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Global Markets

Germany Set to Invest $260 Billion in a Renewable Revolution

The moment Germany announced its highly publicized decision to phase out nuclear energy in the wake of the Japanese triple disaster; observers began to ask one very important question.

Just what energy source would replace such a huge swath of power in Europe's dominant economy?

The short-term solution had to be natural gas.

But this would make Germany more dependent upon imported energy, especially from Russia.

In that sense, the nuclear phase-out made the Nord Stream pipeline – from Russia, under the Baltic Sea, to northern Germany – absolutely essential.

Today, the first line of the twin pipeline is already in operation. The second should be on line at the end of next year (if not sooner).

Then there is the other Russian project – South Stream. This one intends to move Russian and Central Asian gas into Southern and Central Europe.

Much of that will also reach Germany.

In addition, several pipeline projects are vying for the excess production from the second phase of the Azerbaijani Shah Deniz offshore development in the Caspian Sea.

Included among these is Nabucco, a venture to bypass Russia and transport gas into the Baumgarten hub in Austria for ongoing distribution.

Nabucco has long been the European Union favorite, but it has been unable to attract sufficient supplies. Three other pipeline proposals also are attempting to secure the Caspian gas for transit to Europe.

But there is a problem for Germany in all of this.

It does not want to form an increasing dependence upon imported gas to power its economy.

And this sentiment is driving one of the biggest alternative energy revolutions in recent memory.

The German Push Toward Wind and Solar Power

The 17 currently operating nuclear reactors in the country provide about 20% of the national electricity needs. Any replacement of those plants (where capital expenses are already sunk) will add significantly to the end costs of energy.

That means a political decision following the Fukushima Daiichi disaster one year ago ends up costing the average German citizen even more to secure what is already among the most expensive electricity in the world.

Germany does have shale gas.

But the furor over nuclear power is paralleled with a similar environmental concern regarding the dangers of fracking, a process of pumping water and chemicals under high-pressure to break open the rock and free the gas.

There are now four U.S. examples of seismic anomalies resulting from the combination of fracking and deep horizontal drilling.

And they have not instilled much confidence for the markets.

Instead, what the Germans are deciding to do is already being called the biggest restructuring of the national energy landscape since the end of World War II.

The government will initiate a campaign valued at more than $260 billion to harness wind and solar power.

The price tag is staggering. It is already pegged at more than 8% of the nation's entire gross domestic product (GDP). And it could move even higher.

This will involve huge wind farm areas in the Baltic and massive new high-power transit lines nationwide. The goal is to have at least 35% of the nation's power needs generated from renewable sources by 2020.

However, the developments of this massive policy shift are even more exciting.

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Investing in Japan: Three Choices One Year after the Disaster

Like it has been for other Japanese families, this past year has been a tough one in my household, too.

Perhaps not surprisingly, Sunday's one-year anniversary brought long-buried emotions to the surface 12 months to the day after the horrific earthquake and the tsunami it spawned devastated Japan.

The tragedy haunts it still. I don't know a single Japanese who isn't affected.

And I still struggle to process the enormity of what's happened in a country where I've spent much of the last twenty years as a businessman, a husband, and a father.

How do you explain a 9.0 earthquake or a 65-foot high wall of water moving at 80 miles an hour?

Or come to terms with the friends and families who were literally wiped from existence

I couldn't explain that to my youngest son, Kazuhiko, when we visited Kamigamo Jinja, our ancestral family shrine to pray shortly after the disaster.

He wanted to know how the spirits of those departed would find their way home each August for Obon, a more than 500-year-old annual celebration when ancestral spirits make their way back to family altars.

My wife, Noriko and our boys, Kunihiko and Kazuhiko, return home to Kyoto this Friday so we'll see if they've made peace in their young lives as so many other children have.

It is through their young eyes that the future does indeed live, as is the case in so many cultures.

The Aftermath of the Japan Disaster

To that end, I'm sure you've seen the many before and after pictures of Japan making the rounds in recent days.

They're staggering and impressive.

But at what cost?

So far Japan has scraped millions of tons of debris from disaster-hit areas into monstrous piles. Only 6% has been burned or otherwise disposed of. You don't hear about that from U.S. news sources.

Nor do you hear about the additional 130 million to 150 million cubic meters of soil that have yet to be scraped, processed or otherwise remediated to eliminate everything from toxic chemicals to radioactive contamination.

That's enough to fill the Empire State Building floor-to-ceiling 143 times.

In the aftermath, only two of Japan's 54 nuclear reactors are online and running. The rest are down for "inspections" and disaster preparedness drills.

There is a good probability that many may never be restarted, especially with anti-nuclear protests building not only in Japan but around the world as a result of this mess. Most are decades old and of questionable design given what we know about nuclear power safety today.

While I used to be a staunch advocate of nuclear power, today I am now firmly against it.

Cleaning up Fukushima is especially problematic on a couple of levels and estimates suggest it may be 40-50 years before the plant is completely decommissioned.

Not only does the Japanese government have to figure out how to contain the mess, but things are so badly mangled on the ground that the Tokyo Electric Power Company (TEPCO) isn't even sure it can locate the melted nuclear fuel rods at the moment!

An estimated 100,000-275,000 people remain in temporary or modified housing according to various sources. The Japanese government is telling people that it may be a decade or more before they can return home — if ever.

To its credit, the government has gone to great lengths to keep neighbors and families together as a means of preserving the cultural groupism that has played such a vital role in Japan's society for more than 1,000 years.

Separating people would have broken that bond and weakened recovery efforts.

So what now?…

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The Greek Bailout, the CDS Market, and the End of the World

A not-so-funny thing happened on the way to the latest Greek bailout.

The terms and conditions of the bond swap Greece agreed to before getting another handout constitutes a theoretical default – but not a technical default.

That's not funny to CDS holders.

Greece hasn't defaulted (so far), but some of the buyers of credit default swaps, basically insurance policies that pay off if there is a default, claim the terms and conditions of the bond swap constitutes a "credit event" or default.

If it is, they want to get paid.

While on the surface this looks like a fight over the definition of a default, underneath the technicalities, the future of credit default swaps and credit markets is at stake.

In other words, the ongoing Greek tragedy is really becoming a global tragedy of epic proportions.

The Next Act in the Greek Bailout?

Here's the long and short of it.

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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."

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Iran is Now a Full-Blown Crisis, Stage Set for $200 Oil

Just when it looked like we could take a breather from the Strait of Hormuz, all attention is back on Iran.

There are three reasons for this – all happening within the last week:

  1. First was Tehran's successful launch of a satellite, viewed by all in the region as being for military intelligence.
  2. Second, in his toughest talk to date, Iranian Supreme Leader Ayatollah Ali Khamenei voiced defiance to Western sanctions and pledged open retaliation if they are instituted.
  3. Finally, last Thursday, U.S. Secretary of Defense Leon Panetta expressed concern that, if matters continue, Israel could attempt an air-strike takeout of Iranian nuclear facilities within a month. Iran has been frantically moving essential components of its nuclear program underground to withstand such an attack.

All of this is, once again, leading to a rise in crude oil prices.

What's more, the EU decision to stop importing Iranian crude starting July 1 will cripple any chance Tehran has to combat escalating economic and political turmoil at home.

Yet Khamenei's defiant tone during his Friday prayer meeting speech indicates that Iran's religious leadership will not wait for the system to unravel.

And that is what makes this both a full-blown and an intensifying crisis.

Brinksmanship in the Straits of Hormuz

So what's being done?

Washington has little – leverage, save its ability to temper an immediate escalation by Israel (leverage the U.S. can still apply, at least for the moment). It also has some indirect influence on what the E.U. does.

Meanwhile, Saudi Arabia also is a wild card. It will not tolerate a nuclear Iran.

And yes, there are ample indications that American and Israeli intelligence have concluded Iran will achieve the ability to develop nuclear weapons in the next 18 to 24 months.

Some elements of that process will be available earlier, but remember: A weapon is of little value unless it can be controlled and delivered. The logistical and infrastructure considerations need to be in place first.

Yet with such an inevitable conclusion staring them in the face, the West has decided to embark on a risky path…

The target here is not the nuclear project at all (over which there is less and less outside control). Instead, it has become about creating massive domestic instability to bring down a regime.

Now, this is not about ending the theocracy. With or without Mahmoud Ahmadinejad as president or Ali Khamenei as supreme leader, Iran will remain a Shiite-dominated country. Religion decisively controls politics, and the clergy oversees the society.

The West is seeking a more moderate application of what will remain the Iranian cultural reality.

However, as the brinksmanship intensifies, so will the price of crude oil. Tehran, in this dangerous game of international chicken, really only has one card to play – the Strait of Hormuz.

There has been much misinformation circulated about the strait. Here are the facts.

On any given day, 18% to 20% of the world's crude oil passes through it.

According to the Energy Information Administration, the Strait's narrowest point is 21 miles wide; however, the width of the shipping lane in either direction is just two miles, cushioned by another two-mile buffer zone.

Of greater significance, though, is the fact that most of the world's current excess capacity is Saudi. (This is the oil that can be brought to market quickly to offset unusual demand spikes or cuts in supply elsewhere.) And, unfortunately, Saudi volume must find its way through the same little strait.

If we're unable to access the Saudi excess, that loss guarantees the global market will be out of balance. That will intensify the price upsurge – an upsurge that is already happening.

Now for the question I'm being asked several times a day in media interviews…

Just how bad can it get?

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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.

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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

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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?…

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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?

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