Global Markets
How This Indian Wedding Tradition Drives Global Gold Demand
An Indian wedding tradition dating back thousands of years is more than a simple cultural practice – it has become one of the biggest drivers of global gold demand.
In a Feb. 12 CBS News' "60 Minutes" report, correspondent Bryon Pitts took a look at how the Indian wedding tradition of draping the bride in gold jewels has propelled India to be the biggest source of global gold demand. India is now No. 1 in gold consumption of jewelry as well as physical bars and coins.
India accounts for about 32% of the global gold market with half of the gold Indians buy spent on jewelry for the 10 million weddings held there each year.
As a result, gold prices typically rise ahead of wedding season as families prepare.
"The demand for gold out of India is fundamental for the health of the industry," Ajay Mitra of the World Gold Council told Pitts. "If India sneezes, the gold industry will catch a cold."
What the Glencore Xstrata Deal Means for the Global Mining Industry
The Glencore Xstrata deal, an all-share merger creating a $90 billion global mining industry powerhouse, would be the sector's biggest and could trigger the busiest year for M&A activity.
The companies announced the deal today (Tuesday) following Glencore's offer last week. Glencore would pay $41 billion for the rest of Xstrata's shares (Glencore already has a 34% stake).
Glencore International is the world's largest publicly traded commodities supplier, and Xstrata is the world's fourth-largest metals and mining company. A Glencore Xstrata deal would create a company rivaling global mining industry leaders BHP Billiton Ltd (NYSE ADR: BHP) and Rio Tinto Plc (NYSE ADR: RIO).
"Glencore being such a dominant trader and marketer of commodities, and Xstrata being such a strong operator of difficult assets, I think it creates enormous value," Prasad Patkar from Platypus Asset Management Ltd. told Bloomberg News. "On one end you have great mining expertise, on the other you've got great marketing expertise. Two and two together should make five."
The new combined entity would be more diversified than other global commodities players, with copper and coal being its biggest earnings drivers. It would be the world's biggest coal exporter for power plants and the top integrated zinc producer.
The new mining industry giant also will go on the hunt for smaller businesses, and encourage other powerful players to do the same.
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Godzilla Will Come Out of Tokyo Bay Before Japan Rebounds
Let's talk Japan.
Every year some analyst comes out with a variation of the story that Japan is about to rebound.
Usually the argument goes something like this: Japanese markets are impossibly cheap and the central bank will be there to prevent a catastrophe.
Or sometimes there is another variation of the Cinderella story.
Either way, don't hold your breath. Japan posted its first trade deficit since 1980 last year and the big trade surpluses needed to drive the Nikkei back to its glory days are over.
At best, Japan is going to see balanced trade figures or a small surplus in the years ahead. It won't be enough.
If you're not familiar with what a trade deficit is, here's what you need to know: Japan imported $32 billion worth of stuff more than it exported for the first time in 31 years.
Fighting the Demographic Tide
Critics say there are mitigating factors behind the figures and they're right.
Against the backdrop of one of the world's fastest aging populations, one of the lowest birth rates on the planet, a renewed reliance on foreign energy, and a yen that is so expensive that Japanese corporations are offshoring production, it won't be long before the country eventually plows through its savings.
So $32 billion is just the beginning…
In fact, we are more likely to see Godzilla walk out of Tokyo Bay than we are to witness a return to Japan's halcyon days.
Worse, I believe that within the next five years, Japan will long for the good old days when the trade deficit was merely $32 billion, instead of $100 billion, $200 billion or worse.
Not one of the things I've just mentioned – that the critics cite as short-term influences – are anything but continuations of much longer-term trends. Nearly all of them are being driven by Japan's declining population.
You may not know this, but Japan's population is projected to shrink by 30% by 2060. That means the total population will go from 128 million people today to only 87 million people in less than 50 years.
That's hard to imagine since Japan is one of the most densely populated countries on the planet. But the effects are already visible.
In my neighborhood in Kyoto, for example, we see abandoned houses that fall in on themselves after people die and there are no longer any other family members to live there. We see schools that are shut down in the region because there are no kids to attend them.
We're also seeing companies shuttered because there are no markets for their products, including my wife's family kimono business, which closed after 300 years in existence.
Simply put, you just can't grow a population or its stock markets without people.
Japan also has no immigration policy to speak of, so there is no means of replacing the "silvers," or senior workers, who are leaving their productive years behind them.
By 2060 the number of people who are 65 or older is going to double. At the same time, the number of people in the workforce between 15 and 65 is going to shrink to less than 50% of the total population.
By 2050, there will be 75 retirees for every 100 workers. By comparison, in the United States in 2050 there will be about 32 retirees per 100 workers.
You'd think Japan could get "busy" and produce more children but even that's problematic. The country has one of the lowest birthrates on the planet. Many young Japanese simply don't want romance — let alone children.
In fact, many Japanese don't even want sex.
Better Than Brazil: How to Invest in a Colombian Safe Haven
What's an investor to do?…
The Eurozone is about to collapse. The United States is struggling out of the deepest recession since World War II. And the IMF forecasts global growth will drop from 5% in 2011 to 2.6% in 2012.
How about investing in a safe haven far away from all of these troubles – one where you can actually watch your money grow?
I have found one in Colombia. Let me tell you why.
It is because Colombia is no longer a place controlled by drug kingpins or ripped apart by civil war. Colombia is a country on the comeback.
This revival began in 2002 when former president Alvaro Uribe decided to take on both the leftist guerillas and the drug barons. Since then, his successor Jose Santos has followed up on those policies, and they have worked.
In 2011, Colombia's homicides dropped by 5% to 14,746 and its murder rate dropped to 33 per 100,000 of population.
Admittedly, that's still five times the U.S. level, but these things are relative – it's half the level it was just four years ago.
Foreign investors have noticed, and last year, foreign investment in Colombia was up 56% to $14.8 billion.
Colombia Beats Brazil
In fact, according to the World Bank's "Doing Business" survey, Colombia ranked 42 out of 183 countries.
That was near the top spot in Latin America and far above Brazil's appalling rank of 126. Only Chile was higher with a rank of 39.
Stock market investors have noticed this, too – in the second half of 2011 Colombia had $4.9 billion of initial public offerings, the most in Latin America – and yes, again ahead of Brazil!
On the macroeconomic side, Colombia is sound, with public debt at just 45% of gross domestic product (GDP), a modest budget deficit, inflation just over 3% and the central bank base rate at 4.75% — no Ben Bernanke nonsense of zero interest rates!
Colombia has also gotten a boost by a surge in oil production, with exploration now possible in areas that had been "no go" for foreign investors for decades.
In November 2011, oil production was 920,000 barrels/day, up 17.5% from the previous year. Oil and minerals were responsible for 82% of Colombia's 2011 foreign investment, so the potential for investors is immense.
However, the real reason why Colombia is so attractive [To continue reading, please click here...]
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Don’t Be A Wall Street Patsy
You want to know the truth? The truth is that Wall Street has stacked the deck against you.
That's why you need to understand how the game is played. Otherwise you'll end up a Wall Street patsy.
So, here's the truth along with some lessons that will help you play the game like a pro.
First, though, we'll need to debunk a few myths…
Let's start with the myth that the Street lowered brokerage charges for the benefit of retail investors. At one time, these fees used to be obscenely high and fixed.
But, on May 1, 1975, fixed commissions were abolished after brash upstarts like Charles Schwab and disgruntled investors decided to attack The Street's price-fixing schemes.
The negotiated commissions regime that followed lowered the cost of access to the stock market, essentially ushering in the era of the "individual investor."
The influx of these individual investors, many of whom didn't have enough money to create diversified portfolios, soon became a boon for mutual funds – which have since grown like weeds in an untended sod farm.
Wall Street Changed the Game
Since the commission business was no longer profitable, Wall Street moved its retail business to an "assets under management" model.
So instead of making money on commissions the game changed to gathering as many assets as you could into a retail investor's account and charging a fee to "manage" them; in other words, just watch them.
That's one of the reasons why Wall Street advocates a "buy and hold" strategy for retail investors. They don't want you to take those assets away from them.
It's the same thing with mutual funds.
And conveniently, if your broker puts you into mutual funds that are losers, it's not your broker's fault.
Now, it's the mutual fund manager's fault. That way the broker can't be blamed if your account loses money.
Instead, your broker can tell you, "Don't fire me, let's fire the mutual fund manager and let's find you a better fund to invest in. But, no matter what happens, we need to buy and hold and not try and time the market."
That's what retail investors are told to do over and over and over again.
But guess what? That's definitely not what Wall Street firms do.
In fact, while you're being told to buy and hold, exchange specialists, market-makers, hedge funds and every trading desk at every Wall Street bank and firm are busy trading.
Some individual investors began to see how Wall Street was really making its money and started trading themselves.
Of course, that only increased the competition for easy trades as more retail investors traded in and out of stocks.
To continue their advantage over the public, Wall Street fought to do away with the uptick rule. The rule was wiped out so traders could short sell any stock at any time.
But it's the big Wall Street players who benefit from the rule change because they can use their huge capital positions and work with each other to drive down stocks they have shorted.
Who gets hurt? The buy-and-hold retail investors who are told to buy more at lower prices are the ones who get fleeced.
And, who is selling to them?…
Crisis in the Eurozone: The Reality of the European Downgrades
It turned out to be a ruinous Friday the 13th for Europe last week.
After the close, Standard & Poor's downgraded nine of the sovereign states in the European Union (EU).
That included dropping Austria and France to AA+ status from their formerly lofty AAA rating.
While the decision was expected, and will most likely be followed by additional downgrades from the other rating agencies such as Moody's Corp. (NYSE: MCO) and Fitch Ratings Inc., it's the knock-on effects that will have larger implications for investors around the world.
In the Wake of the European Downgrades
The first and most obvious effect was the downgrade of the European Financial Stability Facility (EFSF) that followed on Monday. In the wake of Friday's bad news, the EFSF was also dropped to a AA+ rating.
According to the S&P:
"We consider that credit enhancements that would offset what we view as the now-reduced creditworthiness of the EFSF's guarantors and securities backing the EFSF's issues are currently not in place. We have therefore lowered to 'AA+' the issuer credit rating of the EFSF, as well as the issue ratings on its long-term debt securities."
The S&P also warned more EFSF downgrades would follow if the ratings of other individual states dropped in the future.
In a warning the EFSF could fall below AA+ the S&P said:
"Conversely, if we were to conclude that sufficient offsetting credit enhancements are, in our opinion, not likely to be forthcoming, we would likely change the outlook to negative to mirror the negative outlooks of France and Austria. Under those circumstances we would expect to lower the ratings on the EFSF if we lowered the long-term sovereign credit ratings on the EFSF's 'AAA' or 'AA+' rated members to below 'AA+'."
So where do we go from here?
What Kim Jong Il's Death Means for the Global Economy
All eyes are on North Korea and its repressed economic system this week after the country announced early Monday that Kim Jong Il, the ruling dictator for 17 years, died Saturday. The political instability to follow Kim Jong Il's death could ripple through the global economy, weighing on confidence and growth.
Kim Jong Un, the third son of the deceased leader, will take his place. Kim Jong Un is only in his late-twenties, and has only been groomed for the role since 2008, compared to his father's 14 years of training.
While North Korea has remained economically isolated from much of the world, its military aggression, volatile relationship with South Korea and the United States, and the uncertainty surrounding Kim Jong Un's readiness to lead has put the world on alert.
"This is a tinderbox situation," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Almost nothing is known about Kim Jong Un, this "Great Successor.' The deeper questions are the longer-term issues related to a potential power struggle within the ruling elite, given that Kim Jong Un may not have the training nor the power base from which to assume control. Now is the time to watch carefully."
That said, here's what to monitor in the global economy as North Korea rebuilds after Kim Jon Il's death.
North Korea's economic future: North Korea is a notoriously closed society and has shunned foreign investment. Kim Jong Il had started to show signs of possibly being open to economic reform. He even toured Chinese factories to learn about their rapid economic growth, and visited Russia to discuss building a gas pipeline across North Korea.
Of course, that's unlikely to change at least until the country's new leader gets established.
Still, there's hope the long-term outlook for North Korea will change since Kim Jong Un has more Western world exposure than his father, having attended school in Switzerland. That could encourage him to reach out more to other countries to help improve his impoverished nation.
"With China as its example, I am hopeful that North Korea comes out of its shell and slowly crawls to its borders to see who is willing to start a dialogue and trading with the rogue robot nation," said Money Morning Capital Waves Strategist Shah Gilani. "If it's going to be a scary and not a salutary coming out party, all bets are off; but I'm a betting man, and I'm betting North Korea will emerge from its cocoon."
South Korea's economy: South Korea faces the biggest economic disruption. The country already forecast a drastic export slowdown for 2012, with shipments growing only 7.4% next year, compared to 19.2% in 2011. The threat of North Korean instability could also slam consumer confidence, and cause the economy to grow even slower than the 3.7% gain predicted for next year.
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