by Addison Wiggin & Ian Mathias
- Bill Bonner with a trend “that will have profound consequences for the entire world”
- Ben Bernanke named “Person of the Year”… The 5 explores what that actually means
- Chris Mayer with two sectors to buy for 2010
- Plus, data galore… one of which likely marks the end of the recession
“Here’s one of the big trends — one that will have profound consequences for the entire world,” Bill Bonner begins today’s 5 Min. Forecast. As we’ve done since The 5’s inception, we aim to make this time of year extra forecastey. After all, the markets are a bit dull, and the New Year is right around the corner. OK… back to Bill’s prediction:
“According to a Goldman study, nearly half the world’s economic growth is now occurring in just four countries. And neither the U.S. nor Britain is on the list. Nor is any other developed country. The four are the BRICs… Brazil, Russia, India and China. They were given a big boost by the Fed, which has kept the price of credit in the U.S. artificially low for almost an entire generation. This increased consumer demand in the U.S. for foreign products, indirectly transferring a substantial part of the U.S. GDP to the emerging market exporters.
“This year, nearly twice as many IPOs were completed in Hong Kong as in either New York or London. Why? Because there is more new economic activity in Asia than in the mature Anglo-Saxon markets. And because there is more money available in those emerging markets than there is in the West.
“This trend could come to an end at any time. But it is unlikely. The Industrial Revolution favored the West. The next phase of global development seems to favor the new emerging markets. They don’t have the legacy costs and corruptions of mature industrial societies. No giant military establishments. Minimal social security and public health care systems. Smaller welfare, education and health bureaucracies. Fewer lobbyists and entrenched special interests. Fewer retirees. In short, fewer parasites.
“Emerging markets are now playing catch-up. Sometime in the future, some of them may take the lead — surpassing the U.S. and Europe in military power, national income, growth, even quality of life and income per capita. Then they too can begin ruining themselves. But that is still far, far in the future. We’ll have many a laugh between now and then.”
Chinese investments in foreign companies will hit a record $35 billion in 2009, says a PricewaterhouseCoopers estimate today. Red firms both public and private made 166 mergers and acquisitions this year, currently worth $33.5 billion. Whether they make a few more in the next two weeks would only pad their record… the old high-water mark is $28 billion from 2007. Not bad for the biggest global market meltdown of our lifetime.
Stock markets of the world, even the booming BRICs that have captured Bill’s affection, are quiet today. Aside from the usual holiday lull, the traders still working are waiting for word from the Fed. Markets have gone nowhere this week, and they likely won’t go anywhere today… unless Mr. Bernanke and his brood have something atypical to say in their 2:15 EST interest rate announcement.
In the meantime, Ben Bernanke can bask in the glory of being Time magazine’s 2009 Person of the Year. As the magazine wrote, he:
“…conjured up trillions of new dollars and blasted them into the economy; engineered massive public rescues of failing private companies; ratcheted down interest rates to zero; lent to mutual funds, hedge funds, foreign banks, investment banks, manufacturers, insurers and other borrowers who had never dreamed of receiving Fed cash; jump-started stalled credit markets in everything from car loans to corporate paper; revolutionized housing finance with a breathtaking shopping spree for mortgage bonds; blew up the Fed’s balance sheet to three times its previous size; and generally transformed the staid arena of central banking into a stage for desperate improvisation. “
We’re not quite sure what kind of an “honor” is warranted from those actions. We certainly wouldn’t want “desperate improviser” on our tombstone. But who are we to judge… Time certainly got it right the last time they put a central banker on the cover:
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That’s a February 1999 cover, by the way. If there was ever a time to bet against the three of those men, Time just about nailed it. We forecast they’ve done the same today. More on this matter in today’s reader mail.
Back in the normal world, the dollar is just a bit off today. Perhaps intrinsically aware of the huge contrarian sell signal Time just offered, the dollar index is down a few tenths of a point, to 76.6.
Thus gold is finally back on the rise. The spot price is up a little over $10, to $1,138 as we write. Should the Fed introduce any new inflation talk into their interest rate announcement, the gold market could get interesting. We’ll fill you in tomorrow.
Attention gold bulls and numismatics: The U.S. Mint has decided to resume sales of the 2009 American Gold Eagle coins after last month’s “supply shortage,” coincidentally right as gold hit its record highs. The Mint said yesterday it is ready again to sell off the remainder of its 2009 inventory.
Perfect timing for our precious coin Q&A with First Federal Coin Co.’s Nick Bruyer. We’ve been pooling your questions for nearly a month, and now the webinar is ready. If you signed up, great — you’ll receive instructions on how to view the webinar, which is airing tomorrow at 11 a.m. EST.
If you haven’t signed up, today is your last chance. With over 14,000 registered viewers so far, this will be our most attended online event yet.
Oil surged 3% this morning, back up to $73 barrel. The same way traders sold off after not-so-hot inventory reports last week, the market’s in buying frenzy now over a tighter-than-expected supply report from the U.S. government. Es la vida, no?
“If there is a prediction I have a high degree of confidence in,” Chris Mayer writes, “it’s that China’s potash demand will rebound in 2010. I think that potash demand will rebound all over, not just in China.
The chart below is from a recent issue of my newsletter Capital & Crisis:
“Those are big cuts. A rebound is good for the potash producers, namely PotashCorp and Mosaic Co. It will also be good for our certain China-based makers of potash fertilizers, like one that we hold in the Special Situations portfolio.
“And while I’m in a predictions mood, here is another: Semiconductors are due for a rebound.
“That’s capital equipment spending in the semiconductor space, along with some guesses for next year and beyond. Under the concept of the last shall be first, this is another good bet for a reversal in trend in 2010. It’s already happening, as we’ve noted. We’ve got reports from industry giant Applied Materials showing sizable gains in orders from prior quarters. And guidance going forward from the company also shows 30%-plus gains.
“There is lots of room here on this one for things to get better.
“Remember the words of wisdom from Horace, which so inspired investment great Benjamin Graham that he put them on the frontispiece of his book Security Analysis: ‘Many shall be restored that are now fallen and many shall fall that are now in honor.’
“When looking for new ideas, remember Horace. The best ideas of 2010 will likely be in stocks rebounding from a poor 2009.”
Quite a lot of data to digest today. Here’s the rundown:
- Consumer inflation increased 0.4% in November. The Commerce Department’s consumer price index (CPI) has now risen 1.8% over the last 12 months, the biggest yearly gain since February. Last month’s rise was mostly driven by higher food and energy costs. Who cares about those? The Fed must be asking, as their “core rate” remained unchanged (the first time it hasn’t risen in 10 months)
- Now that the government has renewed its promise to manipulate the housing market, starts shot up 8.9% in November, the Commerce Department reports. After a 10% fall in October, largely due to fears the first-time homebuyer tax credit would soon expire, new home construction popped back up, just a bit more than the Street expected. Permits for new builds shot up 6%, almost double analyst forecasts
- Last, one of our favorites: Capacity utilization rose again in November, this time to 71.3%. As we mentioned before, like it or not, CU’s rise back in July is high on our short list for when NBER officials will say the recession technically ended.
“Don’t you think Mr. Bernanke’s picture belongs more on the Post Office wall than the cover of Time?” a reader asks.
The 5: Heh. We tried to drive a point home in today’s issue, but just in case we didn’t…
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Time’s “Man of the Year” isn’t the kind of designation most people assume.
“If bankers should end up leaving France or the U.K. because of the tax hike on bonuses,” another reader writes, “I suspect those countries will be better off. Bankers are a dime a dozen, and there will be plenty of talent eager to make a name for themselves. Investors in these banks with huge reduction in overhead costs will benefit enormously. I can only hope the U.S. citizens will be as lucky to get a primary cause for the financial meltdown to leave the country. Maybe someone can think of a way to run Congress out of town too, and then all will be well.”
The 5: Not that this is equatable to the drama over in Europe (not yet, anyway), but that’s probably what Robert Mugabe was telling himself. Anybody can run a farm, right?
“As a shareholder,” our last reader writes, “I would be in favor of requiring banks to pay all bonuses in excess of 10% of base compensation with stock that cannot be cashed in for a period of two years. If the employee leaves before two years, the stock is forfeited. That might keep key employees in the fold with an incentive to increase the price of the shares while still giving them some extra money to spend now.”
Best,
Ian Mathias
The 5 Min. Forecast
P.S. This is your last chance to sign up for our online Q&A with Nick Bruyer. These are all the questions you sent us about precious coins — IRS obstacles, estimating value, finding good suppliers, investment themes of the future and more — answered by a true-blue expert. If you want in, sign up here. Don’t forget: It’s free.