I think that’s wrong. It’s an erroneous viewpoint that’s symptomatic of the short memories of the chattering media. It’s also one that could cause investors to miss out on one of the best profit plays in the global marketplace today.

I’m talking about Germany – the real powerhouse of Europe.

The “New” Germany

From the 1950s to the 1980s, West Germany consistently delivered high growth rates and low inflation. West German engineering proved superior to any other on the planet. And West German living standards rose far above anywhere else in Europe.

Then came 1990.

East and West Germany were reunited and an economic malaise set in. Instead of unifying the two currencies at a ratio of two Ostmarks to one Deutsche Mark, which would have kept East German labor cheap and competitive, the politicians unified the currencies at a rate of one to one.

That meant that East German labor was instantly priced out of the world market. And with good reason: It now offered Soviet-sector efficiency and skill – but at West German costs levels. Consequently, East Germany went through more than a decade of very high unemployment. German taxpayers went through more than a decade of huge subsidies to the former East Germany to prop up that region’s living standards and retrain its labor.

However, since the excellent German high school education system was quickly established throughout the country, the burden of reunification was a problem that did not last forever. What ultimately happened was that younger, fully trained workers in East Germany replaced their inferior Communist-era parents.

From about 2005 onward, the financial cloud of reunification costs began to lift. During the last few years, Germany’s economic performance has been notably better than its European competitors. Against Italy alone, for example, Germany’s competitiveness has improved by more than 20% since Europe’s currencies were unified in 1999.

The German economy has been held down by a tax burden that’s high by global standards. Its tax system suffers from excessive complexity and from draconian enforcement. Small businesses, for example must pay a 14% trade tax – on top of the standard corporate income tax that all businesses must pay. The trade tax goes to the “lander” (the states), rather than to the federal government.

Despite such problems, Germany has played it smart in several key areas. Unlike the United States and many other countries, Germany did not engage in fiscal stimulus. Indeed, the Social Democrat Finance Minister Peer Steinbruck last winter referred to Britain’s huge fiscal stimulus plans as “crass Keynesianism.” That showed that Germany has a true consensus against the stimulus foolishness. Germany’s budget deficit is expected by The Economist panel of forecasters to be only 4.6% of gross domestic product (GDP) in 2009, far below its rich-country competitors. Thus, even though Germany’s taxes are high, they will not be forced further upwards by zooming budget deficits.

The Angela Merkel Era Begins

Merkel’s election as German Chancellor is important, because it enables her to govern in coalition with the most free-market party, the Free Democrats, who are committed to lowering taxes and freeing up some of Germany’s restrictive labor laws.

This should not be taken too far. The Free Democrat leader Guido Westerwelle, flushed with victory, pledged Sunday night that the new government would act “responsibly” – not exactly “Hope and Change” as a slogan! Nevertheless, the Frankfurt market rose on the election result, as it should have done.

Germany is sometimes knocked for its export orientation. Its balance-of-payments surplus was $179.4 billion for the fiscal year that ended June 30, and is expected to be 4.0% of GDP this year.

Rest assured, however, that this is strength, and not a weakness. With world trade recovering, the German economy can be expected to benefit. Just look at Germany’s auto sector, which may be the most well rounded in the world. It boasts such strong luxury brands as Mercedes (NYSE ADR: DAI), Porsche and Audi. And it includes such high-volume – but innovative – manufacturers as Volkswagen AG (OTC ADR: VLKAY). German automakers are likely to gain market share against faltering U.S. competitors in the coming global recovery.

Another plus: Germany’s savings rate rose to 12.8% of GDP in the first half of 2009, a 16-year record. That compares with the feeble rate of only 4% in the United States, up from close to zero in the preceding three years. In a competitive world with the financial sector in difficulty, it’s better to be a capital-rich country running a trade surplus than the opposite, like the United States.

The economic recovery is a mixed bag from one market to another. But in Germany, it seems in Germany to be proceeding briskly. GDP, which fell sharply in the first quarter, rose at a 1.3% annual rate in the second quarter. Manufacturing orders rose by 3.5% in July, after a 3.8% rise in June. The ZEW index of economic sentiment has risen in each of the last six months, reaching a healthy 57.7 (50 is neutral) in September.

With competitive manufacturing, a business-friendly government and plenty of domestic capital, Germany is about as healthy an economy as there is in the world today. You should think about staking a claim to this outlook, even if it’s only the MSCI Germany Exchange-Traded Fund (NYSE: EWG).

Source: Why You Should Invest in the ‘New’ Germany

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

• The special inspector general for the Treasury’s Troubled Asset Relief Program (TARP) said U.S. taxpayers could be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, Bloomberg News reported.  In testimony prepared for a hearing before the House Committee on Oversight and Government Reform, Neil Barofsky said the Treasury’s $700 billion bank-investment program represents only a fraction of all federal bailouts to resuscitate the U.S. financial system. “TARP has evolved into a program of unprecedented scope, scale and complexity,” he said. Costs include $6.8 trillion in Federal Reserve guarantees, $2.3 trillion in programs offered by the Federal Deposit Insurance Corp., $7.4 trillion in TARP and other aid from the Treasury and $7.2 trillion in federal money for Fannie Mae (NYSE:FNM), Freddie Mac (NYSE: FRE), and other federal programs, he said.

• A survey of economists released yesterday (Monday) said the U.S. recession’s hold on the economy appears to be easing but likely has not yet ended, Reuters reported. The National Association for Business Economics’ (NABE) quarterly industry survey found that demand is stabilizing, but a small majority of the 102 respondents said their firms had not yet seen the bottom. The survey “provides new evidence that the U.S. recession is abating, but few signs of an immediate recovery,” said Sara Johnson, managing director of global macroeconomics for IHS Global Insight, who helped analyze the report for the NABE.  “Industry demand was still declining in the second quarter of 2009, but the breadth of decline had narrowed considerably since late 2008, raising prospects for stabilization in the second half” of the year, she said.

• General Motors Corp. (NYSE: MTLQQ) garnered three final offers for its Opel unit in Europe, with Germany’s preferred bidder,Magna International Inc. (NYSE: MGA), planning to take a bigger stake from its Russian partner, Bloomberg News reported. RHJ International SA (EBR: RHJI) and Beijing Automotive Industry Holding Co. also submitted offers. Magna, the largest Canadian car-parts manufacturer, would buy 27.5% of Opel compared with 20% in an earlier proposal, said a GM spokesman.  Germany selected Magna as preferred bidder on May 30. Detroit-based GM, seeking to salvage its European operations afteremerging from bankruptcy, set today as the deadline for taking final offers for Opel, which includes the Vauxhall brand in the U.K.  “The final bids will now be analyzed and compared by GM,” GM Europe said in a statement.

• Mortgages on commercial property held by U.S. banks have been failing at the fastest rate in nearly 20 years, the Wall Street Journal said.  Losses on loans used to finance commercial spaces would possibly reach about $30 billion by the end of 2009 at the current rate.  The $30 billion estimate is based on financial reports filed by more than 8,000 banks for the first quarter, The Journalsaid. The commercial real-estate market, valued at about $6.7 trillion, represents 13% of the United States’ gross domestic product.

• Shares of Human Genome Sciences Inc. (Nasdaq: HGSI) skyrocketed 276.81% after the Rockville, Md.-based company’s Benlysta drug reduced symptoms in patients inflicted with lupus, a disease that is notoriously difficult to treat. The company tested 865 patients in a one-year study with the drug, which is co-produced with GlaxoSmithKline PLC. Leerink Swann LLC analyst Joseph Schwartz expects the drug to launch next year andgenerate $1.2 billion in sales for HGSI in 2013 and $2.4 billion in 2015, according to a report by Dow Jones Newswires. HGSI closed at $12.51 yesterday (Monday), up $9.19.

• A potential tax liability as well as growing tensions betweenVolkswagen AG (OTC ADR: VLKAY) and Porsche Automobil Holding put a speed bump in the way of a potential Volkswagen acquisition of Porsche’s sportscar division, The Wall Street Journal reported, citing people familiar with the matter. Both companies unsuccessfully attempted last weekend to find a way around a tax payment that could be triggered by the sale Porsche’s division. Volkswagen contested the significance of the issue, with a spokesperson telling The Journal “a transparent maneuver to torpedo a sensible business idea.” Porsche is also in negotiations with Qatar to give the emirate a substantial stake in the German automaker.

• The Conference Board’s Leading Economic Index (LEI) rose slightly in June, up 0.7% following a 1.3% gain in May and a 1% rise the month before. “The recession has been losing steam since the spring, although very large job losses continue. Nevertheless, confidence is slowly rebuilding. Financial markets are less volatile. Even the housing market is stabilizing. If these trends continue, expect a slow recovery this autumn,” said Conference Board economist Ken Goldstein.  The LEI has improved 4.1% in the past six months.

• New AOL LLC Chief Executive Officer Tim Armstrong revealed his plans to overhaul the troubled Time Warner Inc. (NYSE: TWX) division’s advertising and develop more localized websites in an effort to resuscitate falling revenues. The former Google Inc.(Nasdaq: GOOG) executive says sites with city guides can help fill a void of community information on the Internet, which in turn will bring in visitors and advertisers. “AOL still has a really large opportunity in front of it,” Armstrong said in a July 16 interview with Bloomberg News. “It comes with a very difficult path, but if we can navigate the path and navigate what needs to be done here and do it transparently, quickly and deliberately, I think AOL can be a successful company, and that’s why I came.” Time Warner will spin off AOL later this year.

Source: Investment News Briefs Tuesday, July 21, 2009

SAIC said its plans for 2010 include the introduction of a hybrid Roewe 750 sedan. The new technology could improve fuel effiency by 20% over the existing non-green model of the same sedan. SAIC’s “blueprint” for  new energy vehicles was unveiled this week, according to a report by ShanghaiDaily.com.

Another plug-in hybrid version of the Roewe 550 mid-class sedan that could slash fuel consumption by 50% is due to hit the market by 2012, when SAIC’s self-developed fleet of electric vehicles will start being marketed.

SAIC is partnering with GM and VW on these new-energy vehicles and says its investment on this new category of alternative autos will rise to nearly $900 million (6 billion yuan) because of its focus on hybrid models, and on cars that rely solely on electric power.

As China’s economy has grown in both scale and sophistication, concerns about energy use and the environment have advanced, as well – stoking demand for energy-efficient cars and trucks. China’s automakers have already invested millions in these new transportation technologies, and Chinese carmakers have pushed for mass-production to begin in order to meet this escalation in demand.

Challenges and obstacles abound. Alternative-energy vehicles cost a lot more, and they require a national service-and-refueling “infrastructure” to be able to operate. That infrastructure doesn’t exist in China, right now.

Despite these problems, however, China’s government wants to 60,000 new-energy vehicles – including plug-in electric and plug-in hybrid cars – on the country’s highways streets by 2012.

SAIC has reportedly inked a deal with the Shanghai city government to provide roughly 1,000 new-energy vehicles – including all-electric, fuel cell and hybrids – for the 2010 World Expo.

SAIC has already unveiled several “green” cars over the past couple of years, including a VW Passat Lingyu – a car developed specifically for the Chinese market – and a hybrid Buick LaCrosse sedan (called the Eco-Hybrid).

China’s Chery Automobile Co. Ltd. also said it would launch two hybrid models this year after a pure electric car rolled off the assembly line in February.

According to ShanghaiDaily, China has granted production permits to five models, including BYD Co. Ltd.’s F3 dual-mode electric car, Chongqing Changan Automobile Co. Ltd.’s Jiexun-HEV hybrid and Toyota Motor Corp.’s (NYSE ADR: TM) Prius hybrid, which has battled perceptions that its price is much higher than hybrid models made by rival carmakers.

Source: SAIC, China’s No. 1 Carmaker, to Launch Series of Hybrid Cars

With steeply rising disposable incomes and savings rates that approach – and in some cases exceed – 35% a year, it isn’t difficult to see why the China auto market is zooming along. But what may be tough for U.S. consumers to picture – especially as they deal with rising unemployment and a nagging economic malaise – is the intensity with which domestic demand is growing here in China.

Autos are more than just transportation here. They’re a symbol of wealth and success – a sexy status symbol. One’s social position can be determined by the type of vehicle one owns and flaunts.

This isn’t the first time we’ve detailed the promise of the China auto market. Nor is it the first time we’ve talked about the “Chuppies” (Chinese Yuppies), the demographic group China will rely on as the nation attempts to decrease its reliance on exports and become more of a consumer-driven economy.

Investors, economists and other “experts” on China are finally becoming attuned to this economic transition. But what those observers don’t realize is that the story doesn’t stop there. China isn’t just evolving into a consumer economy. As auto sales demonstrate, China is becoming a “complete” economy, in which such key ingredients as consumer spending, domestic business investment and foreign investment are each increasingly playing their required role.

Take business spending. The auto has become an important business tool: It’s believed that having your customers see an impressive car conveys confidence and helps build trust with the government. That kind of thinking is very Western in focus. What’s different here, however, is that cars are also believed to be a key contributor to the concept of “face,” which is ever so important here.

Huang Jin, a native Beijinger and longtime friend, explained it this way: “If you drive a late-1980s-model Japanese car, people will not want to do business with you. Your car suggests how much you are worth and, by implication, whether you are worth doing business with.”

He drives an Audi A8 that’s jet black, with all the trimmings. [Given his objective, the A8 was apparently an excellent choice. Its U.S. marketing tagline says that "(even) motionless, it still commands respect."]

Another friend of mine, Luo Xin, puts a different spin on things. The way he sees it, the car he drives makes a statement about who he is – which is why he craves the sporty, futuristic proto-types that were all over the Shanghai exhibiting center this week as part of the Auto Shanghai 2009 auto show.

“Why not dream?” he says. “The new stuff suggests that I’m hip and gives prospective wives the image that I am successful, enjoy my life and think about the future.”

Julian Hardy, who serves as general manager for Aston Martin China, recently told the China Daily newspaper that China’s mega-rich may have lost 1 billion yuan (about  $146 million), but adds that they’ve “still got 5 billion ($730 million) left.”

Aston Martin, long the preferred ride of fabled super spy James Bond, sold 50 cars here last year and sales may hit 150 within the next 12 months. It’s a similar story with Lexus. The company’s newest Shanghai store has already sold 20 cars since opening in mid April. And Ferrari, BMW (Bayerische Motoren Werke AG), Porsche (Porsche Automobile Holding SE), and any of a half dozen other high-end brands are finding a market among China’s emerging consumer class.
China recorded 15 billionaires last year, as well as several hundred thousand millionaires, so this is not a trend that’s going away anytime soon.

At the other end of the spectrum, low-end cars continue to move at record pace, too. Last year, we told readers that General Motors Corp.’s (GM) Buick line, Ford Motor Co. (F) and Volkswagen AG (OTC ADR: VLKAY) produce the lion’s share of the small, sporty and fuel-efficient models sold here. At the time, I suggested that it wouldn’t be long before Chinese automaker’s like Geely Automobile Holdings Ltd., Red Flag (or Hong Qi, as it’s known to its China customers), and BYD Co. Ltd., have come up to speed.

In fact, the MidAmerican Energy Holding Co., which is roughly 88% owned by the Berkshire Hathaway Inc. (BRK.A, BRK.B) investment vehicle run by U.S. stock-market icon Warren Buffett, announced in October that it would pay roughly $230 million for a 10% stake in BYD, which makes cars and specialized batteries.

I originally thought it might take as long as 24 months for China’s domestic automakers to really get traction, but somehow I have not been surprised to see how quickly the markets have evolved to accommodate utilitarian cars that are “basic transportation” in words only. Why Detroit can’t do this is beyond me; the so-called  “Big Three” would be wise to take an extended field trip over here to learn how to get back into the ballgame.

A few years ago, I suggested that China would overtake the United States as the world’s largest car market. Now China’s done it not once, but for the last three months in a row, with sales reaching a record 1.1 million. Incidentally, at the same time I made that prediction, I also suggested that one or more of China’s automakers would enter the U.S. market. Now it’s all but a foregone conclusion. So stay tuned.

When it comes to cars – or to any other product or commodity for that matter – China’s newly moneyed class is not going away anytime soon. The estimated 330 million people in this country’s broad middle class continue to amass economic purchasing power at a rate that will exceed the capability of their counterparts in the U.S., Japanese and Eurozone markets combined during the next 12 months.

The bottom line: Investments focused on the ambition of China’s emerging consumer class may prove to be some of the best available in the coming post-financial-crash environment.

Chinese iron-ore demand creates money-making opportunity for one company… and a few lucky investors…

Reconstruction of earthquake damage in Sichuan is shooting the demand for iron ore higher than the total supply in China right now. The country is importing like never before, and using this dry bulk shipper to get the materials there. This company is super cheap by all value measurements, and is poised for a double. See how you can profit by clicking here.

Source: While the Rest of the World is Stuck in Reverse, the China Auto Market Zooms Ahead

[Editor's Note: Money Morning Investment Director Keith Fitz-Gerald is one of the world's leading experts on Asia, especially China. Right now, Fitz-Gerald is leading an investment tour of the Red Dragon, and he'll be sending along regular investment travelogues to update Money Morning readers on his latest observations. This is the second installment of that series.]

Consider the airport. While more subdued than it was just prior to the 2008 Summer Olympic Games, it’s still humming. And the airplane on the flight over here was packed, with nearly a vacant seat in sight. Of course, having my luggage actually beat me to the carousel was a big plus – just like it always is. There’s a policy that all bags are unloaded in 12 minutes.

From my hotel room in the Beijing Central Business District, I can see no end of sleek black cars, including the latest VWs, BMWs, Audis and Toyotas. Even Mini Coopers are becoming a common sight. But to many a guy’s dismay. According to my friend Chris Choi, a longtime Beijinger, the girls actually prefer big SUVs, including Range Rovers, Toyota FJs and, of course, the ubiquitous Jeep.

Speaking of cars, the Shanghai auto show kicked off here in China with the world’s automakers vying to get a foothold in this market, which is one of the fastest-growing in the world. Volkswagen AG (ADR: VLKAY), Porsche SE (soon to have closer ties to VW), Bentley Motors Ltd. are all here – and are enjoying record sales in China.

Some carmakers – such as China’s Geely Automobile Holdings Ltd. – are making noises about their global ambitions, too. To those who think that’s unlikely, take a moment to remember how dismissive American consumers were about the prospects of Japan’s automakers back in the late 1960s or early 1970s. And now Japan dominates the American market.

Are you listening, Detroit? I hope so.

I took a quick stroll around the block to shake off some jet lag. In that short time, I noted two new malls filled with Prada, Gucci, Versace and other upscale brands. Gone are the Citigroup Inc. (C) advertisements, but in their place are Deutsche Bank AG (DB) branches, as well as those of domestic China banks, which remain spectacularly liquid – meaning they’ve escaped the vast majority of the credit-crisis contagion.

Then there’s the media. Recent liberalization of media ownership and usage requirements have created a form of Wild West capitalism that our industries once dreamed about, but now only visit in the museums of their boardroom minutes. With ownership restrictions being substantially relaxed, companies that possess global brands are stepping up their efforts to reach consumers through increasingly direct advertising channels that are already making them known.

I’m excited about what I expect that I’ll be able to bring you over the next several weeks.

Stay tuned.

Source:  Despite Rumors to the Contrary, Beijing Economy Continues to Boom

[Editor’s Note: Money Morning Investment Director Keith Fitz-Gerald is one of the world’s biggest experts on Asia, especially China. Right now, Fitz-Gerald is leading an investment tour of the Red Dragon, and he’ll be sending along regular investment travelogues to update Money Morning readers on his latest observations. This is the first installment of that series.]

• Royal Bank of Scotland plc (ADR:RBS) said it may eliminate as many as 9,000 additional jobs to curb costs and repay $3.7 billion in government bailout money over the next three years. The bank said the actual number of losses may be “significantly lower” because of efforts to shift employees to new positions, Bloomberg reported.
• The number of delinquent mortgages rose 7% in February, with 39.8% of subprime borrowers at least 30 days behind on their mortgage payments, Dann Adams, president of U.S. Information Systems for Equifax Inc, told Reuters. “I’m trying to find optimism in these numbers, but I’m pretty hard pressed to do that,” Adams said.
• After contract negotiations stalled, Rio Tinto Group PLC (ADR:RTP) offered Asian steelmakers a 20% discount on its iron ore, well below the 40% to 50% discount Chinese steelmakers demanded, four executives close to the deal told Bloomberg. Some Chinese mills already rejected the offer from Rio, the world’s second-largest iron ore producer.
• Retailers are expected to post a 0.3% drop in same-store sales in March. Excluding Wal-Mart Stores Inc. (WMT), that figure would be a 4.7% drop, according to Thomson Reuters data. “We don’t see any signs of significant improvement with the exception of a continued full-fledged flight to value retailers,” said Craig Johnson, president of Customer Growth Partners, a retail research firm.
• The number of Latin American companies whose ratings have negative outlooks or are under review for a downgrade has jumped to 23% from 10% in September and more than half have “high exposure to funding risk,” Moody’s Investors Service reported yesterday (Tuesday).  The region’s companies are struggling to refinance debt as the financial crisis reduces access to credit and slowing economic growth crimps earnings, according to Moody’s, Bloomberg reported.
• A survey of U.S. chief executives released yesterday (Tuesday) showed two-thirds plan additional layoffs and expect sales to decline in the next six months as their confidence in the economy continues to fall, Reuters reported. The Business Roundtable’s quarterly CEO Economic Outlook Index fell to negative 5 – the first negative reading in the survey’s six-year history – and down from a fourth-quarter reading of 16.5. A reading below 50 means CEOs expect contraction rather than growth.
• Private equity firm Colony Capital LLC is in talks with MGM Mirage (MGM) to help refinance the casino company’s debt, two people with knowledge of the discussions told Bloomberg. Colony may invest as much as $750 million in corporate debt secured by a lien on one or more of MGM Mirage’s casinos, the anonymous sources said.  An investment in CityCenter, MGM Mirage’s unfinished Las Vegas Strip project with Dubai World, is unlikely.
• Worldwide sales at Audi fell 10.7% in March from a year ago, but the German carmaker managed to increase sales in China, Reuters reported Monday. Audi, a Volkswagen AG (OTC:VLKAY) unit, sold 90,400 cars worldwide in March as sales fell 12.9% in Western Europe but rose 6.6% in China. “The trend is positive: Our monthly results have been continually improving since January,” said Peter Schwarzenbauer, the manager in charge of marketing and sales at Audi.

Source: Global Investment News Briefs Wednesday, April 8, 2009

Obama previously estimated that his estimated $800 billion strategy for winching the American economy out of its year-long recession could save or create 3 million jobs, but the new study has found that the actual number would range between 3 million and 4 million.

The analysis was submitted by Christina Romer, head of Obama’s council of economic advisors, and Jared Bernstein, the economic advisor to Vice President-elect Joe Biden. The analysis directly follows an official government report showing that U.S. employers slashed more than half a million jobs in December, pushing the unemployment rate to 7.2% and bringing the number of jobs lost last year to 2.6 million — the worst showing since 1945.

“The jobs we create will be in businesses large and small across a wide range of industries,” President-elect Obama said on his weekly radio and Internet address. “And they’ll be the kind of jobs that don’t just put people to work in the short term, but position our economy to lead the world in the long term.”

With President-elect Obama’s inauguration set for Jan. 20 – a week from tomorrow (Tuesday), expect around-the-clock discussions about the stimulus package (and potential tax cuts), as the political bickering begins in earnest.

Because of the plan’s high cost and proposed tax cuts, Obama has faced opposition from Republican and Democratic lawmakers. The incoming president’s top aides visited Capitol Hill on Friday to attempt to allay lawmaker concerns. The plan would combine the tax cuts, aid to states and public-works projects.

Obama said his plan would create nearly 500,000 jobs by investing in clean energy, by committing to double the production of alternative energy in the next three years and by improving the energy efficiency of 2 million American homes. However, he also warned yet again that the economy is likely to get worse before it gets better and that any recovery will not happen overnight.

“These made-in-America jobs building solar panels and wind turbines, developing fuel-efficient cars and new energy technologies pay well, and they can’t be outsourced,” Obama said during his address.

In excerpts from an interview with ABC News to be broadcast on Sunday, President-elect Obama said Americans will have to scale back and make personal sacrifices.

“I want to be realistic here, not everything that we talked about during the campaign are we going to be able to do on the pace we had hoped,” he said in a taped interview with ABC’s “This Week with George Stephanopoulos.”

“Everybody’s going to have (to) give,” Obama said.

Obama also said the proposal:

• Showed the recovery plan would put nearly 400,000 people back to work repairing infrastructure like crumbling roads, bridges and schools and adding miles of broadband network cable.

• Would include bipartisan extensions of unemployment insurance and health care coverage, a $1,000 tax cut for 95% of working families, and assistance to help states avoid deep-and-painful budget cuts in essential services like police, fire, education and health care.

“We won’t just create jobs, we’ll also provide help for those who’ve lost theirs, and for states and families who’ve been hardest-hit by this recession,” Obama said.

Investors will be tested in the coming weeks as earnings season approaches and corporations share their “gloom and doom” of the past quarter – Intel Corp. (INTC) and Wal-Mart Stores Inc. (WMT) offered investors a sneak peak.

The monthly inflation gauges should depict additional energy price contraction, which actually has served as an unofficial stimulus package at the pumps (though no one ever talks about it).  Traders who thought oil had set a floor around $40 a barrel may have to reassess their views. Cuts by the Organization of Petroleum Exporting Countries (OPEC), Middle East turmoil, Russian/Ukrainian disputes … nothing seems capable of halting the slide in oil prices.

Instead, the eternal pessimists focus on deflation, fearful that consumers will hold off on all purchases (regardless of pricing) and the economic downturn will continue well into 2009.  On that note, the retail sales data should offer few positive surprises.  At least, that new “chief performance officer” represents job expansion. But as Money Morning’s investing gurus have demonstrated, it is inflation – not deflation – that will be the big worry.

Market Matters

Six days and counting. Just how will equities perform in 2009? According to the January Effect: As the first five days of January go, so goes the market for the year. Often investors sell stocks late in the year to lock in capital losses. When they reinvest during the first five days (stocks rise), they believe the markets will increase and look to take advantage of the appreciation. When stocks fall during that week, investors are less optimistic about the future of the markets. In 2008, both the Dow Jones Industrial Average and Standard & Poor’s 500 Indexes dropped by more than 5% during the initial five trading sessions, a highly negative (but accurate) precursor of the year to come.  However, in 2009, the predictor turned out to be less clear; the Dow dropped by 0.39%, while the S&P 500 rose by 0.72% (though both were lower after Day Six).  The market uncertainty continues into the New Year.

In corporate news, published reports state that Citigroup Inc. (C) and Morgan Stanley (MS) are looking to combine their brokerage units. Morgan Stanley could pay $2 billion to $3 billion or more for a controlling stake in Citigroup’s Smith Barney retail brokerage business.

Terms of the deal are still being worked out, sources familiar with the matter said, adding that Citi may put its toxic assets into a separate unit as a preliminary step toward shedding them.

Under the current plan, Citigroup and Morgan Stanley would set up a joint venture for their combined retail brokerage businesses. Morgan Stanley would own 51%, control the venture, and would expect to buy Citigroup’s remaining share over the next five years.

The cash would be a big boon for Citigroup, which is under tremendous pressure from the U.S. government to shore up its balance sheet after taking $45 billion of government capital in October and November, the sources told Reuters.
The bank is considering multiple options in addition to the Morgan Stanley deal.
“Everything is on the table,” the sources said.

Dismantling the rest of Citigroup would be difficult, since not many are in the market for big-ticket financial assets now. A few smaller businesses or groups may be sold off – Citi has internally discussed the possibility of selling its Banamex Mexican banking unit, for example. But splitting up Citigroup completely is unlikely.

Wal-Mart Stores, Inc. (WMT) joined the ranks of depressed retailers by missing December sales projections and then cut its outlook for the quarter.  Toyota Motor Corp. (ADR: TM), General Motors Corp. (GM) and Ford Motor Co. (F) reported sales declines of 30% (or more) last month, while Volkswagen AG (ADR: VLKAY) and Bayerische Motoren Werke AG announced plans for greater expansion in the U.S. market to take advantage of their struggling domestic competitors.

Alcoa Inc. (AA) added to the gloomy unemployment picture by reducing its work force by 15,000 jobs. Intel again warned that the economy is hindering its operations as consumers and businesses shy away from technology purchases.  Indian high-tech giant Satyam Computer (ADR: SAY) pulled a “Madoff” by informing investors that its chairman had been falsifying financial results and exaggerated his $1 billion cash balance.  Even Madoff himself was appalled (as he attempted to mail $173 million of checks to loyal investors and send $1 million in jewelry to friends and family).

Oil surged above $48 a barrel early in the week as war escalated in Gaza; however, a mid-week report depicted higher-than-expected inventories and prices plunged 12% in a day – and ultimately dropped below $40 for the first time in 2009.

Stocks gave back those gains from the first trading day as investors (over)analyzed the retail numbers and other data. On the fixed income front, bond investors appear more willing to accept risk as $750 million flowed into high-yield (junk) funds during the last two weeks of 2008.

Economically Speaking…

So what’s $1.2 trillion between friends? After entering office with a budget surplus, the fiscally conservative President Bush will leave his successor with a $1.186 trillion deficit (that is sure to rise with the afore-mentioned Obama stimulus package). For his part, Obama promises to “put government on the side of taxpayers and everyday Americans” as he created a new position – chief performance officer – to eliminate waste wherever it exists in the federal budget.

Good luck with that, Mr. President (elect).

While the economic calendar was quite hectic, economists and investors alike eagerly awaited (rather, reluctantly feared) the late-week unemployment and non-farm payroll releases. In December, the jobless rate surged to 7.2%, its highest level in 16 years, as another 524,000 jobs were eliminated from the economy.

For all of 2009, 2.6 million jobs were lost, the biggest contraction since 1945, though the labor force has tripled since that time. While new claims for unemployment benefits has shown some improvement over the past few weeks, continuing claims rose to a 26-year high, revealing that laid-off workers are having significant difficulties finding new jobs during the recession.

Factory orders fell for the fourth straight month as the weak (and getting weaker) auto sector continued to restrict any progress in manufacturing.

Consumers borrowing declined by a record amount in November, as individuals remained afraid to make any purchases or add to debt positions during these dire times.  Unfortunately, the surest way to work our way out of this recession is for those individuals and businesses (who are able) to pour money back into the economy and that is simply not happening. The minutes from the December U.S. Federal Reserve meeting were released and policymakers appear highly pessimistic about growth prospects for 2009 and implied that rates could remain just above 0% for the foreseeable future.

Meanwhile, the Bank of England cuts its rate to the lowest level in its 315-year history.

Weekly Economic Calendar

Source: $800 Billion Obama Stimulus Will be Topic of Debate Through Inauguration

• German manufacturing and engineering titan MAN AG said it will acquire Volkswagen Truck and Bus from Volkswagen AG (OTC: VLKAY). The 250-year-old MAN AG is Europe’s third-largest truckmaker, and this purchase marks its first major South American investment, Bloomberg reported.

• Siemens AG (ADR:SI) will pay more than $1.3 billion to settle corporate corruption charges that it paid bribes to win major contracts in the United States and Germany. The scandal resulted in the resignations of former CEO Klaus Kleinfeld and ex-CEO and former supervisory board Chairman Heinrich von Pierer, Reuters reported.

• Mattel Inc. (MAT) will pay to settle a probe that its Chinese-made dolls and accessories shipped to the United States were made with lead paint. The toys never made it to the shelves, but the world’s largest toymaker will pay $12 million to the 39 states in the suit, Bloomberg reported.

• Irish banks will be on the receiving end of a $13.5 billion (10 billion euro) investment from the Ireland government, MarketWatch reported. The recapitalization plan may take the form of preference or ordinary shares, the government said in a statement. And the list of banks that will receive the cash has not been determined.

• The National Association of Home Builders/Wells Fargo housing market index remained at nine in December for the second month in a row, indicative of the pessimistic outlook permeating the market.  Index readings higher than 50 indicate positive sentiment about the market. It has slumped below 50 since May 2006 and has been below 20 since April.

• The Boeing Co. (BA) yesterday (Monday) increased its quarterly dividend by 5%, or 2 cents, to 42 cents. The aerospace and defense dividend is payable March 6, 2009 to shareholders of record as of Feb. 6, 2009.

• Homes in the United States will lose more $2 trillion dollars in value by the end of the year, and nearly 11.7 million American households currently owe more on their mortgage than their homes are worth, Reuters reported yesterday (Monday). “In general, homeowners in most areas we cover are struggling with foreclosures pouring into the market, large amounts of negative equity and dropping home values,” Dr. Stan Humphries, vice president of data and analytics for Zillow Real Estate Market Reports, said in a statement.

Source: Global Investing Roundups Tuesday, December 16th, 2008

“The definition of stupidity is doing the same thing over and over again and expecting different results,” said Albert Einstein.

The best thing that could happen to the auto industry is the Big Three filing for bankruptcy protection. As a former turnaround professional, I am convinced that the tools afforded by the bankruptcy courts would allow these companies to restructure dramatically, thus allowing them to renegotiate and drastically lower most of their liabilities. Management would be overhauled, pensions renegotiated, union agreements tabled and made more flexible. Everything that these three companies have attempted to do for years, and could never achieve, would now be possible.

So, why in the world is management siding with the unions in their appeal to Congress?

Because under bankruptcy protection, management becomes accountable to the court, many of their perks and benefits would be curtailed, and they could, heaven forbid, even lose their jobs.

The auto industry, its unions and allies are therefore quick to point out that they, too, are “too big to fail” (have we heard that before?), that the American economy would not recover from the job losses and the economic impact of failures that would have far-reaching implications.

The Center for Automotive Research (CAR) has just released a comprehensive study on the impact of a 100% failure of the Big Three in the U.S.:

• In the first year, the U.S. economy would lose 3 million jobs (about nine additional jobs for each auto worker that is laid off). It would lose another 2.5 million in year two and 1.8 million in year three.
• U.S. personal income would decline by over $150 billion in the first year and another $250 billion in the next two years.
• Our government would also lose $60 billion in 2009 and almost another $100 billion in the next two years.
• We would lose a piece of Americana (those of you who are nostalgic for the good ol’ days might enjoy the following video clip: http://www.youtube.com/watch?v=KGZvQoPxhNs)

I agree – it poses a very grim scenario.

In fact, Senate Bill Sec. 402 seeks to “(C) preserve and promote the jobs of 355,000 workers in the United States directly employed by the auto industry and an additional 4,500,000 workers in the United States employed in related industries; and (D) safeguards the ability of the domestic automobile industry to provide retirement health care benefits for 1,000,000 retirees and their spouses and dependents.”

Obviously, the $25 billion approved by Congress on September 24, 2008 is already falling short. It is clearly not enough to deal with a problem of that scale and, the car makers lament, needs to be doubled immediately. But in case you wonder, the industry and its unions do reserve the right to come back for more…

So let’s review some of CAR’s assertions in light of what we know:

Auto sales are forecast to decline from 16.1 million in 2007 to 14.9 million in 2008. 2009 can be expected to be much worse. Spending on capital goods such as cars and trucks will be affected long-term as a result of excessive consumer debt, tighter credit terms, higher unemployment, and a serious recession (or depression).

If car sales decline dramatically, manufacturing capacity has to be reduced to match demand. This means that the less productive plants would be shut down, employees laid off, and that the supply chain would have to adjust accordingly. This is basic economics so far.

Now comes our choice: On the one hand, we have some highly productive global manufacturers that produce fuel-efficient vehicles the U.S. consumer wants and can afford to buy. On the other hand, we have three inefficient companies that produce unattractive gas guzzlers and are plagued with high legacy costs and liabilities (Big Three workers make $73/hr, Toyota’s $48, the average manufacturing worker makes $32). Why should U.S. taxpayers subsidize these losers? Is it so that they can continue to compete unsuccessfully with productive manufacturers and avoid any dramatic (and much-needed) changes in their way of doing business?

In light of the fact that throwing good money after bad almost never works out, I think the U.S. taxpayers should not bail out GM, Ford, and Chrysler. A common-sense alternative would be to save our tax dollars and allow the most efficient manufacturers to gain market share and hire more workers. Ultimately the U.S. market will post sales of 12 to 15 million cars annually. If it takes one, two, or three million fewer workers to produce the cars U.S. consumers can afford to buy, so be it.

A farmer with one modern wheat combine can do the job of a thousand 18th century farm hands. That is a lot of unemployed farm workers, yet nobody demands to return to those good old days. Productivity and efficiency do result in job losses and dislocation, but eventually progress creates new jobs and additional wealth.

Whether a Honda, GM, Toyota, Ford, Hyundai, or VW, currently each and every car still requires one engine and four wheels. Each manufacturer uses basically the same domestic and overseas suppliers, and each has dealers selling its cars (most dealers represent a broad spectrum of brands and will sell whatever car the market wants). The argument that GM closing its doors would result in the loss of 2 million jobs or more is ludicrous as the competitors that pick up the slack will hire workers and buy more from their suppliers. While that may not be good for Detroit, it may be good for the Carolinas or Tennessee.

Simply, business shifting from certain players in the industry to others is called competition. Capitalism and competition are the forces that have made the U.S. the most successful economy for many decades. Granted, it is a harsh reality, but it works, and so far no other system has come even close to creating as much wealth for most of its agents.

Anyone who follows our flagship newsletter, The Casey Report, knows our stance: we hope, most likely in vain, that the new administration will finally come to the realization that no entity is too big to fail. Besides, bankruptcy reorganizations have a much greater chance of success with larger corporations, as they usually have lots of assets to dispose of — assets that can be sold cheaply to new enterprises, which are then able to build businesses on a much sounder basis. In the process, there is innovation and progress.

The choice is clear: Either the Obama administration can continue on the path of nationalizing entire segments of our economy (so far banking, insurance, auto – next, health, airlines…) and run them into the ground. Or it can let poorly managed companies fail, thereby making it easy for successful businesses and new entrepreneurs to buy the assets of these organizations. Step back and let the markets work their magic instead of blaming the market for ills that were created by special interests and poorly designed regulations.

Source: Should the Big Three Be Allowed to Fail?