impenetrable wall comes to mind.  I’ve been extremely fortunate to have seen all of this firsthand – and not just once, but on a pretty consistent basis for the past two decades, when I’ve been here as a businessman, a resident, and – most recently – as a husband and a parent.

Like anyone who’s lived as an expat anywhere for an extended stretch, my powers of observation have tuned into specific aspects of the Japanese culture that I find fascinating.

For instance, since the days of the samurai, rarely has anyone ever questioned anybody’s authority directly – let alone openly. To do so was to risk the loss of one’s head – literally. But for the first time in several hundred years, that reticence to challenge authority is ebbing, and it could be the change that prospective investors have long been looking for.

I recall watching in rapt fascination the whole T. Boone Pickens/Koito Manufacturing battle during my first years here. In case you don’t recall, Pickens became Koito’s largest shareholder by accumulating more than 20% of the company’s stock and then was refused a seat on the board.

The battle came to a head during an annual meeting whose audience was filled with ruffians, embarrassed executives and a crowd of professional hecklers. I didn’t understand until years later that there was nothing “random” about that day 20 years ago: The crowd had been stirred up intentionally and professional hecklers had been hired to deliberately break up the meeting. In fact, it was their job to keep Koito Manufacturing’s senior executives from having to answer Pickens’s pointed questions (although to outsiders, it would just look like some ne’er do wells had gotten out of hand).

Pickens would not be put down.

Much to the chagrin of my Japanese colleagues, I stood up and cheered when the American tycoon picked up his things and famously stormed out with a collection of Japanese media crews in hot pursuit.

Fast forwarding to the present, I find myself reliving those memories, for I’m watching a repeat performance unfold. The cast of players is a bit different – this time it’s the Japanese investor, instead of a U.S. corporate raider, that’s trying to buck the system – but the plot is much the same.

The normally reticent Japanese investors – long accustomed, or even resigned, to public subtlety and backroom wheeling and dealing – are becoming fed up with this system and are becoming quite brazen in their protests. And very direct, as well.

Pickens would probably love it. In fact, I’m virtually certain that he does, though I’ve not spoken with him in years.

According to a Nomura Securities Co. Ltd. research report cited here by several news media outlets, more than 70% of individual shareholders intend to vote against management in upcoming elections and on specific issues. Normally, shareholder votes are essentially “rubber-stamp” affairs, pretty much signing off on whatever management wants, so this is an earth-shattering change.

Western institutional investors have picked up on this cultural about-face, since it means they may finally have the voting clout they crave when it comes to obtaining board seats and operational input on how the trillions of dollars they’ve invested here over the years is put to work. I’m fascinated, because it means that the Japanese executives who up to now had only themselves to answer to must now answer directly – and publicly – to their own investors.

And there are many questions to be answered. Japan’s stock market is at 26-year lows and recent economic reports continue to portray poor business conditions here. The so-called “green shoots” of economic recovery that are being written about in the United States look a lot more like weeds here Japan. And barring something miraculous that surfaces in response to the upcoming legislative elections, it’s clear to me that Japan’s elected leaders learned absolutely nothing from that country’s so-called “Lost Decade” – a slowdown that’s actually lasted the better part of two decades.

In fact, current Japan Prime Minister Taro Aso has an approval rating is only 19%, the lowest recorded level in history. Primary-schoolteachers are actually admonishing their students not to become like him. Can you imagine?

Openly angry investors I’ve talked with here in the last few weeks want to know why the return on equity has been so low for so long. They’re asking how Japan’s once-glorious companies have just fallen off the face of the earth? And then there’s capital usage, investment spending and, gasp, the global financial crisis. Who knew what and when did they know it? This is going to get ugly. My father in law, who’s normally calm about these things, wants them all lined up and thrown out – after he gets a chance to personally chew them out!

According to the Nomura study, executive compensation and skipped dividend payments are hot buttons, too, for individual investors – and with good reason. For the year ended March 31, about 38% of listed Japanese companies have skipped their dividends or have cut them entirely. For the typical Japanese citizen – who has accepted benevolent leadership for centuries — this is not only a stunning breech of public trust, but a callous slap in the face that must have been similar to the waning days of the samurai, when various lords called “daimyo” could no longer meet the public obligations of their retainers.

To borrow an old expression, it’s clear that the “natives are restless.” And it’s not just the natives. Such relatively recent Western “imports” as hedge funds and institutional money-management firms are feeling militant, as well.

Southeastern Asset Management Inc. is on the warpath over investments it’s made in Nipponkoa Insurance Co. Ltd. The Tennessee-based fund manager owns approximately 17% of Nipponkoa and wants some answers as to why the company’s shares have plummeted 19%, when the benchmark Topix Insurance Index has dropped only 6% in a comparable time period.

Twice now – in each of the last two years – Southeastern has attempted to oust Nipponkoa Insurance Co. President Makoto Hyodo for allegedly having run the ship aground.

In a similar fashion, Brandes Investment Partners LP sought a shareholder vote that would have forced Kyoto-based electronics manufacturer Rohm Co. Ltd. to buy back $157 million worth of company stock. Brandes, which owns about 6% of Rohm, felt that the $3.24 billion (311 billion yen) worth of cash and securities Rohm held was excessive, and presumably was a drag on the performance of the company’s stock.

On Friday, shareholders sided with Rohm, and with Nipponkoa, in separate company meetings, and voted down the proposals of the two U.S. investors. But the fact that two U.S. institutional investors were brazen enough to launch these shareholder offensives in the first place says a lot about the new tenor of the times – and is clearly a sign of the things to come.

Things have gotten so bad that even Toyota Motor Co. (NYSE ADR: TM) – held out as the “gold standard” of Japanese business practices – is doing the unthinkable. Honorary Chairman Shoichiro Toyoda recently summoned 400 senior executives to a red-brick building in Nagoya – the very same building where his grandfather had manufactured textile looms a hundred years ago, according to a report last week by Bloomberg. The managers had likely expected a typically perfunctory update. Instead, the 84-year-old company patriarch berated the assemblage and scolded them for making some of the same mistakes that steered two of their U.S. counterparts into bankruptcy.

Shock amongst attendees doesn’t begin to cover the reaction. “How many times have you made a mistake?” Shoichiro said to Katsuaki Watanabe, the Toyota president who the month before had been told he was being moved aside earlier than planned so that Shoichiro’s son, Akio, could assume command of the carmaker.

Shoichiro suggested that Watanabe was so anxious to boost sales and profits that he’d emulated General Motors Corp. (OTC: GMGMQ) and Chrysler Group LLC – both of which are now bankrupt. Toyota, like the two American carmakers, allowed itself to become “addicted” to big expensive cars and trucks and forgot about the customer’s needs to save money, added Shoichiro.

But as aggressive and “un-Japanese” as the actions illustrated by these few examples seem to be, they potentially don’t hold a candle to the most pressing of all investor groups demanding action right now: Millions of angry Japanese housewives want to know where their husband’s retirement funds went.
So what does this mean for the typical investor?

In the overall scheme of things, perhaps not much – at least, not yet. But stay tuned: Chances are good that if this “rebellion” continues, we could see true change here in Japan for the first time in centuries. And that may open the doors for some real investment opportunities and true forward-looking vision.
For those opportunities – and for the many lessons U.S. leaders (both corporate and elected) should take the time to learn from Japan’s experiences – it’s worth continuing to watch Japan.

You can be certain that we will. And we’ll keep you updated.

Source: How Japan’s Unlikely Shareholder Rebellion Could Lead to Profit Plays for Western Investors

[Editor's Note: Fourteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 14 for 14, meaning he's closed every single one of his trades at a profit. And he did this in the face of one of the most-volatile periods since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index .] ]]> http://www.contrarianprofits.com/articles/how-japan%e2%80%99s-unlikely-shareholder-rebellion-could-lead-to-profit-plays-for-western-investors/18526/feed 0 http://www.contrarianprofits.com/articles/investment-news-briefs-tuesday-june-30-2009/18521 http://www.contrarianprofits.com/articles/investment-news-briefs-tuesday-june-30-2009/18521#comments Tue, 30 Jun 2009 15:00:56 +0000 Money Morning Staff http://www.contrarianprofits.com/?p=18521 Madoff Gets 150 Years; Pipeline Operators to Combine; Jobs Returns to Work at Apple; GM, Toyota Cut Ties on Auto Plant; U.S. Moves Closer to Solar Energy; Oil Rises to More Than $71; China Stops Stockpiling Metal

• A federal judge gave no leniency to convicted Ponzi schemer Bernie Madoff yesterday (Monday), sentencing him to 150 years in prison. U.S. District Judge Denny Chin described Madoff’s crime as “extraordinarily evil” and said that it was “not merely a bloodless crime that takes place on paper but one that takes a staggering human toll.” As a part of his sentence, the 71-year-old Madoff was ordered to forfeit a total of $170.8 billion which represents the total proceeds of and property involved in certain…

• In spite of tense geopolitical situations in the Middle East, light sweet crude for July delivery yesterday (Monday) fell $2.62, or 3.8%, to settle at $66.93 a barrel on the New York Mercantile Exchange (NYMEX). Large and violent protests in Iran over the outcome of its recent election would normally raise concerns about supply disruptions and drive up the price of oil. Instead, the market is looking past this tense backdrop in the world’s No. 4 oil producer because of a large supply worldwide, Alaron Trading energy analyst Phil Flynn told CNN Money.

• The Securities and Exchange Commission (SEC) charged a brokerage firm and several individuals with raising money from investors to feed Bernie Madoff’s Ponzi scheme. Cohmad Securities Corp., its chairman Maurice Cohn, Chief Operating Officer Marcia Cohn and representative Robert Jaffe have all been charged with securities fraud, CNN Money reports. The Cohns and Jaffe allegedly courted investors for Madoff’s grand scheme, which may get Madoff up to 150 years in prison and $170 billion in restitution.

• The chief executive officer and president of the world’s largest third-party video game publisher fired a shot over Sony Corp.’s (NYSE: SNE) bow, taking the electronics giant to task over the high price of its PlayStation 3 console and going as far to say his company may pull its support if a price drop doesn’t happen soon. Activision Blizzard Inc.’s (Nasdaq: ATVI) Bobby Kotick said his company paid Sony $500 million in royalties and other goods last year, according to the Times Online. “They have to cut the price, because if they don’t, the attach rates [the ratio of games purchased to a console] are likely to slow. If we are being realistic, we might have to stop supporting Sony,” Kotick said. “When we look at 2010 and 2011, we might want to consider if we support the console – and the [PlayStation Portable] too.” Activision is the company responsible for the some of the sector’s largest franchises including “Guitar Hero,” “Call of Duty” and the “Tony Hawk” series of skateboarding games. A loss of support from Activision would be a huge blow for Sony’s gaming arm, which lost $597 million last year. Sony’s PlayStation 3 is currently third in a three-horse video game race behind Nintendo Co. Ltd.’s (ADR OTC: NTDOY) Wii and Microsoft Corp.’s (Nasdaq: MSFT) Xbox 360.

• In a sign that may show investors have let their guard down, technology stocks have significantly outperformed the broader market, according to MarketWatch.com. Since its March low, the tech-heavy Nasdaq Composite Index is up more than 40% and nearly 13% for the year. “Technology tends to be a leader in the early stages of an economic turn.,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “That’s what we look for as confirmation of a sustainable rally — money rotating into a sector that historically is seen as consumer- and business-sensitive, and requiring more leverage in terms of borrowed money, because it is more sensitive to the economy.” Still, Nasdaq’s notorious volatility was on display yesterday (Monday), as it fell 3.35%, more than both the Dow Jones Industrial Average and the Standard & Poor’s 500 Index.

• Restructuring costs and merchandise markdowns contributed toWalgreen Co.’s (NYSE: WAG) declining profit, which fell by 8.7% in the quarter ended May 31. The drugstore chain reported a net income of $522 million, or 53 cents per share on $16.2 billion in revenue. That compares to a net income of $572 million, or 58 cents per share on revenues of $15 billion in the same period last year. Wall Street was expecting Walgreens to earn 56 cents per share. The company’s shares closed at $29.64 yesterday (Monday), down 5.7%.

• Ford Motor Co. (NYSE: F) and General Motors’ (OTC: GMGMQ) Chevrolet division are close to eliminating a long-criticized quality gap with Toyota Motor Corp. (ADR NYSE: TM), according a closely watched J.D. Power and Associates survey. The top three spots in the survey went to luxury brands, while Chevrolet, Ford and Toyota were in what amounted to a statistical dead heat further down in the rankings, Reuters reported. “Have the leading domestic nameplates caught up with Toyota? The answer is almost,” Dave Sargent, vice president for auto research at J.D. Power said. Toyota’s Lexus brand took the top spot, while Porsche and GM’s Cadillac were Nos. 2 and 3 respectively.

Source: Investment News Briefs Tuesday, June 23, 2009

• The housing market showed further signs of bottoming in April, as pending sales of previously owned U.S. homes saw their biggest monthly gain in seven and a half years, the National Association of Realtors reported. The number of Americans signing contracts to buy previously owned homes climbed 6.7% in April, more than forecast and the fourth increase in five months. The report supports the case for a housing bottom made in Money Morning on Monday, where it was noted that housing prices are starting to move upward in western U.S. markets and should soon slowly begin to rise in hard-hit east coast markets.  “Based on what we just heard, we are now formally calling for the end of the housing depression and that we increasingly think that the housing market is beginning to turn up. All signs are pointing to a bottoming out now of the housing market” Bernard Baumohl, Chief Global Economist at the Princeton-New Jersey based Economic Outlook Group, told Reuters.

• Detroit’s ailing Big Three automakers, all reported that May sales in the U.S. fell less than analysts’ estimates while Toyota Motor Corp. (ADR NYSE: TM) and Honda Motor Co. (ADR NYSE: HMC) did worse than expected. Sales at General Motors Corp. (NYSE: GM) dropped 30% from last year, Ford Motor Co.’s (NYSE: F) sales fell only 24% and Chrysler LLC plummeted 47%, better than estimates, as shoppers returned to showrooms.  Deliveries at Toyota plunged 41% and Honda plunged 42%. Among Japanese carmakers, only Nissan Corp sales exceeded estimates, falling only 33%, Bloomberg reported.

• Microsoft Corp (Nasdaq: MSFT) said on Tuesday its new Windows 7 operating system, which will replace the unpopular Vista, will be available on October 22, well ahead of its original schedule and in time for the holiday shopping season, Reuters reported.  Windows 7 was originally scheduled to launch at the start of next year, but Microsoft confirmed last month that it would push up the schedule to allow sales during the year’s busiest buying period.

• The U.S. Federal Reserve Bank has successfully pulled the economy back from the brink, Dallas Federal Reserve Bank President Richard Fisher said yesterday (Tuesday).  The Fed official also said that conditions are “getting less worse” over time and the Fed needs to unwind its new, expansive credit programs as soon as it can, Reuters reported.  Furthermore, the U.S. central bank needs to make it clear it will not “monetize” the rapid expansion of U.S. debt, Fisher told a gathering of community leaders at a Dallas Fed event.

• Unemployment in Europe rose to 8.6% in April, up from 8.4% in March and 6.8% during the same period last year. Although the economic downturn in Europe is showing signs of slowing, the employment rate typically lags behind economic health.

• Pepsi Bottling Group Inc. (NYSE: PBG) Chairman and Chief Executive Officer Eric Foss is being promised a minimum $16.5 million in severance pay and stock benefits if PepsiCo Inc.’s (NYSE: PEP) takeover succeeds. He earned $6.1 million in total compensation last year. Pepsi Bottling, along with PepsiAmericas Inc. (NYSE: PAS) rejected a $6 billion acquisition attempt by PepsiCo, calling it “grossly inadequate” and “not acceptable.” Pepsi Bottling and PepsiCo are now locked up in a lawsuit, with PepsiCo accusing Pepsi Bottling of adopting a “poison pill” takeover defense that restricts its rights as a shareholder.

Source: Investment News Briefs Wednesday, June 3, 2009

Meanwhile, a bankruptcy filing is not certain in the GM restructuring case, and reports that the Obama administration will steer the automaker into bankruptcy as early as this week are premature, Reuters reported on Friday, citing a source familiar with the situation.

Negotiations will likely continue right up to the May 31 deadline, the source said, with the Chrysler LLC case – where the process continued until the deadline – serving as a good comparison.

Magna International Inc. (NYSE: MGA) appeared to gain the early edge Friday in the race to buy Opel, surpassing rival bidders Fiat S.p.A. (OTC: FIATY) and RHJ International Inc. (PINK: RHJIF).

German officials said they were leaning toward the offer submitted by the Magna, a Canadian car parts group, because its plan would leave open four manufacturing plants located in the country.

With Federal elections looming in September, any merger plan containing the possibility of massive job losses would appear to be dead on arrival.

A German government official, who preferred to remain anonymous, said the Magna offer was gaining significant support in Berlin.

“There is a rather clear preference for Magna’s offer emerging within the government,” the official told Reuters.

GM will make the final decision on who ultimately prevails in the battle for Opel, but the German government will have a say because it is seen as the likely source of financing guarantees for the eventual winner.

Even though the Chinese automaker submitted a letter expressing interest in purchasing Opel a day after the May 20 deadline for bids, a concrete offer may not be forthcoming, Bloomberg News reported, citing people familiar with the matter.

“The risks are huge” for a potential Chinese bidder, Yu Bing, an analyst at Ping An Securities in Shanghai told Bloomberg. “Chinese carmakers aren’t big or experienced enough and lack the technology and management skills to buy something like Opel.”

According to GM, Opel needs $4.6 billion (3.3 billion euros) in new government financing to survive, Bloomberg reported. The carmaker is selling a majority stake in its European operations while preparing for a probable government-forced June 1 bankruptcy.

The Magna and RHJ bids include cash, while Fiat’s calls for $9.8 billion (7 billion euros) of financing, Bloomberg’s sources said. Fiat’s bid is two-pronged: It contains an offer for the Opel and Vauxhall units, and alternatively offers to also buy GM’s operations in Brazil and Argentina.

Fiat Chief Executive Officer Sergio Marchionne aims to create the world’s second-largest car company, second only to Toyota Motor Corp (ADR NYSE: TM), by combining Fiat and Opel with Chrysler and GM Europe and possibly GM’s Latin American operations.

Magna’s primary interest in Opel centers around increasing sales in Russia to about 1 million units, GM Europe CEO Carl Peter Forster said last week in a Bloomberg interview.

Opel, which is headquartered in Ruesselsheim, near Frankfurt, and traces its roots in Germany back to the 19th century, has manufacturing facilities in St. Petersburg and Uzbekistan, which could accelerate growth in the two countries.

Magna’s plan has also gained favor because it will keep the existing European management team in place.

Source: Chinese Express Interest in Opel, GM Bankruptcy Still “Not Certain”

Despite the disturbing news from Japan – the world’s second largest economy – some analysts are optimistic that the record gross domestic production (GDP) decline may be the low point, with business activity picking up from here.

“There was a collapse across the board,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, told Bloomberg News. But there’s “light at the end of the tunnel,” he said, adding that he believes the economy will rebound this quarter as companies replace inventories and stimulus plans begin to take effect.

Prime Minster Taro Aso has set forth the largest stimulus plan in Japanese history, promising to pump $160 billion into the economy, mostly geared towards lifting consumer spending, which accounts for about 55% of GDP.

Japanese consumers were the biggest factor in the decline. Consumer spending fell 1.1%, trimming 2.6 percentage points off GDP – the most since 1974, Bloomberg reported.

Analysts say that declining exports are a big reason for the decline in consumer spending.

“The export plunge is spreading to domestic demand,” BNP Paribas SA (OTC: BNPQY) economist Hiroshi Shiraishi told Reuters. “As such, the Japanese economy may return to growth temporarily but it could suffer a contraction again afterwards.”

Net exports – the trade gap between exports and imports – shaved 1.4% off overall economic output.

Toyota Motor Corp (ADR NYSE: TM), Hitachi Ltd. (ADR NYSE: HIT), and Panasonic Corp. (ADR NYSE: PC) all projected mounting losses for fiscal 2009. Panasonic said last week it plans to close about 20 factories this year and cut 15,000 jobs. Hitachi will slash spending by $5.2 billion this year and shed 7,000 workers, Bloomberg reported.

Still, there are faint signs of recovery in both exports and consumer spending, triggering cautious optimism among some analysts and government officials. Consumer confidence jumped to a 10-month high in April and exports increased in March over the previous month.  Factory output also jumped for the first time since September as companies cut inventories.

The Wall Street Journal reported last week that Honda plans to increase production in Japan this quarter as dealers have begun clearing inventories.  Car sales may have “bottomed” in Japan and the U.S., Fuji Heavy Industries Ltd. (ADR OTC: FUJHY) President Ikuo Mori said in Tokyo, according to Bloomberg.

“While the economy will continue to be in a severe state, I expect less pressure from inventory adjustments and the stimulus package to provide support,” Economy and Fiscal Policy Minister Kaoru Yosano said after Wednesday’s report, Bloomberg reported.

Source: Japan GDP Falls to Record Low but May Have Bottomed

There was more money available to buy shares than at any time in almost two decades. The $8.85 trillion held in cash, bank deposits and money market funds was equal to 74% of the market value of U.S. companies, the highest ratio since 1990, according to the Federal Reserve.

What happened in the past when cash reached these levels?

• In September 1974, cash on hand reached $604.5 billion, representing a record 1.21 times the U.S. stock market’s capitalization. That preceded a 31% gain in equities between October 1974 and March 1975.
• In July 1982, just as a 20-month bear market was ending, cash as a percentage of the U.S. stock market’s value rose to 95%. The S&P 500 began a six-month, 36% advance. According to Bloomberg, the eight previous times that cash peaked compared with the market’s capitalization, the S&P 500 rose an average 24% in six months.

This time, of course, it didn’t take nearly as long for the market to rally.

Still, the greatest appreciation so far has been in smaller stocks. That’s normal in an early bull market. But if the bull market continues, the big, blue-chip stocks are likely to lead the market higher for two key reasons:

• First, there is still over $8 trillion on the sidelines earning next to nothing in short-term deposits. Investors tip-toeing back into the market are likely to gravitate here since these stocks are the safest.
• And then there is the growing influence of cash-rich sovereign wealth funds…

Sovereign Wealth Funds – The Financial Assets of a Country

Sovereign wealth funds are the financial assets of a country – usually part of the national savings – that are owned and organized into a state-controlled fund and put to work to earn a higher return on investment.

(Sovereign wealth funds are not the same entities as foreign exchange reserves, which are often used for short-term currency stabilization and liquidity.)

In the past, most countries put their liquid assets to work in foreign currency deposits, government bonds or gold. (The hard-working Japanese and Chinese, for example, have kept our interest rates low by maintaining a steady appetite for U.S. Treasury obligations.)

But with the dollar relatively weak and interest rates on Treasuries near record lows, U.S. government bonds are not generating the kind of returns you write home about.

So world governments are slowly moving money into global equity markets. And the sums involved are fairly staggering.

Sovereign Wealth Funds Control More Than $7 Trillion…

According to The Economist, sovereign wealth funds already control more than $7 trillion today. The exact amount is impossible to ascertain due to lack of transparency.

But China, Saudi Arabia, Singapore and the United Arab Emirates alone are known to control more than $2 trillion. And more money is being allocated to these funds all the time.

What does this mean for you as an investor?

Expect to see cash coming off the sidelines to accumulate shares of the largest, most liquid firms around the globe. Quite frankly, they are the only companies that can easily absorb buying on this scale.

For example, take a look at the Dow Jones Global Titans Fund (NYSE: DGT). It holds the world’s 50 largest publicly traded companies.

World-Class Diversification in a Blue-Chip Portfolio

When you buy this cheaply valued blue-chip portfolio, you’re getting world-class diversification.

Companies like:

• Exxon Mobile (NYSE:XOM),
• IBM,
• Proctor & Gamble (NYSE:PG),
• Wal-Mart (NYSE:WMT),
• Coca-Cola (NYSE:KO),
• Nestlé,
• Toyota Motor (NYSE:TM),
• Roche Holdings,
• Samsung Electronics

… Are just a few of the names that are major holdings of the DGT fund.

These firms will almost certainly be an early stop for U.S. investors who get frustrated with low yields and start venturing back into the game.

These same companies are a natural home for sovereign wealth funds – and the growing trillions they control.

History shows that cash on the sidelines always grows itchy with time. The Dow Jones Global Titans (NYSE: DGT) is a good way to take advantage of it – ahead of the crowd.

Good investing,

Alexander Green

Source: Sovereign Wealth Funds: $7 Trillion Reasons to Stay Invested