Emerging markets emerging first

The market bottom seems to be forming
Oct 27 and Oct 28 appear to be the very bottom for this cycle. The upper resistance line for a bear market is the 200-day moving average. While the market next year may hit a new low we are poised for a rally soon of 20% or more over the next 60 to 120 days.

Emerging markets took their hit first and now stand to outperform
Due to the large amount of outsourcing done to India, China and other Asian nations, global funds took a much greater hit than American or European funds until now. That is why they are of higher potential value now as the world takes action to recover. China is especially wise in applying $586Billion of their profits from their trade boom rainy day treasure to an infrastructure based stimulation package. That should also put a floor under world commodity prices because that will make them recession resistant and stabilize demand for raw materials.

The 4 trillion Juan ($586 billion) plan announced Nov. 9 is aimed at keeping China, the fourth-largest economy, growing amid a global recession. China's stimulus package to build infrastructure such as roads and railways offers a sales boost to construction- machinery makers such as Caterpillar Inc. and Terex Corp. These American businesses have a market share in China, making them likely to get a lift from the two-year spending plan.

The Chinese government will invest funds in low-rent housing, projects in rural areas, as well as roads, railways and airports. China accounts for 5 percent of Caterpillar's projected sales of $50 billion this year. They are spending $100 million to triple excavator capacity at its Shandong SEM Machinery Co. unit in northern China as part of a $1 billion investment in emerging markets in the next three years. The China's spending will help Caterpillar; the world's largest maker of earthmoving equipment, counter declines in construction sales in North America and Europe. Terex based in Westport, Connecticut, builds small road-building and construction machinery. Terex is the world's third-largest maker of construction machinery and stands to benefit the most.


Keeping American Jobs
If you print a pile of paper money and then burn it, is that inflationary? No of course not!

If you print a pile of paper money distribute it to people to buy new cars and then the car dealers burn it, is that inflationary? Hardly at all! Everyone got a new car before the car dealers lost their shirts and neutralized the potential inflation.

If the car industry burns all their money unintentionally and you print a pile of paper money to restore it to them, is that inflationary? No of course not! No in fact that is why the bail out of the auto manufacturers is not inflationary. In fact the burning of their piles of accumulated earnings was actually money lost to pay salaries of workers who made good cars that sold at a loss to Americans due to foreign competition. That lost money is deflationary if not replaced.

When value disappears credit also disappears because credit is based on the value of the equities and other financial assets that we own. The money in circulation is not just paper… it is a multiple of the paper value and the multiplier is called the velocity of money. If we double the number of transactions per day for a given amount of money we effectively double the money in circulation. The deflation that caused our credit crunch was not just caused by money being lost but by money not being exchanged as rapidly as before. The reason it froze up was because people lost trust in the system. People lost trust because they saw Wall Street theives going wild and they heard President Bush say it was not a moral hazard and no one would be punished for stealing the money.

President Bush and Congress now have the lowest ratings in history because they don't understand what a moral hazard is. They caused this crisis. The thugs got rich and Joe the plumber got poorer. The new Obama administration must know the Bush administration and the Democrats in Congress fostered moral hazards. But are they also aware of the moral hazard of socialism?


Gold to rise as the bailout drives equities to zero
If shareholder assets continue to be driven to zero in favor of rich bondholders the price of gold bullion will skyrocket, as it is the only thing that holds value in such uncertain times.