Media Blog Review

Louis Basenese, Small Cap and Special Situations expert at Investment U , analyzes market forces in – and the potential of – Brazil. Louis Basenes ( Investment U ): Hundreds of millions of Chinese citizens are on a crash course with the middle class. A study from The McKinsey Quarterly supports this well-documented phenomenon, which estimates that it will take two decades before the Chinese nouveau riche reaches its full spending potential. In turn, they’re convinced that decades worth of profits are up for grabs. I’m not about to refute that claim here. But instead, I want to caution you: Don’t be blinded by the euphoria over Chinese consumers and overlook an equally compelling opportunity in another emerging market. Let’s head down to Brazil and I’ll explain why – along with the best way to profit, of course… Sizing Up Brazil’s Profit Potential Okay, I get that the scale of the Chinese opportunity – a population of 1.31 billion people, compared to Brazil’s 192 million citizens – dwarfs Brazil’s. But that doesn’t mean the profit potential is any less. On the contrary, in fact… I’d actually say it’s greater when it comes to tapping into a blossoming middle class. In this regard, Brazil boasts several notable advantages over China… It’s a democratic nation, not a communist one. Its population is much younger – the median age is 28.3, compared to 33.6 in China. Brazil is far less reliant on exports. Only 14% of Brazil’s GDP comes from exports, compared to 35% from China. It already possesses all the natural resources necessary (and then some) to support its booming economy. Meanwhile, China needs to go out and gobble up foreign assets to ensure it can keep feeding its economic machine with enough oil, gas, coal, iron ore, etc. But most important of all is the cultural difference. The Chinese are notorious savers, yet Brazilians love to spend, spend, spend. And don’t just take my word for it. As Illan Goldfajn, Chief Economist at Brazilian bank, Itaú, reveals, “If the world is looking for savers, Brazil is not much good… But if it’s looking for consumers, then we might be able to help.” Click here for the rest of Mr. Basenese’s analysis at Investment U.

Tags: analyzes-market, Brazil, brazilian, China, chinese, cultural, financial news, illan-goldfajn, international investing, Investment, louis-basenes, louis-basenese, mean-the-profit, potential, profit
Posted December 9, 2009 by under Contrarian Investing

Qatar is a red-hot economy. Last year it grew around 18% and this year it ought to grow another 16%. We saw the headlines in the Gulf Times in the lounge while waiting for our transfer to Dubai. Qatar’s greatest asset is its natural gas reserves. In fact, the largest gas field in the world is here. Its discoverers were disappointed when they found it in 1971. They were looking for oil. The boom Qatar now enjoys is the result of some daring investments in liquefied natural gas (LNG) back when people thought doing such a thing was a little batty. Faisal Al Suwaidi, the head of Qatargas , deserves the props for his wager, which have paid off handsomely. Today, Qatar produces about one-quarter of the world’s natural gas. Qatar supplies such faraway customers as Japan, India and China. Qatargas also operates the largest LNG terminal in Europe at South Hook on the Welsh coast. This facility provides Britain with a fifth of its gas needs. Qatar’s dominant position has filled its coffers and changed the country forever. On a per capital basis, it is one of the wealthiest countries in the world. And given the world’s growing energy demands and the appeal of clean-burning (and cheaper) natural gas when compared with oil, Qatar seems in a good position. In Dubai, the story is quite different, as Dubai does not have Qatar’s gas reserves, nor does it have much oil. Dubai’s story is one of trade and finance. As I write, the sun is just peeking over the horizon. It is dawn in Dubai. Out my hotel window, I can see two buildings with cranes over them and in the distance another building in scaffolding. For a city that was once booming and turned bust – as with most places – there is still a lot of construction going on. As recently as September 2008, realtors could claim that no one had lost money in the Dubai property market. That’s no longer true. In fact, now the market has too much of just about every property type. One headline story noted how 32,000 homes are about to come on the market next year, which is a big number to choke down in any city. Dubai had a huge property boom and now must suffer the flip side. The hotels, too, are pretty empty. We are staying at the new Address Hotel downtown, which has been open for only 25 days, we are told. I’m the first person to stay in my room. It still has that new carpet smell. I wandered down for breakfast and was alone in a cavernous dining room. The hotel is brand-spanking new and everything looks wonderful. It’s just mostly empty. I think there are more hotel workers than there are guests. In Dubai, revenue per room is down 35% from a year ago. Yet there is still an expansion going on. Next year, estimates call for a 15% increase in the number of rooms. This would mean a 40% increase in two years. Over breakfast, I perused my complimentary copy of The National . One of the things I like to do in a foreign city is to read the local newspapers. I’m kind of a newspaper junkie anyway – I get three dailies delivered to my doorstep at home. In any event, I always find interesting nuggets from a perspective you might not get if all you read is The Wall Street Journal or Financial Times . Today’s business page carried an array of tales… There was the arrival in Doha of a new LNG tanker, fresh from Seoul’s shipbuilding docks. There was a story about how UAE consumer confidence is up. Also, notes on bond issues in the Gulf, the latest figures on money supply in Kuwait (it’s rising at a frighteningly quick pace of 18.7%), the price of villas in Dubai and more. All sorts of little odds and ends that help paint the picture. There was also a lot of chatter about infrastructure, which I found particularly interesting. Abu Dhabi, the capital of the UAE, which I will visit on this trip, is looking to raise $100 billion for infrastructure projects. From The National : “The emirate needs to fund new transport, electricity and telecommunications schemes…” Dubai itself also has ambitious infrastructure spending plans. Last night, as we made our way to our hotel, we could see the new Dubai Metro stops along the way, which, lit up as they were in soft blue and white twinkling lights, looked like something out of the future. Incredibly, the Dubai government last year spent about 45% of its budget on infrastructure projects – mostly on the roads and ports. But there is a lot more on tap, as The National reports: “Dubai could invest as much as $20 billion in desalination projects in the next decade alone as it increases its water output by 2.72 billion liters a day… [There are also] plans to add 14,405 megawatts by 2017… Construction costs for those new plants amount to $11.6 billion, while infrastructure costs, including substations and transmission lines, will be about $11.6 billion.” This massive build-out is not unique to Dubai, or even the UAE. There are also big infrastructure projects of all kinds in India and China and other emerging markets. Regards, Chris Mayer Source: Greetings from Qatar!

Tags: construction, Dubai, Europe, hotel, India, international investing, Kuwait, largest, natural gas, picture, Qatar, street, trip
Posted October 8, 2009 by under Contrarian Investing

World stocks hit a 12-day low on Monday, depressed by recent weak U.S. economic data and failing to find support from the G20 summit, while the yen attracted fresh flows to hit an eight-month high against the dollar. Weaker-than-expected U.S. housing sales and durable goods orders on Friday drove U.S. stocks lower, and world and European stocks followed that trend on Monday. Leaders of the Group of 20 rich and developing nations pledged on Friday to bring the global economy back into balance but their statement contained few surprises and investors are already looking ahead to U.S. employment data at the end of this week. Global equities and other higher risk assets have risen sharply in the last six months on growing optimism about the economic outlook, but markets are starting to run out of impetus, analysts say. “Investors are a little bit reluctant to add to their risk positions,” said Koen De Leus, economist at KBC Securities. “The market is going to have a very good look at macroeconomic numbers this week. If some of these figures disappoint, then the market is going to go down further.” Analysts are starting to question whether the global recovery is V-shaped, or if it could be W-shaped, with a second dip to come. The MSCI world equity index was down 0.52 percent at 282.94, bringing losses since Sept 22 to 3 percent. U.S. stock index futures , however, were indicating a slightly stronger open on Wall Street after the market scored a third consecutive day of losses on Friday. The FTSEurofirst 300 index hit its lowest in nearly three weeks before trimming losses to 982.53, down 0.14 percent from the U.S. close. GERMAN STOCKS UP German stocks , however, rose 1.3 percent with particularly strong gains in utilities E.ON and RWE , on expectations of longer lifetimes for German nuclear power plants as a result of the German election. German Chancellor Angela Merkel’s conservatives won a weekend parliamentary election with the pro-business Free Democrats (FDPP), enabling her to end her awkward four-year-old partnership with the Social Democrats (SPD). “(This) government provides the greatest opportunities for equity market-friendly reforms compared to other party combinations,” said Tammo Greetfeld, equity strategist at Unicredit, in a client note. The yen, typically regarded as a safe-haven currency, surged to an eight-month high against the dollar as Japanese officials waved off any plans to stem the currency’s rise. The yen later gave up some gains as Finance Minister Hirohisa Fujii changed gear on his comments during the course of the day, saying yen gains were becoming one-sided just hours after saying the rise was “not abnormal”. The dollar fell as far as 88.26 yen before trimming losses to 89.35, down 0.31 percent. However, the dollar hit a 2-1/2 week high against an index of currencies and a 13-day high against the euro as the U.S. currency also attracted safe-haven flows. Funds are starting to shift money home ahead of the quarter-end later this week, analysts say. Crude oil dipped 20 cents to $65.82 a barrel . Euro zone government bonds also benefited from safety trades, with 10-year yields briefly hitting a one-month low. December Bund futures were up 5 ticks, trimming earlier gains. Sept 28 (Reuters)

Tags: Angela Merkel, democrats, european stocks, finance, financial news, g20 summit, german, german stocks, global recovery, international investing, party, social, week
Posted September 28, 2009 by under Contrarian Investing

The U.S. stock market has run up magnificently in the last six months. The U.S. economy has begun to recover, but its performance has fallen short of expectations. And with good reason. The United States has a bigger and more-troubled financial sector than most countries. It also has a bigger overhang from the housing bubble, has a bigger balance-of-payments deficit and has a budget deficit that’s fat enough to stall the recovery. It would be nice to have an economic recovery to invest in that didn’t have all of these problems. Truth be told, such an investment play does exist. What’s more, the market I have in mind is advanced enough for us to invest in it without having to go through all the rigmarole of American Depository Receipt (ADR) investing. Nor will you have to make a potentially risky foray out onto some foreign stock exchange to buy the shares, because they are almost all listed here. The country I’m talking about is Canada. Think of it as being like home – but without the problems that our home market (the United States) currently suffers from. Our Healthy Neighbor to the North When the recession struck, Canada was hit by it quite badly, but for different reasons from its southern neighbor. The Canadian housing market was nowhere near as overheated as its U.S. counterpart. So Canada’s housing downturn wasn’t as deep. And what about the banking systems? To be sure, Canadian banks received a bailout, but it was less than $20 billion in total. Compare that to the veritable alphabet soup of U.S. bailout programs ranging from “ TARP ” and “ TALF ” that have injected more than $2 trillion into the U.S. financial system . On the other hand, natural resources prices crashed last autumn, which had a major effect on Canada’s resource-based economy. A number of large projects in the Athabasca Tar Sands region were cancelled, for example – since this region has oil reserves around the size of the entire Middle East, its development is crucial to Canada’s future. The “ loonie ,” Canada’s currency, declined from around “parity” to the U.S. dollar to an exchange ratio of C$1.30=$1 U.S. In effect, this was a “flight to safety” into the dollar and U.S. Treasuries. And it affected Canada as it did other countries. In 2009, however, Canada and the United States have traveled down totally different paths. Canada did very little “stimulus,” so its state budget is in much better shape. The deficit for the 2009-2010 fiscal year $53 billion (C$56 billion) is only about 4% of gross domestic product (GDP). For the 2010-2011 fiscal year, the deficit is expected to be about $42 billion (C$45 billion), or 3.2% of GDP. Energy Powers the Rally The bounce in natural resources prices has really helped power up the rebound of Canada’s market. Investment in the tar-sands region has picked up again, with a big merger between the two largest tar-sands-extraction companies: Suncor Energy Inc. (NYSE: SU ) and Petro-Canada. The rising gold price hasn’t hurt either – mines are appearing all over the place! All this new activity has made the loonie bounce, so it’s back to about C$1.07=$1. While interest rates are as low as the United States, the Bank of Canada hasn’t done much “ quantitative easing ,” meaning that inflation isn’t too much of a worry. The strong loonie helps here, too. Canada seems to be recovering nicely. Its index of leading indicators jumped 1.1% in August, while manufacturing sales grew 5.5% in July. The country presently runs a modest current account deficit, but it’s only 2% of GDP. That’s much lower than even the current U.S. deficit, let alone that of 2007. It had a little more public debt than the United States in 2008, but given current U.S. deficits, those two lines almost certainly have crossed by now. There are two caveats. The first is an obvious one: If commodity prices crash to earth, Canada will have some difficulty because commodities are a large part of its economy. Personally, I don’t see that happening. It’s notable that PetroChina Co. Ltd. (NYSE ADR: PTR ) has just invested $1.7 billion in a Canadian tar sands project, so China must not think so, either. The other risk is political. The current minority Conservative government of Stephen Harper has done a good job, but the opposition Liberals have withdrawn their parliamentary support. That means there may be an election this autumn. A Liberal majority government would be no disaster. They might be a bit sticky about oil-drilling permits, but would not otherwise rock the boat. However, a Liberal coalition with the leftist New Democrats could push public spending and the deficit up, and there’s no guarantee against that. (One of the problems with multi-party systems like Canada’s is there is an almost infinite variety of possible governments after each election, some of which can be fairly alarming from a business perspective.) However, Canadian elections are a much smaller risk than you get in most countries, and the commodity/oil price crash, if it happened, would help the U.S. economy and, presumably, your U.S. portfolio. So it’s worth having some Canadian exposure, perhaps with the Canadian market exchange traded fund (ETF) iShare MSCI Canada Index (NYSE: EWC ). For years it was almost fashionable to dismiss Canada from an economic standpoint. Now, however, that may well be where the smart money would like to go. As an economy, Canada is competent and stable. It’s the kind of country that looks to be a good place for some of our money.

Tags: autumn, democrats, ewc, gold prices, international investing, Investing, smart, us deficit, us stock market
Posted September 24, 2009 by under Contrarian Investing

World stocks retreated further from last week’s 11-month high on Monday as lower energy and commodity prices and caution ahead of a Federal Reserve meeting and G20 summit prompted investors to trim risky trades. Leaders of the Group of 20 meet on Thursday and Friday in Pittsburgh and U.S. President Barack Obama said on Sunday he would push world leaders for a reshaping of the global economy in response to the crisis. World stocks, measured by MSCI have risen over 26 percent this year, recouping more than half of last year’s losses, underpinned by repeated pledges by G20 policymakers to keep emergency support for the economy in place. “The market might look slightly overbought near term, but the economy is definitely improving, corporate profits are definitely improving, interest rates are staying low, valuations aren’t expensive,” said Nick Nelson, European equity strategist at UBS. MSCI world equity index fell 0.7 percent, while the FTSEurofirst 300 index lost 0.6 percent. Emerging stocks also dropped 0.6 percent. U.S. stock futures were down around 0.5 percent , paring losses after Dell said it would acquire Perot Systemsfor $3.9 billion. Perot System’s shares surged 66 percent in pre-market trading. EXIT STRATEGY The Fed is expected to keep its benchmark Fed Funds rate unchanged at 0.25 percent on Wednesday, and investors are looking for signs of how quickly it might remove its extraordinary programmes to revive lending and hiring. While any signal that the Fed might start unwinding its loose monetary policy shows the central bank is acknowledging the recovery, it could be negative for risky assets as it could fan speculation of an interest rate hike. The Fed has pledged to buy up to $1.45 trillion of mortgage-backed securities and debt issued by government sponsored Fannie Mae and Freddie Mac by end-2009. Concerns about weak fuel demand pushed U.S. crude oil down 2.4 percent to $70.25 a barrel after Asia’s No.1 refiner Sinopec said that diesel China continued to lag economic recovery with fuel sales so far this year still below the rates seen a year ago. The September bund future was steady, unable to take advantage of falling equities and investors grew concerned about the prospect of euro zone and U.S. debt supply. The dollar rose 0.6 percent against a basket of major currencies, after hitting a one-year low last week, while the U.S. currency rose 1 percent to 92.21 yen . “The yen may end up being the biggest winner against the dollar. It has yet to significantly overshoot against the dollar, unlike every other G10 currency. Real yields are moving in its favour and nominal yields versus the U.S. are negligible,” Deutsche Bank said in a note to clients. “Dollar/yen will likely break below last year’s low of 87 and could even reach 80 over the next 3-6 months.” Sterling fell to a five-month low of 90.79 pence per euro after the Bank of England said the British currency’s long-run sustainable exchange rate may have fallen due to an increased focus on Britain’s economic imbalances following the global credit crisis. (Reuters Sept. 21)

Tags: british, commodity prices, dollar, economy, global stocks, high-on-monday, international investing, year
Posted September 21, 2009 by under Contrarian Investing

Gold hit the big “quadruple digits” while we were all relaxing on Labor Day. To be sure, it was just the December contract, which has since pulled back to US$997. But we haven’t seen US$1,000 since February, back when we had an insolvent financial system and a meddling government printing trillions like toilet paper. Nowadays, we’ve got an insolvent financial system and a meddling government…but we’ve also got a questionable stock market rally too (one driven by the unprecedented volume on bailout stocks, might I add). Throw in growing Chinese demand and jewelry-buying season in India, and you just might be looking at a foothold in the US$1,000/ounce range. “My forecast for gold in 2010 is $1,250 to $1,350 an ounce,” says our Investment Director Eric Roseman, “I think we’re long overdue for a major break-out north of $1,000 that will easily crack the March 2008 all-time high of $1,033 intraday.” Source: Global Investor: Gold Breaks $1,000/Ounce

Tags: 2008-all-time, bailout-stocks, chinese, crack-the-march, director-eric, global investor, gold prices, India, international investing, invest in gold, Investment, major-break-out, matthew collins, stock-market, unprecedented
Posted September 8, 2009 by under Contrarian Investing