Asian Markets Soar, The Baltic Dry’s Amazing Run, Gold $900?, Foreclosures Double, and More!

by Addison Wiggin & Ian Mathias

  • Markets of the world ignite! At least 8 record highs this week alone…
  • 7 times more billionaires in China this year than in 2006… can anyone top the Shanghai Composite?
  • How about the Baltic Dry? Kevin Kerr on the skyrocketing index no one follows
  • Gold sets a new high of its own… next stop $900?
  • How doubling foreclosure rates in September could be “good” news
  • Plus, The 5 is inundated with China reader mail… your thoughts and our response below

There are now 106 billionaires in China.
The most in the world aside from the U.S., says the Hurun Report, a Shanghai magazine. That number is up sevenfold from last year’s tally of only 15 billionaires.

Hurun’s list, similar to that of Forbes’ richest Americans, accounts for the 800 richest Chinese citizens. Of those 800, the average net worth is $562 million, up over 100% from 2006’s average. When the list was first published, nine years ago, only 50 people had $6 million or more.

Incredible… compare that to Madonna, who just landed a $120 million 10-year concert deal this morning. After nearly three decades as a chart-busting Western pop star, Madonna’s net worth is estimated at just over $320 million.


“I’d like my $120 million in yuan… shǐ gāo xìng”

The richest of the rich?
26-year-old Yang Huiyan, a property developer who recently inherited $17 billion dollars. Not bad for a “communist” nation.

Overnight, the Shanghai Composite climbed an impressive 2.4%.
The index set another all-time high and busted through a psychological barrier, reaching 5,900 for the first time. Closing at 5,913 early this morning, the Shanghai Composite is just short of registering 10% gains this week alone. It’s up over 121% year to date.

Hong Kong’s Hang Seng index also jumped up about 2% to an all-time high of its own. For the first time, the index passed the 29,000 mark. The flood of liquidity from Chinese investors has yet to abate.

Also, while we slept, Japan’s central bank chose to hold its benchmark lending rate at the amazingly low level of 0.5%,
keeping the carry trade alive and well.

Moody’s upgraded Japan’s domestic debt rating from A2 to A1, its fifth highest rank. The ratings agency cited improved leadership, decreasing inflationary pressures and slow but steady macroeconomic growth.

Japan’s Nikkei 225 shot up 1.6%.

This week, we’ve seen all-time highs from China, Hong Kong, the U.S., Russia, Pakistan, India, Australia and South Korea and MSCI’s World and Emerging Markets indexes.

Yesterday, however, the U.S. markets endured a slow day of trading.
Without major data releases, Fedspeak or industry news, the Dow and S&P both wandered a bit aimlessly into small losses. The Dow fell 0.6%, and the S&P 500 lost about 0.2%.

The Nasdaq registered a small gain of about 0.2%, but is up a surprising 4% in the past month.
Most of the Nasdaq’s gains can be attributed to big-name tech stocks with overseas influence, but our penny stock man Greg Guenthner notes that a few penny stocks have been riding the tech wave as well.

“Techs are prime to stage a turnaround. They’ve essentially been dead for the past seven years. It’s always small-cap companies that produce the biggest gains and lead the way out,” says Gunner. There are already dusty shafts of a light at the far end of the tunnel. Gunner’s voice recognition software pick, for example, is up 46% in 11 months. Check it out here.

In England, shares of Northern Rock reversed their rapid free-fall after news of heavy hedge fund buying.

SRM Global, a Monaco-based fund, quietly snatched up a 4% stake in the distressed bank. SRM’s purchase comes on the heels of yet another wave of emergency funding from the Bank of England, this one guaranteeing all new NRK retail deposits and costing an estimated 50 million pounds. SRM’s buy and the BoE bailout pushed Northern Rock shares up 40%. Still, the stock is down nearly 80% since its February highs.

Morgan Stanley “quantitative strategy” traders lost $390 million in a single day in August,
reports Bloomberg this morning. The group claims it was caught off guard in August when investors starting selling securities to pay off loans. Oops.

Mortgage delinquencies and foreclosures in the U.S. actually declined by 8% in September,
says RealtyTrac this morning. Take note, this may be the only housing statistic in 2007 that you could call positive.

But don’t get ahead of yourself. There were 223,538 delinquency and default filings in September — double that of the same time last year. Since RealtyTrac began this study, only one month fared worse… August 2007.

Nevada reigned foreclosure king last month.
One in 185 households filed for delinquency or default. Florida, California and Arizona were not far behind. Big surprise there, eh? These were the go-to bubble markets leading the no-money-down revolution of 2003-2005, were they not?

The National Association of Realtors has negatively revised its home sales forecast for the eighth time in 2007.

These erstwhile champions of American capitalism now expect a 10.8% decline in existing home sales, down from last month’s flick at the dartboard of 8.6%. This is the same group that started off the year by bravely forecasting a 0.6% decline.

If you’re keeping track at home, you might want to note this 10.8% forecast in pencil.

This morning’s jobless claims report echoed Friday’s optimistic (and suspicious) Labor Department jobs report.
U.S. workers filing new claims for “jobless aid” — ahem, unemployment — fell 12,000 from last month, to 308,000.

Similarly, the number of long-term unemployed fell more than expected, as well — down 15,000, to 2.5 million. According to the Labor Department, out-of work Americans receiving aid are at their lowest level since June.

While Ian confers with our government statistics team, we’ll call BS on the government just for the fun of it: (audible sound of sneezing and “bullshit” at the same time… gesundheit).

We’ll unpack these numbers for you tomorrow…

A weakening dollar and some good old-fashioned fear pushed crude oil up over $81 last night.

Laborers at six Nigerian wells went on a surprise strike last night. Chevron, owner of the majority of these facilities, felt it the worst. The stock lost nearly 1% on the news. If nothing else, however, it shows how trigger-happy oil traders have become.

Gold continued its rebound overnight, trading in London all the way up to $748 for immediate delivery — a brand-spanking-new 27-year high. Only one other time in history has gold been this expensive. Also, as we noted last week, never has gold been able to sustain this high of a range for this long…

We’re awaiting this plateau with bated breath, for multiple reasons. Among them, EverBank’s first gold CD offering from 2005 is coming up for its next price fix. We got in at $423 originally. If it hangs on for a few more days, we’ll lock in these highs… just in time for the average to kick in.

The Baltic Dry Index quietly cruised through the 10,000 mark on Tuesday and furthered its record high to 10,281 today.
Unbeknownst to the average investor, this gauge of dry bulk shipping costs has rocketed an incredible 125% this year.

“In my opinion, ocean freight costs directly reflect global commodity demand,” said our resource man Kevin Kerr. “Even in the face of surging oil prices and the subprime meltdown, the Baltic index has skyrocketed. The index has been busting through records since May, all on the back of gigantic demand for natural resources in China and India. Not to mention there is a serious shortage of ships.

“I do not expect to see any dip in the upward curve for the Index,” predicts Kevin. “I expect 2008 to be an even stronger year for Baltic Dry index.”

“Your reply to the reader who claimed China was holding USA hostage was dismissed without any discussion of his claims,”
said a reader. “That is not an intelligent response, and I am disappointed with you. If you think he is as stupid as your response implies, please address his argument with a modicum of facts and reasoned rebuttal.”

The 5 responds:
Of course. What we meant to say is how on earth can you presume to know anything about long-term Chinese politic and economic strategy?

“It is often said by those who live in and know something about Asia, and particularly China,”
writes another reader, “that though China has become a powerful nation, it will never become a great nation.”

“China lacks the will to extend a global reach beyond acquiring what it needs to grow within its own boundaries. They are an inward-looking people. They will adopt many of the ways of the foreign barbarians, but only inasmuch as they make those ways their own. So we don’t have to worry about them from the aspect of world domination. Western ‘culture’ grows on the developing world like a fungus. You might say, ‘We have met the enemy, and they have become us.’”

“I’m just back from a three week trip to China and Tibet,”
writes a third. “A big part of the reasons for my trip was to get some firsthand insight into the tremendous economic growth of China, and also its politics. Importantly, before I left on the trip, I also read China Wakes: The Struggle for the Soul of a Rising Power by Nicholas D. Kristof and his Chinese-American wife, Sheryl Wudunn. The authors were/are journalists for The New York Times, are both proficient in Chinese and lived in China for five years. Among their many insights was a forecast made in their 1994 book that China would rise to become the economic power it has become.

“I found today’s China to be more capitalistic than the U.S. Chinese people are happy because of their rising standard of living. The people are also warm and friendly to the U.S. and its citizens. But its government is dictatorial, and those in charge have their own goals, which certainly include staying in power. Who is to say that, like Germany under the Nazis, with China’s strongly increasing military expenditures, China will not become a future threat to the U.S.?

“If you contrast the recent economic success of China under its political leadership with the recent weakening of the U.S. in both economic (national debt, balance of payments) and military terms (Iraq) under our congressional and administrative leadership, the future looks more than a little uncertain.”

The 5 Again:
We have eight days of footage from China for our upcoming documentary. Among the interviews, we talked to James Areddy, who won a Pulitzer this year for his coverage of the Chinese “economic miracle” for The Wall Street Journal.

James makes the point, rather succinctly, that the U.S. and China could not live without one another economically right now. “The Chinese people want the same things as Americans want: higher pay, long-term stability for their families, health care and to be able to save for their retirements.”

The danger in our view comes about when demagogues arise and stir up fear for nefarious gains. Those demagogues thrive in rich soil in Beijing… and Washington. Somehow, ours just seem much more inept and goofy about it.


Addison Wiggin
The 5 Min. Forecast

P.S. We learned this morning that a Chinese publisher has purchased the rights to publish Gold: The Once and Future Money in Mandarin. We learned, too, that Mobs, Messiahs and Markets debuted at No. 14 on The New York Times business best-seller list last week. You can investigate them both here.


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