As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more
Global Market Comments
January 10, 2013
Fiat Lux
Featured Trades:
(BECOME MY FACEBOOK FRIEND),
(ECONOMIST DAVID HALE SAYS THE ACTION WILL BE IN SOUTHEAST ASIA),
(EPHE), (IDX), (IWM, (THD),
(THE LOST DECADE FOR BONDS IS BEGINNING!), (TLT), (TBT),
(TESTIMONIAL)
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I have been relying on David Hale as my de facto global macro economist for decades, and I never miss an opportunity to get his updated views. The challenge is in writing down David?s eye popping, out of consensus ideas fast enough, because he spits them out in such a rapid-fire succession.
Since David is an independent economic advisor to many of the world's government?s, largest banks, and investment firms, I thought his views would be of riveting interest. It was with great pleasure that I joined him for lunch at the Federal Reserve Bank of San Francisco to discuss the outlook for Asia.
David sees the US economy growing by 2.5% in 2013, China by 8.5%, but for much of Europe to remain in recession. He sees the best growth opportunities in Southeast Asia, which delivered stellar results last year.
The Philippines grew by 6.6% and has the best long-term outlook of all. Some 600,000 now work there in the call center and support business, and the industry is growing at a breakneck pace. Personal consumption is flying, and the government is about to launch a major infrastructure program. Heaven knows they need it, as I recall the roads there are absolutely deplorable. The ETF (EPHE) was on fire last year, up some 56%, making it one of the best performing single country funds.
Indonesia (IDX) expanded by 6.1% in 2012, making a killing on energy and commodity exports to China and Japan. Its ETF was unchanged last year, but could be ready for take off. Thailand (THD) scored a 5.5% gain in its GDP, boosted by flood reconstruction, taking its ETF northward by 38%. Malaysia?s economy (EWM) expanded by 5.3%.
David has seen the same dramatic improvement that I have in the economic data from China over the last three months. This is in response to a moderate stimulus budget which they started to implement in the summer. Residential housing, which has been a major drag on the economy for the past year, is now starting to trend up. Liberalization of real estate lending is in the cards.
While the Middle Kingdom lost 20 million jobs during the 2008 crash, almost none disappeared in the latest slowdown. This year, Chinese consumption will exceed that of the US for the first time in history, at $470 billion compared to $403 billion.
The fight against corruption has emerged as a major domestic issue. Some 25% of all the luxury spending in China is though to be for gifts (bribes) to government officials. Mid level Mandarins caught wearing $50,000 watches are now getting fired.
David made some far out predictions that were real zingers. Population growth is grinding to a halt throughout Asia. It is already well below the replacement rate in Japan and South Korea, which will soon be joined by China. This will eventually lead to labor shortages in Asia, and bring to an end the cheap labor regime, which has driven their economies for the past 100 years. The Chinese work force will shrink from five times ours to only three times.
Their cost advantage then goes out the window. The upshot for us is that perhaps half of the 6 million jobs that America lost to China over the last 20 years will come back. Many items can now be bought cheaper in Chicago than they can in Shanghai.
China will still become far and away the world?s largest economy in our lifetimes. In 1700, Asia accounted for 58% of world GDP. Some 250 years of wars pulled that figure down to 15% by 1950. It is on track to recover to 50% by 2050.
To learn more about David Hale and the extensive list of services he offers, please visit the site of David Hale Global Economics at http://www.davidhaleweb.com.
If you have been negative on bonds as I have, these charts should enable you to sleep much better.
Virtually every fixed income product is peaking now. Let me draw a simple picture for you laymen out there. That means you should sell every major bond market rally for the next ten years. It?s looking like the 1.38% yield we reached in the Treasury bond market will be the absolute nadir.
The technical set up is now so dire, that bonds are going to have a really tough time rallying from here. The momentum players will eventually smell blood in the water, and they'll be jumping in with both feet at every opportunity. The lost decade for bonds has begun!
Of course, you knew this was coming. It doesn?t help that the budget proposals for both political parties going forward will engineer a dramatic increase in the deficit. The bond market is not laughing. It is time to dump that old investment guideline where you own your age in bonds. From here on, the bond/equity ratio should be 0% in bonds and 100% in equities, whatever your age. You now should own your age in high dividend paying equities and the balance in aggressive growth or emerging market equities.
Thank you again for coming to Frankfurt this year ? it was a pleasure having met you in person and I am looking forward to it again in 2013.Thank you also for your research and your ideas ? it is so valuable to get your insights away from the consensus pieces going around in our industry so often. I wanted to wish you and your loved ones a Merry Christmas and Happy New Year 2013 and wish you continued good health foremost.
Kindly Yours,
Jay
Frankfurt, Germany
Global Market Comments
January 9, 2013
Fiat Lux
Featured Trades: None
Returning from my transcontinental rail trip, I had a ton of local errands to run. Pick up the mail, the dry cleaning, and my newly resoled hiking boots, which suffered 1,500 miles of backpacking last year, all of it uphill. The Toyota Highlander was still a disaster from the Lake Tahoe trip, the Christmas tree had to come down, and the Lionel electric train set put away in storage for another year.
So I was in somewhat of a hurry when I turned the corner on to my street. After all, I still had a letter to get out for the day. A black Porsche Boxster reversed right in from of me and I jammed on the brakes. A young man stalled the car in the middle of the road and I nearly t-boned him.
Then I looked to my left. The house was clearly empty and the alarm was wailing. A bell went off in my head. While a lot of young guys in the San Francisco Bay area drive $100,000 cars, there was no way a Porsche owner didn?t know how to drive a stick shift. The car was being stolen.
The thief tried to start the engine again, popped the clutch, and stalled it. He grimaced at me with an expression of absolute guilt, knowing full well he had been caught red handed. I got ready to ram the Porsche with my SUV. If the driver reached for the door, I was going to hit the gas, because it could only mean one thing. He was about to come after me with a gun. I tried to memorize every feature of the miscreant; African American, six feet tall, light build, 28, high cheek bones, and a blue knit cap at 4:00 on a warm afternoon. I tightened my seat belt.
Finally, on the third try, the driver got the car running and tore off down the road. I called 911 to report a car theft in progress. I then called the homeowner, blustering my way past an obdurate secretary with ?an extremely urgent personal call.? A quizzical neighbor came out of an important meeting and picked up the phone.
?Do you own a black Porsche,? I asked?
?Yes.?
?Does anybody have permission to drive it today??
?No.?
?Then someone just stole your car. I already called 911, but you better get on home.?
The police cruiser showed up ten minutes later. The offenders had pried open a back window, ransacked the house, and found the car keys in a drawer. The entire range of Apple products were stolen.
Waiting to make my statement, I noticed that the officer wore a Purple Heart campaign ribbon. He flew Blackhawks, and was wounded by an IED on his way to work. We traded Kuwait stories for a while, and I regaled him with tales of the Persian Gulf in the prewar days, like pages out of Arabian Nights. Then I asked,
?Why don?t you just get the owner?s Apple login and ID and activate the GPS tracker??
?The crooks know about this technology, and they turn them off as soon as they grab them, so we can?t find them.?
?Maybe these are dumb crooks. Perhaps they don?t go to Mac World Expo every year. Why don?t you try??
The thing about the military is that the men honor the chain of command, even after they leave the service. An hour later I got a call from the duty officer.
?We activated the Apple GPS tracker. The phones and laptops had been turned off, but there was one iPad that was in sleep mode with a black screen. It was transmitting its location the whole time. It pinpointed an address in Oakland. We now have the house surrounded and want you to come identify the perpetrator. ?At his home in his neighborhood.? By the way, this is now a vehicular manslaughter case because the suspect hit and killed a female pedestrian while making his escape. You are the only witness.?
The officer was shocked when I said ?Sure thing.? Volunteers for this request are unheard of.
?A cruiser will pick you up in five minutes.?
?Ship it in.?
The same Iraq veteran picked me up. He drove me to the worst neighborhood in the city with the highest per capita murder rate in the United States. Every house had barred windows, cars were up on blocks, and trash was everywhere. It was a real cesspool. Six cop cars surrounded a corner house, and groups of curious neighbors crowded the perimeter.
The police walked the handcuffed suspect into the headlights of our car. My night vision isn?t the greatest these days, so I picked up a pair of spotter?s binoculars I kept from my Marine sniper training days. There were the high cheekbones, with an insolent, disdainful look that you only see on the ghetto. There was absolutely no doubt. I affirmed to the officer that I could make a 100% positive ID.?
I told him of my plan to ram the car. ?We wish you had. You would have saved that lady?s life.? I then told the officer, ?Let?s get out of here. You guys all have second chance vests and I don?t. I don?t want to catch a stray round.
On the way home my driver informed me that all of the stolen property from the crime had been recovered, along with many additional items taken during other robberies. The suspect had an arrest record going back to age 16. They had been trying to bust this gang for years, and I had given them their break. With the manslaughter, grand theft auto, hit and run, and burglary charges, the guy was looking at 30 years. A public defender might plea-bargain this down to 15 years, so there was unlikely to be a trial.
I was overcome by a sense of sadness. What a senseless waste of two lives.
When I returned to my neighborhood I was greeted as a conquering hero. Several reported seeing the same guys casing the area over recent months. The robbers broke in just after the cleaning lady left. The homeowner was effusive in his praise, and said his missing property would be returned the next day. The Porsche was totaled in the crash, but was insured. He asked if I needed anything. I said absolutely not. ?I?m just an old combat veteran always on the lookout for a new fight.? A case of 2006 Silver Oak Cabernet mysteriously showed up on my doorstep the next morning.
By now, the letter for the day was a complete write off. All of my worldwide staff had gone to bed, and there was no one left to email or post it. Besides, they still had yesterdays? 5,000-word magnum opus to digest.
I called my 85-year-old mother with a blow-by-blow description of the events. She said she would have the best story ever to tell her breakfast crowd the next morning at her assisted living facility. At least something good came of this tragedy.
No, I?m Not Going to Wear Them
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