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Where to Buy on this Dip
There is a new war underway between two forms of capitalism. The traditional type is driven by the big global multinationals we all know and love which are being aggressively challenged by a new form of state capitalism, of which China is the prime practitioner. While it is too early to predict the outcome of this conflict, it is clear that western style multinationals are currently on the defensive. Witness the all out assault on Google (GOOG), whose business was so attractive that the Chinese government launched a concentrated hacker attack to grab technology and market share, both from within, and from outside the company.
I gleaned these incredibly useful insights from Ian Bremmer, president of the Eurasia Group, one of the top independent political research and analytics firms in the world. Ian received a BA at Tulane and a PhD from Stanford in political science. He has been at the forefront of bringing together the once disparate worlds of international investment and political science, a space once inhabited only by a few globetrotting journalists like myself, and commands a religious following among the large hedge funds and mutual fund groups.
During a wide ranging interview on Hedge Fund Radio, Ian gave me a tour de force of the international investment landscape, where to put your money, and where to avoid. The US (SPX) is the smartest kid in the “dumb class”, and is clearly losing out in this new global competition. But it is still in the game, with the world’s largest economy and an overwhelming lead in technological innovation and higher education. But the future GDP growth rates will be shadows of their former selves and, at 17.2%, real unemployment will remain chronically high. You might as well take any forecast now flogged by the major research houses and cut it in half.
Europe (EZU) is in dire straits, with economic growth rates plummeting. The big question is whether Germany pulls out of the EC, not Greece. Having nearly busted its own economy with the reunification with East Germany two decades ago, it doesn’t want to replay that movie. The bad news: we won’t know the outcome for five years. There is no visible support for the euro (FXE) anywhere. Take that newly cheapened European summer vacation, sip all the latte you want, and enjoy those topless beaches, but keep your investment capital in friendlier climes.
While the Middle Kingdom (FXI) is now ascendant, it is not without its challenges. They lag in local innovation, suffer a nightmarish environmental crisis, and down the road, will endure a demographic shortfall that will mirror Japan’s. But Ian thinks that Jim Chanos’s prediction of a crash in China is “farcical”, and that the country has at least a good five year run ahead of it.
The best places in the developed world to park your money and forget about it are in Canada (EWC) and Australia (EWA), which prosper from bounteous commodity and energy exports, stable political regimes, small populations, the rule of law, and conservative banking and financial regulation. Canada enjoys having the world’s largest customer on its doorstep without any of the overheads.
While South Korea (EWY) has an economy that is the envy of many, it runs a gigantic “fat tail” risk from North Korea, which could blow up at any time. The outlaw regime recently sank a South Korean warship and executed its minister of finance. A total collapse could stick the south with a massive reunification bill it can ill afford, and don’t forget those loose nukes. Taiwan (EWT) looks like a no brainer as a takeover target by an acquisitive China, the financial, and not the military kind. The fate of the monarchy in Thailand (THD) is now a hard fought battle, and it is better to fish elsewhere until the fires burn out. Indonesia (IDX) is nearly a model country these days, and should be the fifth country in “BRIC”, with huge energy and commodity exports and a rapidly growing middle class. Singapore (EWS) also looks great, with an incredibly well managed population of only 3.5 million, massive reserves, a high educational level, and sophisticated manufacturing base.
On the other side of the world, South Africa (EZA) is not just a gold story with a great structural foundation, it will also cash in on the rise of a consumer class in the rest of Africa. Brazil (EWZ), long a hedge fund darling, still looks good, but its glory days are behind it as it transitions to a more conservative government. Other enticing Latin American picks include Chile (ECH) and Mexico (EWW). Russia (RSX) is not just an oil story, but also a consumer one, but faces daunting demographic challenges.
Ian is also a prolific author, bringing out two new books in the past year, which are a must read for any serious global macro investor. They include The Fat Tail: The Power of Political Knowledge for Institutional Investing, and The End of the Free Market: Who Wins the War Between States and Corporations. To prove he is not a total wonk, Ian openly admits to being a card carrying member of the Stanford bowling team. Entirely composed of Russian speakers, they were appropriately known as the “Bolsheviks”. To hear my interview with Ian in its entirety, please click the “PLAY” arrow above.
Zero hedge readers can purchase their own copies of The End of the Free Market at a big discount through Amazon clicking here at http://www.amazon.com/gp/product/1591843014?ie=UTF8&tag=madhedfuntra-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=1591843014
To buy The Fat Tail, please click here at http://www.amazon.com/gp/product/0199737274?ie=UTF8&tag=madhedfuntra-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0199737274
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
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El Diablo is right, having visited most of the BRIC countries the wealth disparity is worse than the U.S. where the top 5% control and own everything while the rest of the population is struggling to survive. This can only lead to social upheaval, unstable governments and socialism/fascism which will lead to market collapse in the host country.
China had what 70,000 + labor disputes/riots last year alone?
When the DOW is 3500 (fairly valued) I will start buying again. We just need the government to keep it's F**king mits out of the market for a while and see the true market reveal itself.
Of course this won't happen but one can only dream.
There is no way China will let a unification between the Koreas go thru.
Well North Korea did one thing superlatively right and just:
They executed their Minister of Finance..(I trust that means his head was surgically removed from his neck)
We can only fantasize doing that to Rubin, Paulson, Bernanke and Greenspan, Summers and Orszag, Kashkari, and the Big Jefe, Lord Dimon.
Sports Guy Chest Bump )(.
You and Ian are both clueless about BRIC and other developing nations in the world. I was brought up in one and the views above seem laughable. Chanos is probably much closer to the truth than you will ever be it seems
meanwhile real capitalism is practiced quietly at farmers' markets all over the country every Saturday.
Yet another Third World lovefest.
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"Brazil (EWZ), long a hedge fund darling, still looks good, but its glory days are behind it as it transitions to a more conservative government."
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@ MadHedge,
You're clueless about Brazilian politic.
The rise of Brazil had NOTHING to do with actual admin.
Extending the illusory arguments and putting the fundamentalist bla-bla in (at least) the correct form: the foundations for the economy were created by the conservative Brazilian wing.
This is pure yada yada, since:
1. left and right Brazilian parties are not "that" different.
2. Politics are not the head factor when it comes to money. Any sustained plunge will be linked to huge assets liquidation around the globe to cover hidden (and unhidden) holes around other markets.
Just open a chart or talk with a Brazilian trader. You're sounding like a bank bulletin.
You push me up, I push you up.
It is hoped this Ian person is going to service the favour. Maybe somewhere on the internet, there is an article by this Ian person laudating the author of the article.
"The best places in the developed world to park your money and forget about it are in Canada (EWC) and Australia (EWA)..."
EWC - high 36.68 in 11/07, low 16.76 3/09; EWA high 34.54 11/09, low 10.50 in 3/09. Park your money and forget it, really? Canada and Australia taxing the beeejeeuzus out of their royalty trusts and minerals (respectively) is good? Um, hmm..
The Chinese GOVERNMENT is "capitalism?"
Ooookay.....
commodities -two thumbs up, europe- two thumbs down, and everything else is in-between. dude, this has been the most "crowded" trade since 2005! (with a brief interruption in 2008- 1Q2009)
tell us something we do not know....
Buy silver now.
What I'm buying on this "dip":
http://data.cnbc.com/quotes/DXD
Game changed in Chinese stock market laterly with new stock index future trade. Now you can profit by driving down index not. Their market has entered 'Bear' as I 'expected'.
"Kiss Europe and the euro goodbye"... is simply pathetic. Do you know where values of Democracy and Freedom were invented ? Not in the backyard of any other house in New York some 200 years ago. These values where brought to mankind by Greece, when the only residents of actual New York were the natives ( if there were any ...).
If you want to know why Germany ( and France... and everybody else in Europe) will not pull out of the Euro... you have to go to history classes. Ho! I forgot. US and UK no longer teach history at their classes.... Ha, Ha, Ha...
European history is probably a poor thing to use as a basis for an argument on European cohesiveness. One could probably correctly argue that the Marshall Plan and NATO were responsible for laying the foundations of the EU concept in the first place. Not suprisingly, sans the direct involvement of the US, it's more or less gone to shit. But please, keep assuming your holier than thou stance of the mighty, hyperintellectual Portuguese and continue to ignore your own checkered past and current corruption. It makes for delightful comedy.
Dear Panafrican Funk.
I do no agree but I accept that you may have a different view on the subject. I’m just a bit tired of having all these people saying that Europe and the Euro will disappear. Anyway, please record my nickname because by this year end, I sincerely believe that you will understand what I'm talking about. In two years time you will agree what is the meanings of European Cohesion, the Euro and all that’s related to that.
When arguing about the Marshall Plan, please be informed that Portugal was the only country in the World that fully repaid assistance. Did not know that? History class should have taught you that.
NATO is also ok for us. We received Scrap Airplanes ( A7 ) at discount price from the Mojave Desert and we provide US/NATO our natural Atlantic carrier (Azores) at big discount....
As for ….our past and current corruption, I suggest you see the movie “V for vendetta”.
Buy on "DIP" right now? Dow need to dip much further to bring down Gold. As the byproduct of "Strong Dollar", beware of "Weaker than expected" economic ahead.
The Chinese/Russian models are rather unstable. It's just too... scary, for lack of a better term. As far as I can tell, a lot of Chinese production just exists to juice econometrics numbers.
Sure, they can manufacture cheaply, but one stroke of the pen in Germany, the United States, or elsewhere, and they can be outflanked in a short period of time.
+1.
You can only manufacture so much junk (and lose work in your own country) before people get pissed off enough to get their government to act against China/others.
Where to buy this dip? You might want to look at the TAN ETF:
But I prefer individual shares like Suntech (STP):
Its shares have been pummeled on rumors that its earnings evaporated along with the euro's fall. Total rubbish. Big hedgies are loading up on this puppy at these levels, and rightly so.
Down 50% in just the past 6 months for most of the solar sector? Many of those solars lose money and won't be around in 30 months let alone 30 years. The sky in China is so full of pollution the sun can't get through... Better get on the only clean energy that is a reality right now... NATURAL GAS.
Don't forget your "destruction of wealth" disclaimer.
Thanks Leo, been tracking solar for a few years, and had some profitable pops with it, but I can't help feeling we are at the edge of a waterfall, and that these guys can't really go anywhere till the real bottom is in. The 'all clear' looks to be as far out as 2016 from what I'm reading.
I would invite you to read the latest quarterly reports of Chinese solars and other solars. Solar is the future of energy. I predict in 30 years, most of our energy needs will be coming from alternative sources.
Leo if you love solars so much buy silver too. There will need to be a lot of silver going into solar.
Leo, i used to think like you and always wondered why solars have not already picked up.
Solars are a product of linear logical thinking, while i think we are on the cusp of something greater..where logical thinking will not be of any use.
I am thinking of a complete change in monetary systems, ways of thinking etc. by 2016.
maybe i am just high on hopium..
" . . .the big global multinationals we all know and love which are being aggressively challenged by a new form of state capitalism."
Are you history or language challenged? Because this 'state capitalism' thing you talk about is nothing new, indeed it's nearly a century old. And it's not called 'state capitalism', it's called fascism and is a version of what we practice here in the States. In fact, you might label China's and our's 'proto-fascism' and 'neo-fascism' respectively, regarding the level of exhibited state controls, but they are effectively the same, a government bent to the will of elites for the purpose of profit and channeled via corporate structures. The only 'war' here is a war between competing crime families looking to control more turf; little they care about the schmucks in the neighborhood, except when the schmucks try to cause problems.
As far as this book, "The End of the Free Market: Who Wins the War Between States and Corporations," really, what a pointless read, given the author clearly interrupts a violent mating ritual as conflict rather than the courtship dance prior to the mating it actually is; then again, outsiders often have a distorted view of what the native species is truly about.