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What China's Investment Trends Are Telling Us Now

Many investors have reaped their biggest gains by playing the stock-market equivalent of "follow the leader." In the past, investors pursuing this strategy have followed the moves of such luminaries as Warren Buffett, Jim Rogers, Bill Gross, and even the late Sir John Templeton.

But there's now a potential new "leader of the pack" whose moves investors need to watch and even emulate.

We're talking about China.

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Ghana May Kill Exxon's $4 Billion Oil Deal

The government of Ghana may kill Exxon Mobile Corp.'s (NYSE: XOM) plans to buy a $4 billion stake in a giant offshore oil discovery from Kosmos Energy LLC. The move could help China expand its growing presence in the region through its state-owned oil company China National Offshore Oil Corp. (NYSE ADR: CEO).

Ghanaian Energy Minister Joe Oteng-Adjei sent a letter to Exxon last week informing the company that the government wouldn't approve the deal with Kosmos. The letter said the government is "unable to support an Exxon Mobil acquisition of Kosmos's Ghana assets," according to a copy reviewed by The Wall Street Journal.

The government said Dallas-based Kosmos had shared critical information about the field with potential buyers without its permission. Ghana also said Kosmos had left Ghana's state-run oil company, Ghana National Petroleum Corp. (GNPC) out of discussions held to determine how the field should be developed.

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Five Reasons to Put Your Money In China Now

China is the greatest growth zone in economic history. The third largest economy in the world, China is projected to pass Japan in the coming year and to surpass the U.S. economy as soon as 2020. So, when you're deciding how to allocate your investment portfolio, do you want to put your money in the U.S. – a country projected to grow by less than 3% in 2010 – or in a country that is expected to more than triple that? Here's why I'm putting my money in China.

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If China Sneezes, Wall Street Will Catch A Cold

Investors who needed proof of China's increased importance in the post-financial-crisis world only have to look at the nervousness of recent weeks to get a glimpse of the future.

When U.S. stocks fell sharply late Friday, they capped off a harrowing 10-day span that has seen the broad U.S. market benchmarks drop by nearly 7%. Emerging markets are down 9%. Not surprisingly, investor fear has sent volatility rocketing 40% – the largest two-week increase since the global financial crisis went nuclear back in October 2008. 
Complicating matters was the continued strengthening of the U.S. dollar – something we've been discussing and warning about for a few weeks. With fear on the rise among global investors, many are abandoning risky positions in emerging-market stocks and bonds and moving cash into the safety of U.S. Treasuries. This bolsters the dollar, which was up 4% in two weeks. That exerts a lot of pressure on commodities. Crude oil fell more than 7% during the week. Gold is down 5%. 

The corporate bond market – which has been red hot lately, helping to underpin stock-market gains – continued to advance, but slipped relative to ultra-safe government debt. Tim Backshall of Credit Derivatives Research wrote in a note to clients that both high-yield and investment-grade credits have been making the longest and most consistent run of lower lows versus ultra-safe U.S. Treasuries since February 2008. 

While government debt has the edge for the moment, the long-term corporate-credit bull market remains intact, according to WJB Capital Group Inc. strategist Brian Reynolds. He sees the credit bears making a run at credit-derivative products that insure against bond defaults, which are a cheap way to try to manipulate the market.

Indeed, the cost to protect against default at banks like JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs Group Inc. (NYSE: GS), not to mention Greece, jumped noticeably last week. But the damage has been limited as bears have failed to get traction against the instruments that they used to catalyze the 2008 credit crisis.

This lays the groundwork for a powerful snapback rally for stocks.

To find out more about the China Surprise, read on ...

China Outrunning the Global Recovery and Still Looking Ahead

Many investors are focusing on China's recent moves to curtail lending and cool its economic growth, but in doing so they're forgetting that the Chinese economy has withstood the financial crisis better than any other economy in the world. And it remains investors' best bet.

"When the financial crisis forced the neoliberal economic system into a dead end, the shortcomings of the capitalist system were exposed for all to see," read a Jan. 5 front page editorial in the People's Daily, the central government's official mouthpiece. "But a China that was pushed to a crossroads proved its 'national capabilities' in taking on a crisis by answering with the advantage of the socialist system with Chinese characteristics."

That statement is cavalier almost to the point of tastelessness but Beijing has earned those bragging rights. China's economy expanded by 10.7% year-over-year in the fourth quarter as most of the world continued to struggle with the aftermath of 2008's financial crisis. For the full year, the nation's gross domestic product (GDP) grew 8.7%.

That easily tops the government's 8% target and dwarfs the economic growth posted by other economies around the world.

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China Tells Banks to Curb Lending After a Generous January Start

Stocks worldwide plunged yesterday (Wednesday), commodities sank, and the dollar pushed higher after Chinese authorities demanded domestic banks slowdown lending amid concerns about asset bubbles growing in the economy.

Overall credit growth in China will be capped at $1.1 trillion (7.5 trillion yuan) for 2010, Liu Mingkang, chairman of the China Banking Regulatory Commission, told Bloomberg News in an interview in Hong Kong. Some banks were asked to limit credit because they failed to meet standards for capital reserves and other regulatory requirements, Liu said.

New loans in the first 10 days of this year were "relatively high," he told the Asian Financial Forum.

That may be understating the situation.

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Never "Short" a Country That Has $2 Trillion in Cash

The first rule of successful global investing – to paraphrase the words of New York Times columnist Thomas Friedman – is a simple one.

Never short a country with $2.3 trillion in currency reserves.

I'm well aware that bond king Bill Gross has been sounding the alarm about a China bubble, and that Forbes magazine is predicting a major meltdown by the Asian giant. I've also heard all about noted short-seller James S. Chanos – who made his name by correctly calling the Enron Corp. demise – who recently described China as "Dubai times 1,000 – or worse."

Just yesterday (Wednesday), in fact, U.S. stocks suffered their worst beating of the New Year on fears that new bank lending curbs in China might blunt the worldwide economic rebound. Asian markets also were down yesterday.

So what's really going on here? China is making its banks tighten credit. Some of the biggest banks, I've heard, have actually suspended loans for the rest of January!   Many analysts and media pundits believe this is the beginning of the end of the Great China Growth Story.

Don't believe it.

To find out why you shouldn't short China, read on...

Will China Supersede Saudi Arabia as the Key to U.S. Oil Prices?

I bought a Toyota Prius last Saturday.

The signs are everywhere that oil is headed for stratospheric highs – $200, $250 or even $300 a barrel. Some of these signs are just plain obvious. But even the subtle indicators are telling us that some very expensive energy costs headed our way.

Let me tell you about one such indicator that I came across over the New Year holiday. A tiny news item said that Saudi Arabian oil concern Aramco is abandoning a lease on Caribbean oil storage, and further reported that PetroChina Co. Ltd. (NYSE ADR: PTR) is moving in to take Aramco's place.

Most investors here in the West – if they even read the item – would've dismissed it as just another minor business transaction, one among the thousands that take place each day. But this particular deal was much more than that. It's another indication of China's continued global emergence. And it also underscores this country's relegation to the growing legion of "former" world powers that have been eviscerated by the financial crisis that they created.

In case you missed the story, let me share the details, and then explain what I believe those details actually mean.

To see why China is the "new" Saudi Arabia, read on...

What China Can Learn From its Dustup with Google

If you're keeping score in the contest between Google Inc. (Nasdaq: GOOG) and China's central government, you should be aware by now that everyone involved loses.

  • Google stands to lose anywhere from $400 million to $600 million in annual revenue, as well as a considerable foothold in the world's largest and fastest growing Internet community.
  • Chinese netizens lose access to a search engine that is vital to the free transportation of online information.
  • China's online market loses the innovation and competition that is unique to one of the world's most dynamic companies.
  • And Beijing has been robbed of the illusion that it has enough economic muscle to strong arm the West into playing by its rules.

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Number of the Day: With 13.6 Million Vehicles Sold Last Year, China Has Passed the U.S. as the World's Largest Auto Market

China dethroned the United States as the world's largest auto market in 2009 with 13.6 million vehicles sold. It's the first time since Henry Ford's assembly line created a mass market for cars and trucks last century that a country other than the United States led the world in auto sales.

China sold more cars than the United States every month last year, except for August when the popular "Cash-for-Clunkers" program bolstered U.S. sales. China's auto sales, which also were boosted by government incentives, nearly doubled in December, rising 92% from a year earlier to 1.41 million vehicles, the China Association of Automobile Manufacturers said yesterday (Monday).

Roughly 10.4 million light vehicles were sold in the United States in 2009 – the lowest total since 1982 and a 21% decline from 2008. That number doesn't include the sale of heavy commercial vehicles, whereas China's total does. However, just 500,000 heavy commercial vehicles were sold the United States last year, CSM Worldwide analyst Yale Zhang told The Wall Street Journal. That would still leave U.S. sales short of China's mark.

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