Uncommon Wisdom : Asian Investment, Invest

A Better Way to Profit from the Social-Networking Craze

Tony Sagami — Fri, 04 May 2012 15:56:00 GMT

Whether or not you’re one of the estimated 526 million people who use Facebook on a daily basis, you simply can’t ignore the fact that it generates more than 3 billion “likes” and comments on a daily basis.

Social networking is clearly ingrained in our culture. So, it would make sense to invest in this seemingly unstoppable trend, right?

Not so fast. There are many reasons why investing in this hot IPO may NOT provide the direct line to profits that many of its early investors are anticipating.

Even though this U.S.-based site is used worldwide, there’s a better way to tap into social media’s reach to access a wealth of opportunities overseas. Today I’ll show you why ... and give you the name of a company that offers a real growth story — one you might find too good not to “share”!

Facebook Earnings: Not Much to ‘Like’

Even though Facebook is still technically a “private” company — as it should float its IPO sometime in the last half of May — it does have to disclose its financial information to the Securities & Exchange Commission between now and the time it sells its IPO.

The company just reported its first-quarter results, updated its S-1 pre-IPO paperwork, and gave investors an advance peek of how blazing-fast it is growing its business. However, the Facebook numbers I saw were ... well ... uninspiring.

To put it into Facebook-friendly terms, I’d hit the “dislike” button on the company’s earnings ... if one existed, of course. To me, its newest figures were a clear sign that the company isn’t growing nearly as fast as it once was. Here’s what I mean.

First, Facebook was able to grow its revenue in the first three months of the year to $1.06 billion, a 45% year-over-year increase compared with the first quarter of 2011. Moreover, 45% may sound like a lot but it is a FRACTION of the growth that Facebook enjoyed in 2011 and 2010, at 88% and 154% respectively.
What didn’t get a lot of attention was the news that revenues actually DROPPED by 6.5% from the fourth quarter of 2011. Facebook blamed that drop on “seasonal trends” but that is a hollow excuse.
Profit growth was even uglier, FALLING by 12% to $205 million compared to the $233 million it earned a year earlier.
One of the key, critical metrics is the average revenue per user, or ARPU, because it tells you how effective Facebook is at turning its members into revenue-producing customers. An eyeball or page view doesn’t mean squat unless advertisers are willing to pay money to reach them. Sadly, Facebook reported a 6% year-over-year increase and yet a very disappointing 12% DECLINE from the fourth quarter of 2011.
Growing sales is one thing. Keeping a tight lid on expenses is another thing, as snowballing costs are often what kills companies that grow too fast. Facebook reported a gigantic increase in expenses, rising from $343 million in Q1 of last year to $677 million this quarter. That’s nearly double the expenses!

Plain and simple, those numbers are awful, especially given the IPO on the very near horizon. You can bet your boots that the people running Facebook were doing everything legally possible to goose their numbers and make their company look as bright and shiny and pretty as possible.

In short, producing a blowout first quarter of 2012 was its top priority ... and these mediocre numbers were the best they could do?

And that’s the good news for the past quarter, unfortunately.

Instagram Acquisition: Picture-Perfect or Out-of-Focus?

Don’t forget about Facebook’s decision to pay $1 BILLION for a 13-person company with practically no revenues. Its Instagram purchase strikes me as insane and bubble-esque in a dot-com sort of way.

Instagram claims 30 million registered users ... but it is a free application, is NOT ad-supported and has no revenue stream at all.

There is no way that a mobile app where you just take a photo and share it can be worth that much. Worse, it makes me worry that Facebook’s management may squander its IPO billions on other dumb acquisitions.

Oh, and Facebook issued another 23 million new shares to fund the Instagram purchase. Can you say “shareholder dilution?”

Might This Free Service Cost Even Early Investors Dearly?

Lastly, Facebook is incredibly expensive. If you use the valuation that Facebook itself used to pay for Instagram, you come up with a market cap of $104 billion. If you then annualize the most-recent quarterly net income of $233 million, you come up with a price-to-earnings ratio of 89-to-1.

Yup, a P/E of 89.

To give you some perspective, Google (Google) and Apple (AAPL) are selling for 18 and 17 times earnings, respectively.

Facebook ad revenue is falling off a cliff.

No question, Facebook is extremely expensive, especially given the slowdown in sales and profits.

Given that, I suspect that Facebook will enjoy a nice jump after it goes public. The hot-money crowd is always looking for the newest rocket ship, and Facebook will attract the momentum money like moths to a flame.

Could it already be too late for a Facebook investment to pay off, before you make it?

There’s a less-expensive investment route you can travel, with more available upside to play the social-media space. Best of all, it’s in a market that’s far-less-saturated, but one that’s set to follow in its western counterpart’s very big footsteps.

Plus, you don’t have to wait for the early investors to take first crack at it — it’s already available to trade!

Forget the Facebook IPO; Tap into the ‘Facebook of China’ Instead

Who’s to say if Facebook will flame out later, but there is no question in my mind that there are better ways to profit from the booming social-networking craze.

And here is where Asia comes in.

I’m talking about Renren Inc., a Chinese social networking Web site that is essentially the “Facebook of China.”

Renren is a Chinese operator of a social-networking platform that enables users to communicate and share information. It is more than just a social-networking site; it also has a video-sharing Web site 56.com, a leading social commerce site Nuomi.com, and an online games center.

Renren is just like Facebook, but better in a couple ways.

It has a market cap of $2 billion, which is peanuts when compared to Facebook’s anticipated valuation of $100 billion. Renren simply has more upside.

Facebook's massive user growth shows signs of slowing. (Source: Minyanville.com)

Renren pulled in $120 million in revenues in 2011 versus $3.8 billion for Facebook. While Renren is not as big as Facebook, it certainly has more room to rise, as Chinese social-media growth is much stronger than social-media growth in developed nations where Facebook operates.
Renren grew from 110 million active users at the end of 2010 to 147 million active users at the end of 2011. That’s a 33% year-over-year increase in active users, which happens to be identical to Facebook’s growth.
Renren is trading in the low-$6 range which gives it a P/E of 45. Expensive, right? Yes, but as I said above, Facebook is selling for almost double the valuation at 89 times earnings.
The company has $1.2 billion, or $3.05 a share, in cash — about half of the current share price. If you back out that cash, the entire company is being valued at an extremely cheap $1 billion.

By almost every measure, Renren is just a better value than Facebook.

Renren, by the way, is traded here in the United States under the ticker symbol RENN.

Now, I’m not suggesting that you rush out and buy Renren tomorrow morning or buy Facebook after it goes public. As always, timing is everything so I recommend that you wait for my buy signal in Asia Stock Alert.

There is, however, a bundle of money to be made from the social-networking bonanza. Both stocks are very worth your attention — and, depending on the stock, perhaps also your money.

Best wishes,

Tony

P.S. My Asia Stock Alert members were up on 8 of the 9 trades they closed so far in 2012. I’m not talking wimpy returns — they just closed out a position for up to a 226% return, and this came shortly after closing out a $200 gain in just seven months! See how individual companies are profiting from Asia, and how you can too, by clicking here now!

One Region, 10 Countries — Infinite Profit Opportunities!

Tony Sagami — Fri, 06 Apr 2012 17:59:00 GMT

Chinese stocks started off with a bang this year, rallying by 10% in January and February, but struggling since Premier Wen Jiabao lowered China’s 2012 GDP growth forecast from 8% to 7.5% on March 5.

Since then, a growing number of analysts and China observers have turned cautious on China. The most recent naysayer was the Asian analyst from Bank Julius Baer & Co.:

“In the coming three months, the rally has ended. The economic slowdown will continue for a while and there are over-expectations on policy. It’s a fact that the economic slowdown in China is negative on profitability.”

This comment came on the heels of two pieces of worrisome data that came out of China last week.

Trouble Sign No. 1: The National Bureau of Statistics reported on March 27 that profits of Chinese industrial companies reported a composite loss of 5.2% in the first two months of 2012. That is a huge turnaround from a 34.3% gain a year earlier.

Trouble Sign No. 2: The year-over-year increase in profits from companies that have reported results so far has been 17% on average. That is 3.6% below expectations and way, way below the average 38% increase in the previous year.

Time will tell whether the above signs are the tip of the iceberg or just a short-term bump, but there are still lots of reasons to be optimistic.

For example, most China worrywarts are overlooking just how cheap Chinese stocks have become. On a valuation basis, Chinese stocks have become very attractive. The average Chinese stock is now selling for only 9.5 times earnings.

Perhaps more importantly, the all-time low price-to-earnings (P/E) valuation for Chinese stocks in 8.9 times earnings, so we may soon be staring at a great buying opportunity.

Compared to U.S. stocks, China looks even cheaper. Stocks in the S&P 500 are selling for an average of 13.5 times earnings, which means that Chinese stocks are 29% cheaper than U.S. stocks as measured by P/E ratios.

You tell me: Are Chinese stocks a better value than U.S. stocks?

Sure, the reasons to invest in China may be a bit less-compelling these days, and some investors may be reluctant to put new money in Chinese stocks. But whether you are a China bull or a China bear, you shouldn’t forget that there is a lot more to Asia than just China.

In fact, some of China’s neighbors are among the most-prosperous countries in the world, the fastest-growing economies in the world, and offer some of the most-attractive investment opportunities in the world.

No, I’m not talking about South Korea or Japan. I’m talking about the ASEAN nations.

One Region, 10 Countries —
Infinite Profit Opportunities!

Source: Alphaprofit.com

Few American investors have heard of the Association of Southeast Asian Nations, or ASEAN, but it is a powder keg of opportunity.

ASEAN is a geo-political and economic organization of 10 countries located in Southeast Asia that are working together to cross-promote each other’s economic and humanitarian growth.

ASEAN was formed in 1967 when the leaders of five countries — Indonesia, Malaysia, Philippines, Singapore and Thailand — joined forces in an effort to promote economic coordination and regional free trade.

Source: ETFdb.com

The membership base has changed over the year, adding Brunei, Burma/Myanmar, Cambodia, Laos and Vietnam.

With a population of almost 600 million people, the ASEAN region has an economy bigger than India. Plus, it has aggregate stock market capitalization of $1.8 billion, making it larger than both India and Brazil.

The ASEAN region is thriving thanks to low labor costs, rich natural resources, strong relationships with China and a wave of economic liberalizations that have encouraged foreign investment.

The ASEAN countries are a major force in international trade (hitting US$1.5 trillion last year). But its largest trading partner is China.

ASEAN did US$178 billion worth of trade with China last year, but that number jumps by another $68 billion if you include Hong Kong.

Is it Time to Follow
These Money Flows?

The so-called “smart money” — institutional and corporate money — is pouring into the region. Foreign direct investment (FDI) into ASEAN has tripled in the last three years.

If you want to follow that institutional money in ASEAN, it is easy with the Global X FTSE ASEAN 40 ETF (NYSE:ASEA), which is the first ETF to focus on this region.

This ETF aims to replicate the performance of the FTSE/ASEAN 40 Index, an index that is made up of the 40 largest companies in the original five ASEAN countries: Indonesia, Malaysia, Philippines, Singapore and Thailand.

Singapore has the largest weighting of the index with 41%, followed by Malaysia (33%), Indonesia (16%) and Thailand (9%). The Philippines makes up less than 1% of ASEA.

You should note that this ETF has zero exposure to Brunei, Burma/Myanmar, Cambodia, Laos and Vietnam. However, those markets are underdeveloped, shallow, extremely volatile and difficult for U.S. investors to buy into.

ASEA is heavily weighted with financial services and banks with 40% assets, followed by telecom (16%), industrials (15%), and consumer discretionary (11%) stocks. The largest individual holdings include DBS Group Holdings, Singapore Telecom and Oversea-Chinese Banking Corp.

Now, I’m not suggesting that you rush out and buy this ETF or any other stocks or funds that represent the ASEAN member regions individually. As always, timing is everything, so I recommend that you wait for my buy signal in Asia Stock Alert before jumping in.

However, the ASEAN countries are some of the most-vibrant economies in the world and a region that deserves some of your investment attention.

Best wishes,

Tony

P.S. Asia is bigger than just China, and that’s why the profit story unfolding in the ASEAN region is one I plan to follow closely in my Asia Stock Alert service. That’s why there's never been a better time to take my service for a risk-free test drive — join us today!

2 Easy Ways to Play the U.S.-China Trade Debate

Tony Sagami — Fri, 09 Mar 2012 19:13:00 GMT

The White House recently rolled out the red carpet for the next president of China, Xi (pronounced “shee”) Jinping, in what many called a “critical” visit for the United States to build relations with the man expected to assume China’s presidency in March 2013.

President Barack Obama hosted a lavish dinner for him, Treasury Secretary Hillary Clinton invited him to address the State Department, and the Pentagon honored him with a 19-gun salute. As part of his tour of the United States, Xi even squeezed in a visit to an American farm and attended a basketball game.

In Xi’s own words, he came to the United States “to deepen mutual trust and expand our cooperation.” And as Xi is preparing to lead his country, the U.S. presidential contenders are also eyeing the U.S.-China connection as a hot-button topic.

With China as our biggest creditor, and with a complicated relationship in place when it comes to trade, currency and other global issues, our two countries are deeply intertwined ... and will be for a long time to come.

Today we’ll look at some of those pressing issues, and I’ll also give you two ways you can potentially benefit from them as an investor.

Growing Trade, but
a Growing Imbalance

One of the stops on this trip was to Iowa, where Xi also visited on a 1985 trip to the United States when he was working to promote agricultural ties between the countries.

When it comes to how much the U.S.-China relationship had changed since then, he told The Washington Post: “When I visited the U.S. for the first time in 1985, our bilateral trade was merely $7.7 billion, and only some 10,000 mutual visits were made each year. Last year, our trade topped $440 billion, and mutual visits exceeded 3 million.” (You can read the full Q-and-A transcript here.)

That is certainly a huge increase, and something for both countries to be proud of, but Xi’s numbers don’t tell the whole story.

In 2011, the United States sold $103.8 billion worth of goods to China, but we imported $399.3 billion — a staggering $295.5 billion difference.

That trade imbalance is the largest nation-on-nation trade deficit EVER between two countries. Our trade deficit with China is 28 times bigger than it was during the Reagan administration and has grown by an average of 18% a year since China entered the World Trade Organization in 2001.

Those numbers are why China has been increasingly depicted as less of a trading partner than a rival by everybody — whether Republican or Democrat — who wants to be elected president of the United States next year.

Election-Year
Tough Talk

Obama and his administration have been very critical of China.

“I will not stand by when our competitors don’t play by the rules. It’s not right when another country lets our movies, music and software be pirated. It’s not fair when foreign manufacturers have a leg-up on ours only because they’re heavily subsidized,” Obama said in his State of the Union address.

Obama even created a Trade Enforcement Unit responsible for gathering evidence of unfair Chinese trade policies.

Even the historically free-trade Republicans are wagging their fingers at China.

Mitt Romney, appearing at a Toledo, Ohio, factory that makes fenceposts, claimed that China has hurt American businesses by “cheating” and keeping the Chinese yuan artificially low to gain a trade advantage over American businesses.

“By virtue of doing that and holding down their prices, they were able to put American businesses out of business and kill American jobs,” he said, adding that “If I’m president of the United States, that’s going to end.”

Romney continued, “On day one, I will declare China a currency manipulator, allowing me to put tariffs on products where they are stealing American jobs unfairly. We can compete when there’s a level playing field and we’d win. ... I’m going to insist that China plays by the same rules that everyone in the world plays by.

“We will not let China continue to steal jobs from the United States of America,” he warned.

Rick Santorum has emphasized China’s poor record on human rights, its one-child policy and its constraints on religious freedom, but he too has spit out some very tough trade talk.

“I want to go to (economic) war with China and make America the most-attractive place in the world to do business,” he said.

Santorum has issued perhaps the shrillest rhetoric of anybody when he said China has a policy of “godless socialism.” Ouch!

Newt Gingrich has been the least vocal of the Republican candidates, but he too has threatened to levy some trade sanctions against China if he becomes president.

“In terms of dealing with China strategically, I think we’re going to have to find ways to dramatically raise the pain level for the Chinese cheating, both in the hacking side, but also on the stealing and intellectual property side,” Gingrich said.

What Does All This China-Bashing
Mean to Us as Investors?

I actually think that all of this anti-China and trade sanction talk is just that — TALK — but the volume may be a little louder because of the 2012 elections. However, I don’t expect any substantial moves from either side.

What I do expect, though, is that (a) the U.S. dollar will continue to lose value, and (b) the Chinese yuan will continue to appreciate. And there is some money to be made by investing in those two trends.

If You Want to Bet
AGAINST the Dollar ...

Take a look at the PowerShares Deutsche Bank U.S. Dollar Index Bearish ETF (NYSE:UDN). This ETF is meant to track the Deutsche Bank Short U.S. Dollar Index (USDX), a benchmark composed solely of short U.S. dollar futures contracts. These futures contracts are designed to replicate the performance of being short the U.S. dollar against a basket of six major currencies.

If You Want to Bet
FOR the Chinese Yuan ...

I believe the easiest way to profit from an appreciating yuan is to invest in a currency ETF that follows the yuan, such as the WisdomTree Dreyfus Chinese Yuan ETF (NYSE:CYB).

This ETF is designed to appreciate in lockstep with the Chinese yuan against the U.S. dollar. If the yuan appreciates, you should make money.

Now, I’m not suggesting that you run out and invest in UDN or CYB tomorrow morning. As always, timing is everything, so I recommend that you wait for my buy signal in Asia Stock Alert.

There’s another way to play the long-term dynamics of the yuan to the dollar ... and in my Asia Stock Alert service, my subscribers are sitting on a nice 16%-plus gain in a conservative, low-volatility name that invests in the short-term AAA debt of the world’s strongest economies and monetary policies.

To get the full details, you have to be a member. But it’s easy to see how we’re playing the dollar’s move against other world currencies — simply click here to take the service for a test-drive today!

Best wishes,

Tony

Your Asia Profit Strategy for the Rest of the Year

Tony Sagami — Fri, 10 Feb 2012 17:23:00 GMT

In last week's video issue, we talked about the World Bank's discouraging view of Europe and the United States, and its optimistic view about China and its Asian neighbors.

This week two more international agencies, the International Monetary Fund (IMF) and the Asian Development Bank (ADB), rang a similar warning bell about western economies.

Today let's continue this discussion, and I'll also share with you three steps for protecting yourself — including one of my favorite ways to make money that can actually let you sleep well at night.

But first, let's talk about what the IMF had to say.

Back in September, the IMF forecast that the global economy would grow by 4% in 2012. It reduced this forecast to 3.3% last week in its new World Economic Update report.

Like the World Bank, the IMF expects conditions in Europe to get worse. In the best-case scenario, the IMF expects Europe to experience a recession. However, it warns that things could get REALLY UGLY if Europe's leaders fail to stop the runaway spending and come up with viable solutions to refinancing the current mountain of debt.

Olivier Blanchard, the IMF's chief economist, had this to say:

"The world recovery, which was weak in the first place, is in danger of stalling. But there is an even greater danger, namely that the European crisis intensifies. In this case, the world could be plunged into another recession."

That is a pretty pessimistic outlook, but that's NOTHING compared to what Christine Lagarde, the head of the IMF, had to say:

"It is about avoiding a 1930s moment, in which inaction, insularity and rigid ideology combine to cause a collapse ... The longer we wait, the worse it will get. The world must find the political will to do what it knows must be done."

Is this a picture of the past ... or the future?

A 1930s moment? Wow! What Ms. Lagarde is talking about is a Depression-era collapse that could spark a European financial meltdown.

Now, nobody knows how ugly things are going to get, but I believe there is little doubt that conditions in Europe are going to get even worse.

However, even though Europe has an impact on the global markets, it likely isn't going to bring all of them crashing down with it, should there be a collapse. In fact, despite its proximity to the euro mess, Asia is doing just fine ... in fact, it's thriving. This is why a chunk of your investing capital belongs in the companies that are set to grow right along with it.

Survey: Asia Growth Intact
Amid Euro-Zone's Troubles

Just like the World Bank, the IMF expects emerging markets to chug along just fine. The IMF forecasts the emerging countries will grow by 5.4% this year and 5.9% next year.

Of those emerging markets, the IMF was the most-positive about China, which the IMF expects to grow by 8.2% in 2012.

I don't know about you, but I'll take 8.2% growth over NEGATIVE growth every day of the week!

But let's just assume for a minute that the economists of the World Bank and IMF don't know what they're talking about. Instead, let's ask the people who run the largest corporations in the world what they think.

According to a new survey from PricewaterhouseCoopers, 48% of the 1,258 CEOs it polled said they expect the global economy to get worse in the next 12 months. Some 34% expect it to stay the same, and a small 15% say that the economy will improve.

What did these same CEOs say about China? More than half (51%) of them said they were "very confident" about the prospects for China.

Plus, the ADB knows a thing or two about Asia, since it loaned $17 billion to 40 developing countries there in 2011 alone.

Haruhiko Kuroda, the head of the ADB, forecasts Asian economies — led by China, India and Indonesia — will grow by around 7% in 2012. Kuroda also predicted that China will continue to lead Asia's growth in 2012, expanding its economy by more than 8%, followed by India at between 7% and 8%, and Indonesia at around 6.5%.

The ADB expects that Asian prosperity to last for a very long time. It estimates that Asia will account for about 52% of the global economy by 2050. Wow!

But you don't have to wait four decades to benefit from this tremendous expected growth.

Your Asia Investing Strategy
for the Rest of the Year

Unless you think the International Monetary Fund, the World Bank, the Asian Development Bank, and over a thousand of the most important CEOs in the world are completely wrong, you need to make Asia — especially China — an important part of your investment strategy.

Here are three steps to get you started:

First, reduce the amount of dollar-denominated assets you own. I'm talking about U.S. stocks, U.S. bonds and U.S. real estate.

Most of us can't do anything about our homes, but we can shift some dollar-denominated financial assets into the stocks and bonds of strong, growing economies such as China, Singapore, Malaysia and India.

Second, carry a stash of cash. Europeans don't have a monopoly on spend-too-much politicians. The U.S. has amassed $15 trillion in debt and the Congressional Budget Office expects to see a trillion dollars added each year for as far as the eye can see.

You need to build up a safety net of sleep-at-night cash. My favorite parking place is the Merk Hard Currency Fund (MERKX), which invests in the short-term AAA debt of the world's economies with the strongest economic and monetary policies. This fund is essentially a non-dollar money market fund with very low volatility.

To be fair, I need to disclose that my Asia Stock Alert subscribers already own this little-known gem of a fund and are sitting on a nice double-digit open gain. Join them now and you'll be among the first to get my top picks in this space.

Lastly, load up on hard assets. Hard assets are one of the few asset classes that could thrive if the European debt crisis accelerates and tanks western currencies.

The most obvious hard asset is gold, but don't forget about oil, rare earth minerals, poultry, cotton, cement, timber, copper, natural gas, wheat, potash and even water.

For example, my subscribers also own the largest silver producer in China, and the largest gold retailer in the world that happens to be sitting on a Fort Knox-type inventory of gold, as well as shares in the largest coal and palm-oil company in Asia.

Don't let yourself fall victim to the "inaction, insularity, and rigid ideology" that Lagarde warned about. Doing nothing is going to be a very painful decision.

I have little doubt, however, that you better adjust your portfolio to reflect the new dangers in Europe as well as opportunities that are now unfolding in Asia.

Best wishes,

Tony

An Unusual Way to Make Money from the Asia ETF Boom

Tony Sagami — Fri, 20 Jan 2012 16:59:00 GMT

Exchange-Traded Funds have become one of the most popular investment vehicles in America, and many Asian countries are jumping on the bandwagon.

But the best way to profit from this trend — and get exposure to the countries and companies driving the trillion-dollar ETF industry — might not necessarily be to invest in any of the 1,100-plus ETFs that have been created to date.

Today I am sharing with you the only pure play on investing in the industry itself. Watch the video to learn how ...

Best wishes,

Tony

P.S. This unusual ETF play is a great way to get quick, easy exposure to the Asian growth engine. But to gain access to my specific stock picks, targeting the individual companies I believe are best-positioned to outperform the markets, claim your spot in my Asia Stock Alert service today!

The Anti-China Rhetoric Is Picking Up

Tony Sagami — Fri, 04 Nov 2011 17:02:00 GMT

Before it was just the Obama administration, but now, just about everyone who is running in the 2012 Presidential race is jumping on the anti-China bandwagon.

The U.S. Senate is proud of a recently passed bill that will impose new tariffs on imports from nations with undervalued currencies. By a vote of 63-35, the Senate passed the Currency Exchange Rate Oversight Reform Act, which will permit issuing sanctions against countries if our Treasury Department concludes they are intentionally undervaluing their currency.

This bill might not target China by name. But it is squarely aimed at China, who is accused of keeping its currency intentionally undervalued to make its exports cheaper while hurting U.S. manufacturers and stealing American jobs.

The claim about stealing jobs is usually tied to the gigantic trade deficit that we run with China. Last year the deficit hit $252 billion, which was the largest between any two countries in the world.

Of course U.S. politicians and most Americans fail to acknowledge that the wage disparity between China and the U.S. — $1 vs. $23 — is the largest cause of the trade deficit.

Nonetheless, I believe that the Chinese currency is undervalued by around 20% to 40%. This holds true despite the fact the Chinese yuan has appreciated by 30% against the U.S. dollar since 2005 when China discontinued its peg against the greenback.

And the yuan is up another 5.2% so far this year.

China is not happy about this new bill and has made its objections very clear. What's more, Chinese officials have warned that any trade sanctions would "seriously affect" relations between the two countries and could lead to a trade war.

China's Foreign Ministry said the bill violates the rules of the World Trade Organization. And the Chinese Ministry of Commerce called it "unfair" as well as a violation of international practice.

Perhaps frustrating Chinese leaders the most is the belief that failed U.S. economic policy, not their own, is the reason our economy is struggling and the dollar has lost its purchasing power.

It would be a big mistake to think that China is going to roll over and take these threats without retaliatory action.

"Kill the chicken to scare the monkey" is an old Chinese proverb that is used to justify harsh public punishment as a very clear warning sign to everybody else. And that is exactly what China is doing.

Let me give you two examples...

EXAMPLE #1: The Chinese government ordered 13 Wal-Mart stores CLOSED for 15 days, fined the company $423,000, and put two of its employees in jail. Plus, the chief executive for China and its top human resource executive resigned for "personal reasons."

The ostensible reason for the closure was that Wal-Mart sold regular pork as more-expensive organic pork.

The entrance to a Wal-Mart store in China looks almost exactly the same as in the United States.

Wal-Mart entered the Chinese market in 1996 and currently operates 353 stores in 101 cities and has over 50,000 employees in China.

The company operates more than 8,400 stores in 15 countries under 55 different banners, and serves more than 200 million customers per week. China currently contributes about 10% of Wal-Mart's revenues, however, that number is growing.

Wal-Mart reported a 5.5% increase in Q2 sales. But that number would have been flat to negative if it wasn't for the 16.2% increase in non-U.S. sales. "We continue to prioritize our investment in the emerging markets of China, Brazil and Mexico," said Wal-Mart International CEO Doug McMillon.

EXAMPLE #2: Yum! Brands operates Pizza Hut, Taco Bell, and KFC restaurants and currently gets more than 50% of its sales from outside the U.S.

Yum! Brands is pinning its future hopes on China. The company recently made an offer to buy Little Sheep restaurants, which is one of the largest restaurant chains in China.

Little Sheep, which was founded in 1999 and has more than 400 Mongolian hot-pot restaurants, sold 93% of the company to Yum! Brands for $573 million.

Well, at least Yum! Brands thought it did until the China Ministry of Commerce put a halt to the purchase and began reviewing Yum's buyout for anti-trust and anti-competitive violations.

But hey, maybe the Wal-Mart and Yum! Brands problems in China are a complete coincidence and have nothing to do with the Currency Exchange Rate Oversight Reform Act.

Yeah, right.

The Chinese government is killing the chicken to scare the monkey. In this case, the chickens are Wal-Mart and Yum! Brands. And the monkey is the politicians in Washington D.C.

What does this mean to us as investors? I actually think that all of this anti-China and trade sanction talk is just that — TALK. The volume may be a little louder because of the 2012 elections, but I don't expect any substantial moves from either side.

What I do expect though is that (a) the U.S. dollar will continue to lose value, and (b) the Chinese yuan will continue to appreciate. And there is some money to be made by investing in those two trends.

If You Want to Bet
AGAINST the Dollar...

Take a look at the PowerShares Deutsche Bank U.S. Dollar Index Bearish ETF (NYSE:UDN). This ETF is meant to track the Deutsche Bank Short U.S. Dollar Index (USDX) Futures Index, a benchmark composed solely of short U.S. dollar futures contracts. These futures contracts are designed to replicate the performance of being short the U.S. dollar against a basket of six major currencies (listed below).

If You Want to Bet
FOR the Chinese Yuan...

The best way to profit from an appreciating yuan is to invest in a currency ETF that follows the yuan, such as the WisdomTree Dreyfus Chinese Yuan ETF (NYSE:CYB).

This ETF is designed to appreciate in lockstep with the Chinese yuan against the U.S. dollar. If the yuan appreciates...you should make money.

And if you're just looking for a conservative place to park your money, take a look at the Merck Hard Currency fund (MERKX), which invests in the short-term AAA debt of the world's economies with the strongest economies and monetary policies. This fund is essentially a non-dollar money market fund with very low volatility.

Now, I'm not suggesting that you run out and invest in any of those securities tomorrow morning. As always, timing is everything, so I recommend that you wait for them to go on sale or wait for my buy signal in Asia Stock Alert.

I need to disclose that my Asia Stock Alert subscribers already own MERKX and are sitting on a nice, fat gain.

Best wishes,

Tony

How the History of Asian Shipping Can Lead Us to Future Profits

Tony Sagami — Fri, 21 Oct 2011 16:44:00 GMT

Goin' places that I've never been.
Seein' things that I may never see again
And I can't wait to get on the road again.

No, I'm not singing an old Willie Nelson song, but instead letting you know that I am off on another great Asian treasure hunt.

I love my research trips because I get to see new, fascinating parts of the world, meet interesting people, and most importantly, discover incredible investment opportunities that the Wall Street crowd has never heard of.

I've been on many trips. And EVERY one of them has yielded at least one investment home run, and this time is no different.

Historical Malacca —
Former Shipping Capital of the World

I just arrived in historic Malacca, which is located near the bottom of the Malaysian Peninsula and sits on the Strait of Malacca, a narrow, 500 mile stretch of water between the southern tip of the Malaysian peninsula and Indonesia.

The shipping route through the Strait of Malacca.

Because of its key location, Malacca was at one time one of the most prosperous cities in the world during its heyday.

From an economic and strategic perspective, the Strait of Malacca is one of the most important shipping lanes in the world because it is the main shipping channel between the Indian Ocean and the Pacific Ocean, linking economies such as India, China, Japan, South Korea, and the oil rich Middle East.

Because of its strategic location, Malacca attracted traders from around the world and became the most influential port in Asia. During its golden age as a commercial trading center in the 15th and 16th centuries, hundreds of ships from a dozen countries would stop here to trade.

Malacca was too prosperous for its own good and many European rulers were envious of its great wealth. In 1511, a Portuguese fleet led by Alfonso de Albuquerque sailed into Malacca's harbor, opened fire with cannons, and captured the city from the Malays. This marked the beginning of a colonial legacy that would last well into the 20th century.

The Dutch wrestled Malacca from the Portuguese, who ruled the area for 150 years, in 1641.

Malacca's economic and commercial influence slowly but steadily declined under the Portuguese and Dutch rule. Malacca's prosperity was fueled by its decision to remain a free trading port during Malaysian rule. However, both the Portuguese and Dutch levied taxes on all the commerce conducted through its port.

Soon thereafter, ships started to bypass Malacca and stop at Penang and Singapore instead. As a side note, our elected officials would be wise to note the economic damage they could do to our country if they start a trade/tariff war with China.

Malacca was ceded to the British under the Anglo-Dutch Treaty of 1824. The treaty ceded all the territories north of the Strait of Malacca — mainly Singapore, Malaysia, and India — to British colonization while the southern lands, mainly Indonesia, were ceded to Dutch rule.

The British resumed the free trade policy in Malacca, but Penang and Singapore were already established as the prime trading cities, while Malacca never regained its prosperity.

Today, over 60,000 ships a year pass through the Strait of Malacca each year worth approximately $4 trillion. That equals about 160 ships every day and those ships carry about one-quarter of the world's traded goods including oil and all the goods manufactured in China.

Malacca is a UNESCO World Heritage city and one of the most interesting places I have ever visited. Its economy now, however, relies mainly on tourists who provide 75% of Malacca's GDP.

Today, Malacca is a modern seaside vacation destination with mega-sized shopping malls, five-star hotels, fantastic seafood restaurants, museums, and dozens of amazing historical sites.

If you ever find yourself in Kuala Lumpur or Singapore, I HIGHLY recommend that you make the short 2-3 hour detour to Malacca.

Shipping Companies to
Keep an Eye On

The point of this Southeast Asian history lesson is to show you how important shipping and the maritime industry are to the economies on the Strait of Malacca. In fact, there is even an index of maritime stocks — the FTSE ST Maritime Index — which is comprised of 12 Singaporean companies that have at least 55% of their revenue derived from maritime-related activities including the manufacturing, ownership, operation and repairing of commercial and/or cargo vessels.

The 12 companies are:

ASL Marine Holdings
COSCO Corp
Courage Marine Group
First Ship Lease Trust
Jaya Holdings
JES International Holdings
Mercator Lines
Neptune Orient Lines
Rickmers Maritime
STX Pan Ocean
Swissco International
Yangzijiang Shipbuilding Holdings

Additionally, the two largest offshore oil rig builders, Keppel Corporation and Sembcorp Marine, are based in Singapore.

If it floats and passes through the Strait of Malacca, there are ways for you to invest in it.

And yes, most of those above stocks are available on one of the U.S. stock exchanges. That's right. You can buy most of those stocks just as easily as you can buy General Electric or Microsoft.

As I said at the top of this column, this is a research trip. And shortly after the end of my trip, I will reveal to my Asia Stock Alert subscribers my top investment pick(s) from this trip. If you'd like to join my family and learn about the newest Asian investment home runs I've found, make sure you sign up right away.

Just click here to learn how to join. Or you can call 1-800-285-7264. I believe you will find my service to be one of the best investments you'll ever make.

Best wishes,

Tony

Opportunities in China ...despite Fears of Global Slowdown

Tony Sagami — Fri, 07 Oct 2011 18:55:00 GMT

The European debt crisis is expanding and threatening to bring down the rest of the world with it. At least that is what the "experts" are warning. But they couldn't be more wrong. New research from the International Monetary Fund, the World Bank, and several brokerage firms reveal a small handful of countries that are poised to THRIVE and PROSPER despite what happens in Europe.

Plus, learn which two exchange traded funds are the most profitable way to insulate your portfolio from the global turmoil AND make a mountain of money while everybody else is losing their shirts.

Best Wishes,

Tony

P.S. Click here to watch my latest presentation that shows how I'm helping Asia Stock Alert members seek profits from booming Asian economies with companies that the Wall Street crowd is ignoring.

While the U.S. Exports Inflation, China Is Attacking It!

Tony Sagami — Fri, 09 Sep 2011 15:30:00 GMT

Let's not sugarcoat the state of our economy: Unemployment is stubbornly high, real estate prices are in the dumps, our nation is up to its eyeballs in debt, and we're teetering on the cusp of recession.

That's why two weeks ago Ben Bernanke and his Federal Reserve buddies promised to keep interest rates near zero ... at least until mid-2013.

Some Fed members "felt that the recent economic developments justified a more substantial move" beyond the two-year easy money promise. That could mean additional purchases of government bonds with a QE3, purchases of other assets like stocks, extending the maturity of the Fed's balance sheet, or some other insane monetary Frankenstein.

Obsessing about what the Fed might do is not what we investors should be watching. Instead, what really matters is what the Fed is not doing. And that is keeping to one of its primary, historical missions: Controlling inflation.

The Federal Reserve Act of 1913 created the central banking system of the U.S. and gave the Federal Reserve Bank the legal authority to issue paper money. The Fed would make emergency loans to member banks, print money, and act as the fiscal agent for the U.S. government.

The Act was amended in 1930 to create the Federal Open Market Committee (FOMC), consisting of the seven members of the Board of Governors of the Federal Reserve System and five representatives from the Federal Reserve banks. The FOMC is chartered "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."

Like Mr. Magoo, Bernanke stubbornly refuses to admit there is a problem.

The Fed, under Alan Greenspan and now Ben Bernanke, has completely ignored the part about moderate long-term interest rates and stable prices. Today, the Federal Reserve Bank only cares about propping up the asset prices (stocks and real estate) and has done more to blow more air into our ready-to-pop debt bubble than even our spendthrift politicians!

My perspective is different than most observers because I devote most of my time to following Asian economies and markets. So I see the contrast between our central bankers and Asian central bankers.

The comparison that surprises and worries me the most: The one between our Federal Reserve Bank and the People's Bank of China.

China's Central Bank Beating the Fed ...
Hands Down!

When it comes to economic growth, you would think that the United States, the bastion of freedom and capitalism, would make a bunch of communist bureaucrats from China look like fools. Instead, it is the Chinese central planners that make Ben Bernanke and his Fed buddies look like a bunch of bumbling Keystone Cops!

I'm ashamed to tell you that the Chinese central bankers are doing much better as stewards of their economy than our Federal Reserve Bank is with ours. Here's what I mean:

China recently raised the bank reserve requirement to 21.5% of their deposits. This is the ninth time China's central bank has increased the reserve requirement since the second half of 2010.
China's key lending rate has been increased five times since the start of 2010.
Down payments requirements and mortgage rates have also been raised.

Despite those tightening measures, M2 (a broad measure of money supply) was 20% in 2010 and on track to rise by another 15% to 16% this year.

China's leaders are more worried about inflation than propping up assets prices like Bernanke is. The National Development and Reform Commission, China's lead planning body, understands that the rise in commodities prices is fueling consumer inflation in China.

Interestingly, the National Development and Reform Commission says,

"The loose global liquidity condition is unlikely to change in the short term and the global commodity prices are still high, so the impact from imported inflation has not eased."

In other words, commodity prices around the world are high because desperate western countries are using loose monetary policies to stimulate their economies.

China has set an annual inflation ceiling at 4%. But its consumer price index hit a three-year high of 6.5% in July.

The incomes for taxi drivers in China are getting squeezed by higher gas prices and government-controlled taxi fares.

Some commodities, especially food, are rising at even a faster pace. In just the last 30 days, the price of spinach has shot up by 31% and lettuce by 27%. Over the last year, eggs are up 16% and edible cooking oil is now 21.8% higher.

Inflation isn't the only byproduct of Bernanke's printing press ...

One of China's top officials warned: "Not only is the European debt problem worsening and spreading, the U.S. and Japan's debt problems are also worsening" and that the debt crisis in the euro zone is "deteriorating and spreading."

What Does All this
Mean to Investors?

Despite China's best efforts, it is fighting a losing battle because Bernanke is as blind as Mr. Magoo when it comes to inflation. And unless you think that American policymakers will suddenly act responsibly, you need to invest accordingly.

Here are four steps you should consider taking now:

#1 Raise Cash

In February, I instructed my Asia Stock Alert subscribers to reduce equity allocation and build up a 38% safety net of sleep-at-night cash. How much cash is a very individual decision but 'significant' is the right answer for everyone.

#2 Find a Safe Place to Park

My favorite parking place is the Merck Hard Currency fund (MERKX) which invests in the short-term AAA debt of the world's economies with the strongest economies and monetary policies. This fund is essentially a non-dollar money market fund with very low volatility.

#3 Bet Against the Dollar

If you are more aggressive and want to profit from the ineptness of the Federal Reserve, take a look at PowerShares Deutsche Bank U.S. Dollar Bear ETF (NYSE:UDN). This is an ETF that is designed to track the Deutsche Bank Short U.S. Dollar Index (UDSX) Futures Index, a benchmark composed solely of short U.S. dollar futures contracts. These futures contracts are designed to replicate the performance of being short the U.S. dollar against a basket of six major currencies.

#4 Bet on Gold

Inflation + incompetent U.S. policymakers = higher gold prices. I currently am not recommending gold to my Asia Stock Alert subscribers. But the long-term trend for gold is certainly higher. So you should add some haywire insurance to your portfolio when gold goes on sale.

[Editor's note: Tony travels throughout Asia, looking for profit-packed opportunities for his Asia Stock Alert members. Click here to see how you can join them, risk free!]

Lastly, I'm not suggesting you sell EVERY stock you own. Stocks in the natural resource/commodity industries have very bright futures. And overweighting your portfolio with stocks that are denominated in currencies such as the yuan, yen, won, ringgit, rupiah, and baht could be your best equity bets going forward.

Best wishes,

Tony

Crouching Tiger, Hidden Profits

Tony Sagami — Fri, 02 Sep 2011 18:15:00 GMT

Last week, two movie giants joined forces with the goal of making a fortune in China. This joint venture is aimed at China's lucrative AND GROWING film market. And today, I want to tell you how you can ...

Best wishes,

Tony

P.S. Click here to read Tony's latest FREE report that shows how he is helping Asia Stock Alert members seek profits from booming Asian economies with companies that the Wall Street crowd is ignoring.

China's Transformation Into A Consumer-Driven Economy

Tony Sagami — Fri, 29 Jul 2011 17:23:00 GMT

It is an old statistic but one that investors should never forget: Roughly 70% of the U.S. economy is comprised of consumer spending. That is the money that you and I spend at the grocery store, the shopping mall, at car dealerships, and at our favorite restaurants.

The problem for the U.S. economy is that 'we' aren't spending much.

Retail sales in June were $387.8 billion, according to the Commerce Department. That's a pathetic 0.1% increase from the previous month.

Six of 13 major categories showed a decline in sales last month. Gas stations led the way, falling 1.3% ... furniture/home furnishing, dropping by 0.8% ... leisure goods (sporting, book, music stores), decreasing by 0.7% ... and restaurants, losing 0.4%.

That lack of spending is the result of a combination of weak housing prices and the unemployment rate remaining stubbornly above 9%.

The latest Bloomberg Consumer Comfort Index shows that only 8% of Americans characterized the economy as positive. Even Ben Bernanke recently admitted to the Senate Banking Committee that "confidence is pretty low" among consumers.

The Wall Street crowd and CNBC experts keep telling you that things are going to get better, but I sure don't see it.

But maybe I'm wrong. Maybe the Obama administration will stop spending money it doesn't have, Ben Bernanke will stop printing money, and the U.S. economy will bounce like a Super Ball.

The Asian Investment No-Brainer

The way I look at it, you can cross your fingers and hope that our consumer-lead economy rebounds ... OR ... you can invest someplace where the consumers are happy, confident and spending.

I'm talking about Asia in general and China is particular.

Here is a short video clip I took last week at the downtown Kuala Lumpur Sogo store, a popular, Asian high-end department store. As you can see, it is PACKED with shoppers!

That same spendathon can be found all over Asia, including China.

FACT: China's retail sales increased 16.8% in the first six months of 2011 and by 17.7% in the month of June.

There is simply no comparison to the measly 0.1% increase in the United States. Obama and Bernanke would do CARTWHEELS if the United States were enjoying a fraction of that prosperity.

The confirming signs of prosperity in China are easy to find. In just the last couple of days:

Sure Sign #1: Apple has been on a big-time roll, and a large part of its success is booming sales in China. Apple just reported that its greater China (China + Hong Kong + Taiwan) sales increased by more than 600% in the last quarter to $3.3 billion.

Here's what Apple COO Tim Cook said about his company's sales in China:

"China was very key to results. The region now contributes roughly 13.3% of Apple's total third-quarter revenue of $28.57 billion, compared to less than 4% in the year ago quarter.

"This has been a substantial opportunity for Apple, and I firmly believe we are just scratching the surface right now."

Sure Sign #2: CapitaMalls, the retail arm of Southeast Asia's biggest developer CapitaLand, reported a 100% increase in quarterly profits, jumping from $82.1 million (Singapore dollars) to $164.9 million. How? From rising traffic and sales at its shopping malls in China.

Sure Sign #3: Luxury goods company Burberry reported a 34% sales increase for its most recent quarter thanks to a 60% jump in Asia-Pacific sales. Burberry opened 50 new retail stores in China in the last 12 months.

Sure Sign #4: General Motors reported a new all-time high of 1.27 million autos sold in China for the first six months of this year.

Sure Sign #5: Yum! Brands, the operator of Pizza Hut and KFC restaurants, has more than 18,000 locations outside the United States.

The company attributed its 18% increase in China sales as the reason it beat the pants off of its quarterly profit forecasts. Business in China is so good that Yum! Brands opened 90 new restaurants in the last 90 days.

I could tick off another dozen examples, but I think you get the point. More importantly, the strong consumer spending in China, if anything, is going to get even better.

A recent Boston Consulting Group report forecasts China's fashion market to triple in size to more than $200 BILLION over the next 10 years.

"Per capita consumer spending in China is still in the early part of the penetration curve compared with that in mature markets, giving China the potential to become an even more significant fashion market," the report said.

China's Consumer Revolution
Isn't An Accident

The Chinese economy is undergoing an intentional MONUMENTAL transformation from an export-dependent manufacturer of low-margin trinkets to a consumption-driven economy powered by its own internal growth.

China's leaders don't like being dependent on the west for its exports, so it is intentionally focusing on growing its internal domestic demand.

China's 12th Five-Year Plan (2011-2015) prioritized more equitable wealth distribution, increased domestic consumption, improved social infrastructure, and social safety nets. The plan is representative of China's efforts to shift its emphasis toward domestic consumption.

You see, wages in China have been growing by around 12% a year in real terms over the last decade. That is making Chinese exports more expensive, especially compared to other lower-wage Asian neighbors like Vietnam and Cambodia.

Just like the United States lost factories to lower-wage China, China is now losing some of that low-margin, labor-intensive, export-oriented manufacturing that had been the base of its economic growth over the last 20 years.

I saw the proof with my own eyes during my last visit to Yue Yuen Industrial Holdings, the largest branded athletic shoe manufacturer in the world. It produces tennis and casual shoes for Nike, Adidas, Reebok, Asics, New Balance, Rockport, Timberland, and Puma.

I learned that this Chinese company was moving some of its manufacturing facilities to Vietnam to save on labor costs.

The Wall Street Crowd
Doesn't Get It

The Wall Street crowd doesn't get this shift. For example, when the HSBC China Manufacturing Purchasing Managers Index fell to 48.9 in July, my clueless competitors assumed that this was a sure sign that the Chinese economy was headed for a painful fall.

Wrong! The manufacturing sector is slowing down, but the consumer sector is more than making up the difference. If you understand that simple yet key concept, you won't have any trouble finding great stocks to invest in.

What you need to do is get 'long' whatever the Chinese are buying. And when it comes to Chinese consumers, all it takes is a walk down any major street to see what's hot.

I see more Louis Vuitton handbags in Beijing than I do in Boston. I see more Apple iPhones glued to ears in Shanghai than in Seattle. And I see more customers lined up at KFC stores in Hong Kong than in Houston.

Those are just a few of the examples of western companies that are doing gangbuster business in Asia and carting wheelbarrows of profits to the bank.

If you're more of an exchange traded fund (ETF) kind of investor, here's one worth your consideration: The Global X China Consumer ETF (CHIQ). CHIQ is packed with China's most successful retailers.

Don't make the mistake of investing in any stocks that are dependent on the U.S. consumer to bail them out. It ain't going to happen.

What you need to do is invest where the shopping malls are packed and the consumers are confident, happy, and spending. That, my friend, is across the Pacific Ocean.

Best wishes,

Tony

P.S. If you haven't seen my video event on hidden Asian profit opportunities, then you're doing yourself and your loved ones a disservice. The investment analysis, strategies and reasons I give you in the video are invaluable, and quite simply, they could make your entire year for you.

Click here and it will begin playing immediately.

From the Investing Front Lines of Malaysia ...

Tony Sagami — Fri, 22 Jul 2011 17:30:00 GMT

The Australians call it a “walkabout,” an ancient rite of passage during which adolescent male Australian Aborigines would go on a journey in the Outback for as long as six months.

Today, a walkabout is just a short period of wandering in the Australian bush.

For me, a walkabout is a chance to learn more about the local economies and local companies while I am in Asia. That is exactly what I did during my recent trip. Even though it was more than 90% in the equatorial jungle of Malaysia, I also went on a five-hour walk around downtown Kuala Lumpur.

Kuala Lumpur is the capital and largest city in Malaysia with 7 million residents. The city is the economic and business center of the country. Kuala Lumpur is a center for finance, insurance, real estate and media. In fact, there are 14 companies in the Forbes 2000 that are based in Kuala Lumpur.

Malaysia itself is an amazing country. It is a beautiful Southeast Asian jewel with beautiful beaches, fantastic food and friendly people.

For investors, Malaysia is amazing for its vibrant, diverse and growing economy.

Thanks to 200 years of British rule, English is widely spoken and has thus attracted billions of dollars of western investment.
Malaysia is RICH in natural resources, both mineral — tin, oil, bauxite, coal, copper, natural gas — and renewal resources such as rubber, palm oil and timber.
Malaysia is the Islamic banking center of the world and has attracted BILLIONS of dollars from the oil rich Middle Eastern countries. Malaysian banks follow the principles of Islamic finance and take very low risks compared to banks in other countries. Plus, the easy access to capital is a key fuel behind Malaysia's economic growth.
The Malaysian workforce is young, educated, industrious and one of the most productive in the world.

Don't forget Malaysia's proximity to China, a key to its recent and future economic growth. Malaysia is simply one of the most fertile economic environments in the world and why I am making my third trip to this exciting country.

Here are a few of the nuggets of information that I uncovered on my walkabout in Kuala Lumpur.

Walkabout Finding #1: It wasn't in downtown Kuala Lumpur, but I was still shocked to see that a Starbucks didn't open until 10:00 a.m. Furthermore, I saw about a dozen Starbucks stores in Malaysia and none of them was packed with customers. Oh, they had customers but just not the crowds I'm used to seeing in the United States. So if someone tells you to bet on Starbucks' growth in Asia, I'd say ignore them.

Walkabout Finding #2: Kuala Lumpur, like every major Asian city, suffers from mind-numbing traffic congestion. The streets were packed with cars, but with two brands that you'll seldom find anywhere else. I'm talking about Proton and Perodua, two Malaysian car manufacturers.

But what really surprised me was the number of luxury cars. I saw Porsches, Bentleys, Mercedes Benz, but the vast majority was BMWs. Don't let anyone kid you. The consumer in Asia is spending!

Walkabout Finding #3: I checked out the gigantic Kuala Lumpur City Center Mall (which was SUPER crowded with free-spending shoppers by the way) and walked by a bookstore, Kinokuniya, and it was packed.

Not only was it filled with shoppers, I was surprised to see that the key high-volume shelves near the entrance were filled with books on business, investing, engineering, and self-help success instead of the usual Tom Clancy and Mary Higgins Clark. More evidence the consumer is spending in Asia. And, they are avidly educating themselves.

Walkabout Finding #4: You don't know hot and humid until you travel to Southeast Asia. I was dripping sweat from the 90-degree temperatures and 90% humidity. I was dying of thirst and a beer sounded very tasty. So I ducked into the Kuala Lumpur Shangri La hotel.

The friendly bartender sold me a beer for $12 (ouch!) and told me that the hotel was close to full almost every night. Shangri La hotels are gorgeous luxury hotels for high-end travelers and are found in most major Asian cities.

Shangri La Hotels is traded on the U.S. over-the-counter market under the ticker SHALF.PK, but it isn't the only Asian hotel company that is traded in the United States. Hint: Two WILDLY successful Chinese hotel chains are traded on the Nasdaq.

Walkabout Finding #5: That beer was satisfying, but it didn't take long before I was sweating up a storm again. I needed the relief of air conditioning, so I dodged into an Isetan Department store.

Isetan, one of Japan's oldest and largest department stores, known for its mix of high-end and affordable fashions, was so packed that I couldn't move. The place was wall-to-wall shoppers spending LOTS of money. Again, still more evidence the Asian consumer is spending!

Bottom line: The Malaysian economy is firing away on all cylinders, just like the rest of Asia. So don't believe the stuffed-shirt, armchair economists and analysts in the United States. They don't have a clue what they're talking about. Period.

You have to get down in the trenches, with your boots on the ground in Asia ... and talk to the local people to see what's really happening.

There are 3 billion consumers in Asia, almost ten-times the number in the United States. Always keep that in mind.

From Kuala Lumpur, best wishes ...

Tony

IMAX's Emerging-Market Twist

Tony Sagami — Fri, 15 Jul 2011 16:44:00 GMT

I was in my early 20s when VCRs became popular, and I remember thinking that the VCR would destroy the movie theater business. I reasoned who would pay $5 a person to watch a movie that you could rent for $3?

Boy, was I wrong. What I didn't realize is that people, especially teens and young adults, will always want to go out, and movies are one of the cheapest forms of entertainment around.

I figured out how wrong I was when I saw The Rolling Stones: Live At The Imax, a 1991 concert film of the group's Steel Wheels European tour that featured 15 of the group's most popular songs, including two of my favorites: Honky Tonk Women and Satisfaction.

This 1991 concert film was shot in the IMAX format and delivered unprecedented video and audio clarity when displayed on IMAX's enormous screens. I really felt like I had a front-row seat at a Rolling Stones concert.

I was hooked. I later took my children to see T-Rex: Back to the Cretaceous and Disney's Fantasia at an IMAX theater. The IMAX experience is unlike any other theater and a spectacular entertainment thrill.

What makes IMAX movies so lifelike is the company's proprietary technology that uses special cameras, special projectors, special film, wide screens, and specially-designed theatres with steeply raked seating.

IMAX technology uses the 70mm film, the largest commercial film format in motion picture history; which is 10 times the size of conventional 35mm, which you would see in a normal movie theatre.

A standard IMAX screen is 72 × 52.8 feet but can be larger. The world's largest cinema screen is in Sydney, Australia, and is approximately eight stories high at 117 × 96 feet. These giant screens extend beyond your peripheral vision, giving you the sense of being right in the action.

Okay, IMAX movies are cool, but what does it have to do with Asia? TONS!

The cinema culture is growing like crazy in China and rapidly becoming the main growth driver for IMAX.

FACT: China is adding new movie screens at the rate of four per day.

The Chinese love movies and are hitting movie theaters in droves. In 2010, the dollar take for movies grew by an awesome 64% to $1.5 billion. And that is on top of the 40% growth in 2009.

China now has more than 6,200 movie screens after adding about 1,500 last year. There is no sign of that growth slowing down as a number of Chinese players are racing to add theaters.

Hollywood experts expect China's box office receipts, currently the fourth largest in the world, to overtake Japan and India by the end of 2012. That will make China the No. 2 movie market in the world.

While still a long ways below the $11 billion of box office receipts in the United States plus Canada pulled in last year.

The Chinese movie market is expected to hit $7 billion by 2015 and may even pass the United States by the end of this decade. China should have 20,000 movie screens by 2020, which is more than triple the number that exist today.

A growing number of those four new movie screens each day will be IMAX screens and that means big opportunity from investing in IMAX stock.

Runaway Screen Growth. The key to success for IMAX is growing its footprint of movie screens. More screens = more money.

And yes, IMAX is rapidly growing its screen count. In 2010, IMAX increased the number of screens from 288 to 370, a 28% increase. Of those, 240 are in the United States/Canada and 130 are international.

IMAX plans on installing 85 more screens in 2011.

IMAX estimates the United States can accommodate 450 screens plus another 800 internationally. The process of growing from the current 370 movie screens to 1,250 is why you want to own IMAX.

Additionally, the number of new movies released in IMAX format is growing every year. In 2007, only seven films were produced in IMAX format, but that number grew to 15 films in 2010.

Deals, Deals, Deals. How is IMAX going to get to 1,250 movie theaters? By doing more deals like the three it signed in March.

Deal #1 in Russia: IMAX and Cinema Park, a Russian movie company, signed a deal to install eight IMAX systems in 2012 and 2013. These IMAX theaters will be located in Kaliningrad, Ulyanovsk, Omsk, Krasnoyarsk, Tula, Penza, Stavropol and Irkutsk.

This is in addition to the 10-screen deal that IMAX signed with Cinema Park in July 2010.

This new deal will bring the number of IMAX theaters in Russia and the Commonwealth of Independent States (CIS) to 46 by 2014. Russia and the CIS is IMAX's third-largest market, behind the United States and China.

The Russian IMAX theaters produce some of the highest per-screen box office averages in the world.

Deal #2 in India: IMAX and PVR Cinemas, India largest cinema operator, signed a deal for four IMAX screens in Mumbai and Bangalore. These three theaters will be in operation within the next 12 months. PVR currently has 142 screens in 18 Indian cities.

"There is a growing appetite for premium entertainment in India, and with the massive popularity of the IMAX brand worldwide, it has become very clear to us that now is the ideal time for us to enter into the IMAX business," said Ajay Bijli, Chairman of PVR. "IMAX is one of the world's most recognized premium entertainment brands and it fits perfectly with our mission to offer our guests the ultimate in movie-going experiences."

Deal #3 in China: Wanda Cinema, China's largest movie chain, agreed to open 75 new theaters under a joint revenue-sharing agreement. Wanda will become the largest operator of IMAX theaters outside of North America and the second-largest operator worldwide with a commitment of 91 theaters.

When completed, this deal will bring the number of IMAX theaters in China to 177. In 2011, 25 theaters are scheduled to be built and the remainder by the end of 2014.

IMAX expects its percentage of revenues coming from China to grow from the current 10% today to 25% within the next five years. "More than half of our revenue comes from the U.S., but we do think it's likely China will overtake the U.S. as the biggest market at some point in the future," said CEO Richard Gelfond.

Lastly, this deal puts the total backlog of IMAX theaters waiting to be constructed at 224, which is about three years worth of orders.

Multiple Income Stream. IMAX gets 'em coming and going. The company has five major income sources: IMAX system sales (33% of sales), film conversion (32% of sales), theater system maintenance (15% of sales), theater operations (13% of sales) and joint revenue sharing (4% of sales).

System sales and maintenance: IMAX has historically sold its proprietary movie systems to movie theaters, and these outright sales are still an important part of its business at 33% of sales. IMAX sells its systems to theaters for roughly $1.3 million with a cost of goods sold of $500,000 for a juicy 260% profit margin.

The sale is just the start of the gravy train though. IMAX continues to earns a significant stream of business (15% of sales) to maintain/service those systems.

Movie studio income: Movie studios pay IMAX to convert its film into IMAX format if they want to get played at IMAX theaters. That is especially true of films with complex graphics such as Avatar and Star Wars.

It costs IMAX roughly $1 million to $1.5 million to convert a film into its format. In exchange for converting the film, IMAX takes a percentage of the gross box office receipts, usually 10% to 15%. On a blockbuster film, such as Avatar, which grossed over $2 billion globally, IMAX makes a fortune.

Great interview with IMAX CEO Richard Gelfond that explains the impact of international expansion on IMAX prospects.

Watch the video on CNBC

The reason movie studios love IMAX is simple: IMAX puts more money in their pockets.

The trickle-down benefits for rentals, merchandise, and sequels is greatly enhanced by the IMAX brand.

Theater operations: IMAX owns and operates four theaters in the United States, and those four theaters are successful enough to contribute 13% of its revenues. That's a nice chunk of change but not the reason to own IMAX.

Joint revenue sharing: The reason to own IMAX is because of this last category which is currently the smallest division but the one that will become the most lucrative part of IMAX's future growth. IMAX installs its system for free in exchange for around 20% (terms vary by deal) of the exhibitor's box office AND CONCESSION revenues.

The advantage for movie theater operators, such as Regal Entertainment and Cinemark, to offer IMAX movies are overwhelming.

IMAX offers an immersive video/audio experience that can't be replicated in the home. Nothing matches the experience of an IMAX movie.
Movie operators get to charge a premium price — roughly 30% higher on average — for an IMAX movie.
Adding an IMAX theater has the effective of creating a competitive moat for movie operators because competitors are unwilling to build any nearby theaters.
Movie operators don't have to pay for the installation of any IMAX equipment as IMAX pays for 100% of the capital equipment.

However, the real beauty of this model for IMAX is that it has a fixed cost, and the payback, which is variable, grows as the theater network grows and more blockbusters hit IMAX screens.

As of January 31, 2011, the company had entered into joint revenue sharing arrangements for 230 systems. For big blockbuster films, that 20% translates into a mountain of money.

By the way, the new 75 theater Chinese deal is a joint venture, so IMAX will take a piece of the box office from both the studio and the theater in all 75 theaters.

Lastly, please keep in mind that I'm not suggesting that you rush out and buy IMAX stock tomorrow morning. As you know, timing is everything when it comes to investing, so you should do your own homework and decide for yourself when the right time to buy is but IMAX is a prime example of how a U.S. company can goose its sales and profits by making China a key part of its growth strategy.

Best wishes,

Tony

P.S. Want even MORE insight into harnessing the profit potential coming from the booming emerging-market economies? Check out my monthly Asia Stock Alert. I think it may be the best investment you'll ever make. Click here to learn more.

How to Play China's Railway Boom

Tony Sagami — Sat, 09 Jul 2011 15:34:00 GMT

I use public transportation, usually subways and trains, all the time when I am in Asia. Not to save money but to save time because the roads in most large Asian cites are packed like sardines and move slower than a snail.

And while I was happy to hear the U.S. Department of Transportation announce a sweeping $1.58 billion construction package for 27 public transportation projects around the United States, I couldn't help but think it's peanuts compared to what the Chinese are spending on public transportation projects.

Example: It took Chinese engineers only 39 months to build a $33 billion, 818-mile, high-speed railway line that links Beijing with Shanghai, the financial center of China.

Trains will travel at speeds up to 220 mph and make the trip in less than five hours, less than half the time of the previous 10-hour trip. The line will run 63 pairs of trains a day and can carry up to 80 million passengers a year.

For an informative one-minute YouTube video about this new railroad, click here.

“This is the pride of China and the Chinese people,” said He Huawu, chief engineer of the Ministry of Railways. “It took just 39 months to build such a high-standard and world-renowned high-speed rail line, which is a gift for the 90th anniversary of the Party.”

For only 1,750 yuan or $270, you could buy a business-class seat on the Beijing to Shanghai route.

The Beijing to Shanghai route is like traveling from Milwaukee, Wisconsin, to Dallas, Texas. Can you imagine zipping from Milwaukee to Dallas, a more-than-14-hour drive, in less than five hours?

How much does it cost to ride on this speeding bullet train? Less than you think! The price for the cheapest ticket is about 410 yuan or about $70, which is about half the price of what a two-hour airplane ticket would cost.

And for only 1,750 yuan or $270, you could buy a business-class seat that is very similar to business class on an airplane. These leather-clad seats will fully recline into a bed, has a personal video screen with touch screen controls, and a stewardess to serve food/drinks.

This Beijing-Shanghai route isn't an isolated example of Chinese transportation. In fact, it is just the newest piece of the country's railroad ambitions. China plans to expand its railroads to 27,960 miles by the end of 2015 and is going to spend a near-unbelievable $430 billion (yup, $430 BILLION) on its railway network in the next five years.

That sort of makes our new $1.58 billion package from the DOT look pretty puny, doesn't it?

Beijing-Tibet Rail Line

This isn't the first high-speed bullet train China has built. Perhaps its most impressive feat of railroad engineering was the Beijing to Tibet line built in 2006.

The Beijing-Tibet line is a feat of engineering magic and the first tracks ever built over such difficult terrain. Most of the railroad is more than 13,000 feet above sea level; at its highest point, the tracks reach 16,640 feet. The elevation is so extreme, and the mountain air so thin, that ballpoint pens and packaged foods sometimes burst. And if you take your laptop computer or MP3 player, watch out. Tiny air bags that are used to cushion disc drives are likely to pop.

Tibetans will likely see rapid change
from the new high-speed train. Some
Chinese companies will just see
accelerating profits.

Can you imagine what it was like to lay these tracks? For four long years, 35,000 workers toiled in the bitter cold to complete the task at a cost of $4.5 billion.

China isn't stopping at 27,960 miles of railroad tracks either. Beyond 2015, it has ambitions to someday have high-speed rail lines extend southward to Singapore and westward to India, Russia, Germany, and even France!

Moving More Freight Cars

When governments start throwing around billions of dollars, let alone $430 billion, it is unlikely that these railroad lines will break even. Like most public transportation services — including the United States — China's government expects to lose money on this rail line.

Making money on these rail lines isn't the goal, however. China's ambitious high-speed rail program is designed partly to shift passenger traffic off existing tracks, allowing for faster and cheaper transport of raw materials, such as coal and wheat, as well as finished products from Chinese factories to the shipping docks.

“The high-speed network strengthens the economic development in China,” said He Huawu, the chief engineer in China's railways ministry. As usual, the Chinese are looking at their long-term, big picture needs.

Are there any investment opportunities in those grandiose rail plans? You bet your butt there is.

First of all, the competition for passengers on the lucrative and BUSY Beijing-Shanghai corridor will undoubtedly cost China Eastern Airlines (NYSE:CEA) and China Southern Airlines (NYSE:ZNH) some business, so I'd be a little worried if I owned either of those stocks.

An obvious winner is China Railway Construction (1186.HK), the largest railroad construction company in China. CRC, by the way, is partially owned by the Chinese government, so you know it will get a lion's share of the construction contracts.

China Railway Construction trades on the Hong Kong Stock Exchange and is currently trading for a little more than $1 a share. Yep, one measly dollar once you factor in the currency translation.

If you're one of the investors who refuses to buy stocks on a foreign exchange (a big mistake in my view), you can also buy CRC on the U.S. over-the-counter market under the symbol CWYCF.PK.

Remember, ALWAYS use limit orders whenever you buy or sell stocks on the over-the-counter market.

Lastly, if you connect the dots, there are other ancillary but crucial suppliers in the railroad construction food chain. All that railway construction fueled the demand for 20 million tons of steel and 120 million tons of cement in 2010.

General Steel (NYSE:GSI) and Anhui Conch Cement (0914.HK or AHCHY.PK) supplied a big chunk of those basic building blocks.

Remember, you don't have to rush out and invest in any of the stocks I talk about in this column right away. As always, timing is everything so you need to do your own research and decide when the time is right for you. Plus, the China growth story still has several decades to run so you've got lots of time.

Best wishes,

Tony

P.S. Want even MORE insight into harnessing the profit potential of the booming Asian economies? Check out my monthly Asia Stock Alert. I think it may be the best investment you'll ever make. Click here to learn more.

How To Get Exposure To Asia's Booming Casino Market

Tony Sagami — Fri, 24 Jun 2011 15:42:00 GMT

What amazes you the most about Las Vegas?

The over-the-top casino buildings, like the Bellagio with its choreographed water fountain show or Paris with its Eiffel Tower reproduction?

The jaw-dropping shows of Cirque du Soleil and the Blue Man Group or the concerts from Elton John or Celine Dion?

The world-class restaurants run by celebrity chefs like Wolfgang Puck, Emeril Lagasse, Bobby Flay, and Joel Rubuchon?

Or maybe you just enjoy the thrill of gambling.

Whatever your reason, Las Vegas has become one of the most popular tourist destinations in the world. But it's getting out-Vegased by its Asian casino competitors.

Singapore casinos pulled in $5.1 billion in revenues in 2010, putting it a little behind Las Vegas' $5.8 billion and way behind the $23 billion that Macau pulled in, according to the American Gaming Association.

Making Moolah
In Macau

Macau, the only city in China that offers legalized gambling, saw visitors increase by 10.7% to 2.34 million in April from the same period of 2010, according to China's Statistics and Census Service.

In the first four months of 2011, 8.77 million tourists went to Macau, a 6.6% year-on-year increase. Macau is on pace to hit 26.6 million tourists this year. You can `bet' that most of them will do a little (or a lot) of gambling.

I've seen that crush of Macau tourists firsthand. When I arrived at the Hong Kong Port to catch a high-speed ferry to Macau, I was stopped in my tracks by a huge line! Even though they had high-speed ferries leaving every 15 minutes, I ended up waiting for two hours!

The 50-minute boat ride was spectacular ... dozens of sampans filled with Chinese fisherman in traditional coolie hats ... freighters with cargo containers stacked to the sky ... a dense urban jungle of huge condominium towers, many still under construction, hugging the Hong Kong shoreline.

Upon arriving in Macau, I was greeted by yet another ugly picture — more lines! Twisting snakes of people were waiting to clear customs. Heck, I've seen shorter queues at Disney World's most popular rides.

Macau's crushing popularity is because it is within a five-hour flight of 3 billion people or nearly half the world's population. To put this into perspective, Las Vegas is the same distance from only 450 million people!

Macau, by the way, has already seen its gambling revenues jump by another 40% so far this year.

Move Over Sin City
Here Comes Singapore

Singapore is getting its share of gambling tourists too. Singapore is on track to pass Las Vegas this year. Singapore's gambling industry is set to rake in $6.4 billion, which will edge out the $6.2 billion Las Vegas is expected to deliver. Yup, our own Sin City is moving to third place.

Lastly, you better believe that other Asian governments are looking at the huge tax revenues that Singapore and Macau are raking in and wishing they had their own casino sugar daddy.

The attraction is simple: Casinos bring in tourists. 11.6 million tourists passed through Singapore immigration in 2010, a 20% increase over the previous year. All those tourists spend a lot of money at Singapore shops, restaurants, and hotels.

Japan, Taiwan, Vietnam, Korea, and Spain are considering legalized gambling and may pass legislation sometime in the next 18-36 months. Las Vegas Sands is talking to all of those countries.

"We are going to develop in Europe, we are still going to develop in Asia; Asia is our first preference," said Las Vegas Sands founder Sheldon Adelson.

Clearly, the crème of the gambling crop has crossed the Pacific Ocean from Nevada to Asia.

If you wanted to include some gambling stocks in your portfolio, there are several ways for you get exposure to the booming casino business in Asia:

Las Vegas Sands (LVS) owns the luxurious Venetian hotel in Vegas as well as a stake in the Macau Venetian and the Marina Bay Sands casino complex in Singapore. Marina Bay Sands is a $5.5 billion resort project with a 15,000-square-meter casino, a stunning three-tower hotel with 2,500 rooms, restaurants, nightclubs, shopping, as well as one of the largest convention centers in Asia.

Steve Wynn (WYNN) is one of the most recognizable names in Las Vegas with the success of Wynn Las Vegas and the Encore at the Wynn. The Wynn Macau is his newest and perhaps most profitable casino yet. Wynn Macau is available on the Hong Kong Stock Exchange (1128.HK) or the U.S. over-the-counter pink sheets (WYNMF.PK).

MGM Resorts (MGM) is the only Macau casino that I've visited that wasn't packed with gamblers but it is also building several hotels in mainland China.

Melco Crown Entertainment (MPEL) is a casino that very few Americans have ever heard of but it owns several Macau casinos and its stock is traded right here in the U.S.

Genting Berhad (GEBHF.PK or 3182.KL), the parent company of Genting Singapore, is the third largest casino company in Asia and reported a 57% increase in revenues and a 300% increase in profits for the first quarter of 2010. Genting operates the ONLY casino in Malaysia as well as the Casino at Resorts World Sentosa in Singapore.

Genting Singapore (G13.SI or GIGNY.PK) operates the Casino at Resorts World Sentosa, a $4.5 billion entertainment complex that includes a 15,000 square meter casino, six hotels, conference center, retail shops, entertainment facilities, restaurants, as well as a Universal Studios theme park.

SJM Holdings (0880.HK or SJMHF.PK), owned by Chinese billionaire Stanley Ho, used to own a monopoly on the Macau casino business and despite the arrival of American competitors, is still doing a thriving gambling business with its dedicated clientele.

If you are more of an exchange traded fund investor and happy with broad exposure to the entire gaming sector, you should take a look at Market Vectors Gaming ETF (BJK).

This ETF includes many of the above casinos as well as U.S.-only casinos, like Boyd Gaming (BYD) and Pinnacle Entertainment (PNK), as well as companies that provide gaming equipment to casinos like Shuffle Master (SHFL) and slot machine-maker International Gaming Technology (IGT).

I'm not suggesting that you rush out and buy any of these casino stocks tomorrow morning. As you know, timing is everything when it comes to investing, so you should always wait for stocks to go on sale before jumping in or wait for my buy signal in Asia Stock Alert.

As always, you need to do your homework and decide whether any of the securities I talked about in this column are appropriate for your personal situation and financial goals.

Best wishes,

Tony