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How to Profit From Wall Street's Biggest Gaffe in Decades

I was perusing the newswires a few weeks ago when the following Reuters news story headline all but physically grabbed my attention.

It stated: “Exclusive: Morgan Stanley Rebuilds in Commodities Trading.”

Most folks probably looked at this and tossed it off as just another of the endless machinations of Wall Street.

But I knew better.

  • Featured Story

    Investing in 2013: Watch These Emerging Market Rebounders

    World globe

    Broadly speaking, 2012 was an excellent year for investing in emerging markets stocks and ETFs - making some of them a good bet for investing in 2013.

    The returns offered by the iShares MSCI Emerging Markets Index Fund (NYSE: EEM), which has almost $51 billion in assets under management and is used by many professional investors as an emerging markets benchmark, indicate as much. EEM, the second-largest emerging markets ETF, returned 13.4% last year.

    Given that EEM offers exposure (to varying degrees) to more than 20 countries, the ETF's 2012 performance could leave some investors thinking the just completed year was one big party for developing market equities. Unfortunately, that was not the case as some of the developing world's marquee countries, at least at the ETF level, were absolute laggards.

    So while investors were tantalized by the jaw-dropping returns generated by ETFs tracking the likes of Mexico, the Philippines and Thailand just to name a few, chances are there were some mediocre performances from ETFs tracking countries in the same region.

    However, there is an important factor when it comes to investing in emerging markets and it is one that runs counter to conventional wisdom.

    The conventional wisdom is that it's best to avoid laggards and embrace leaders. But with emerging markets ETFs, they take turns moving between the leaders and laggards categories.

    For example, the iShares MSCI Thailand Investable Market Index Fund (NYSE: THD) finished 2011 in the red. In 2012, THD gained over 36%, making it one of the best ETFs tracking any asset class.

    While that doesn't mean THD is bound to be a laggard this year, it does mean some emerging markets funds that left investors with sour tastes in their mouths last year have the potential to soar in 2013.

    Here are a couple to consider.

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  • emerging markets definition

  • 2013 Emerging Markets Forecast: Forget About the BRICs Buy These Rising Stars Instead Savvy investors know there is far more to the markets than sitting on your hands worrying about the fiscal cliff.

    Believe it or not the world doesn't revolve around the United States-or the Western world.

    To continue reading, please click here... Read More...
  • Investing in Emerging Markets with U.S.-Traded ADRs For most of the past decade, the name of the game in worldwide equities has been investing in emerging markets.

    If you don't believe me, just take a look at the performance of the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM).

    To continue reading, please click here...

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  • The BRICs Will Be Dead Weight in 2012 – Invest in These Five Emerging Markets Instead Don't let the headlines fool you, there's lots of money to be made in global investing in 2012.

    You're just going to have to be careful - more so than in years past - because right now the line drawn between successful markets and markets that are in danger of collapse is treacherously thin.

    Take the fashionable growth markets, the BRICs - Brazil, Russia, India and China - for example.

    Dead Weight

    It's been 10 years since Chairman of Goldman Sachs Group Inc. (NYSE: GS) Asset Management Jim O'Neill coined the BRIC acronym. His recommendation was certainly effective - one of the best of all time, even. But today, all four BRIC countries face problems, and their troubles illustrate the dangers of following investment fashions.

    Just take a look:
    • China appears the least troubled of the four BRICs. However, it looks to be facing a recession, inflation is approaching double digits and there is a massive bad debt problem in the banking system. Too much money has been invested in uneconomic rubbish - "malinvestment" as the Austrian school of economics calls it. My own guess is that China will do fine long-term but you probably don't want to invest until the size and shape of its problems is clear.
    • India has a government that can't stop spending, inflation over 10% and huge corruption. Furthermore, its stock market is still pretty inflated. I wouldn't put much money there until the government changes. Contrary to what you read in the media, almost all the real liberalization progress came under the Vajpayee government of 1998-2004, which the Indian electorate then ungratefully threw out. I'd want an Indian government without the corrupt socialist Congress Party before I'd invest; only then could I be sure that Indian gains would not be poured down a rat hole.
    • Brazil has been run by big-spending socialists since 2002 and has been immensely lucky to benefit from the commodities boom. Now the boom has topped out (probably temporarily) but its government is still overspending and has begun to harass foreign investors. Brazil is in big trouble if commodities prices fall.
    • In Russia, Vladimir Putin will become President again next March. Need I say more? Like Brazil, Russia has benefited immensely from the commodities boom (in its case, primarily the run-up in oil prices). However, it treats foreign investors even worse than Brazil does, it is even more corrupt and it appears to be running out of money.
    MM Outlook 2012 If the BRIC's prospects are bad, those of much of Europe are even worse.

    The Eurozone's debt problem could have been solved early on by throwing Greece out of the euro (a much deserved punishment). However European authorities have now thrown so much money about in such unproductive ways that it's doubtful whether the euro is even salvageable anymore.

    A recession in 2012 seems unavoidable, although Germany may benefit from the problems of its trading partners (if it is not forced to bail them out). Well-run European Union (EU) members that are not part of the Eurozone, such as Poland, may also benefit from the chaos, although Poland's current foreign minister Radek Sikorski doesn't seem to think so.

    Japan has done so badly for so long that it may be impossible to revive. If public debt were still at the level of a decade ago, Japanese shares would be a screaming buy, as the market is at a quarter of its 1990 peak. However, with debt around 220% of gross domestic product (GDP) and no sign of the country's budget problems being solved, it may be nearing the point of no return and eventual debt default. On the whole, it's best avoided.

    Apart from the United States, that leaves one obvious rich-country market, [To continue reading, please click here...]

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