Dear Money Morning Reader:
The end of another year approaches, giving us the opportunity to thank you for your continued interest and support and to wish each of you a Merry Christmas and a Happy Holiday.
We truly appreciate your loyalty, attention to detail and feedback, which is why a few months ago we made it possible for you to post your comments directly to our Web site. Below are some of the comments we’ve received, as well as responses to your questions and insights.
We’ll continue to respond to your comments and questions going forward, and we encourage you to let us know what stories and features you’ve liked, and what you’d like to see more of.
Again, we wish you all a happy, warm and safe holiday season.
Comment by P. Denaco on 21 November 2008:
“Shows good thought in a general sense, but lacks content as to what you would recommend to do with that information. I was in China this past year, including the major cities of Beijing, Xian, and Shanghai. It is a powerhouse of labor potential, with over 200 million of that labor force being itinerants. They need to make “stuff” and to be able to sell it as well as to assure that, as a nation they have exposure to the raw materials and commodities it takes for them to continue. What say you as to actions to take re: China?”
Great question – thank you! As you know from personal experience having been there, Chinese companies active in the provision of water, electricity, filtration, travel and pollution control figure prominently in Beijing’s plans (and ours), which is why we’re focused on them right now. The same can be said for the international companies tied up with them. Obviously there are other trends to consider in China but there’s nothing else even remotely on the radar screen with this kind of potential and state funding.
Comment by Robert on 11 November 2008:
"I would like some clarification on these ADRs.
As I understand it, the shares are actually held by an American bank (American Depository Receipts), and [are] not registered in the purchaser’s name.
Is there any risk to the purchaser should the bank hit the wall? In other words, I’m more concerned about the American situation than the Chinese.
Appreciate your insight."
The ADRs are held mostly by JP Morgan Chase & Co. or Bank of New York Mellon Corp., which are among the most solid banks out there. The underlying shares are fiduciary assets, so can’t be touched in a bankruptcy. If they’ve got Madoff running the fiduciary operation, you’d have to worry, but even then, the banks have insurance.
Comment by Rob Shippy on 9 December 2008:
I agree with most of your sentiment, but the one place you are off base is the employees. Those companies will not absorb our workers, because the demand they fill will largely be produced overseas, where they are able to keep their costs LOW. Therein lies the problem, because now those wages are being spent in a foreign country, and the profits are going to a foreign country. And while in principle, theory, and soapbox I agree with you, my livelihood is in Detroit, and I need those workers to have jobs to have money to spend in my business… solve that.
Thanks for the kind words, Rob. Unfortunately, I’m not in charge. And, neither are the guys in Washington despite what they’d like to believe. The markets are. As long as consumers prefer Hondas and Toyotas, no amount of bailout funding is going to do anything other than perpetuate the inevitable. Which is why a Big Three shakeout that may kill Detroit could ultimately be good for the Carolinas, Alabama, Georgia and Mississippi where VW, Toyota, and KIA are all in the process of completing new factories right now despite the downturn thanks to more than $1 billion in Southern legislative incentives. Incentives, I might add, that Michigan could pass if it wanted to more directly help businesses like yours, like Southern representatives are helping their constituents.
Comment by Bobbie on 9 December 2008:
"Why do you keep calling the “Loans” for the big 3 a “bailout”. The financial world was given a “bailout”, the auto industry is asking for loans that they will re-pay … not a handout like we gave to select banks."
We call it a bailout because there is virtually no possibility that these companies – given the state of their balance sheets and business models – would be able to secure $34 billion in loans on the commercially. The government is bailing them out buy offering taxpayer money. Also, there’s no guarantee that these loans will be paid back. General Motors, for instance, is burning through cash at such an exorbitant rate that it could easily fail even if it does get a “loan.”
Comment by Jerry Haywood on 9 December 2008:
"Your article brings several questions to mind. Why do we allow unfettered access to our markets when U.S. companies in China have to have a Chinese partner? Are the U.S. auto companies allowed to manufacture cars or trucks in Japan? Are the tariffs, taxes, import quotas, and customs regulations the same going both ways? I think when you find the answer to these few questions you will find another part of the Big Three’s problem that no one wants to address."
I couldn’t agree more, Jerry, but maybe not for the reasons you expect. The bottom line is that if Detroit truly made the best cars in the world, as they insist they do, consumers would be beating a path to their door and voting with their wallets – high production costs and all. But, they’re not and that’s what I suspect is so hard to swallow here…pride.
History shows that protectionist policies ultimately undermine the very businesses they’re intended to help. So the last thing we want to do is to play tit for tat. China, Japan and Korea will ultimately pay their bill in this regard and, in fact, several of their industries already are. Which is why I have no doubt that Detroit, after getting totally boxed in by its own avarice, will rise to the occasion though probably not in any form that the current crop of executives is capable of imagining.
Fed Looking at Another Rate Cut, While Treasury Has New Plan for Housing
Comment by Cynthia Stimpson on 9 December 2008:
"I love what you guys do, but it seems that to get the ‘really good stuff’ (even a few specifics) we are often asked to purchase another subscription to yet another newsletter.
This is rather disheartening, and I wish you could consolidate
more information into ONE newsletter. It feels like a continuously splitting amoeba — from one to many, and from many to way too much! Too many different sources to read every day!
Could you please give us more information, such as a few of those plays on IMF injections. I assume it might be the ETFs of those countries, and it wouldn’t kill you to say so, either yes or no.
Thanks, and I really have the highest regard for your work!"
First of all, thank you. I’m glad you enjoy the service. We work really hard here to keep our readers well informed and ahead of the curve. But it’s important that you realize Money Morning is not a trading service. We tend to focus on investment news and analysis, not stock recommendations.
As an added benefit to our more loyal subscribers, we do occasionally offer specific suggestions about how investors can position themselves to profit on the latest global investment trends. We also offer features such as our annual economic outlook series, “Hot Stocks,” and Horacio Marquez’s “Buy, Sell or Hold.”
We consider all of the articles in Money Morning to be “really good stuff.” But if you still aren’t satisfied, we highly recommend you sign up for at least one of our premium newsletters. Those come complete with stock recommendations and suggested portfolios.
Thanks for reading. And do trust that we hold our subscribers in the highest regard.
Comment by H. Craig Bradley on 3 December 2008:
"What if the Fed loses Bernanke and gains a new inflation hawk in the mold of Paul Volcker (an Obama financial advisor)?
What investments would work best if we end up with much higher interest rates to counter the inflation forecasts in high single digits? "
Short-term, money-market assets would be great. Stocks would fall out of bed, initially, but most would then recover. Banks with large retail deposit bases should make out like gangbusters.
Comment by Robert Piantoni on 4 December 2008:
"What happens to the nominal value of homes and apartments if we have high inflation? I think a house or small apt. building with a 5%-7% fixed mortgage will increase in value with 10% inflation. "
Inflationary monetary policy is good for solving the housing crash problem, because it increases people’s nominal incomes (provided there isn’t a huge recession) and makes homes more affordable. In the long run, homes and apartments will increase with high inflation, but they may have some time to go yet before a bottom is reached.
Don’t forget high inflation will also affect property taxes and maintenance costs. As a former apartment investor, I can tell you that the expenses are higher and the rent increases smaller (and the gaps between tenants longer) than you would ever believe – in my experience returns are truly lousy, though obviously some get lucky.