Search results matching tag 'Natural Resources'

Latin Stocks That Are Making a Bundle from China

TonySagami — Fri, 01 Jul 2011 17:06:09 GMT

This column is devoted to Asian investment opportunities, but it doesn't mean you or I should ignore the rest of the world. That is especially true when companies in other regions are making big profits by doing business with China.

In fact, one of my long-running, consistent investment themes has been to urge you to get `long' whatever the Chinese are buying.

In most cases, they are buying the strategic natural resources it needs to fuel its future growth, which includes popular consumer goods for the country's growing, affluent middle class.

The Chinese have been blitz-buying everything from oil reserves to Louis Vuitton purses, from copper to iPhones, and from soybeans to Yum Brand pizzas.

China Has Tapped Into
Latin America's Resources

China's government is using sovereign wealth funds and state-owned enterprises to buy up economic assets. One place where it is spending a mountain of money is Latin America.

Latin America is blessed with a wealth of natural resources, such as natural gas, tin, oil, copper, nickel and fertile farmland.

Those riches haven't escaped China's notice, and it has secured DECADES of natural resource supplies Venezuela, Brazil and Argentina.

In fact, China invested $15.6 billion in Latin America over the last 12 months, according to Deloitte Consulting. That's a 300% increase over the previous 12 month period.

Heck, China is even loaning money — a whopping $32 billion — to Venezuela, which is obligated to pay back this debt with oil. "Viva China! I'm in love with China," shouted Venezuela dictator Hugo Chavez.

Even often-overlooked Ecuador is cashing in. Chinese oil company Petro China loaned $1 billion to state-owned Petro Ecuador in exchange for oil deliveries. Plus, China Development Bank loaned $1 billion last year to Ecuador's government to be repaid not with cash but with future oil shipments!

China's focus has been on energy and industrial minerals — during the last three years, more than 70% of China's investment in the region went into those two categories — but China is also locking up agricultural assets and food supplies.

China understands that it can't produce enough food to feed its citizens, so it is aiming to fill its bowls from foreign fields.

China already buys the majority of Argentina's soybeans, its top crop and largest source of export revenue. This may surprise you, but those soybeans aren't used to make tofu and soy sauce. Soybeans are mainly used as livestock feed in China, where meat consumption is rising along with personal incomes.

Last week, China's largest farming company, Heilongjiang Beidahuang Nongken Group, signed a joint venture with Argentina's Cresud SA to buy land and farm soybeans. Cresud is one of Argentina's top agriculture firms with control over more than 2.47 million acres of farmland. Heilongjiang Beidahuang is also spending $1.5 billion to lease and develop farms on 300,000 hectares in Argentina's Rio Negro Province.

Heilongjiang Beidahuang Chairman Sui Fengfu said he plans on buying 500,000 acres of overseas farmland in 2011 and that Latin America is his main target.

By the way, Heilongjiang Beidahuang already farms about 5 MILLION acres of land outside of China.

China needs pork. It accounts for 50% of global pork consumption. This year it will import 1 million metric tons of pork, an increase of 20% over 2010 levels. Within the next four years, Brazil's annual pork supply to China is expected to touch 200,000 metric tons.

The price of commodities is surging along with Chinese demand. For example, over the last five years, the price of gold increased more than 150% and oil has gone up 87%. High commodity prices are music to the ears of many Latin American companies.

Latin Stocks Making a Bundle
Selling Commodities to China

There is no shortage of Latin American stocks that are making a bundle selling to the Chinese. Here is a short list of Latin American natural resource stocks that are traded on the NYSE and Nasdaq.

Cresud Inc. (Nasdaq:CRESY) owns almost 700,000 acres of farmland, primarily in Argentina, and produces beef, milk, wheat, corn, soybean, and sunflower, and sorghum.

Compania de Minas Buenaventura SA (NYSE:BVN) is primarily a precious metals company but it also produces a significant amount of zinc, lead, and copper.

Gruma, SAB (NYSE:GMK) is a Mexican company that produces rice, oats, corn flour, and wheat flour.

Petrobras Argentina SA (NSYE:PZE) engages in the oil exploration and production activities in Bolivia, Ecuador, Peru, and Venezuela as well as Argentina.

Tenaris SA (NYSE:TS) produces seamless and welded steel tubular products and related services for the oil and gas industry.

Petroleo Brasileiro SA (NYSE:PBR) is an oil and natural gas exploration, production, and refining company.

BRF Brasil Foods SA (NYSE:BRFS) produces 40% of Brazil's pork exports.

Vale SA (NYSE:VALE) engages in the exploration, production, and sale of basic metals — iron, copper, nickel, and aluminum — in Brazil.

Those are just some of the ADRs (American Depositary Receipts), so if you're savvy enough to not limit yourself only to the U.S. exchanges, there are DOZENS of other fantastic Latin American energy, mining, and agriculture stocks to consider.

If you're more of an exchange traded fund investor, there are plenty of Latin American ETFs, such as iShares S&P Latin America 40 Index (NYSE:ILF) and SPDR Emerging Latin America (NYSE:GML), to consider.

If you're looking for more in-depth research and investment ideas for Latin America, I highly recommend Emerging Markets Winners, edited by my good friend Rudy Martin. Rudy is one of the top experts on Latin America stocks.

Lastly, please keep in mind that I'm not suggesting that you rush out and buy any of these stocks or ETFs. As you know, timing is everything when it comes to investing, so you should do your own homework and wait for stocks to go on sale before jumping in.

Best wishes,

Tony

P.S. I will soon be flying to Malaysia, one of the most dynamic, fastest growing economies in the world, so keep your eyes open for an invitation to an upcoming webcast about the most exciting opportunities you've never heard of.

Three Ways To Gain From Grains

TonySagami — Fri, 01 Apr 2011 16:58:11 GMT

I have talked about inflation, especially rising food prices, several times this year, and while I don’t want to sound like a broken record, the evidence continues to mount AND the opportunity to make to a lot of money is growing.

What happened last week in the grains market is especially telling.

First, let’s deal with the definition of the “grains” market. Most people think of wheat when they think of grain, but the investment and agricultural definition includes barley, sorghum, rice, corn and soybeans.

There was big news about the grains market last week from China.

China increased its grain imports to 60 million metric tons in 2010, according to the U.S. Department of Agriculture (USDA). That’s the biggest on record.

How big is a metric ton?

A metric ton is equal to 1,000 kilograms or 2,204 pounds.

The 60 million metric tons mentioned in the above statement translates into 66 million American tons.

Out of the 60 million metric tons 54.8 million metric tons were soybeans, according to the Chinese Ministry of Agriculture. More impressively, that is roughly 60% of global soybean production in the entire year.

In case you're wondering, most of those soybeans were used for animal feed — cow, pork, and poultry — not tofu and soy sauce.

China also imported 1.57 million metric tons of corn and 1.2 million metric tons of wheat.

Demand Is Not Slowing

Like a squirrel preparing for winter, China is importing all those gains to beef up reserves to protect its population against a food shortage.

“Some 200 million tonnes of grain are now in storage,” said Chen Xiwen, the director of China Central Committee’s Leading Group on Rural Work.

And there are no signs of that Chinese demand slowing down.

For the week ending March 17 (the most-recent data), China bought an additional 116,000 metric tons of grain from the United States. That is the most for any week since July 2005, according to the USDA.

With all that buying pressure, it is no surprise that grain prices have surged. Over the last 12 months, the price of grain has jumped by 56%.

To be fair, some of that price increase is because of a severe drought in Russia (which temporarily banned grain exports) as well as floods in Canada and Australia.

But make no mistake that most of the price increase is from rising global demand, especially in China.

All that grain purchasing is even more staggering when you realize that China itself produced 115.1 million metric tons in 2010, according to statistics from the China National Grain and Oils Information Center.

Historically, China has largely been able to feed itself. In 2010, China produced 546 million metric tons of grain, a 2.9% year-on-year increase, and it was the seventh year in a row the country increased its grain harvest.

That is changing because China is rapidly converting its farmland into homes, office buildings and factories. Limited available arable land, scarce water resources and rapid urbanization will make it difficult if not impossible for it to meaningfully expand its grain production.

China is currently able to meet about 95% of its grain needs, but I expect it to import more in the coming years.

The U.S. Grains Council recently forecast that China will import 2.5 million metric tons of corn in 2011 — the largest amount in 15 years.

As a result, corn futures came close to breaking $7 a bushel last week and are up by 90% in the last year.

China, by the way, is the world's second-largest corn producer.

Even though grain prices have soared, I have ZERO doubt that they are headed much higher.

Three Ways To Play
The Grains Market

Here are three ways to invest in grains, wheat, soybeans, corn and other agricultural products:

Option #1: Futures: You can buy futures contracts on wheat and other agriculture commodities. Investing in futures is complicated, requires knowledge of the futures market, and extremely risk. Futures are inappropriate for almost all investors.

Option #2: Exchange Traded Funds. There are several exchange traded funds (ETFs) and exchange traded notes (ETNs) that should profit from rising agricultural commodity prices.

PowerShares DB Agriculture (DBA) actually holds futures contracts on wheat, corn, soybeans, sugar, and other agricultural commodities and is a very direct way to profit from rising food prices.

iPath Dow Jones UBS Grains Total Return (JJG) is the closest you can get to investing in wheat without actually buying grains (wheat, soybeans, and corn) futures.

ELEMENTS MLCX Grains Index (GRU) is similar to JJG but includes soybeans and soy meal.

Elements Rogers Intl Commodity Agriculture (RJA) mirrors the performance of the Rogers International Commodity Index, which represents the value of a basket of 20 agricultural commodity futures contracts.

iPath Dow Jones UBS Agriculture Total Return Sub-index (JJA) is an ETN that holds seven agriculture futures contracts: Wheat, corn, soybeans, cotton, soybean oil, coffee and sugar.

Market Vectors Agribusiness (MOO) invests in stocks of U.S. and foreign companies that derive at least 50% of their revenues from agriculture business.

Option #3: Agriculture Stocks. You can invest in companies that sell agriculture equipment, seeds, crops or fertilizer such as:

John Deere (DE). Most people know Deere as the company that sells farm equipment like tractors, but they also provide combines and other harvesting equipment, seeding equipment, sprayers and even agriculture software.

Bunge (BG) is the largest soybean distributor in the world and is involved in several other agri-business related products.

Potash (POT) and Mosaic (MOS) are huge fertilizer — and other agriculture products — producers.

AGCO (AGCO) sells farm machinery.

I'm not suggesting that you rush out and buy any of these ETFs, ETNs or stocks today. You need to do your own homework and decide whether any of them are appropriate for your personal situation and financial goals.

And as you know, timing is everything when it comes to investing so you should wait for these to go on sale before jumping in. However, if feeding the world's growing appetite is a sector that you want to include in your portfolio, the grain business is something that is very worthy of your attention.

Best wishes,

Tony

P.S. If you are looking for more specific buy/sell recommendations on my favorite Asian stocks, please consider a subscription to my Asia Stock Alert for only $199 a year. I think it may be the best investment you'll ever make.

3 Fertilizer Stocks to Play the Global Population Boom

TonySagami — Fri, 18 Feb 2011 15:56:00 GMT

All of us have enduring childhood summer memories.

I remember the sweet taste of fat, wild blackberries we picked by the Puyallup River, the neighborhood pickup game of baseball in the cow pasture, family picnics at Surprise Lake, clam digging in Hood Canal, and the summertime stink of rotting cow blood.

Rotting blood?

Long-time readers know that I was raised on a vegetable farm in western Washington. Our main crops were radishes and green onions.

Our family farm was small, and my parents worked like the devil to scratch a living out of its soil. Life wasn't easy, but we never went hungry and my parents found a way to send all three of their children to college by hard work and frugal spending.

One way my father stretched a dollar was to avoid what he called 'store bought' fertilizer and used cow blood from a nearby cattle slaughterhouse instead. I remember being unable to fall asleep in August because the combination of the hot August sun and acres of farm land drenched with cattle blood created a horrible stench.

Heck, my father would have probably told us to poop in the fields if he thought it was sanitary and would have saved him a couple bucks!

Smelly or not, every farmer needs to use fertilizer and the most-used and most-important fertilizer is potash.

Potash is important because crops treated with potash are extremely high yielding. Potash also improves water retention, nutrient value, taste, color, texture, and disease resistance of food crops.

It is used for fruit and vegetables, rice, wheat and other grains, sugar, corn, soybeans, palm oil and cotton.

Potash is extracted from sedimentary salt beds formed by evaporation of ancient seas and is an essential element for all living organisms. Potash is not your typical fertilizer in that it is mined just like metals and looks like a crystallized rock before processing.

Plus, there is no substitute for potash. That's why even my frugal father bought some to supplement the cattle blood. That is why potash is one of the commodities that I am the most bullish on.

Global Population Growth

Source: Mining-technology.com
Potash is not a typical fertilizer. It is mined.

The world's population is growing. There are approximately 6.6 billion people on our planet, and that number is expected to grow to 8.2 billion by 2030, according to the United Nations.

That is a lot of mouths to feed, but the amount of food each mouth is eating is also increasing. The average human consumes about 2,600 calories a day, but the UN expects that number to climb to 3,000 calories by 2030.

That may not sound like much, but it is becomes a mammoth number when multiplied by billions of people. The world's daily caloric intake is going to surge from 17.1 trillion calories a day to 24.6 trillion.

Investing in the fertilizer business may not sound sexy, but the dynamics and fundamentals of the food business will turn it into one of the most profitable sectors you could find.

Rising Incomes = Higher Protein Consumption

Along with population growth, global incomes are also growing. This is especially true in China.

The Chinese are quickly becoming more affluent. In 2004, the average China's Gross Domestic Product per capita was just $1,000. By 2010, it more than doubled to $2,300.

What's the first thing you would buy if your income went from subsistence to middle class? A Mercedes? A Rolex? For most people, the first thing is better food.

Rising incomes are driving a dramatic change in Chinese eating habits. The middle class is no longer content to eat bowls of rice and cabbage with an occasional pig knuckle or chicken foot as a treat. They want fruit, candy, dairy products and particularly meat. FACT: Since 1980, per-capita meat consumption in China has nearly tripled

The wealthier a nation becomes, the more calories it consumes. That translates into more fertilizer demand to produce that food.

China's population is 1.3 billion, and its arable land is less than 1 acre per household vs. 100 acres in the United States.

As China's diet becomes more westernized by eating more protein, China has gone from being a net exporter to a net importer of food.

China's agriculture technology is far behind that of the United States, and one of the keys to improving its agricultural productivity is to use more fertilizer.

Potash makes it possible to supply more food to consumers and help farmers grow more and better food.

China Is a Potash Pig

China is the world's largest consumer of potash, according to Canpotex, a North American fertilizer trade group.

In fact China used 5.5 million tons of potash in 2010. That accounted for 20% of world demand.

This year, Potash demand is forecast to increase 18.3%, most of which will come from Canada.

Why Canada?

Potash is only found in significant quantities in Canada, Belarus and Russia, which means that the only stable supply for China is from Canadian producers.

Plus, it is cheaper to ship potash from Canada than from Russia, the second-largest producer. Freight from Canada is $20 to $30 a ton and $30 to $40 a ton from the Baltics and Russia.

How can you invest in potash?

The Potash Corporation of Saskatchewan (POT) is the world's largest fertilizer company, and produces fertilizer and animal feed products. Potash produces three primary plant nutrients: Potash, phosphate and nitrogen. Potash is, however, the main focus of its business.

Mosaic (MOS) isn't Canadian, but it is close by being based in Minnesota. Mosaic produces phosphate, nitrogen, and potash nutrients for use in crops and feed.

Calgary-based Agrium (AGU) makes a wide variety of agricultural nutrients including nitrogen, phosphate, sulphur, and potash as well as herbicides, fungicides, adjuvants and insecticides.

I'm not suggesting that you rush out and buy any of these stocks today. You need to do your own homework and decide whether any of them are appropriate for your personal situation and financial goals. However, if feeding the world's growing appetite is a sector that you want to include in your portfolio, these are three stocks very worthy of your attention.

Best Wishes,

Tony

Malaysia's Rich Natural Resources: The Next Great Asian Investment Opportunity

TonySagami — Fri, 21 Jan 2011 17:42:00 GMT

Last week I flew to Penang, Malaysia, and traipsed around the countryside in sweltering heat and humidity looking for the next great Asian investment opportunity. I found several amazing ones. But some background first ...

Penang is a fascinating island city that sits a few miles on the Indian Ocean side of the Malaysian mainland near the northern mouth of the Straits of Malacca. It is this strategic location that turned Penang into one of the most important commercial trading centers in Southeast Asia.

Penang was discovered in 1588 by Sir James Lancaster, who had served under Sir Francis Drake. The island, originally called the Prince of Wales Island, was first settled in 1786 by the British East Indian Trading Company for the purpose of trading spices, such as: Pepper, nutmeg, cinnamon, tamarind, and opium. Penang became a thriving port and had over 10,000 residents within 10 years.

Today, 900,000 people live on Penang Island. It has become a thriving Southeast Asian technology hub and is referred to as Silicon Island. A virtual who's who of the technology world — Dell, Intel, AMD, Altera, Motorola, Agilent, Hitachi, Osram, Plexus, Bosch and Seagate — have offices and manufacturing facilities in Penang. And 45% of the island's economy is based on technology.

Malaysia as a whole is an exciting, vibrant, and thriving economy. Most Americans think of Malaysia as an exotic, underdeveloped country. But it has 28 million residents, is the 29th largest economy in the world, and its citizens have an average annual income of $14,900 a year.

Another underappreciated but key business advantage: Almost all Malaysians, thanks to the British rule from 1786 to 1957, speak English. This is a huge plus for attracting western businesses to set up shop in Malaysia.

The Malaysian stock market has reflected that economic prosperity. It was up 19% in 2010, and I believe it has many more years of prosperity ahead of it. Long term, investing in Malaysian stocks should be very rewarding.

Although Malaysia has thriving technology and financial industries, the country's rich natural resources excite me the most. The spice trade may have originally attracted traders and merchants to Penang, but it was the discovery of rich deposits of natural resources on the Malaysian peninsula that powered its economic growth.

I'll break them down for you ...

RENEWABLE
NATURAL RESOURES

Malaysia is world's largest exporter of palm oil.

Palm oil: Palm oil may not sound like a very important natural resource, but it is the primary cooking oil used in Asia. And Malaysia is the largest exporter of palm oil in the world. Plus, clever Malaysian scientists are developing efficient ways of converting palm oil into ethanol. Boustead Holdings (2711.KL) operates 286,000 acres of palm oil trees.

Rubber: I have written many times about the booming automobile sales in China. So you need to ask who provides all those tires for all those new cars? Instead of investing in tire companies, like Goodyear or Cooper Tire, you could invest in companies that produce rubber. Malaysia is the third largest rubber producer in the world (Thailand is number one and Indonesia is number two) and Kossan Rubber Industries (7153.KL) has the wind at its back.

Timber: Thanks to its tropical climate and abundant rainfall, Malaysia is COVERED with trees. A lot of those trees — teak, sandalwood, ebony, and ironwood — can be turned into valuable lumber products. Jaya Tiasa Holdings (4383.KL) is one of Malaysia's top timber producers.

NON-RENEWABLE
NATURAL RESOURCES

Oil: Malaysia is blessed with massive deposits of oil and is one of the largest non-OPEC oil exporters in the world. Malaysia's state-owned energy giant, Petronas Gas Berhad (6033.KL), is so profitable that its royalties provided 44% of the government's total revenues last year.

The soaring demand for tin could continue to push prices up over the next five years.

Tin: Of the six basic principal base metals — tin, copper, iron, lead, zinc, and lead — tin increased the most last year rising by 59% to as much as $27,500 per metric ton. It is expected to hit $40,000 on growing demand within the next five years. And Malaysian Smelting Group (5916.KL), the largest tin producer in Malaysia, could be a big winner.

Now, I am not recommending you rush out and buy any of the above stocks tomorrow morning. As always, timing is everything. So I recommend you first do your own homework to make sure those companies are appropriate for your personal situation AND then wait for them to go on sale.

However, I know that many of you will ignore these five Malaysian companies because they're listed on the Kuala Lumpur Stock Exchange. I don't know why but most investors I talk to seem to have a phobia about buying stocks on a non-U.S. exchange. I think that's shortsighted ...

It only costs a few dollars more (no more than $20 or $30 per trade if you use the right broker) to trade foreign stocks. Plus it's simple and easy. Here are some examples:

E*Trade offers trading on six of the largest international markets — Canada, France, Germany, Hong Kong, Japan, and the United Kingdom — through its online trading platform.
EverTrade offers trading in 22 markets — Australia, Austria, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Japan, Mexico, Netherlands, New Zealand, Norway, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, and the United Kingdom — for a flat $50 per trade.
NobleTrading is an online discount trading company based in New York and also trades in 22 countries — Australia, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, Mexico, New Zealand, Norway, Portugal, Russia, Singapore, South Africa, Sweden, Thailand, the United Kingdom.
Boom Securities may be the best choice if you are primarily interested in trading Asian stocks because it includes Australia, China, Hong Kong, Korea, Indonesia, Japan, Malaysia, Philippines, Singapore, Thailand, and Taiwan. Trading commissions vary by country. But Hong Kong, for example, is 0.18% plus some minor currency/tax fees (minimum $12). That means that any investment under US$6,000 would roughly cost the minimum $12. Cheap!

You might notice that I didn't include the two largest discount brokers, Charles Schwab and Fidelity. That is because while they do offer foreign trading, they charge too darn much.

What I want you to realize is that (a) the most exciting investment opportunities are across the Pacific Ocean and that (b) investing in foreign stocks is easy and cheap.

Best wishes,

Tony

Weekly Monday Overview

RichardSchwartz — Mon, 06 Apr 2009 13:17:00 GMT

Richard Schwartz's

PRINCIPLES OF THE STOCK MARKET

A learning, teaching, always evolving stock market letter and advisory service

Eighteenth Consecutive Year of Publication; Letter #1; September 18^th, 1990

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E-mail address: RichardStk@aol.com

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Monday, April 6^th, 2009: It’s Master’s week so I’m pumped up. It’s golf’s 1^st major of the year, tradition packed, for you non-golfers. Should be great with Tiger back, Phil Mickelson saying he’s playing the best golf of his life, Paddy Harrington going for his 3^rd major in a row and lots of up & comers. All I can say is wow! Even just watching this old southern flower nursery turned into a golf course in the spring, lavished with money for decades, may be worth the watching for any non-golfers out there. For me, it’s just heaven.

THE KEY QUESTION

Instead of discussing The Big Picture today, let’s focus on The Key Question. Since that’s what I keep pondering. Plus it has to be on every investor’s mind as well. “Could this rally be the start of a new bull market?” To intelligently answer -- as during every bear market rally -- necessitates rehashing all the available evidence. I can make a solid case for a cyclical bull market having just started and I can make an even more solid case that this is just a normal bounce in a Papa Bear market. Consider:

MINI BULL MARKET HAS STARTED

·        The economic stimulus is now starting to kick in which will stabilize and bounce the economy.

·        The monetary stimulus, lower interest rates, is also now kicking in and housing sales are increasing.

·        Inventories have been drawn down and need to be restocked which will pump up GDP growth near term.

·        The US and other governments have done everything possible to mitigate this downturn.

·        We now have more coordinated and get along global leadership than in many years.

·        The US economy has proven itself wonderfully resilient to shocks in recent decades.

·        Markets can counter-swing at any time for long periods, posting mini bull markets, versus primary trends.

·        Almost two years has passed since the beginning of the credit implosion back in July 2007.

·        Many independent market gurus think the March 2009 lows will last for a good while, months or longer.

·        The latest government bailout plan has more enthusiasts and support for it than previous plans.

·        Oil stopped falling back in December and is now on the rise possibility indicating growth rebounding.

·        We have recently had a number of better economic data reports from both retail and housing.

JUST A BEAR MARKET BOUNCE

·        The bear market hasn’t lasted long enough to discount all the problems that have come to light.

·        More problems, coming as bearish ripple effects and because of long lag times, are due to show up.

·        The bear market hasn’t fallen deeply enough to factor in the sudden massive shock to the global economy.

·        There hasn’t been enough overall selling or liquidation for a solid bottom. Stock and mutual fund liquidation haven’t reached previous classic big bear market bottom levels.

·        No solid bottom appears on the charts. We need a climatic sell off or a long low volume erosion to bottom.

·        Interest rates have to go up at some point, soon – either with and because of an economic rebound or from panic selling -- which normally depresses stock prices because of this new competitiveness from bonds.

·        The American consumer has suddenly stopped spending. This has slowed down business all over the world and finally exposed the global imbalances problems. Too much manufacturing in China and Asia and too much spending coming from America. Now those imbalances are being forced to readjust. Takes time.

·        The stock market is ignoring soaring unemployment. Yes, employment is a lagging indicator but continuing jobless claims isn’t. A new report just out says that in coming weeks and months, hundreds of thousands of jobless Americans will exhaust their unemployment benefits. Finally, 600,000 new job losses each month is going to add to weaker consumer spending, problems for local communities and cause negative ripple effects.

SCHWARTZ CONCLUSION: In review, we started this big bad bear market back in the year 2000. That was the peak of the last big bull market and thus the beginning of this big bear market. This is evidenced by the benchmark S&P 500 Double Topping in March 2000 and October 2007 and then subsequently and decisively breaking below October 2002’s previous decade-long lows by over 10% in March 2009. Showing that since 2000 and the ending of the Internet boom we’ve really been living on lower interest rates and big tax cuts, a false, “pump me up,” house of cards. Really not any wealth building going on, just paper shuffling to make things look great fueled by easy money credit creation. But now reality has set in. Thus, looking around, we see we’re almost nine years into a bear market which has been interspersed with one bull market, running for five years. So stocks were down almost two & a half years, up five years, now down about another one & a half years, sort of repeating The Visit of the Three Bears. In that infamous and extended bear market run of nine years, netting a -50% loss, there were two cyclical bull markets sprinkled in and surrounded and book-ended by the three bears, Baby, Mama and Papa.

My conclusion remains that this bear market is not over. But that the form and shape of it may get tricky going forward. Because the market has a history of posting cyclical or short term or mini bull markets on the way down when the bear gets ahead of itself. Which is why the stock market remains so fascinating!

THE ECONOMY

Well, the BUZZ has died down about how the economy is slowing its prior quick rate of descent. Guess because we’ve started seeing more bad economic data pop up or because the conversation has moved on. But some investors have decided an end to the economic collapse is out there, just over the horizon, so they are shifting into cyclical stocks now as a result. One can see this money rotating out of defensive sectors such as medical care, consumer staples and even gold. You know the concept, buying in advance of a recession’s end since history shows stocks rise roughly six months before the economy turns up. But if we indeed are stuck with a very mild even “anemic” economic recovery, as many figure, then stocks could also soon level off to mirror that trend as well. That is if the economic and earnings data don’t start sinking fast once again showing the economy is still sinking. For example, last Friday it was reported that the ISM Non-Manufacturing Index which now measures almost 90% of America’s economy - America now being a service oriented economy instead of a manufacturing economy - fell faster in March than in February somewhat debunking the idea that the economy has stabilized. Schwartz View: Yes, there is the possibility that economy-wise we are going to V- back up because sharp moves, in whatever areas of endeavor, are generally followed by responding sharp moves back up. We’re seeing that now in the stock market but after this bounce is over, I agree with the camp forecasting an anemic slow economic recovery.

THE STOCK MARKET

The stock market extended its rally to four straight weeks last week. We did see the first crack in this rally a week ago when the market fell sharply for two days. But then we quickly rebounded to new rally highs. That’s normal, the first crack being overcome but it does show this rally may be starting to struggle. We are getting closer to my minimum upside targets of Dow 8303 and S&P 1627, closing Friday at Dow 8017 and S&P 1621. And one can note trading volume has been slowing some, another sign of sluggishness. Or maybe cautiousness. Makes sense as we’re now moving into another corporate earnings reporting season starting tomorrow, the 1^st quarter January-March 2009 report kicking off after the close with Alcoa (AA), traditionally the first of the 30 Dow stocks to report. With the fall-off-the-cliff economy occurring early in last year’s fourth quarter, it only stands to reason that investors have to be wary of forthcoming earnings and thus wary of this rally as well. Schwartz View: It looks like the stock market has some more strength left in it so with stocks already having rallied beyond the 50% retracement level from their latest leg down, the early January peak, the teeter-totter phenomenon comes into play. Getting halfway up means it’s very likely to go all the way back up. Thus we kick off this week at roughly another key Fibonacci 61.8% price in both the Dow and S&P 500. That’s about 8088 and 838 respectively. If we break through those levels, then the next target is those January highs, Dow 9088 & S&P 944. Not guaranteed but increasingly likely.

PORTFOLIO STRATEGY

2009 may indeed prove to be the year to trade. If stocks fluctuate but go nowhere net, up or down, for many months ahead then it’s going to prove very frustrating for investors. In these times and they do happen, more often than the uninformed investor may realize, the best way to make profits is to: (1) trade individual stocks and (2) discipline yourself to continuously fade the market, buying on dips and selling on strength. Toward that end I’ve started incorporating the Commodity Channel Index (CCI) technical indicator into my work. Comes on most charting services like Bloomberg. Basically it shows deviations from the moving average, when stocks get too far overbought or oversold. Naturally you buy when a stock or index gets oversold. For more on the CCI I suggest getting Oliver Perez’s Swing Trading Tactics DVD or Alexander Elder’s book TRADING FOR A LIVING. Over the last month of rally for instance certain stocks have far outperformed the averages. And numerous tradable asset classes or market sectors like the US dollar and oil have been both up and down offering trading profits but no net profits for buy & holders.

Otherwise than scalping profits what should we do? For now favor the long side and the cyclicals. I like technology, renewable energy and natural resources. Move up a notch in your market exposure to about 30% if you haven’t already but continue to hedge your bets and don’t get out on a limb by going too long. Just subdue your ego, don’t think you know more than Mr. Market does and just go with the flow, modestly. Bottom line take what the market gives you, right now there are some trading opportunities but don’t get carried away. There’s lots more trouble to come but the path ahead is likely to get more tricky as well. So don’t fall into the camp that says “fool me once, shame on you, fool me twice shame on me.”

Have a good week!

Go Tiger Go!

Chinese Strategy Looks Good

RichardSchwartz — Tue, 17 Feb 2009 14:38:00 GMT

GLOBAL VIEW. What Is China’s Strategy? Without having to worry about their banks, because China never got involved buying securitized, US subprime mortgages and other debt backed instruments, China’s now at a great advantage. Sure China is slumping fast economically like everyone else, their manufacturing industry shrinking rapidly, but China still has much greater leeway than other countries in lots of ways. First, luckily, because China has no developed bond market and is just starting to open up their financial markets, China missed the debt feast most other banks enjoyed. And are now regurgitating. So now it turns out, that’s a big, big plus. Also China still has its ‘Command Capitalism’ in place, meaning that when government decides on a path, boom, the country can start right off on it. No arguing back and forth like in big democracies like the United States and India. Next, China’s leaders are well educated, many with useful engineering backgrounds and have proven themselves. Finally, China is in a great spot financially. So what is China doing strategically, meaning their plans of long term significance?

Strategically, I’ve written previously how China is moving quickly to help their farms and farmers every which way because the farms were the first part of the Chinese economy to move to quasi free marketplace operations. After this move proved very successful, China then tried the same in manufacturing. Which, obviously, turned out to be a great and grand success. But now that Chinese manufacturing is downsizing rapidly, China has to keep the millions of Chinese workers forced back to the farms happy. Thus I see this government boost as making Chinese agriculture one of the few good buys around today as their farms consolidate, become larger and thus more efficient and productive, and have thus previously recommended Chinese agriculture strongly and offered up a list of stocks to consider buying.

Stockpiling Minerals & Mineral Producing Companies Too. Another, a second, strategic or long range move China has implemented is to stock up on raw minerals while their prices are down and also to take equity positions where allowed by other governments in mining companies themselves. The reason being that when China starts really growing again they are going to need adequate raw materials. China found this out quickly as it became the world’s manufacturing colossus. Even today with their new infrastructure program already in force, China needs cement, iron ore, steel, etc. So consider some recent Chinese moves:

· State-owned Zhongjin, China’s 3^rd largest zinc producer, bought a 50.1% stake in Australian zinc miner Perilya Ltd.

· State-owned Jinchuan Group, Asia’s largest nickel producer, bought 18% of Albidon Ltd, a Perth, Australia based nickel producer and has a deal to take 100% of the nickel from Albidon mines in Zambia.

· China’s 3^rd largest steelmaker bought a 50% interest in Australia’s Centrex Metals Ltd.

· Chinese interests bought a 40% stake in Australia’s Mount Gibson Iron.

· China’s 2^nd largest steelmaker upped its stake in Australian Gindalbie Metals from 12% to 36%.

· Aluminum Corp of China (ACH) has just increased it’s stake in Rio Tinto Plc.

· China’s Tongling Nonferrous Metals Group just bought 13% of Canada Zinc Metals.

· China Mining Resources said it would up its stake in Canada’s Quadra Mining from 4% to 19.9%.

Schwartz View: My point being watch what China’s doing. You might want to even sign up for FREE www.moneymorning.com as this service tracks closely what’s happening in China, the news clips above coming from a recent article. Again, while other countries play defense, having no real answer to their economic slumps besides cutting interest rates and implementing various stimulus plans, China is on offense, planning for where they want to be when this economic slump is over. So, again, if you want to put your toe back in the water on general market weakness, I would do so in China. You should have a ready resource right in front of you to do so, as along with the list of Chinese ag stocks I ran here, I also detailed by category & sub category the USX China Index and published it here for you on February 5^th.

* As soon as I wrote that along with China’s domestic-investor only stock markets, the Shanghai and Shenzhen Stock Exchange Composite Indexes going up this year, the USX China Index (symbol HXC) and the iShares FTSE/Xinhua China 25 Index Fund (symbol FXI), an ETF, were following suit and rising, that link ended. Schwartz View: Ok, I was surprised they were moving together anyway. Going forward, still scale in to China, just take it a little slower.

Where Now Inflation?

RichardSchwartz — Fri, 12 Sep 2008 13:39:00 GMT

THE FIRST INFLATION SURGE IN 25 YEARS IS OVER. So, what now?

First, let me give credit when credit is due. Federal Reserve Chairman Ben Bernanke and the Fed finally got one right. They’ve been promising us moderating inflation for a year or more and now with -30% lower crude oil prices and a big general commodity collapse we’re finally we’re seeing it happen. Or, at least, starting to (most things economic happen with a lag). And with the US dollar now surging, that’s going to reverse/diminish rising, problematic imported inflation as well. So now the deflationists out there, those who say deflation is our real problem facing us for some time – Gary Shilling, Robert Prechter, Ron Insana to name just three -- can really have their time in the sun.

Still, there remains some debate whether problematic rising inflation is going quiescent. Mac Courtenay of Seeking Alpha, I guess a boutique research firm, offers up seven reasons why inflation isn’t going away:

1. Inflation is already firmly entrenched. Schwartz View: I agree. I’ve been observing the Fed’s incessant jawboning that inflation expectations remain low is wrong and we all know that the government’s inflation data is terrible skewed to the downside from what inflation really is.

2. Inflation is already here. Schwartz View: The Producer Price Index (PPI) is up +9.8% over last year, and that’s only what the government grudgingly admits to.

3. Inflation is now moving its way through the “food chain” showing up in consumer prices as well. After some hope that because of global competition (globalization) producers would eat the higher inflation. Schwartz View: This rippling through is evidenced by the Consumer Price Index (CPI) rising too, again up the fastest in 17 years.

4. Average weekly earnings fell in July the largest since 1990. Schwartz View: I’d guess Mr. Courtenay’s point is that when earnings drop, we can’t buy as much. ???

5. More and more Federal Reserve governors are talking about raising interest rates next, not lowering them. Especially if we see energy prices stabilize above $100 and bounce. Schwartz View: Of course, these Fed officials, meeting again next Tuesday, can change their views.

6. Global (food?) consumption patterns are heading higher. Schwartz View: I don’t know if author Courtenay is talking about food, metals or just what. But I agree with him on food. As people get a little money, one of the first things they spend it on is more and better food. Thus global food consumption patterns should keep heading higher even if the global economy recesses.

7. The markets will take charge. If the Fed doesn’t raise rates, the marketplace will raise them. Schwartz View: Not sure about this reason he positing for inflation staying problematic. Right now the markets, the long US Treasury market, is still forecasting a slowdown by yields going lower and lower, which to me means more disinflation ahead, not rising inflation.

Schwartz View: He goes on to say part of oil’s recent comeuppance, coming down, is forced hedge fund liquidation because of Congressional pressure (I agree). And that it’s a great time to buy TIPs (Treasury Inflation Protected Securities) and the easiest way is to buy the symbol TIP. And to buy commodities on this correction, recommending also symbols DBC (a basket of commodities) and GDX (gold). Myself, while I believe this commodity pullback is indeed a correction, I think it’s too early to buy them back.

Schwartz BIG PICTURE Inflation View. My belief, garnered from studying stock market history and looking at thousands of charts over the last 20+ years, is that when any new trend begins, many times it begin with a surge in the new direction, then a pullback or at least a pause, sort of to regroup, consolidate gains, make believers out of disbelievers, open the eyes of others who are slow to see and just basically kill enough time to see if the new trend has legs. Then after this pullback correction, which more often than not can be large and long lasting, runs its course, the new trend reasserts itself.

Basically that’s where I see us today with rising inflation, in a pause to refresh. I’ve theorized over the last year than oil and other commodities would stay stronger, longer than most thought this year. I’d say that proved correct with oil going up all the way to about $147 and related sectors like natural gas, energy services, solar, wind and other alternative clean green leading the stock market for the whole first half of 2008. Similar to what happened during the first year of the last severe Papa Bear stock market back in 1973-1874 (oil stayed high the first year). But now, with commodities reversing downward and in major correction, it’s obvious change has occurred, that a pause to refresh is underway. And we can expect this new trend to last longer and correct deeper than many would think I’d venture. Sure, first because commodities are inherently extremely volatile, much more so than stocks and bonds. But also because of the emerging new, macroeconomic backdrop. We seem to be in line for a major, global economic slowdown which will throw a big detour on the road to a new long term trend to rising global inflation. If the global economy really goes blah for the next few years, commodities will take a longer than expected breather. Schwartz View: Still I’m in agreement with former Federal Reserve Chairman Alan Greenspan who predicted in his 2007 book The Age of Turbulence that we live in an inflationary world and that the disinflation trend dominating all during his tenure as Fed chief is coming to an end. And I’m in agreement also with famed, global investor Jim Rogers who says commodities normally correct 50% or more and that’s what we’re seeing now, a correction not the end, to this so far about 9-year commodity bull market.

America's Path Forward

RichardSchwartz — Wed, 09 Jul 2008 14:31:00 GMT

A Recap of: THE WORLD IN 2020: POWER, CULTURE AND PROSPERITY

By Hamish McRae (1994)

Before my memory fades, let me recap a bit of the fact and opinion filled book I read on my vacation. Essentially Mr. McRae, an acclaimed commentator with a 25-year career writing for two British national newspapers interpreting the international and economic scenes and previously already a best selling author, portrays how the world will develop by 2020. Basically he briefs us about where the world stood in 1994, then discusses the major forces for change, including demographics, natural resources, trade, tech and government, and then concludes by describing the world as he sees it in 2020. (Mr. McRae's book offers great perspective. I recommend getting and reading it yourself.)

Let me begin at the very end. I was absolutely delighted to find in the final chapter this McRae conclusion: “If the US does reimpose majority values, it will do so in a spirit of decency and humanity. The United States has to come to terms with an inability to increase living standards for the majority of its people until and unless its citizens behave in a more ordered way. But it will do so.” Schwartz View: Yay! That’s my belief too. America must start living in a more orderly, civilized way to really regain our leadership role and again improve our living standards which have been stagnating for far too long.. Thus I’m relieved and delighted to come upon some other observer of life and the times noting the same thing I have.

This morning I’ll just describe America in 2020. But in forthcoming letters, say in my regular GLOBAL VIEW section, and elsewhere when and where appropriate, I’ll fill you in on Mr. McRae’s views on other countries’ progress and their standing in 2020 as well.

The United States In 2020. The US will continue to get multicultural, much more so than any other country. Thus it will feel much different than the past and different also from the rest of the world which discourages immigration. We’ll feel “big and vibrant” but not “particularly rich.” There will continue to be large pockets of poverty. [Schwartz: Unfortunately, that’s just how capitalism works.] The incoming immigrant population will keep the ideas flowing and innovation happening and the US growing faster than Europe or Japan but will cost us more as running a multicultural society is expensive. By 2020 we will be well on our way to de-industrialization, having less then 10% of America employed in manufacturing. We will be depending more and more on the service sector and will be the global leader in services by far. [Schwartz: This is debate about whether abandoning manufacturing is a good thing or not.] We will see a decline in the old city centers and further growth in edge cities which will also be different than the rest of the world. Edge cities just being semi-urban agglomerations inhabited mostly by professionals. Better communications will make large cities redundant as more workers will telecommute. More work and social life will be done by phone, videoconferencing, email and fax. Our neighbors, Canada and Mexico, will become even further integrated into the US economy as migration continues. Cultural and economic borders, if not political ones, will disappear. Although likely losing our richest nation role, the intellectual leadership of the US will remain and we will continue to export our culture, ideas and language.

We have three big issues facing us domestically; bureaucracy, security and lifestyle. Bureaucracy-wise, we are running an inefficient society now, for one example, too much litigation is a big drag on the economy. Security-wise, we have too much crime, as another example. And lifestyle-wise, we have too much divorce, too many single moms, low savings and low education standards. Schwartz View: Any and all ways of running our economy, political system and lifestyles inefficiently hurts our economic growth, no question about that. But Mr. McRae feels the US will break this negative cycle. And get back on track, living in a more orderly way, rebuilding the family unit, etc. McRae speculates on how this change will happen: “At some stage, most probably in the second decade of the next century, there will be one of those great radical shifts in US political attitude which take place from time to time, a shift akin to the New Deal …” Hey, it can’t come too soon for me as I rail under the monkey-see, monkey-do atmosphere of Hollywood, the New York Post and Mike & the Mad Dog, crude and rude, using whatever sells, taking no responsibility, gaming the freedeom of free speech, just living off other people. I see this shift beginning no matter who becomes our next president, although I see it really accelerating if presumptive Democratic nominee Barack Obama wins.