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Filling an Energy Order with Chinese Takeouts
Years ago, China did not have a global footprint, but over the last few decades the country has transformed itself into a global power. It boasts the largest automobile market and the largest consumer of steel, copper, mobile phones, and energy. It has built 18k miles of high speed rail connecting 250 cities with 5.5k skyscrapers. This tremendous infrastructure has amplified and globalized M&A activity, which has a positive effect on commodity-related stocks. For commodity equity investors, BCA says to expect Chinese firms to play an increasingly important role in global capital markets
Heart of China Bull Beats Strong
With rising incomes and increasing urbanization, we believe China is pursuing the American Dream, and the government has shown great determination to build the necessary infrastructure along with a robust urban labor market. On a purchasing power parity basis, Chinas share of world GDP has risen significantly, from around 3 percent in 1985 to a current world share of nearly 16 percent.
Peering Through Exxons Looking Glass
The emerging world will push global energy demand 30 percent higher by 2040, according to ExxonMobils Outlook for Energy: A View to 2040. The report contains some interesting projections on what may be in store for the energy sector in the coming decades. The global population is expected to reach a staggering 9 billion over the same period, but it isnt population growth that will drive the increase in energy demand. Instead, rising affluence and higher living standards in regions such as Africa, Latin America, the Middle East and India will be the biggest factors.
Significant Growth Potential for Indonesia's Middle Class
Indonesias workforce is growing 7,000 people stronger each day, adding an estimated 21 million people to its workforce by over the next decade. This is second only to India. This growth has given birth to a burgeoning middle class willing to spend money on durable goods such as clothing, personal-care items, home appliances and electronics. Currently, domestic consumption accounts for two-thirds of Indonesias GDP. Weve already seen double-digit growth in sales for televisions, cars, computers and laptops over the past few years. More importantly, this trend is just getting started.
It May Take a Dragon to Breathe Fire into Markets
Ive found many people are particularly energized about predicting a hard landing for Chinas economy, but I believe the country is no sinking ship. China isnt fast-approaching an iceberg in the dark of the night like the Titanic. Beijing has long been anticipating the ice chunks and subtly adjusting the rudder around inflation without steering the economic ship too far off course.
The Great Urban Migration of China
If China follows this path, another 30 percent of the population is expected to move to the cities by the year 2030 less than 20 years from now, says BCA. This movement means there will be more than a half-billion city dwellers in the next 20 years or about 200 million new urban households. I believe this urbanization trend just hit the pivotal moment that dramatically shifts certain buying patterns into a higher gear, driving an enormous demand for housing, consumer staples and durable goods.
After 2011 Hit, Are Emerging Markets Set to Recover First?
Our team has put together a great table ranking 19 emerging market countries by how their stocks have performed in each of the past 10 years. Most of the E-7 countriesthe most populous nations in the worldare listed, including Brazil, China, India, Indonesia, Mexico, and Russia, as well as other resource-rich and growing Asian, Eastern European and Latin American countries.
Pocket of Strength: Bright Economic Lights of Texas
The Milken Institute released its 2011 list of Best-Performing Cities Index and topping the list of 200 large U.S. metropolitan areas was San Antonio, Texas, home of U.S. Global Investors. The Alamo City jumped to the No. 1 spot from last years 14th place. Milkens index measures U.S. cities economic performance based on job creation, retention and quality as well as where businesses are growing and thriving.
What the Next Decade Holds for Commodities
What will happen over the next 10 years? I believe the supercycle of growth across emerging markets will continue with rising urbanization and income rates. This bodes well for commodities, especially copper, coal, oil and gold, and well continue to focus on companies that will benefit the most from these much-needed resources.
Anticipating the Golden Cross
One trigger where we generally see money move in and out of the market is based on the golden cross, which identifies when the 50-day short-term average crosses above the 200-day long-term average of a stock or index. Over the past 20 years, the golden cross of the S&P 500 Index resulted in surprisingly bullish data. Of the nine times this event has occurred in those 20 years, the S&P 500 averaged a 23 percent increase before the market reversed.The lone exception to this trend was the unusual and very volatile market in 2010-2011. Even then, the S&P 500 only lost a third of a percent.
Have Winds Shifted to Provide Relief to Investors?
We believe the winds are shifting to bring needed relief to global investors. Weve seen improving economic data from the U.S. lately, and this positive news from the worlds largest economy, along with an improving Chinathe worlds most populated countryoffsets the negativity in Europe.
Burgers or Barrels--What's Your Power Play?
In a recent blog post, the Wall Street Journal asked its MarketBeat readers if a share of McDonalds stock or a barrel of oil made a better $100 investment. The share price of the fast-food restaurant topped $100 for the first time ever in late December and rose 30 percent over 2011, substantially beating the overall market. Crude oil prices had less sizzle, only moderately increasing over the year. The three-year picture is a little different, with crude oil more than tripling since its bottom in late 2008. Over the same time, McDonalds increased about 66 percent, says the Journal.
Hirsch's Weather Vane for Markets
Using annual figures going back to 1950, the January Barometer says the performance of the S&P 500 Index in the first month of the year dictates where stock prices will head for the year. Jeffrey and Yale Hirsch of The Stock Traders Almanac find that the barometer has a surprisingly high accuracy ratio of nearly 90 percent. However, in the last two years, the market defied this trend. Even with these disruptions in the long-term trend, the writers at Almanac Newsletter said last February that they dont know of many indicators with such a strong track record.
Case for Sustained $100 Oil
China, along with other emerging markets, and the European Central Bank are in the early stages of a global easing cycle, primarily by cutting interest rates to spur growth. Also, the Federal Reserve should remain stimulative. These government actions set the stage for sustained, or perhaps higher, demand for oil. Geopolitical threats remain on the horizon, and could also be a positive catalyst for oil.
Is the Gold Super Cycle Still Intact?
Golds short-term and long-term drivers remain intact. Money supply in the worlds largest countries is expanding by roughly 18 percent. Countries like the U.S. and Europe are continuing to print paper, while holding interest rates near zero, as they grapple with debt issues.
What Can We Expect in 2012?
As we prepare to bid farewell to 2011 and welcome 2012, its undoubtedly important for investors to start the new year off with as much knowledge about the markets as possible. I saw a great visual over the holiday weekend that captured the effects of the financial crisis. The sky-high leverage ratios of Morgan Stanley, Bear Stearns, Lehman Brothers and Goldman Sachs caused part of the economic weakness, but Nomura points to the policy mistake which forced Lehman Brothers to declare bankruptcy as the reason GDP plunged so significantly.
Chart of the Week - Struggling Copper Supply
As Chinas appetite for commodities slowed this year, much of the worlds copper demand went with it. Despite this softening in demand, Macquarie Research thinks the red metal could see a rebound in 2012 because copper mines are struggling to supply the marketplace with adequate reserves. Macquarie says, Global copper mine output has continually disappointed forecasts and, more importantly, market needs over a number of years now, despite the strong financial incentive not only from high copper prices but also high by-product prices.
How Do Markets Perform During Election Years?
Yale and Jeffrey Hirsch from The Stock Traders Almanac have scrutinized the performance of the Dow Jones Industrial Average over 177 years of presidential cycles. Beginning with Andrew Jackson in 1829, election years have averaged a 5.8 percent gain in stocks. In fact, 29 out of those 44 election years have resulted in gains for the Dow.
'January Effect' Begins Now
Followers of The Stock Traders Almanac are probably familiar with the January Effect that shows how small-capitalization companies have historically crushed large-cap stocks during the first month of the year. According to Yale and Jeffrey Hirsch, small-caps have delivered a forceful blow to their larger counterparts in 40 out of 43 years from 1953 through 1995.
Striking Portfolio Balance with Gold Stocks
Back on August 22, I wrote that gold was due for a correction and that it would be a non-event to see a 10 percent drop in gold. I wrote, This would actually be a healthy development for markets by shaking out the short-term speculators. This mornings gold price of $1,590 is about 15 percent from the high, which is a little greater than predicted, but a non-event just the same. I believe the long-term story remains on solid ground.
Eastern Europe Financial House Stronger than Debt-Ridden Neighbors
For some Eastern European investors the geographic proximity to the eurozone has been too close for comfort, with the Russian MICEX Index declining about 20 % year-to-date. However, stronger fiscal and monetary stances in Eastern Europe compared with its western neighbors warrant a 2nd look. Eastern European countries generally have experienced higher GDP growth along with less debt, so financing costs have less of a negative effect on GDP than in Western Europe. In most of Eastern Europe, every one percent increase in the cost of funding only detracts about 0.5 percentage points from GDP.
Building Wisdom with Our Boots on the Ground
Analysts at U.S. Global Investors scrutinize research reports and study Bloomberg data to help our investment team gain first-mover advantage. Today, I asked research analyst and Shanghai-native Xian Liang to share how he combines analyses from third-party reports with boots-on-the-ground observations to find the best opportunities Asian markets have to offer.
You Can't Print More Gold
As central banks print money and increase supply, currencies become devalued. Whereas in the recent past, one currency may be reduced in value compared with other currencies, this time there is global competitive devaluation as excess liquidity is put into the system. Historically, this excess liquidity has made its way to riskier assets, i.e. stocks and commodities. Gold is generally a benefactor of this flight to riskier assets as many investors see it as a store of value. This chart illustrates the interconnectivity of gold and global money supply growth.
Significant Growth Potential for Indonesias Middle Class
Indonesias workforce is growing 7,000 people stronger each day. This is second only to India as Asias fastest growing workforce. CLSA says this growth has given birth to a burgeoning middle class willing to spend money on durable goods such as clothing, personal-care items, home appliances and electronics. Currently, domestic consumption accounts for two-thirds of Indonesias GDP. Weve already seen double-digit growth in sales for televisions, cars, computers and laptops over the past few years. Indonesia appears well positioned for future growth.
Chart of the Week - Oil's Breakeven Price
One way to gauge support for the price of oil is to calculate the breakeven price. In other words, what is the dollar amount per barrel that would be required for an oil-producing country to balance its fiscal budget? Analysts at Carnegie Investment Bank recently put together this chart, which illustrates the breakeven price needed for some of the worlds largest oil producers. Combined, these countries are expected to produce 30% of the worlds oil in 2011 Carnegie says. Note: these prices are for Brent crude, which have been $10-$15 per barrel above West Texas Intermediate prices this year.
What Makes the U.S. Special
This economic and cultural DNA is difficult to reproduce elsewhere. There are many advantages to starting a business in the U.S., including an open immigration policy, excellent universities, a large domestic market, and venture funding. What stops other countries from having their own version of Silicon Valley are obstacles such as rigid labor laws, bureaucratic hassles, regulations and access to debt instruments. Similar hindrances seem to have sprouted in the U.S. in recent years in the form of regulations.
Are Stars Aligned for a Year-End Rally?
Correlations will decrease along with volatility as we get more clarity on the eurozone crisis and see signs of stability in the global economy. Volatility fell this week, with the CBOE Volatility Index (VIX) declining 20 percent. This could be related to the news that November U.S unemployment unexpectedly dropped to 8.6 percent, U.S. auto sales in November were the strongest in more than two years, and preliminary data on holiday retail sales appears to be strong. According to Bloomberg News, Black Friday sales hit a record high this year, with consumers spending $11.4 billion.
Return of the Comandante's Gold
Back in August, we discussed the precarious proclamation that Venezuelan President Hugo Chavez was shipping his countrys gold reserves home for safekeeping. On Friday, we learned Chavezs chosen transportation method for Operation Gold was through the air after the first shipments arrived to much fanfare in Venezuela. Some believe Chavezs announcement of Operation Gold was a catalyst for the August run up in gold prices, but there is no way to be sure. However, the impact could be significant if other countries employ a similar strategy.
American Classic Finds New Life in China
With a middle class that could to balloon to 1.4 billion people by 2030, China has become a lifeline for automakers looking to keep their profits afloat in a weak global economy. Through October 2011, more than 15 million new vehicles have been purchased in China. Thats about 3 percent higher than a year ago. Toyota, Audi, Volkswagen, BMW and Nissan are all searching for ways to tap into this fast-growing market. One of the countrys biggest success stories is General Motors (GM), which has positioned itself as one of the most recognizable and highly sought after cars in China.
With Rising Wages, Will China Remain a Manufacturing Hub?
In 2010, countries such as Hong Kong, Japan, South Korea and Germany depended on China for data processing, apparel, and iron and steel exports. Chinas largest import partners in 2010 were Japan, South Korea, the U.S., Germany and Australia. For those companies not already doing business in China, theres one dominant factor that shows they should start: the vast domestic market. Companies may be able to find a cheaper workforce in Bangladesh, India or Sri Lanka, but being located in China allows convenient access to what is rapidly becoming the worlds largest consumer market.
Seven Surprising Stats on the Internet and Emerging Markets
With rising wealth in emerging markets in recent years, people in China, India and Brazil have quickly acquired a taste for mobile phone and Internet technology. The industry in developing countries is in its infancy but growth has been swift. Here are seven surprising facts about this fast-growing emerging market trend.
Big Shift in Gold Demand
In 1970, according to the latest World Gold Council (WGC) report, half of the worlds gold was purchased in two regionsNorth America and Europe. Ten years later, that figure jumped all the way to 68 percent during a period of high inflation, a weak economy and spiking gold prices. At the same time, China and India (broadly represented in the chart as East Asia and Indian Sub continent) saw their combined share of gold demand diminish from 35 percent to 15 percent.
The Gold Triple Play - Volatility, Currencies and Europe
Resurgent investment lifted global gold demand 6 percent from the previous year to just over 1,000 tons during the third quarter of 2011, according to the latest Gold Demand Trends Report from the World Gold Council (WGC). The potent cocktail of inflationary pressures in the emerging world and the European sovereign debt fiasco left investors searching for a safe haventhey looked for it in gold.
South Africa's Incredibly Shrinking Gold Production
Finding evidence to pop the talk of a gold bubble is much easier than finding a needle in a haystack. There are enough needles of evidence out there to fill a pin cushion. The latest Gold Demand Trends Report from the World Gold Council contained two salient visuals of how the dynamics of the global gold market have shifted from the West to the East over the past 40 years. Today well take a look at supply, and tomorrow well dive into demand.
Get Paid to Play Gold
With money markets and Treasuries yielding next to nothing these days, investors are finding income in new places. One area those investors should consider is gold mining. With gold rising in value, mining companies are reaping record profit margins, yet the stock prices are depressed due to lack of investor interest. A solution for both gold companies and investors may be dividends, specifically gold-linked dividends. Several top-tier gold producers that are benefiting from higher gold prices have begun to share a portion of their profits with shareholders via a dividend payout.
The Many Factors Fueling a Return to $100 Oil
The IEA says trends on both the oil demand and supply sides maintain pressure on prices. We assume the average IEA crude oil import price remains high, approaching $120 per barrel (in 2010 dollars) in 2035 (over $210 per barrel in nominal terms). Thats a distant projection but it certainly illustrates why you should consider investing a portion of your wealth in oil.
China's Rising Imports of American Goods
American companies are riding the wave of Chinas growth all the way to the bank. From what they drink and eat to where they shop and what they buy, as increasing incomes provide more discretionary income, the dynamics of the Chinese consumer forever change. I believe savvy investors can benefit from these emerging trends.
3 Drivers, 2 Months, 1 Gold Rally?
Combine the central bank purchases of gold with the fact that we are now entering the strongest months of the year for gold. While the spot gold price has differed from the S&P/TSX Composite Index of gold equities during the first 10 months of the year, their historical pattern is very similar during the last two months. November has historically been the strongest month of the year for gold equities, with mining stocks increasing 8.1 percent.
Poland's Power Play for Energy
Poland is setting the stage to become a rising player in the European natural gas market. Europe has long been reliant on Russia for its supply of natural gas, but domestic discoveries of shale gas might soon catapult Poland to the forefront of the energy landscape. Morgan Stanley cites several reasons for Polands likely success: a large resource base, gas pricing that is almost twice the pricing of the U.S., a developed gas market, and political support that welcomes foreign firms and hydraulic fracking permits compared to other countries in Europe.
How China Drives the Global Economy
The Chinese economy is not a bubble, but that does not mean a significant slowdown wouldnt affect the global economy, especially natural resources. This is because Chinas economic transformation over the past few decades has cast the country into the forefront of demand. PIRA Energy Group says that, in 1990, Chinas share of oil and GDP was less than 5 percent; its share of world energy was just under 10 percent. Since then, Chinas share of energy, GDP and oil has risen dramatically, with each expected to be approximately 28 percent, 21 percent and 16 percent, respectively, by 2025.
Happy Diwali
Whats significant to gold investors is that India makes up a considerable part of the worlds population that has a strong cultural bond with gold. This Love Trade identifies a key differentiator between the East and the West. Whereas in the U.S., we separate gold jewelry from investments in gold, in the eastern hemisphere in countries such as India and China, gold is one and the same. No matter the formjewelry, coins, bars or statuesgold is an investment. With half of the worlds population in this part of the world, this concept is what we believe will drive the long-term shift in demand.
Do Bullish Investors Have an Ace in the Hole?
You may not be able to count cards at the blackjack table, but counting historical trends of the stock market and discovering inflection points are not only legal strategies, they are essential to successful investing. One card worth counting is the Purchasing Managers Index (PMI), which measures the manufacturing strength of any given country. A rising PMI indicates a growing economy and is considered a leading indicator.
Which Gold Miners Have Largest Upside?
Since hitting $1,900 an ounce through the beginning of October, gold has declined nearly 11 percent. Over the same timeframe, the NYSE Arca Gold Miners Index lost almost 13 percent. Thats a closer performance correlation than the roughly 3-to-1 gold equities to bullion ratio weve historically seen and could mean the miners are finally closing the gap. Looking over the next year or so, we believe the smaller gold miners are especially poised to outperform this time. As TD says, on a rebound, we expect the best performing equities to be among the ranks of the explorers and developers.
Case Study: Buyouts Crystallize Value in the Market
Theres value in the market. Thats the message the market is sending through the recent strategic acquisitions in the energy and gold mining spaces.
This week it was announced that Sinopec, a large Chinese oil and gas company, is purchasing Canadian energy company Daylight Energy for $2.1 billion in cash. The deal was struck at a whopping 120 percent premium to Daylights share price prior to the announcement and a 43.6 percent premium over the 60-day weighted average price, according to Reuters.
Gold During Times of Market Turmoil
Jason Toussaint from the WGC provided an interesting perspective during our recent webcast. The WGC looked back at six incidences of market turmoil over the past few decades. In five out of the six periods during market turmoil, an allocation to gold preserved wealth by reducing the hit taken by the portfolio. On average, the portfolios with an allocation to gold were about 7 percent more buoyant. Only during the Dot-com Bubble did gold in a portfolio hurt its performance. These dramatic events happen infrequently. However, Its best to prepare for the worst and hope for the best.
Can Markets Find the Road Back to Positive Territory?
Can markets find the road back to positive territory? This week, wed like to point out three reasons investors should consider remaining in equities or reassessing whether to sit on the sidelines: 1. Investor sentiment is signaling the market is overextended to the downside. 2. Stocks are trading well below historical valuation trends. 3. S&P 500 dividend yields are higher than the 10-year Treasury yield.
Managing Emotions in Today's Marketplace
One positive point is the Conference Board Index of Leading Economic Indicators, which is also known as LEI. Historically, the LEI has proven to be a reliant indicator of recessions and recoveries. The index deteriorated ahead of the 2001 global recession, and again in early 2007 and 2008 before the global financial crisis and associated recession began.
Extreme Divergence Between Coal Rocks and Stocks Unwarranted
Coal was relatively flat for the quarter, but whats interesting is that coal companies were severely discounted. Over the last two years, coal stocks and the commodity have closely tracked each other, until this summer, when worries about a global slowdown caused coal stocks to fall off a cliff, not once, but twice, in August and again in early September. This extreme divergence between coal companies and the commodity seems unwarranted when the long-term drivers of coal remain supportive.
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