Middle Class Growth in Emerging Markets Remains Key Commodities Price Driver
Commodities have surged in the past year as investors sought inflation protection, economic recovery picked up, and middle class growth from emerging economies pushed industrial demand.
But when commodities like silver, copper and oil slipped at the beginning of May, many investors panicked.
The Standard & Poor's GSCI Index that follows 24 raw materials fell 11.4% in five days, from May 2 to May 6, the most since December 2008.
Investors who had piled money into precious metals and raw materials feared their safe haven investments had reached a bull-market peak. Some said the commodities bubble had burst and the great rally was over.
China's Economy Continues to Ascend – But Watch Out for Speed Bumps
Everyone knows that China's economy is hot. The only question is whether it may be a little too hot.
China posted yet another quarter of stellar economic growth in the first quarter of 2011, with its gross domestic product (GDP) growing 9.7%. However, analysts are worried about some of the side effects that have accompanied that growth- namely soaring inflation and the emergence of speculative bubbles.
Inflation in China hit a 32-month high in March, and the country's real estate market is beyond scorching.
Policymakers in Beijing insist they have the situation under control, and they've been trying to rein in liquidity and curb speculation to prove it. That's why China's economy, accustomed to double-digit growth, is only expected to grow 8% to 9% this year.
Capital Waves Investing: How to Profit From the "New Normal"
Buy-and-hold investing is dead.
In the aftermath of the global financial crisis, the fact is that there are far too many strong financial institutions and armies of traders manipulating the financial markets. And that has relegated buy-and-hold investing – a hands-off strategy that for decades was a mainstay for retail investors – to the rubbish heap.
Today's investor has to employ a hands-on approach that uses so-called "capital waves" – the huge swaths of cash that flow from one market to another around the globe – to generate quick profits, says Money Morning Contributing Editor Shah Gilani, a former trader and hedge-fund manager whose trading service, the Capital Wave Forecast, has kicked off 2011 with 17 straight winners.
"Trading is the new normal," Gilani said in an interview. "Capital movement is the benchmark of normalcy."
Gilani recently sat down with Money Morning Executive Editor William Patalon III to discuss the recent successes of his trading service – and to give readers a glimpse of what's to come in the financial markets.
"There were several capital waves that ebbed and flowed in the first quarter that created opportunities for us," said Gilani. "There was money moving in and out of Treasuries, the euro, stocks, and commodities."
Identifying and understanding "capital waves" is the first step to unlocking massive amounts of wealth and not getting beached by Wall Street, according to Gilani. The second step is to avoid trying to fight the tides of investment capital that are swirling from market to market in the modern world. Instead, investors should ride their momentum to big-time gains.
What follows is a full transcript of Gilani's Money Morning interview. In it, he discusses the areas in which he's had success predicting profit-making opportunities this year, as well as his current investment prospects.
Investment Strategies: Why Dividends, Inverse Funds, "Glocal" Stocks, Commodities and Emerging Economies Are the Places to Be
After a wild first quarter that included unrest in Egypt, Libya and Saudi Arabia, a spike in oil and gasoline prices, an apparent acceleration of inflation and continued global debt fears, investors need to embrace investment strategies and investment choices that will provide returns even as they manage risk, says Money Morning Chief Investment Strategist Keith Fitz-Gerald.
In a wide-ranging interview with Executive Editor William Patalon III that represents the latest installment of Money Morning's "Quarterly Report" series for the 2011 second quarter, Fitz-Gerald talked about the first quarter and provided a detailed look at what he sees ahead. For instance, Fitz-Gerald said that:
- Despite the bull market in U.S. stocks, the U.S. economy and accompanying financial system isn't as strong as it looks, noting that "there are still massive cracks in the system."
- Investors should make sure to watch the U.S. Federal Reserve, since its decision to continue or to end its current monetary-policy strategies could determine where U.S. stock prices go from here.
- Prices will continue their general upward trajectory, which is why he ultimately sees oil at $150 a barrel, gold at $2,500 an ounce and silver crossing the $50-an-ounce threshold.
Fitz-Gerald also detailed some of the investment strategies investors needed to consider, including the use of "inverse funds," dividend-paying stocks, and so-called "glocal" stock plays. "Glocal" stocks are the term Fitz-Gerald uses to describe large, U.S.-based multinational corporations whose global operations include a local presence – especially in the crucial markets of China and Greater Asia. Most of these companies are publicly traded, and have their shares listed on the Standard & Poor's 500 Index today.
What follows is an edited transcript of the question-and-answer session that Patalon hosted with Fitz-Gerald.
Emerging Markets Forecast: Which Ones to Hold, and Which Ones to Fold
Late last year, as part of Money Morning's "Outlook 2011" economic-forecast series, I suggested investing in emerging markets that were relatively cheaply priced, and whose economies seem poised to do well in 2011.
My favorite recommendation, Chile, gave a mediocre performance, down 3.2% on the year.
On the other hand, I recommended Russia at several different points last year. That's not a market that I normally favor. But I'd been suggesting that low Price/Earnings (P/E) ratios and a commodity or energy orientation in an economy would be the keys to finding successful emerging markets in 2011.
Currently, the Russian market is up 19.2% in dollar terms, the best performance of any market except Hungary (which also satisfied my "low P/E" criterion, as it is recovering from a very deep recession).
In this installment of the current Money Morning "Quarterly Report" series, let's take a tour of the world's emerging-market economies. We'll study their most recent performance, and we'll identify the best investment candidates for the months to come.
Solar Power Market Emerging as a Sleeper in 2011
Companies that manufacture solar power equipment had a great year in 2010 thanks to generous government subsidies. While 2011 may turn out to be a year of transition, most solar companies should do well and the long-term prospects for the industry are bright indeed.
Solar power installations worldwide increased 120% in 2010 with 16 gigawatts added, up from 7 gigawatts added in 2009. That brought total capacity to 40 gigawatts, still just 0.2% of the world's electricity generation in 2010. That leaves a lot of room for growth.
The rate of growth will slow in 2011 – the world will install 22.2 gigawatts this year, an increase of 39.3% over 2010, according to projections by IHS iSuppli (NYSE: IHS) – but increasing activity in the United States and China should re-ignite the market.
The European Photovoltaic Industry Association said in a report earlier this month that by 2015 it expects global investment in solar panels to roughly double from $46 billion in 2010.
Until recently, most of the growth in solar power installations was coming from Europe, led by Germany. In fact, Germany alone consumed almost half of the world's solar panels in 2010. Europe as a whole accounted for more than 80% of the global solar panel market, $65 billion worth of business.
Of course, that pattern figures to start shifting in 2011.
The One Emerging Market Investors Can't Afford to Ignore in 2011
When I review each of the world's emerging markets in order to decide which ones to buy in 2011, I start with two questions: Is the market cheap? Has it under-performed during the past year? If the answer for both those questions is "yes," that market is much more likely to get my vote. But [...]
U.S. Industrial Stocks Now Back on Top, As Emerging Markets Falter
Stocks tiptoed through a typically introspective, no drama December week in the past five days, with the Dow Jones Industrials rising 0.7%, and the Nasdaq, S&P 500, and Russell 2000 all rising about a third of a percent.
While an 0.3% gain doesn't sound like much for a week, it is actually a great result. If the market were up 0.3% every week for 52 weeks, it would be up 17% for the year without dividends, which is about double the long-term average. And just to round out that idea, if the market were up 17% every year for 10 years, it would end the decade up 380%. Small amounts add up due to the magic of compounding.
The market was not fully in gear across all industries. The deep cyclicals performed best, led by steelmakers, which were up 6.5% as a group. Leading the way was mini-mill Nucor Corp. (NYSE: NUE), which rose 7% for the week after offering a bright forecast for the first half of 2010. Consumer staples were another plus, led by food makers such as Hansen's Natural Corp. (NASDAQ: HANS) and Boston Beer Co. Inc. (NYSE: SAM), up 7.5% and 13% for the week.
Retailers and financials fell back the most during the week led by the 18% plotz of Best Buy Co. Inc. (NYSE: BBY). Consumer spending is actually on track, as I'll discuss in a moment, so this was mostly a BBY problem not a problem for the whole industry.
M&A Set to Accelerate in 2011 After a Late November Surge
A flurry of mergers and acquisitions (M&A) in late November could presage the biggest surge in deals since the economy tanked three years ago.
In just the last week, nearly $25 billion in M&A deals were announced. BP PLC's (NYSE ADR: BP) sale of its majority stake in Pan American Energy, which went for $7.1 billion, was at the top of the list. With that sale, BP will have secured about $21 billion of the $30 billion it hoped to raise from asset sales to help cover damages from its oil spill disaster.
Find Solace in Emerging Market Stocks Amid U.S. Economic Turmoil
Maybe you've noticed that many of the stocks rising through the ranks of the broader market lately have a foreign accent.
The Claymore/AlphaShares China Small Cap exchange-traded fund (ETF) (NYSE: HAO), MV MarketVectors Indonesia Index ETF (IDX), and the PowerShares Emerging Markets Sovereign Debt ETF (NYSE: PCY) are just a few of the ETFs I've recommended in the past that are leading the market higher.
Similarly, Swiss instrument maker Mettler-Toledo International Inc. (NYSE: MTD) and Chilean fertilizer maker Sociedad Quimica y Minera (NYSE: SQM) have helped carry our Strategic Advantage "StrataGem" portfolio higher.