Featured Trades: (RARE EARTHS), (AVARF.PK), (GWMGF.PK), (RAREF.PK), (LYSCF)

4) China Puts the Squeeze on Rare Earths. China has further tightened the screws on the world's rare earths market by announcing new export quotas that are only half of those seen last year. China's Ministry of Commerce has limited 2010 second half shipments by its 32 licensed producers to 7,976 tonnes, down from nearly 20,000 tones in the first half. Chinese authorities have also announced that they are cracking down on widespread illegal mining of rare earths, which is causing immense environmental damage. Why should you care? It turns out that you can't build a hybrid or electric car, a wind turbine, thin film solar, LED's, high performance batteries, or a cell phone without these elements. One Prius uses 25 kilograms of the stuff. You also can't fight a modern war without rare earths, being essential for radar, missile guidance systems, navigation, and night vision goggles. That's where things get interesting. The Middle Kingdom supplies 97% of the world's rare earths, and no new major western supplies are expected to come on stream for years. I think rare earths, which include esoteric elements like cerium, Ce, lanthanum, La, and neodymium, Nd, could be one of the next great hard asset plays. Please revisit Avalon Rare Metals (AVARF.PK), Great Western Minerals Group (GWMGF.PK), Rare Earth Metals (RAREF.PK), Lynas Corp (LYSCF), and Molycorp, after it goes public. You can learn more about this once obscure corner of the global commodity market by reading my earlier piece by clicking here.

Featured Trades: (ING), (TM), (LEN), (CRB), (AA),
(AGU), (IBM), (XOM), (COP), (BBY)

1) Technical Analyst Charles Nenner Shows Where to Play in a Bear Market. Yesterday, I was commiserating with my buddy, Charles Nenner, of the Charles Nenner Research Center in Amsterdam, about his team's miserable performance in the World Cup, which lost 0-1 in overtime after a dreadfully pedestrian, foul plagued, uninspiring game. No wonder Holland and Spain lost their empires! I didn't want to beat up the suffering Dutchman too much, as my hometown Los Angeles Lakers, had only recently clinched the National Basketball Association championship (whose center, ironically, is from Spain). All glory is fleeting, isn't it?

Charles was so depressed, that he said his team's feckless play reminded him of the Dow's coming plunge to 5,000. What! Come Again!! The alarm bells and distress flares went off in my head. Would he care to expand on that view? Charles thinks that we are ten days into a summer rally that will run out of steam sometime in August. Then we will resume a 3-5 year bear market, with enough 40% rallies along the way to squeeze those without conviction out of their shorts. His best historical parallel was with Japan's Nikkei, which for 20 years has seen gut wrenching sell offs followed by equally violent, and prolonged rallies. Each pop was optimistically heralded as a new bull market, only to end in tears.

So, are we supposed to sit on our hands for the next half decade until we reach the final, agonizing reckoning? Not at all. He gave me a list of ten names that had the long-term technical muscle to outperform on either a relative or an absolute basis, no matter how dire things get in the main market. The list follows below, along with my own fundamental comments:

Ing Groep NV ADR (ING) '? Rigorous risk control, low leverage, a healthy balance sheet, and broad diversification will enable this financial giant to weather any storms headed its way. This company has been around, in some form, for centuries, for a reason.
Toyota Motors (TM) '? Will recover from recent quality knocks to reclaim its lead position as the world's largest and best car maker. It will leverage its nearly two decade head start and dominant market share in hybrids to generate record profits, the 'BP' of the auto industry.

Lennar (LEN) '? The residential real estate collapse continues and industry consolidation will accelerate, but this homebuilder will be one of the few survivors. Pick your entry points carefully through buying only on the melt downs.

Reuters/Jeffries CRB Index- The 9 month bear market in commodities ends, as investors flee paper assets in favor of the hard stuff.

Alcoa (AA) '? Ditto for AA on the aluminum front.

Agrium (AGU) '? The big rally in most agricultural commodities since June may mean that the long awaited bull market in food is at hand. China returns as a huge importer of fertilizer to address its own production shortfalls.

IBM (IBM) '? One of the best companies, in one of the only US sectors that will prosper globally for decades to come. Their brilliant transmutation from a manufacturer to a service provider insured its prosperity as a world class competitor.

Exxon Mobile (XOM) '? Obama can't bring enough alternative energy supplies online in time to avoid another oil spike, possibly to $200 a barrel. The BP oil spill has suddenly revalued all onshore and foreign crude reserves. A rare chance to buy this gem at a single digit multiple, while BP is dragging down valuations for the entire sector.

Conoco Phillips (COP)- Ditto above for COP.

Best Buy (BBY)- The ultimate predator retailer, with a great service business in the 'Geek Squad' to carry the whole enchilada.

If this all sounds like it is from another planet and you need to be convinced that Charles is not just making it all up, please visit his website at http://www.charlesnenner.com/ . And how far will the Dow plunge in the next down leg? Charles said he would fire up his computer and get me a number after more data came in. I guess you'll just have to keep reading this letter to find out what it is.

All Glory is Fleeting

'America has become a second rate power. It's fiscal and trade deficits are at nightmare proportions. In the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, and the men who built this great empire made sure of it because it was their money at stake,' said Gordon Gecko in the classic 1987 film,Wall Street. Wow! I should hire writer and director, Oliver Stone, as a research analyst.

Featured Trades: (ROB)
Claymore/Robb Report Global Luxury Index ETF

4) How to Become One of the Rich Who Are Getting Richer. One of the great certainties in our economy is that the rich are getting richer, no matter who is running the country. Despite the worst business conditions in 80 years, there was a 17% increase in millionaires in the US last year. Far greater increases were seen in China and other emerging markets. Indisputable proof that there will eventually be an ETF for everything can be found in the Claymore/Robb Report Global Luxury Index ETF (ROB), which seeks to cash in on this trend. The fund is modeled on an index of the producers of international luxury brands put together by the Malibu, California based Robb Report. If you were ever looking to buy a mega mansion, the ultimate customized Lamborghini, or that over the top piece of jewelry for your mistress, you know The Robb Report well (click here for their site at http://www.robbreport.com/ ). The top five holdings are The Swatch Group AG-B, BMW, Hermes, Daimler, and Pernod Ricard. You get some decent international diversification with France and the US accounting for 27% each, Switzerland 14%, and Germany 11%. After hitting bottom last year at $9, the ETF rocketed 122%. So it seems the fund is essentially a retail play on steroids. Keep in mind that this is the last thing on the planet I want to touch right now. I think retail is currently going to hell in a hand basket. But once we get to hell, and the ETF is at $9, let's talk, especially if the Euro is also cheap.

ANOTHER SPECIAL CHINA ISSUE

Featured Trades: (USO), (VALE), (BTU), (FCX), (CAT),
(FXI), (EWA), (EWC), (FXA), (FXC), (CORN), (SOYB), (WEAT)
Currency Shares Canadian Dollar Trust ETF
Currency Shares Australia Dollar Trust ETF
Australia iShares ETF
Canada iShares ETF
iShares FTSE/Xinhua China 25 ETF

 

1) How China's Economy is Already Bigger Than the US. China has already surpassed the US in the global competition sweepstakes and is on track to extend its lead. No, I'm not talking about some pie in the sky 2030 or 2050 forecast from some hole in the wall research boutique. I'm referring to right now, today, this minute. At the end of 2009, America could boast a GDP of $14.2 trillion, while China's stood at $4.9 trillion. The Middle Kingdom will grow by at least 10% this year, generating $490 billion in new GDP, while the US, growing at only an average 3% rate, will add $425 billion in this key measure of economic muscle. That easily makes China the world's largest country in terms of new business activity, and therefore, the most important when gauging the future direction of financial markets. This is why I have been feverishly pounding the table this year screaming that it's all about China, China, China. It's also why I announced to readers why I'd rather get a poke in the eye with a sharp stick than buy equities (click here for the call). Since then, the Chinese stock markets have been falling, not in a great cataclysmic crash, but in a slow death by a thousand cuts. Chinese equity PE multiples have fallen from 50, three years ago, to 10 today, and there are still no buyers. Money managers and financial advisors of all stripes only need to make one call this year: when will the Chinese economy turn? This is harder than it sounds because it means that your entire investment strategy is now dependent on unreliable, contradictory, and untimely data, from a third world nation that only recently moved on from the abacus to measure business activity. When good data does become available, you can then count on the locals to front run and inside trade the first 10%-20% of the move. That will leave you with the difficult choice of getting in late, or not at all. I never said this was going to be easy. So I'll give you a head start and tell you when this will happen: the day before the People's Bank of China stops tightening. This is why hedge funds have kept a laser like focus on Chinese bank reserve requirements, which now stand at 17.5%.? When the slowdown does end, every stock, bond, currency, and commodity market will do so as well. Focus first on the things that the Chinese have no choice but to buy. Just go down their list of largest imports, and you'll find oil (USO), iron ore (VALE), coal (BTU), food (CORN), (SOYB), (WEAT), copper (FCX), and machinery (CAT). You can also buy the suppliers of these commodities, including Australia (EWA), Canada (EWC), and their currencies (FXA, FXC). There is a huge buy setting up here, but the overwhelming verdict of the markets is 'Not Yet'! While I'm waiting for the big trade, you can find me having lunch at a restaurant on Grant Street in San Francisco's Chinatown, eating chop suey and egg foo yung, pestering the waiters for the names of the next hot IPO's.