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Global Markets

Historic Agreement Ends 40 Year Old Iron Ore Benchmark as Miners Get Short-Term Pricing Contracts

In a historic moment for commodities markets, two of the world's largest iron ore producers, Vale SA (NYSE ADR: VALE) and BHP Billiton Ltd. (NYSE ADR: BHP) signed short-term contracts for record prices with Asian steel mills that effectively replace a 40-year-old system of setting prices annually.

The landmark move by Vale and Anglo-Australian BHP ended the annual benchmark system when they signed new short-term deals linked to quarterly prices on the spot market, with the Brazilian company winning a 90% increase. Another large iron ore producer, Rio Tinto PLC (NYSE: RTP) has yet to sign any new contract, but is expected to soon follow.

The primary mineral used in steel, iron ore directly affects steel prices and the cost of everyday goods, including refrigerators, cars, and washing machines. That made the recent negotiations one of the most important issues for the global economy and commodity markets.

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"Capital Waves" Point to High-Tide Profits for Commodities, Tech and Emerging Markets

It was November 2008, and a global financial crisis that started in the U.S. credit markets had already leveled such one-time corporate stalwarts as Lehman Brothers Holdings Inc. (OTC: LEHMQ), Fannie Mae (NYSE: FNM) and American International Group Inc. (NYSE: AIG). The U.S. economy was in an apparent freefall, and stock prices wouldn't hit bottom until early the following March.

In the midst of that chaos, Money Morning's Shah Gilani made five predictions, anticipating five looming "aftershocks" he said were certain to come true.

He was correct on all five counts – every prediction came true.

This wasn't the first time Gilani has made such bold predictions – and been proven right. In July 2008, for instance, when crude oil was trading at a record high of $145 a barrel, he predicted that the "black gold" was destined for a major fall – even though many pundits were calling for prices to spike as high as $200, $250, $300 and even $500 a barrel.

Once again, Gilani was right.

Gilani, a retired hedge-fund manger, Money Morning columnist and noted expert on the global credit crisis, has been able to do this time and again for one simple reason: He understands the power and profit potential of the global financial market's "capital waves."

"Capital waves create some of the biggest trading opportunities in the markets today," Gilani said in an interview last week. "Investors who are able to spot capital waves and identify their likely impact have a huge advantage over those who don't."

And the profit plays that loom are shaping up as the biggest and best, yet.

For the full transcript of Gilani's detailed question-and-answer session, please read on.

Get in on the Ground Floor of This Growing Global Profit Machine

I am enamored with Indonesia.

I've never been there. I've never met anyone from there. And it's not a country we hear much about. But it's the world's third-largest democracy (the current president got more votes than U.S. President Barack Obama). And it's one of the few Muslim countries – along with Turkey – that doesn't hate the United States as a matter of public policy.

And those are just a few of the reasons that it's time to invest in Indonesia.

To see why Indonesia is truly a ground-floor economy, continue reading...

Dubai World Plans Debt Restructuring With $9.5 Billion Government Infusion

The Dubai government today (Thursday) announced plans to inject about $9.5 billion into state-owned holding company Dubai World to restructure its debt.

The additional funds double to $20 billion the amount the government will pay to the emirate's holding company. Dubai World is seeking to renegotiate $23.5 billion in debt with creditors. The company said it owed $14.2 billion to lenders other than the government at the end of 2009. The government asked creditors to wait eight years to get all their money back.

Dubai World, and its real-estate development arms, in November shocked investors when it announced it would seek to delay repaying its debt until May. The announcement sent developing-nation stocks plummeting and doubled the cost of buying insurance against a default.

Dubai, the second largest of seven states that make up the United Arab Emirates, and its state-owned companies ran up $80 billion in debt through 2008 to transform the sheikhdom into a tourism, trade and financial hub.

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Portugal's Credit Rating Downgrade Fuels Concern That Debt Contagion Will Spread

Fitch Ratings Inc. yesterday (Wednesday) cut Portugal's sovereign credit rating for the first time, fueling concern that the problems plaguing debt-laden Greece will spread to other Eurozone countries.

The credit ratings agency cut Portugal's credit grade by one notch to AA-, citing budgetary underperformance in 2009. Fitch warned that if the country doesn't enforce stricter fiscal discipline this year, another downgrade is possible.

"A sizeable fiscal shock against a backdrop of relative macroeconomic and structural weaknesses has reduced Portugal's creditworthiness," said Douglas Renwick, associate director at Fitch.

The news punished the euro, as traders placed bets that a European Union summit later this week won't be able to reach consensus on how or whether to help troubled Greece. The currency hit a 10-month low against the dollar.

Stock markets around the world have struggled in recent months as investors worried whether the trouble in Portugal, Greece, and other Eurozone countries would hamper the global economic recovery.

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Beware of Eurozone Plans for Greek Debt Bailout

An old proverb dating back to the Trojan War tells us to "beware of Greeks bearing gifts."

Today, with the fate of the European euro and perhaps even the entire Eurozone region hanging in the balance – and Greece needing a bailout to avoid default on its massive public debt – a more-appropriate warning might be: "Beware of Greeks seeking gifts."

Unfortunately, European finance ministers are looking at a bailout proposal that would amount to little more than an outright gift.

And it's a gift that – in my opinion – should never be given.

To understand the risks posed by a bailout-plan for Greece, please read on.

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How Capital Waves Are Creating the Biggest Profit Opportunities in Today's Markets

Back when oil was trading at a record high of $145 a barrel – and was generally expected to go higher – I concluded that the forces at play were speculative, not fundamental – driven by new institutional money looking to diversify away from too many concentrated equity bets. I argued these forces were temporary, and not entrenched, meaning that oil prices were actually headed for a fall.

The "forces" I was referring to are called "capital waves." Capital waves create some of the biggest trading opportunities in the markets today. Investors who are able to spot capital waves and identify their likely impact have a huge advantage over those who don't.

With oil, for instance, pundits were calling for new highs of $200, $250, $300 and even $500 a barrel. But behind the curtain, there was a major capital wave at play: I knew that oil was being pumped out of the ground like mad, and that shipping rates were exploding because oil was being stored in offshore, idled tankers. I knew that as little as $20 billion had been "re-allocated" out of the equity markets and into this new-asset-class investment for pension fund accounts.

As a speculative frenzy seemed to be enveloping the oil market, I called for oil prices to plummet – to more than a few looks of incredulity or outright guffaws.

When the secondary capital waves took hold, the speculative advance in oil prices first stalled – and then oil prices plunged as capital exited in another wave.

Don't feel bad if you missed this opportunity. That's the important thing to remember about capital waves – they're out there if you know where to look and how to interpret them. In fact, as good as this oil play was, I see even better opportunities ahead.

To learn about the Top Five "capital waves," read on...

Eurozone Announces Greece Rescue Plan To Encourage Investor Confidence

Eurozone countries yesterday (Monday) drew up a rescue plan to safeguard the euro in case Greece defaults on its debt in the hopes of stabilizing its currency.

Broadcasting the fact that Greece's euro partners have drawn up an emergency loan strategy is meant to steady the bond markets and give investors confidence in Greece's ability to pull out of its debt crisis, analysts said. The decision also pressures Greece to rely on its own measures for resolution.

"The objective would not be to provide financing at average Eurozone interest rates, but to safeguard financial stability in the euro area as a whole," the European finance ministers said in a statement.

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The Scramble for Africa: Profiting From World's Largest Cache of Commodities

In the quarter century stretching from the late-1880s to the First World War, there was a mad rush by the world's leading powers to occupy and annex African territory. Now, 100 years later, the world's elite again are scrambling to make their respective marks on the continent.

The methods of extraction have changed, but the end goal remains the same – to gain access to Africa's coveted bounty of commodities.

Most notably, Chinese interests have swarmed Africa, constructing roads, rail lines, municipal buildings, schools, ports, and pipelines in exchange for access to natural resources.

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What's In Store for U.S. Stocks in Light of Greece's Tragedy?

The recent month of February was quite interesting for U.S. stocks, because while the Dow Jones Industrial Average rose 2.6%, it didn't exactly take a direct route to those gains: There were eight separate triple-digit moves in the Dow, both up and down.

At the root of that volatility were political and economic developments that challenged the rationale for the huge rally out of the March 2009 low. Bulls were basically rethinking their beliefs that the home-price plunge had abated, employment was on the verge of a big turnaround, governments could cut taxes and boost spending without end, and that interest rates would remain at zero for years.

I had prepared subscribers for much of this turmoil. Back in early November, I highlighted signs of trouble in the market for government debt well before the troubles in Dubai and Greece came to a head. In December, we started a dialogue on what to expect as the U.S. Federal Reserve withdrew liquidity from the economy and lifted interest rates. The upshot was a series of letters detailing why you should expect the first nine months of the year to trade flattish with a lot of volatility.

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