How to Front-run the Chinese, Legally By Brian Hicks | Wednesday, July 21st, 2010

"The 19th century was the century of the UK, the 20th century was the century of the US, the 21st century is going to be the century of China." — Jim Rogers

"China is going to be an enormous force that will make the Japanese threats of the seventies and eighties look like a water pistol." — former CE CEO, Jack Welch, 2001


Dear reader:

According to British author and soldier Sir John Bagot Glubb’s book The Fate of Empires, the seven stages of an empire’s life cycle are as follows:

1. The age of outburst (or pioneers)

2. The age of conquests

3. The age of commerce

4. The age of affluence

5. The age of intellect

6. The age of decadence

7. The age of decline and collapse


It’s not hard to figure out where the United States stands in this life cycle.

We just experienced the greatest housing and credit bubble in history… when homeless people were given mortgages.

We’re also experiencing epidemics in obesity, heart disease, and debt.

The U.S. finds itself in stage #6: decadence.

That’s right, we’re in decadence. At what phase of decadence, I’m not sure...

But decadence will soon turn to decline… if we haven’t already fallen off the cliff.

Nothing proves this point more than the following chart from the International Energy Agency (IEA) that shows that China now consumes more energy than America:

You can draw a circle around where the two lines intersect and write “Historic!”

This chart represents an epic shift in global power, both economically and politically.

Wall Street Journal broke the story on July 18th:

China's ascent marks "a new age in the history of energy," IEA chief economist Fatih Birol said in an interview. The country's surging appetite has transformed global energy markets and propped up prices of oil and coal in recent years, and its continued growth stands to have long-term implications for U.S. energy security.

The Paris-based IEA, energy adviser to most of the world's biggest economies, said China consumed 2.252 billion tons of oil equivalent last year, about 4% more than the U.S., which burned through 2.170 billion tons of oil equivalent. The oil-equivalent metric represents all forms of energy consumed, including crude oil, nuclear power, coal, natural gas and renewable sources such as hydropower.

For many energy and China observers, this wasn’t a surprise — although it occurred much sooner than expected.

But, dear reader, this is a mega-trend that will continue for decades.

And the investment potential is mind-blowing.

You see, later in the WSJ piece…

Mr. Birol, previously an economist at the Organization of Petroleum Exporting Countries, said China is expected to build over the next 15 years some 1,000 gigawatts of new power-generation capacity. That is about the total amount of electricity-generation capacity in the U.S. currently, and the construction of all those gigawatts occurred over several decades. "This demonstrates the major growth we are talking about" in energy demand and capacity growth in China.

Now, China has been all over the world inking deals with oil sand firms in Canada, resource rights in Africa, Australia… and Mongolia.

They’ve been doing this for years. This is not new.

They’ve also been hoarding resources to supply their infrastructure build-out for years to come.

This brings me to the point of this article.

If you know what resources the Chinese will need to maintain their rising energy consumption, you can buy now, sit on the investment… and let the Chinese buy you out.

Chris DeHaemer has already shown you how to front-run the Chinese. He’s done this with a Mongolian gold stock and Mongolian oil.

In fact his latest home run — a Mongolian oil stock — has rallied over 700% this year alone. His readers are making money hand-over-fist.

And that’s just the beginning...

Imagine buying Suncor Energy (one of Canada’s largest oil sands companies) when it went public in 1993 for just a $1.08 per share!

Today Suncor trades for $33… a gain of 2,900%.

That’s what you’re looking at with Chris’s Mongolian oil play.

Mongolia is in an ideal situation. It borders a nation with a voracious appetite for resources… coal, oil, natural gas, etc.

Think about it like this...

Canada is a resource-based economy. Its GDP for 2009 was $1.287 trillion. Canada is in an ideal position because its neighbor to the south still has the #1 economy in the world. So, Canada essentially ships all of its resource production to the U.S.

Now look at Mongolia. It’s also a resource-rich nation. It too has a huge neighbor that needs its resources — China.

And the thing about China is that it appears to be in stages 2 to 4 in the empire life cycle.

China has more millionaires now than the UK and France.

And like energy, it’s only a matter of time before China’s overtakes America in that economic category as well.

Profitably yours,

Brian Hicks

Bernanke slams U.S. economy!

Bernanke on jobs:

"This is the worst labor market since the Great Depression."

Bernanke on housing:

"The market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction."

Bernanke on fears about the future:

"Most ... viewed uncertainty about the outlook for growth and unemployment as greater than normal, and the majority saw the risks to growth as weighted to the downside."

Bernanke on tight credit for small businesses:

"Bank loans outstanding have continued to contract. Small businesses, which depend importantly on bank credit, have been particularly hard hit."

And never forget: All this is coming from a man whose job invariably makes him extremely reluctant to admit to negative trends in any sector at any time — if Bernanke is saying things are bad, you can bet your bottom dollar they're actually far worse.

Our 11 Startling Forecasts for 2010 (Edited Transcript) by Martin D. Weiss, Ph.D.

Forecast #1
The Federal Reserve will not relent
in its money printing madness until
it's absolutely forced to do so.

Martin: Because ...

Mike: Because it's in black and white — right in the Fed's own statements, month after month. It's what they told us they'd do. It's what they're doing. And it's what they're telling us they're going to continue doing. We also know Bernanke will pursue this policy because of the persistence of those forces. We've had 120 bank failures from the beginning of 2009 through mid November, the most since the S&L crisis of the 1980s.

Martin: An obvious excuse for the Fed to continue printing money! So the pivotal question for 2010 is this: When and how will Mr. Bernanke shift gears? But first, let's focus on the immediate consequences of the Fed's money printing.

Larry Edelson: Just connect the dots! They take you straight to

Forecast #2
A continuing, virtually unstoppable
long-term decline in the dollar.

Yes, we will have dollar rallies. And yes, the dollar rallies will be sharp. But they will be traps. After each rally, the dollar will consistently resume its long-term decline. Mr. Bernanke is creating massive new supplies of U.S. dollars, ad infinitum. So he's naturally diluting their value.

Martin: But so far, the U.S. dollar's decline has been orderly.

Larry: I wouldn't use the word orderly. Instead, I'd use the words "messy" and "volatile," and that's only going to get worse in 2010. 2010 will also bring louder voices demanding that the dollar be replaced as the world's dominant reserve currency. Most important, at some point, the pressures on the dollar could reach critical mass, and the pace of decline will accelerate. Instead of a zigzag decline, you'll see a freefall, and ultimately, outright panic.

Claus: A tipping point could come when the dollar makes new, all-time lows ...

Martin: ... and those lows are already very close.

Larry: Yes. Against the euro, the dollar is just 4 euro cents from its lowest level in the euro's history. When that low is broken decisively, it could set off a dramatic wave of panicky dollar selling here and in the Euro zone. Against the Japanese yen, the dollar is now just 2.5 yen from its lowest level of all time. When that low is broken decisively, it could set off an even more dramatic wave of panicky dollar selling in Japan. And globally!

Claus: Of course. Investors hold dollars all over the world — not only in the Euro zone and Japan, but also in Southeast Asia, South Asia, the Middle East, and the Americas. Those investors are not only central banks that may still have some political motives to refrain from selling ... but also private corporations and individuals who don't give a darn about politics, who won't hesitate for a moment to dump their dollars if they feel that's what it takes to avoid a beating.

Martin: Right. But won't that kill European export industries?

Claus: Yes, and periodically here in Europe, we will gripe and make noise about how unfair that is. But we cannot complain too loudly. Remember, we also benefit from all this free money. We also have very shaky financial systems. We also have been rescuing our banks and letting our budgets go to hell in a handbasket. Meanwhile, I don't think the Japanese can complain very much, either.

Martin: Because they have been doing pretty much the same thing as the Fed is doing now ... and they've been at it for over TWENTY years.

Claus: Yes!

Monty Agarwal: Gentlemen, I know I'm new here and you wanted to save me for later, but there's another factor — a factor so pertinent to this discussion ... do you mind if I interject it here?

Martin: I don't mind at all.

Monty: It's the sovereign wealth funds, the giant national pension funds, which I track avidly. Not only have they grown dramatically in size — to as much as 3 trillion dollars — but with the dollar decline, they are now becoming far more aggressive in shifting out of the dollar and moving into alternatives — other currencies, other sectors, other continents, such as Asia. Most economists are greatly underestimating their impact. And most investors will probably miss the opportunity to follow their lead to some very profitable asset reallocations in 2010.

Martin: What happens next, gentlemen?

Larry: Let me answer that. Let me tell you what I already see happening among many investors here in Asia ... and what could soon become a sweeping, worldwide phenomenon all over the world in 2010.

Forecast #3
The entire concept of "RISK" will be REDEFINED
by global investors. The new definition will be:
HOLDING U.S. dollars and dollar-denominated assets.

First of all, more and more investors perceive U.S. dollars — and anything denominated in dollars — as high-risk investments. They don't really care how conservative the instrument is or how strong the company may be. All they see is that it's wrapped in greenbacks, and they paint everything associated with those greenbacks with a single broad brush and a single color — red for risk.

Martin: Which makes them anxious to dump dollars.

Larry: Yes, but it runs deeper than just currency trading. It means they are compelled to find other assets that can replace the U.S. dollar as stores of value. They must rush to buy alternative forms of money for their wealth ...

Martin: Like gold ...

Larry: Not just gold, but also silver, copper and other commodities. Not just commodities but also other tangible assets like real estate. Not just tangible assets, but also paper assets that provide a stake in those tangibles ... including common stocks!

I call this "the monetization of assets" — the phenomenon whereby other assets of many shades and colors become substitutes for the traditional role money plays as a store of value. That's the inevitable result of the Fed's efforts to flood the economy with devalued money.

Claus: And that's why they're buying gold.

Martin: Which leads me to this question we often get from our readers: Won't central banks prevent — or at least moderate — the rise in gold by simply unloading some of their gold hoards on the marketplace?

Larry: No. they're going to do precisely the opposite, which takes us to our next forecast:

Forecast #4
Gold will reach $1,500 if not higher as
central banks help drive up its price
with massive new buying of their own.

Martin: When do you see this beginning in a big way?

Larry: It already is! China is actively buying gold, boosting its gold reserves from 600 metric tons to 1,054 metric tons — a 76 percent increase since 2002. India has just spent a whopping $6.7 billion to scoop up 200 tons of gold from the International Monetary Fund.

Martin: But how big is this in the context of the broader global market for gold?

Larry: Are you kidding? It's equal to roughly 8 percent of all the gold mined in the entire world each year. Meanwhile, in addition to central banks, you've got a rush of private investors buying gold. Demand for gold investment products like ETFs soared to a record 1,732 metric tons of gold in the third quarter, $55 billion of gold. All this buying is converging right now. And this is the most obvious factor that will drive up gold in 2010.

Martin: Now, 27 percent of our readers said gold could rocket to somewhere between $1,500 and $2,000. And nearly 8 percent said $2,000 or higher.

Larry: Well, they're right on, in my opinion! But it won't be a one-way street. Before going that high, an ounce of gold could dip below $1,000. If it does, it will be a huge buying opportunity, a true gift for gold investors. I've said this many times before and I'll say it again: Every ounce of gold bullion you can buy for less than $1,000 an ounce should be seen as a great bargain.

Martin: Claus, what about oil?

Claus:

Forecast #5
The overwhelming majority of oil producing nations
will demand that the U.S. dollar be replaced as the
pricing standard for crude oil.

Martin: In past OPEC meetings, the debate was always about how to lower or raise the price of oil.

Claus: That will not be the big issue in 2010. More than ever before, oil will be driven by free market forces, and more than ever, the rise in oil prices will be tied to the fall in the U.S. dollar. As the dollar falls, the demands to replace the dollar will get louder and more unanimous. And as those demands grow in strength, you'll see more and more upward pressure on oil prices.

Martin: Gentlemen, please be more specific about what that will do to the price.

Larry: Here's my forecast, based on my work with the Foundation for the Study of Cycles: In 2010, the price of oil will move into a new, higher, and broader trading range — $110 on the high end, $70 on the low end.

Martin: So you don't see oil making new highs in 2010. Why not?

Claus: Because of the weak demand for energy from the largest economy in the world, the United States. Yes, the U.S. economy is recovering. And yes, the recovery could last well into 2010. But here's our forecast:

Forecast #6
The U.S. economic recovery of 2010
will go down in history as one of the
weakest and shortest in 100 years.

Mike: Never forget: There are currently 27.4 million unemployed or underemployed workers in the United States.

Never forget: Banks are clamping down on credit cards, tightening standards for the last nine quarters in a row, according to the Fed's own surveys. Also never forget that more than one in five U.S. homeowners has lost all their equity in their home and is upside down on their mortgage.

Plus, now you throw rising gasoline prices and surging heating oil prices into the mix and you're left with a perfect storm for a very large proportion of American consumers: No job security. No credit. No home equity to tap. And to add insult to injury, rising energy bills.

Claus: In contrast, when you look overseas, you see an entirely different picture:

Forecast #7
The economies of Brazil, China and India
will grow up to four times faster than the U.S.

For the most part, their consumers are not threatened by record unemployment, are not overly reliant on credit cards or home equity as a source of spending power ... and are not directly impacted by rising energy.

In the U.S., even if the recovery holds until the latter part of 2010, I don't think you'll see growth of more than a couple of percentage points. Meanwhile, Brazil will grow by nearly 5 percent, India by 7 percent and China by almost 9 percent.

Martin: Based ...

Claus: Based on official government sources, which, in at least two of those countries, have often understated the actual growth.

Martin: Tony, can you help us there? By the way, I understand you've now moved back to Asia permanently?

Tony Sagami: I was born in Japan, and moved to the U.S. as a child, and now I'm back living in Asia as an American citizen ... and loving every minute of it ... although I sure miss the U.S. But to answer your question about the global stock markets, I have all the information here at my fingertips, which brings me to ...

Forecast #8
Stocks in countries like China, India and
Brazil will rise up to three, four,
even FIVE times faster than the S&P 500.

The immediate reason is quite simple — China's $586 stimulus plan is working like a charm. China didn't have to borrow a dime to finance that stimulus. And unlike the U.S., which used trillions to buy out worthless sub-prime debt, China spent its stimulus money on highways, airports, dams, utilities, bridges, shipping ports and more. Not only has this created millions of jobs, it has created a foundation of productive infrastructure that will keep the Chinese economy humming for years to come.

Larry: Look. This is not just about one year or even one decade. We are in the first years of one of the most powerful mega-cycles in the history of civilization.

Martin: I know exactly what you're talking about — the work you've done over the years with the Foundation for the Study of Cycles, which you presented to us in an earlier event this year.

Larry: For those who may have missed it or who need to refresh their memory, could you run some key highlights of our session with the Foundation's Director of Research, Richard Mogey?

Highlights of Our Event with Richard Mogey,
Director of Research for the
Foundation for the Study of Cycles.

The time is the 1930s, and we're back in the Great Depression. President Herbert Hoover could not have dreamed of a more adverse environment to begin planning his re-election campaign — not even in his worst nightmares.

The public and the press demand to know who or what was to blame for this catastrophe. To survive, the Hoover Administration would have to give them answers.

But the president knows that just any answer will not suffice. Only a credible, exhaustively documented, scientific answer could have a chance of restoring the public's faith in his administration and in the U.S. economy.

And so, Hoover turns to a scientist he trusts — a Chief Economic Analyst in the Hoover Administration ... named Edward R. Dewey.

Later Dewey will create a nonprofit foundation. And with this foundation he and his successors will continue a 78-year quest for the mysterious forces that drive the economy and investment markets, joined by many of the best minds from Harvard, Yale, Princeton, Oxford, Temple University, Western Reserve and other globally respected institutions.

The mission of the foundation is championed by men at the very pinnacle of the scientific establishment — Charles Greeley Abbott, the Head of the Smithsonian ...William Cameron Forbes, the Chairman of the Carnegie Institution ... Wesley Claire Mitchell, Founder and Director of the National Bureau of Economic Research...

A former Vice President of the United States — General Charles G. Dawes — joins Dewey's Foundation. So does Senator Everett M. Dirksen.

Richard Mogey: Dewey discovered a very simple reality — that in modern, industrialized nations, economic expansions and contractions occurred in regular, PREDICTABLE patterns.

Larry: In regular waves — CYCLES!

Richard: Exactly!

Larry: I've put together a short list of some of the most outstanding calls in major markets.

Richard: Forecasts of key turning points.

Larry: Yes, the foundation alerted investors to

• the June 1973 high in soybeans ...
  
  
• the January 1980 high in silver ...
  
  
• the March 1981 high in crude oil ...
  
  
• the September 1981 high in interest rates ...
  
  
• the August 1982 low in the stock market, and ...
  
  
• the great Crash of 1987 in the stock market.

Richard: These were all very major turns in the history of
markets.

Larry: The Foundation forecast ...

• the massive bull market in stocks, 1995-2000 ...
  
  
• the bottom in oil, February 1999 ...
  
  
• the historic low in commodities, June 2001 ...
  
  
• the all-time high in stocks, September 2007, and ...
  
  
• the March 2009 low in the stocks

Congratulations, Richard. This is why Weiss Research has entered into an exclusive, strategic alliance with the Foundation to help give our readers direct access to this valuable timing information.

Richard: Thank you! We also have a much longer, 500-year geopolitical cycle — a major power shift from East to West or from West to East, which is the case now.

Now, we return to our "11 Startling Forecasts for 2010" ...

Martin: That was fascinating, Larry. Congratulations again on introducing us to the Foundation. What I find most remarkable about all of this is not just how accurate the Foundation has been in timing the market, but also how broad their vision is of the future — particularly the 500-year cycle of the massive power shift from West to East.

Larry: We are just in the very early stages of that shift. And clearly, it's not just about a shift of power. It's also a shift of capital, wealth and investment opportunities. It's a wealth shift from economies that are bogged down in debts, deficits — and denial of the dire disasters all around them — to economies that are rich in cash, rich in commodities ... and full of confidence in their future. This is probably the most important, the longest term and the sustainable megatrend of our time.

Martin: What does that mean for global stock markets in 2010?

Claus: Here's our forecast:

Forecast #8
Stocks in countries like China, India and
Brazil will rise up to three, four,
even FIVE times faster than the S&P 500.

The S&P 500 could rise 20 percent further in the first half of 2010. But as investors begin to realize how weak the U.S. recovery truly is, it's likely to give up AT LEAST half of those gains in the second half.

So by December, if the S&P is still up 10 percent for the year, it will be a minor miracle. In contrast, don't be surprised if major foreign markets are up by 30 percent, 40 percent or even 50 percent for the year ... three, four or even five times more than the S&P 500.

Martin: Mike, you told me before this conference that you had some strong numbers that illustrate how this has happened in the recent past.

Mike: It's actually quite consistent. When stock markets are rising, most foreign markets outperform by HUGE margins. So far this year, for example, the S&P 500 has risen by 21 percent. China's Shanghai Stock Exchange Composite Index is up 75 percent, beating the S&P by factor of 3.6 to one. India's BSE Sensex index is up 79 percent, beating the S&P by a factor of 3.8 to one. And Brazil's Bovespa Index is up 139 percent, over SIX times better than the S&P.

In 2007 overall, the foreign markets did equally well — India up 65 percent, Brazil up 72 percent, and China up 110 percent. But since the S&P rose only 3.5 percent, the relative outperformance is far greater: India, almost 19 times better. Brazil almost 21 times better. China thirty-one times better!

So clearly, a forecast of three, four or five times outperformance in 2010 is not at all unreasonable, given the historic precedents.

Martin: Just remember that this is a double-edged sword. Volatility to the upside comes with volatility to the downside. Would anyone venture a guess as to which will do the best of all?

Tony:

Forecast #9
The best performing stock markets in 2010
will include Indonesia, Thailand and Vietnam.

I just completed a five-day fieldtrip to Indonesia, and I was blown away by what I found. Indonesia has the fourth largest population in the world and is growing like a weed. It just reported that its economy grew by 4.2 percent in the third quarter and that's on top of 4 percent in Q2. That makes it the THIRD fastest growing economy in all of Asia, just behind India and China.

Indonesia is extremely rich in natural resources, especially oil and coal. How rich? Many people don't realize that Indonesia was the only Asian member of OPEC until it voluntarily withdrew last year. You know why they withdrew? Because their economy was growing so fast and they were making such good use of their own oil, they didn't need to export it any more. OPEC stands for Organization of Petroleum exporting countries. So if they're not exporting, why be a member?

Martin: You've recently been to Taiwan, Hong Kong, Macao, mainland China, Japan, India ... now Indonesia. Where are you going next?

Tony: My next trip is to Xian, China. There are over 100 Universities there and they produce the most engineers of any city in China. That gives them a wealth of talent in technology and engineering, and I am going to visit two companies in particular that tap this talent.

From there, I'm going to Hanoi and Ho Chi Min City. Vietnam is taking aggressive steps to open up its economy. It has recently been privatizing companies and property rights. It's taking some very broad measures to boost the liquidity of its stock market. Its market is another prime candidate for #1 outperformer next year.

Larry: And Thailand, despite its political problems, is one of the most undervalued markets in Asia, with many stocks trading at less than their book values! Plus, there's a vast amount of new Chinese money going into Thailand, buying property, buying banks, buying every major asset they can lay their hands on. Which leads us to sovereign wealth funds.

Monty: As you know, major sovereign wealth funds are essentially the national pension funds of some of the world's richest nations, and my forecast is quite simple:

Forecast #10
Sovereign wealth funds of Asia will become far more aggressive buyers of contra-dollar assets in 2010, helping to drive up their values at a much faster clip than generally expected, especially in Asia.

Just the top ten Sovereign Wealth Funds in the world have nearly $3 trillion in capital. More than 80 percent of that capital originates from the Middle East and Asia — and more than 70 percent of that capital is going into natural resources, which are contra-dollar assets.

Larry: What most people don't realize is that the sovereign wealth funds are also global trendsetters. When they start gobbling up natural resources, other companies will follow their lead and do the same.

Sean Brodrick: Which leads us to our next forecast:

Forecast #11
Expect a MASSIVE new global boom in mergers
and acquisitions, focusing on small- and
mid-cap natural resource stocks.

We just saw Goldcorp gobble up a company with gold mining operations in Mexico by the name of Canplats for $238 million. And this acquisition was driven by a wave that will lift a lot more small boats, targeting not only gold, but other natural resource like oil, silver, copper and more. The wave I'm talking about is that the large producers can't replace their production fast enough.

And it's accelerating. Bear Creek Mining bought three gold and silver exploration companies in South Peru. El Dorado Gold bought Sino Gold in China. Jin Shan, based in Canada, recently merged into a larger Chinese miner.

Tony: I have another one:

Bonus Forecast
2010 will bring a NEW phase in Asia's
real estate boom — a boom which is
both broader and far more sustainable
than America's real estate boom of the 2000s.

Martin: Where in particular?

Larry: I travel throughout Asia. I bought a property here in Bangkok just SIX months ago, and it's already up 35 percent. So I can answer that question based on first hand information. Real estate prices will naturally be highest in major urban centers where population density is the greatest and real estate is in the tightest supply: Hong Kong, Singapore, Shanghai.

Martin: Gentlemen, this is fascinating. But most investors can't travel all over Asia like you do. And even if they could, how are they going to buy Asian real estate?

Tony: Are we ready to start naming specific investments?

Martin: Yes!

Tony: In the past, it would have been almost impossible for the average American investor to profit from a real estate boom in Asia. Today, it's just a matter of buying the right exchange-traded funds — simple ETFs. ETFs are traded on U.S. exchanges. You can buy ETFs with deep discount commissions, or even zero commissions. And you can do it in any standard brokerage account or IRA.

Martin: What about ETFs for Asian real estate?

Tony: You can use IFAS. This ETF owns shares in some of the biggest commercial property developers throughout Asia, including China, Singapore, and Japan.

I have personally visited real estate developments in Shanghai, Beijing and all over China, and that's where I think you're going to get the biggest bang for your buck. I'd love to take readers on a tour with me to see some of them — and the HUGE demand for them — first hand. But I don't have to.

You can buy a stake in China's real estate with the Claymore/AlphaShares China Real Estate ETF (symbol TAO). This ETF owns companies like Wharf Holdings Ltd. and New World Development, which develop malls, office buildings, and other commercial projects in China.

The main point I'd like to make is that there are ETFs for each and every one of your forecasts, and for nearly all of them, the market liquidity is excellent.

Martin: Forecast #2 was a continuing, virtually unstoppable long-term decline in the dollar. What's the simplest vehicle for profiting from that trend?

Bryan Rich: Currency ETFs. ETFs that never buy a share of stock, never buy a single bond. ETFs that invest strictly in foreign currencies themselves. These ETFs allow you to profit from the appreciation in the currencies against the dollar. Plus, in several cases, you get the benefit of a higher yield.

For example, the Australian dollar ETF now gives you a full three percentage points more than U.S. Treasury bills or U.S. money markets. The Brazilian real ETF pays you over EIGHT percentage points more!

Martin: The next actionable forecast was gold heading for $1,500. What instruments to do you recommend?

Larry: If you don't own any gold, decide how much you want to allocate to gold and buy half now, half on a pullback. But don't put most of that allocation in bullion coins or bars. You'll have to pay a hefty premium. You'll have the costs and hassles of storage. It's simply not for most of your money.

Instead, I use the SPDR Gold Trust ETF (GLD). It's far more flexible and practical.

In addition, every investor should hold shares in gold miners like Newmont, symbol NEM, and Barrick, symbol ABX; plus some juniors, like Agnico Eagle, symbol AEM; IAMGOLD, symbol IAG; and another up-and-coming company, Jaguar Mining, symbol JAG.

Martin: Forecast #5 was a higher trading range for oil, up to $110 per barrel but NOT new all-time highs. To me, that implies a strategy that also has a strong income or dividend component.

Nilus Mattive: I like Master Limited Partnerships like Kinder Morgan Energy Partners (symbol KMP) and Energy Transfer Partners (symbol ETP), which have dividend yields of 7.6 percent and 8.1 percent respectively. Or, if you want to get broad diversification in MLPs with one shot, you can use the MLP & Strategic Equity Fund (MTP), which pays an annual yield of 5.7 percent.

Martin: The next actionable forecast was on the strong potential outperformance of stocks in countries like China, India and Brazil. What are the best vehicles?

Tony: There's a solid ETF for each one. Plus, beyond ETFs, I think the best way to invest in China is to concentrate on the two C's ... Construction and Chuppies — Chinese yuppies. And my favorite stocks for these two sectors those trends are Duoyaun Global Water (DGW) and New Oriental Education (EDU).

Martin: Last actionable forecast: Big mergers in small- and mid-cap resource companies.

Sean: One of the hottest regions right now is Argentina and Chile, where I've been hopping around for the last eight days virtually nonstop on twin-engine puddle-hoppers, micro buses, pick-up trucks, hiking —in the Andes, in Patagonia. That's where my favorite Latin American gold miner has two of its most promising exploration projects. The one in Patagonia is called Cerro Moro where they're finding bonanza-grade veins — 13 grams of gold per ton of rock mined ... 56 grams of gold per ton, 550 grams per ton.

Martin: How does that compare to other mines?

Sean: They have to do a lot more drilling to prove it up, but look, there are mines all over the world going into production with less than a single gram per ton.

Martin: You never gave us the name of the company.

Sean: It's Exeter Resources, traded in Toronto and on the Amex. Plus, they have another huge project in Northern Chile, which I just visited, which could one of the largest undeveloped gold resources in all of Latin America. The kicker is that this company's valuation is based almost exclusively on this second project. So the first project is like a free, extra bonus.

Monty: Gentlemen, I've been listening carefully throughout this hour and I'd like to give you my evaluation of what I've heard, if I may. I have managed Asia-focused hedge funds for quite a few years — in Tokyo, in Singapore, in Hong Kong ... and most recently in the U.S. Hedge funds are avid but also very skeptical buyers of research. So I think I can recognize good work when I see it, and I want to compliment your team for bringing together the essential elements of investment success: On-the-ground research — not just in some ivory tower on Wall Street, but also in the trenches overseas. Timing, with the Foundation for the Study of Cycles. And diversification, with a team of specialists, each in their individual sector. The only thing I would add to that, as I've stressed from the outset, is to track closely what the giant sovereign wealth funds are doing. Follow them closely, and you should do very well in 2010.

Martin: Gentlemen thank you very much, you have brought to the table a wealth of investment ideas ...which leads me to something I have been wanting to say directly to our most loyal readers for quite some time.

I have your emails and blog comments. I have been thoroughly briefed about your phone calls. I love your compliments, and I also very much appreciate your concerns and even your complaints

Please correct me if I'm wrong, but the message I take away is that you'd like the research and investment ideas of all the experts on this team.

You want open access to the entire group without paying for this or that news letter like most investors typically do.

I hear you. I want to give you what you're asking of me ... and more. I want to do everything I can to help you ensure your future investment success — not only to take advantage of our startling forecasts for 2010, but also to continue doing so in 2011, 2012 ... and the entire new decade that is about to begin.

So earlier this year, I gave my Weiss Research staff the challenge to create a very special membership program with the following parameters:

First, it must be for your core funds — no investment recommendations for options or fast-paced trading, but strictly recommendations that make sense to the mainstream investor, and that can go into any standard brokerage account or IRA.

Second, it must cost LESS than the total cost of all the newsletters for just one year (not based on their list prices, but based on their discounted prices).

Third, and here's the big breakthrough: It must be forever! I hate asking you for your renewal every year just as much as you probably hate paying for renewals every year. How can we do away with that? Well, when you join a country club, you never have to renew. You buy the membership once and that's it. The same concept here is the same.

Fourth, each year brings change, and to adapt to that change, we are continually adding new, exciting newsletters. So any new, future newsletters that are dedicated to your core funds will also be included.

Last, as an incentive for you to join us and get ready before we march into the amazing year ahead, I asked my team to offer a hefty Charter discount for those who join before year-end.

That, I trust, addresses all of your hopes and requests, and if you'd like to learn more, click here.

I also trust you have gotten great value out of this program today. I personally find this live video streaming to be a great way to stay in close touch with you and talk to you directly in a way that I can't always achieve with the written word alone. So much so, that I want to do this more regularly and in a way that is easier for you as well.

So as part of your VIP membership in our inner circle, you will also get access to our regular TV show we're launching next year.

I look forward to seeing you there.

And in the meantime, we'll send you more specific details on the VIP membership program.

Thank you again for joining today. Have a good day and a great 2010!

---

What the Australian Dollar Is Telling Me ... by Bryan Rich

According to the financial markets, the world has become a very calm and comfortable place again. But has it?

Just a year ago markets were crashing all around us ...

The U.S. housing market had started the snowball rolling far earlier. Then the U.S. stock market finally turned over. Later, other markets, like commodities and currencies, woke up to the realization that a crisis in the U.S. economy had tentacles reaching around the world! And the music stopped ...

Investors went running for the exits, markets collapsed and U.S. Treasuries and the U.S. dollar soared as capital around the world fled to safety. The theory of global diversification crumbled. And the risk gauge for financial markets skyrocketed.

A good pulse of the market's assessment of risk shows up in "implied volatility." Here's a brief explanation of what I'm talking about:

Actual volatility is the dispersion of prices around the mean — simply a market's price volatility. On the other hand, implied volatility is determined by market participants. It's the perception of how volatile the markets will be and how certain (or uncertain) the outcomes will be.

This makes implied volatility a good risk barometer. And that's why it's a key component in pricing options, where market participants typically go for protection when the perception of risk in the financial markets rises.

So what was the market saying about risk this time last year? Here's a look at a chart on implied volatility in the Australian dollar and the S&P 500 ...

Source: Bloomberg

As you can see, the massive surge beginning last September was nearly a five-fold jump in the fear gauge — a clear panic in financial markets.

And the trigger was ...

First, a huge third-quarter loss from Lehman Brothers and a downgraded estimate for Merrill Lynch.

Then, a weekend takeover of Merrill Lynch by Bank of America.

And finally, the announcement of Lehman Brothers' bankruptcy.

But here's the thing ...

Wall Street Has Proven to Be
Lousy At Estimating Risk ...

Just prior to the September 2008 spike in volatility, Wall Street's mood was pretty rosy, despite the trail of disaster that had already been delivered:

• Morgan Stanley lowered expectations for global growth from 5 percent to between "3.5 percent and 4 percent." Global growth went negative.
  
  
• Lehman Brothers said they expected stocks to "climb at least 17 percent by December 31." Eight days later Lehman Brothers was bankrupt.
  
  
• Citibank said they expected 2008 to mark the biggest year-end rally in stocks in a decade.
  
  
• And JP Morgan was looking for an 11 percent rally into the year end.

Stocks never made a tick higher and finished the year down another 29 percent.

This is a good example of how complacency and unwarranted optimism can end abruptly. And I think that's what we're going to see ... again.

Since the middle of last year, financial markets have traded distinctly in one of two camps: Either risky or safe. When volatility was soaring, global investors fled all things risky for a safe place to park their capital. The dollar benefited and so did U.S. Treasury prices.

But since March of this year, triggered by the Fed Chairman's finding of "green shoots" in the economy, this risk aversion trade has reversed. Capital has steadily and aggressively moved out of safety and into riskier, higher-return investments.

Will we see another spike in fear when a negative surprise hits the markets? I think we will. And I think the setback for the global economy will be considerable ...

Investor and consumer confidence, when burned again, will be very difficult to regain. And that creates a scenario for prolonged weakness in economies and prolonged weakness in financial markets.

Market Position Signals
Risk Appetite Is Vulnerable ...

The Australian dollar has been the high-beta trade among major currencies in this run-up in risky assets. In other words, the Australian dollar has gained nearly 2 percent for every 1 percent in the euro or the British pound.

And as you can see in the chart below, it has gained more in percentage terms than it lost at the height of fear in the global economy. Even the optimists have to agree, things aren't that good today!

Source: Bloomberg

Technically speaking, the currency is also running up against an important retracement level.

And more investors have gone "long" the Australian dollar than at any time since July of last year — which by no coincidence was the same time the currency reached its highs and turned sharply lower.

So be very cautious of this run-up in risk appetite. Based on the action in the Australian dollar, and considering the market's vulnerability to another dose of fear, the dollar and the risk aversion trade look more likely to return.

US market this week

Recent economic development and central bank statements added to signs that the worst is over, but the road to a sustainable recovery is still bumpy and long. Equities declined for the week, on the back of uncertainties arising from the US government’s proposed regulatory reform and S&P downgrades on 18 US banks. Worries that the emergence of commodity-price inflation also threatens to stunt economic recovery and constrain corporate-profit growth.

· This week, FOMC rate decision will take place Thursday, as well as the third and final round of US Q1 GDP estimates. A weaker than expected GDP could be market-moving; GDP is forecasted to go unrevised at -5.7% in 1Q (4Q: -6.3%). Other significant indicators to watch out for include home sales, personal spending and Uni of Michigan sentiments. There will only be one economic release for Malaysia this week, namely foreign reserves as at 15 Jun.

U.S. Said to Plan Approval Today for 10 Banks to Repay TARP

By Robert Schmidt and Christine Harper
June 9 (Bloomberg) -- The Treasury is preparing to
announce today it will let 10 banks buy back government shares,
people familiar with the matter said, signaling confidence some
of the largest U.S. lenders won't again need a taxpayer rescue.
JPMorgan Chase & Co. is among those cleared to repay
Troubled Asset Relief Program funds, a person said on condition
of anonymity. Goldman Sachs Group Inc., American Express Co.
and State Street Corp. are also among those that have sold
shares and debt unguaranteed by the government, demonstrating
they can raise funds without federal aid.
The approvals may relieve investor concerns about
government ownership after a popular outcry against bailouts
for Wall Street. At the same time, they contrast with warnings
from International Monetary Fund chief Dominique Strauss-Kahn
and others that the financial system remains distressed.
"None of this means that we're out of the woods yet;
there's a lot of work that the banks have to do and the
regulators have to do," said Richard Spillenkothen, a director
at Deloitte & Touche LLP in New York who served as the Federal
Reserve's head of bank supervision from 1991 until 2006.
The Fed yesterday also approved capital-raising plans at
the 10 banks judged to have shortfalls after last month's
stress tests on the 19 biggest U.S. lenders. That list includes
Citigroup Inc. and Bank of America Corp., firms that have had
more than one round of federal rescues.

Compensation Guidelines

On June 10, the Treasury will likely release its
guidelines for executive compensation at banks that retain
government shares, a person familiar with the matter said.
Treasury Secretary Timothy Geithner may be asked about the
TARP repayments, compensation rules and the outlook for
financial markets in a Senate Appropriations Committee hearing
at 10:30 a.m. today in Washington.
Nine of the 19 banks subjected to stress tests by U.S.
regulators were told last month they needed no additional
capital to withstand a deeper economic downturn. Officials
later told some of the banks, including JPMorgan and American
Express, they still needed to boost their common equity.
The number of banks likely to be allowed to retire
government shares indicates the Treasury will receive more than
the $25 billion of repayments that the department anticipated
this year. JPMorgan alone received $25 billion of TARP funds
last year and Goldman Sachs got $10 billion. American Express
has received $3.4 billion, Bank of New York Mellon Corp. has
taken $3 billion and State Street has $2 billion.

Morgan Stanley

Morgan Stanley has raised $6.8 billion in two separate
common equity offerings since May 7, exceeding the $1.8 billion
it was required to raise by the stress tests, as the company
sought to be included in the first round of banks allowed to
repay the TARP money. Morgan Stanley received $10 billion from
program last year.
The repayments come almost eight months after the Treasury,
seeking to quell market panic that followed the Sept. 15
bankruptcy of Lehman Brothers Holdings Inc., provided nine
banks with the first $125 billion of $700 billion in money
allocated to the TARP.
Banks have unveiled plans to raise a total of $100.2
billion since the stress tests found 10 of the 19 biggest
lenders needed $74.6 billion in additional capital buffers.
Financial shares have surged on rising confidence that the
financial crisis is past its worst and that banks are viable
enough to survive the deepest recession in half a century. The
Standard & Poor's 500 Financials Index has gained 49 percent in
the past three months.

Retire Warrants

Even after paying back the preferred shares issued to the
government, banks that took TARP money will still need to
retire warrants given to the government to allow taxpayers a
potential return on their investment.
Herb Allison, the Obama administration's nominee to run
TARP, told lawmakers last week that the Treasury would soon
announce details of its policy handling the warrants. The total
value of the warrants is about $5 billion, according to
Treasury calculations made last month.
Some analysts estimate that banks will still face mounting
losses as defaults on credit cards rise and commercial property
values sink.
Jan Hatzius, chief U.S. economist at Goldman Sachs, said
at a conference in Montreal yesterday that "U.S. banks
probably need to recognize another $500 billion or so in
losses."
Strauss-Kahn, managing director of the IMF, said at the
conference that banks must disclose any losses on their balance
sheets to help restore confidence in the global financial
system.
"If the banking crisis is not resolved, growth will not
come," Strauss-Kahn, speaking in French, told reporters after
his speech. "What strikes me today is that the credit market
is not yet functioning normally."

Bull-Market Story Awaits Goldman Sachs Blessing: Matthew Lynn

une 9 (Bloomberg) -- Plenty of people will dismiss the
recent stock-price recovery as a dead-cat bounce. Even more will
call it a bear-market rally.
Yet as equity prices creep higher, the bears may soon have
to concede defeat. The Standard & Poor’s 500 Index has gained
about 15 percent since early December and most other major
benchmarks have made solid gains in the same period. At some
point, it will become known as the 2009-2013 bull market.
Only one thing is missing: a story. A real bull market
needs a simple narrative that convinces investors that equities
are worth double what they were valued at only a few months ago.
So what could be the story this time around? There are four
plausible candidates: rising savings, accelerating inflation, a
takeover boom, and the scarcity of capital.
Markets need stories as much as any Hollywood scriptwriter
does. Stock prices go up, down and sideways for reasons we will
probably never quite figure out. Human brains find that hard to
handle, so we like an easy explanation that puts things in
order. Chaos and randomness are the scary alternatives.
During the bull market of the 1990s, we had the dot-com,
New Economy story to explain the surge in stock values.
During the 2003-2007 bull market, we had globalization and
the emerging markets of Brazil, Russia, India and China.
And for the next bull market? Here are four “stories”
that could be used to justify it.

Save Money

The Savings Story: People are putting money aside again.
The U.S. savings rate in April jumped to 5.7 percent, the
highest rate for 14 years. Michael Darda, chief economist at MKM
Partners LP in Greenwich, Connecticut, estimates it will reach 9
percent, compared with a low of minus 2.7 percent at the peak of
the housing boom. There’s no mystery about that. Households,
much like banks, are repairing their balance sheets, and they
can only do that by saving more.
The same will probably be true of other heavily indebted
economies such as Britain. All that saved money has to go
somewhere. With interest rates close to zero, there’s no point
keeping it in the bank. Instead, a wall of money is about to
descend on the market, creating huge demand for equities.
The Inflation Story: Central banks around the world are
following the policies of “quantitative easing,” or what used
to be known as printing money. At a certain point, it is bound
to cause high inflation rates, or at the very least an investor
fear of surging prices. It may already have done so.

Real Assets

You don’t want to be holding cash while inflation makes it
less valuable by the day, and central banks keep creating more
of the stuff. Instead, investors will switch into real assets
that can hold their value, such as stocks, real estate or
commodities. Equities are the simplest to trade, and more demand
equals higher prices.
The Takeover Story: The last rally was all about the
emergence of the BRIC economies. This one will be about them
buying North American and European assets. The rising BRIC
giants are going to need technology and brand names, and they
will want to buy them. That is already happening -- Russian
interests just acquired a big stake in General Motors Corp.’s
European unit Adam Opel GmbH.
Expect a massive takeover boom as the BRIC giants clamor
for the prizes. They will end up paying a premium for trophy
assets, another good reason to push up the value of equities.

Access to Capital

The Shareholder Story: Over the last decade, chief
executive officers loved to talk about shareholder value. Mostly
it was just nonsense. CEOs didn’t need stockholders because
capital was easily accessed from banks or the bond market. If
that didn’t work, they could get a friendly private-equity firm
to buy them out, or pay a crazy price for a unit. Shareholders
were about as influential as the cleaners or the secretaries,
and ranked about as high in corporate priorities.
Now that is about to change. In the coming years, capital
will be in short supply. The only place that companies will be
able to get it will be from their shareholders. In return, they
will have to be rewarded with higher dividends and stock prices.
Now all we need is for Goldman Sachs Group Inc. to pick one
of those stories, put it into every research note, and this bull
market can get some real momentum.
Who knows, investment bankers may be out buying Bentleys
again this year if this rally has legs.

Nobel Winner Krugman Sees U.S. Recession Ending Soon

2009-06-08
By Courtney Schlisserman
June 8 (Bloomberg) -- The U.S. economy probably will emerge
from the recession by September, Nobel Prize-winning economist
Paul Krugman said.
"I would not be surprised if the official end of the U.S.
recession ends up being, in retrospect, dated sometime this
summer," he said in a lecture today at the London School of
Economics. "Things seem to be getting worse more slowly.
There's some reason to think that we're stabilizing."
U.S. stocks erased an earlier decline after Krugman made
his comments. The Standard & Poor's 500 Stock Index was little
changed at 939.14 at 4:07 p.m. in New York after slumping as
much as 1.5 percent earlier, and the Dow Jones Industrial
Average gained 1.36 points to 8,764.49.
Krugman, a Princeton University economist, has warned
recently that the U.S. government hasn't done enough to help the
country's economy recover. Last month, at a conference in Abu
Dhabi, he said the fiscal stimulus is "only enough to mitigate
the slump, not induce recovery."
The National Bureau of Economic Research, based in
Cambridge, Massachusetts, is the official arbiter of U.S.
recessions and expansions. Last week, Robert Hall, the head of
the NBER's business-cycle-dating committee, said it's "way too
early" to say the contraction is over.
The U.S. has been in a recession since December 2007, and
the NBER may take months to decide when a trough has been
reached. Recent reports have shown an easing of declines in
industrial production and other measures that the group reviews
when determining whether the economy is in a recession.

Unemployment to Rise

Even with a recovery, "almost surely unemployment will
keep rising for a long time and there's a lot of reason to think
that the world economy is going to stay depressed for an
extended period," Krugman said.
The unemployment rate jumped to 9.4 percent in May, the
highest since 1983, partly reflecting more people joining the
labor force to look for work.
The U.S. Federal Reserve's efforts to stabilize markets --
measures that have swelled the central bank's balance sheet --
have helped, Krugman said. "A lot of the spreads in the markets
have come down" and "the acute financial stuff seems to have
come to a halt," he said.
Fed officials lowered the benchmark interest rate to a
target range of zero to 0.25 percent in December and have
switched to using credit programs and outright purchases of
Treasuries, mortgage-backed securities and housing agency debt
as the main tools of monetary policy.

$2.31 Trillion

The balance sheet's size peaked at $2.31 trillion in
December. It has fluctuated around $2.1 trillion over the past
two months.
The Fed's swollen balance sheet is "a little alarming. In
the long run you really don't want the central banks to be so
involved in the business of lending," Krugman said. "But it's
arguably necessary" even if there are questions about "where
does it stop?"

Stock Strategists Says S&P 500 Could Break Above 1000 This Year

WASHINGTON (MarketWatch) - The annual meeting of the mutual-fund industry's trade group kicked off on a bright note Wednesday, with a pair of notable investment strategists contending that the Standard & Poor's 500 Index will top 1000 by year-end.


Abby Joseph Cohen, senior investment strategist and president of the Global Markets Institute at Goldman, Sachs & Co. and Legg Mason Inc.'s Bill Miller both said
they see the benchmark stock-index gaining at least 20% for 2009.


Cohen said "compelling" valuations, greater investor comfort with the market and improved consumer sentiment will bring cash sitting on the sidelines back into stocks. She said stock moves are starting to reflect company fundamentals rather than momentum -- a telling sign.


"Money has started to come back, but gingerly," Cohen said.


"It's a behavioral fact that money chases returns," added Miller, manager of Legg Mason Value Trust . "As the market goes up, the money comes back."


Better odds


Cohen and Miller spoke at the opening panel session of the Investment Company Institute's General Membership Meeting.


Asked by panel moderator Martin Flanagan, president and chief executive of Invesco Ltd. where they expected the 500-stock index to be at the end of the year, Cohen said Goldman Sachs puts fair value between 1000 and 1050. The market bottomed in early March, she said. Miller predicted the index would hit between 1100 and 1200. The S&P 500 closed Wednesday at 920.


As for their most bullish ideas over the next two years, Miller said he favored the U.S. financials sector, while Cohen said simply U.S. stocks.


"Everything is on sale," in the financial markets, Miller said. [why didn't he say that in early March?]


While seeing stabilization in the housing crises in most cities, Cohen said a recovery in home prices would take some time.


"I think investors will be more comfortable in stocks than in real estate [for investment purposes]," she said.


Miller was more optimistic on the chance of a rebound in house prices, saying that prices will be "modestly higher" in 2010.