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Global Economy

The Top BRIC in the Wall Teeters

Over the last decade, Brazil has grown to become the world's sixth largest economy by nominal GDP, a staggering feat fueled by a massive increase in its middle class ranks.

The nation has been rife for investment opportunity based on its fundamentals and strong commodity sectors, and finds itself as the leading BRIC (Brazil, Russia, India, China) emerging market.

But the recent wave of public protests over the last month could be signaling that Brazil has hit a major snag in its quest to displace France in the top five economies, and its opportunities for growth and fortune may be faltering as the nation experiences increased political turbulence.

The wave of protests began a month ago in Sao Paulo after the government increased bus fares by 10% (a rate that subway fares seem to rise in New York every other week). But the increases were quickly revoked in San Paulo and other major cities after the protests became much larger than about mere bus fares.

Residents have been especially frustrated by a lack of transparency across the country, and the government's increased taxation and decreased returns to average Brazilians in the form of basic and essential services.

Brazil has spent approximately $30 billion to showcase itself to tourists during the 2014 World Cup and 2016 Olympics. Meanwhile, the nation's anti-poverty programs have a mere annual of budget $10 billion in a nation of 191 million.

The widespread demonstrations have produced a national movement to demand better education, healthcare, and transportation services. Despite the protests, the country simply can't meet these obligations at this time for one simple reason: government can't keep up with economic expansion.

Brazil provides one important economic lesson that no one talks about when it comes to rising middle classes in emerging nations.

Many governments are not prepared for population shock or the shock of economic growth.

And while this stands to create a wave of new problems for investors looking abroad for investment opportunities in Brazil, it also teaches a valuable lesson and opens new doors to wealth in South America.

The Retched "Incline" of the Middle Class

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Top News

The Massive Wave of Chinese Investment in the U.S. is Coming to a City Near You

By Diane Alter, Contributing Writer, Money Morning

There's a new wave of investment occurring across the United States – and the "who" behind it makes this a very interesting story…

Faced with an economic slowdown at home, Chinese companies are pouring money into U.S. businesses at a record clip.

From energy to aviation to entertainment, Chinese investment in the U.S. swelled to a record $6.5 billion last year.

But that's just the beginning of this Chinese "invasion."

According to Rhodium Group, which conducts detailed tracking of Chinese investments in the U.S., new business investments are now on track to top that gigantic figure again in 2013.

"We are in the midst of a structural growth story that will transform the China-U.S. investment relationship from a one-way street into a two-way street," Thilo Hanemann of Rhodium told CNBC.

A major reason behind this investment trend: U.S. technological development.

A December 2012 U.S. Treasury Department Committee on Foreign Investment report said it "judges with moderate confidence that there is likely a coordinated strategy among one or more foreign governments or companies to acquire U.S. companies involved in research, development, or production of critical technologies for which the United States is a leading producer."

A finger wasn't directly pointed at China, but the inference was clear.

"Chinese companies are looking for management prowess and technology upgrades when they make acquisitions," Ben Cavender, a senior analyst at China Market Research Group, told The Wall Street Journal.

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What's Spooking Investors in the Stock Market Today

The stock market today is down more than 200 points as China fears trigger a global sell off.

In mid-morning trading, the Dow dived 205.75, 1.39%, to 14,593.65. The S&P 500 slumped 25.78, 1.62%, to 1,566.65. The Nasdaq slid 50.78, 1.51%, to 3,306.47. The Dow and S&P are now off some 5% and 6% respectively from their all-time highs reached earlier this year.

Asian markets were clobbered Monday and European markets melted on increasing fears of a liquidity crunch in China. Major Euro indexes, off roughly 10% from their April highs, are officially in bear territory.

Today's moves continue the rollercoaster ride U.S. equities were on last week, with the Dow shedding 560 points, or 3.66%, over Wednesday and Thursday.

The blue-chip benchmark finished at 14,799.40, down 1.8% for the week, its worst week since April 19. The S&P 500 fared worse, slumping 2.1% last week to end at 1,592.43. The Nasdaq ended at 3,357.25, for a weekly loss of 1.9%.

The VIX, or the CBOE Volatility Index, soared 10.2% last week, ending at 19. Wall Street's "fear gauge" has risen four of the past five weeks, ever since Fed Chief Ben Bernanke's first mumblings about a probable winding down of stimulus.

Monday morning, the VIX jumped 2.14, or 11.23%, to 21.04, its highest level of the year.

Markets were goosed Friday after The Wall Street Journal's Fed watcher Jon Hilsenrath wrote that investors may be misreading optimistic messages sent by the Fed Chairman Ben Bernanke as hawkish.

Also, Goldman Sachs (NYSE: GS) analysts said their top recommendation for 2013 is still to buy stocks and sell bonds.

"We continue to expect the index [S&P] will close the year at 1,750, a rise of approximately 10% from today's top level. However, median historical drawdown episodes suggest at some point during the next six-months that the S&P may decline to mid-1,500s before resounding to our year-end target," Goldman's analysts wrote.

Further giving stocks a lift was a bullish statement to CNBC from renowned hedge fund manager David Tepper, founder of Appaloosa Management: "All the concerns in the markets is because the Fed sees the economy stronger in the future. In fact, their forecast shows that they will wait until a lower unemployment rate (closer to 6% than 6.5) to raise interest rates. So they are a bit easier on the front…I obviously thought they should start to taper. [But] the bottom line when the dust settles [is that the] only one place to be [is] stocks."

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Energy Investing

How your Grandchildren can Reap Profits with These Nuclear Stocks

Three Mile Island. Chernobyl. Sellafield. Fukushima.

These are just the most famous names from an alarmingly long list of civilian nuclear incidents. Each of these accidents resulted sparked intense public debate on the future of civilian nuclear power.

Is it really safe? What do we do with the waste? It'll be toxic for tens of thousands of years? How bad will the next accident be? What kind of trade-off are we making? These are just some of the questions mooted in the wake of these and other nuclear accidents.

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The G8 Will Never Get a Handle on Taxes at This Rate

The G8 meetings this week at Lough Erne in Northern Ireland had a theme of "Tax Evasion and Transparency." This theme may have been chosen because "Enchantment under the Stars," or "A Night to Remember" were taken by the local high school prom committee.

And I joke not to lampoon this august body – far from it. It's only that the efforts of a group of people – none of whom put on a necktie – who help shepherd the world's largest economies ought to be focusing on economic growth, such as that which we haven't really experienced in the West for quite some time now.

Instead, the world is given the Lough Erne Declaration, which calls for a "robust" international framework to ensure fair tax collection and rational tax regimes. That the United States should be mentioned in the same breath as "fair tax collection" or "rational tax regime" is ludicrous enough.

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Global Economy

Bank of Japan Called "Single Biggest Danger to Global Markets Today"

The Bank of Japan is sticking to its policy of fiscal stimulus to try to stoke inflation, and that's rattled markets worldwide.

There are short-term signs of economic recovery such as an increase in consumer spending and in manufacturing.

But longer-term, Money Morning Chief Investment Strategist Keith Fitz-Gerald told CCTV, "there has never been an instance in history where stimulus has worked. So the question really is when, not if, this will break down."

Check out the accompanying video to learn why Keith considers the Bank of Japan "the single biggest danger to global markets today."

Trend Watch

A Deadly Wall of Silence Surrounds a Potentially Global Pandemic Disease

By Greg Madison, Associate Editor, Money Morning

One of the really beneficial things about science is its power to transcend borders and ideologies.

Scientists in countries that may be totally hostile to one another have the chance of collaborating on difficult problems in a spirit of openness.

This ability to collaborate and exchange information across borders is particularly important when a new disease with global pandemic potential emerges, as it has in the Middle East with the respiratory system coronavirus (MERS-CoV).

This "novel coronavirus" was identified in September of 2012 in the Saudi Red Sea port of Jeddah. The disease was found in a deceased 60-year old man who died of acute pneumonia and kidney failure. Little else is known of this unfortunate individual.

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Top News

Bangladesh Tragedy Exposes Real Cost of Corporate Greed

We've known for a long time that the things that fuel our lifestyles can come from some pretty ugly places.

The coltan that's used in our mobile phones and entertainment systems is mostly mined in the Democratic Republic of Congo, where millions have died in what's been called "Africa's World War." The United Nations has reported that warlords, guilty of numerous crimes against humanity, vie for control of coltan production while enslaving and killing thousands.

Many of the diamonds we buy for our loved ones come from West Africa, where diamond mining and the black market in the stones has fueled bloody wars in Liberia and Sierra Leone.

Now, in light of a recent tragedy in Bangladesh, it seems even the clothes on our backs may be contributing to a portion of human misery.

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Top News

If North Korea Has Nuclear Missiles, Here's the One Stock You Need to Own

For months now, North Korea has been threatening to launch a nuclear missile strike against the U.S. mainland.

However, the Pentagon has been quite confident in its assertions that the reclusive country doesn't have the technology to actually put a nuclear warhead atop a ballistic missile.

And even if North Korea were able to match a nuke with an ICBM, our military leaders said it could never reach the U.S. mainland.

But we knew better than to be so dismissive.

North Korea has sold so many missiles to Iran, Syria, Pakistan and others that intelligence analysts refer to the arms-dealer as "Missiles "R' Us."

That's why – back in February and March, in reports in both Private Briefing and Money Morning – we cautioned that North Korea's weapons technologies were likely much more advanced than the Pentagon would have us believe.

Now it looks like we were right to be so cautious.

Global Economy

Eurozone Debt Crisis: Now It's a Hopeless Game of Whac-a-Mole

The Eurozone debt crisis that was supposed to have blown over long ago instead has become more like an endless game of Whac-a-Mole, with both new and old problems popping up faster than European leaders can bop them.

As Europe's finance ministers gathered in Dublin today (Friday), they faced at least half a dozen major issues threatening the fiscal health of the Eurozone.

Although Europe's leaders, in concert with the International Monetary Fund (IMF), have succeeded in keeping a lid on each successive crisis over the past three years, that streak can't survive in the face of the new and old fiscal woes that have been peppering the Eurozone.

U.S. investors can't let those past successes deceive them into thinking the Eurozone is no longer a worry.

When the Eurozone debt crisis finally implodes – and sooner or later, it has to – it will hammer stock markets around the globe.

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