 | | The Daily Reckoning | Tuesday, September 14, 2010 |
- Today we raise a glass to all things "sinvesting,"
- The "emerging vs. submerging" economy debate continues,
- Plus, Bill Bonner on the dollar going dot.com and the Great Zombie Triumph of 2008...
-------------------------------------------------------
Video Presentation: Check Out This Canadian Penny Stock!
This Canadian penny stock play just won the rights to an estimated $172.5 billion oil bonanza... The profit potential could be enormous for investors who get in early. Resident geologist Byron King has all of the details in this exclusive video presentation. There's still time to get in...
Click here to watch the presentation immediately. (Turn your speakers on.)
|  | | | China to Be The World’s Largest Market Sooner Than You Think | | Why the emerging markets continue to trounce the developed world | |  | | Eric Fry |
Reporting from Laguna Beach, California...
Stock markets around the world delivered pleasing results yesterday. Here at home, the S&P 500 Index added nearly 1% to its recent gains, while the MSCI Emerging Markets Index added nearly three times as much...to continue a long-running trend.
No matter the time horizon - 1, 3, 5, 7 or 10 years - the Emerging Markets are trouncing their counterparts in the Developed World.
"Much has been written on the subject of emerging vs. submerging markets," Joel Bowman observed in last weekend's edition of The Daily Reckoning, "and with increasingly good reason. According to Goldman Sachs strategist, Timothy Moe, the market value of emerging market stocks is set to quintuple over the coming two decades, reaching some $80 trillion (with a 'T') by 2030. China, by this time, will have eclipsed the United States as the world's largest market.
"Investors with an eye to the future," Joel continued, "will want to be in the pool when the big money pours in. The ride will be rough, no doubt, but the waterline is most definitely rising. According to figures released by research firm EPFR Global, investors added money to emerging-market equity funds for a 14th straight week last week, even as they pulled $6.87 billion from global stock funds. The driver, it is clear, is the upward and ongoing growth, both registered and forecast, in emerging markets. The IMF expects the emerging economies to grow by 6.4% collectively next year, almost three times faster than developed nations which, reckons the fund, will likely dawdle along at a paltry 2.4%."
Looking farther down the road, the IMF expects the BRIC economies to deliver fully 60% of the world's GDP growth during the next four years - or more than five times the growth that the G7 economies will produce.
"How do the Emerging Market nations achieve such veracious growth rates?" Joel wondered aloud. "They work. Moreover, their toils are of the productive kind - making cars, toothbrushes and belt sanders - as opposed to what the west counts as productivity - counting people, writing laws and tasering grandma at the airport.
"Such a divergence in productivity is, of course, not lost on Mr. Market. Over the past decade the MSCI Emerging Markets Index has more than doubled. During the same period, the MSCI World Index of advanced nations has slumped nearly 21%. This worrying (for developed nations) trend expresses itself in entirely unsurprising forms:
"Clearly, the winds of economic change are at the emerging markets' backs," Joel concluded. "The rough and tumble, dog-eat-dog capitalistic initiatives coloring the emerging nations' economic landscape harkens back to the 'good old days' of the world's developed economies; when entrepreneurial endeavourers were rewarded by the market, rather than punished by the state, when profit was a goal for which to strive in earnest, not a dirty word emblazoning the protest sign of a state- dependent layabout looking to borrow somebody else's axe to grind."
Moving from the macro to the micro, Jim Nelson, editor of The Lifetime Income Report, offers a few kind words for an intoxicating play on Latin American economic growth...
| | |
This "Doomed Nightmare" Oil Rig
It's already the most investigated disaster in maritime history, but history is dead wrong on one key point regarding BP's Deepwater Horizon oil rig. I know: I've learned things through my contacts that are not disseminated to the public.
It all adds up to an unrecognized opportunity for investors who can move decisively to potentially double, double and double a $10,000 grub stake into a huge fortune.
Read on and I'll explain.
|
| |
| | The Daily Reckoning Presents | | Drink Up! | |  | | Jim Nelson |
"Too much work, and no vacation, deserves at least a small libation. So hail! my friends, and raise your glasses, work's the curse of the drinking classes." - Oscar Wilde
"Sinvesting" is a theme that we monitor constantly at The Lifetime Income Report. We have previously explained why tobacco in emerging economies is a steal. Today, we're raising a glass of hooch to the next-best sin play.
From the very beginning of written history, alcohol has played a significant role. In everything from Homer's tale of Odysseus tricking the Cyclops with wine to monks brewing beer to expand and build new monasteries, alcohol has played a role in human history.
Booze is one cultural, social and economic staple that will not go away anytime soon. Right now, Europe still has the top drinkers in the world. In the Czech Republic, legal drinkers consume a whopping 157 liters of beer per person each year. Little old Luxembourg consumed the most total alcohol including wine and liquor per person. The rest of the continent is holding its own near the top of every list we can find.
But the real story isn't Europe. It's emerging economies. China, for instance, consumes the most beer of any country in the world. But its per capita consumption doesn't even squeak the Asian giant into the top 20. This number is growing, however. As China's average median income continues to grow, so does its drinking stats. Already, we're seeing annual volume consumption rates growing in the low double digits.
South America, however, has the best investment opportunities.
Compania Cervecerias Unidas SA (NYSE:CCU) is the leading beer and soft drink producer in Chile and Argentina. CCU is a fully scaled, vertically integrated mega distributor. Meaning, the company makes and sells its products like no other operator. It contracts, produces, markets and distributes a wide range of products, like soft drinks, wine, bottled water and even snack food. But the real moneymaker for CCU is its beer.
The company owns exclusive rights to a variety of brand names. For instance, Anheuser-Busch agreed to an exclusivity deal with CCU back in 1995. That deal, which guarantees every Budweiser bottle, can or keg that is sold in Argentina will go through CCU, was extended until 2025. Because of the Anheuser-InBev merger, the contract will need to be renegotiated by 2015. But that's not even a drop in the bucket of what CCU has to offer shareholders.
With its origins dating back to 1850, CCU has the experience and connections in its region to capitalize on the best brands and sales outlets. Like Anheuser does here in the US, CCU controls the marketing scheme of most of its customers. Let us explain...
Take your average supermarket. In the beer aisle, you'll probably see stacks of Budweiser and Bud Light at eye level...right in the middle of the aisle. You'll also see Miller and Coors products around there too. Meanwhile, imports and craft beers are subjected to shelf space in the far corners and above or below the customer's eye level. The reason for this: The big three - Anheuser-Busch, Miller and Molson Coors - are able to set up the display arrangements with retailers in advance. Of course, this is all done through distributors to comply with US law. But the Chilean and Argentinean laws on alcohol sales are even more lax, giving CCU exclusive marketing power no one else has.
On top of its powerhouse marketing efforts, CCU also controls the best brands in the business: Kunstmann, Dorada, Escudo and Cristal - by far, the most popular beers in Chile. On top of these popular domestic brands, CCU also sells through partnerships: Heineken, Paulaner and, of course, Budweiser.
These brands have helped this century-and-a-half-year-old company gain control of roughly 85% of the Chilean beer market, not including its stake in other manufacturers. CCU is working on obtaining a market share like this in Argentina. But the company has operated there since only 1995, so its fast-growing 22% is still pretty respectable.
With this kind of market share, CCU sets the rules. Even though beer is one of the most stable industries in the world, especially throughout recessions, overall consumption is trending down in some major markets. We noted that Western Europe is the most hop-imbibed continent on the plant. But it may not have the top drinkers forever.
The eight largest consuming nations per capita are drinking less and less beer each year - seven of these are European.
South America is taking up the slack. According to a CCU study in 2008, Chilean beer consumption grew more than 30% between 2004-2008. In Argentina, which is already a heavier drinking nation, consumption grew 23% in that period. And as these countries continue to grow their middle classes, we could be looking at massive consumption growth trends.
While we don't expect either nation to drink as much as Western nations do anytime soon, we can't help ourselves from comparing them. In the US, we consume about 79 liters of beer per person each year. In Chile, that number is just 36 liters per person. And Argentina comes in at 43 liters per person. Better yet, CCU is expanding to the rest of its continent. It is squirming its way into the lucrative Brazilian and Columbian markets. CCU is also looking at some smaller surrounding markets.
These tremendous trends would be enough to make us think about investing in CCU on their own. But this is only half of the growth potential this play has to offer...
Beer currently makes up a significant portion of the company's business. But it isn't the only segment CCU is dominant in. In fact, nearly half of the company's top line comes from wine, spirits and nonalcoholic beverages.
Chilean wine is already recognized as some of the best in the world. Making up just 16% of CCU's business, you wouldn't think it to be too important. But with the world consuming more and more wine from Chile, CCU has been able to grow its wine sales volume a massive 24% in just the last four quarters. On top of solid growth from its wine business, the company's nonalcoholics segment has an ace up its sleeve. CCU has exclusive rights to Pepsi as well.
All in all, CCU offers a one-stop play on the growth of the South American economy. That's a play I'm happy to take.
Regards,
Jim Nelson,
for The Daily Reckoning
Joel's Note: There's another "sinvesting" theme that Jim has been following of late...but it's not a consumer sin. Rather, it's a sin on the part of the US government, and it goes under the name "Social Security." What will you do when the fund effectively goes cash-flow negative at the end of THIS MONTH? Jim shows readers how to employ another government-backed retirement program to protect their wealth when Washington's greatest ever Ponzi scheme comes crashing down. It's all in this free presentation.
| | | | | | | Bill Bonner | | Rising Debt and the Great Market Waiting Game | |  | | Bill Bonner |
Reckoning from Baltimore, Maryland...
The Zombie Triumph of 2008...
We're writing ahead of the close on Monday...stocks are up, but we'll have to wait to find out how it turns out. We're writing earlier than usual because we have to head back to France, to a funeral, alas. The burial will take place in Pere Lachaise cemetery...which we'll tell you about.
In the meantime...
Wait...wait...wait...
That's probably the hardest part of this business...waiting for something you know SHOULD happen... It can take years.
We remember waiting for the dot.com bubble to pop. People thought we were just "out of it." We just didn't "get it," they said. They said new technology had changed the rules of the game forever. Previously - that is, in the world B.I. (Before Internet), which was to them equivalent to the time when pre-humans walked on four legs - the value of stocks was limited to the value that could be added by PHYSICAL processes. You could build more factories. You could sell more widgets. But you were up against physical limits. There was only so much energy...so much labor...so many trucks...and so many people who wanted to buy your widget. So, you could anticipate growth. But within limits.
If you paid more than 30 times earnings, you'd have to be out of your mind...because, come on, things just don't grow that fast and the faster they grew the more likely they were to crash into something.
In this new electronic age, the sky was the limit. Because information flew around the Internet at the speed of light - and at practically no cost. There was no limit on how much human life could be improved with this new, free, information...so there was no limit on how much you should pay for one of the companies that was pushing electrons around.
In practice, free information turned out to be worth no more than people paid for it...and the dot.com revolution blew up in January 2000...leaving only a handful of survivors (who have done very well, thank you.) In our view, the stock market has been in a bear trend ever since (even though the Dow rose after the initial downturn, at least in nominal terms, until 2007).
But we waited three years before the blowout...with people laughing at us the whole time. They were getting rich on dot.com stocks...while we didn't get it. And it looked like we'd never get it.
But then, guess who got it? They did. Good and hard, as we like to point out.
Next, we waited three years - at least - for the housing/consumer credit/derivatives bubble to blow up. We saw it coming. We warned our dear readers. But for what seemed like an eternity, it looked like we were wrong. Houses just kept going up and up and up. Wall Street just kept making more and more money. It looked like it would never end...until 2007, that is.
Waiting is hard.
You begin to have doubts. Maybe you're wrong. Yes, it OUGHT to happen the way you imagine. But maybe you missed something. Maybe this really is something new and different.
And so we wait again. What for? Three things...
For the next leg down of the bear market...
For the inevitable heavy-handed and disastrous intervention by the authorities...
And for the final collapse of the dollar and the US bond market.
We might also say we're waiting for the end of the welfare state...for the end of the dollar-based money system...for the end of the American imperium...
But those things may be even farther into the future...
So let's stick with those things that are closer to hand.
Wait...the markets have closed. The Dow rose 81 points. Oil closed over $77. Bond yields are headed up. Gold was flat.
Hey...the economy doesn't seem to be sinking towards deflation and a bear market today.
Well, we'll just wait until tomorrow...
And more thoughts...
Meanwhile, we've been tracking the zombification of the US. The zombies are becoming more numerous, more parasitic, and bolder. From food stamps to bank bailouts everybody wants to live at someone else's expense.
We hadn't thought of it this way before but the election of Barack Obama to the White House was not exactly what it seemed. It was not a triumph of light over darkness, nor right-thinking over neo-con devilry.
Still, compared to George W. Bush, it seemed like even electing a half- wit would be an improvement. And Barack Obama is no half-wit. He has all his wits about him. Trouble is, he was also the candidate of choice for the zombies. And his election marks a major milestone; the zombies now control the White House and Congress. They control America.
Obama won 28 states. John McCain won 22. The Obama states are full of debt-fattened zombies - with an average per-capita state debt of $1,728. The McCain states are relatively solvent, with an average per- capita debt of only $749.
In the states that went most heavily for Obama - Hawaii, Vermont, New York, Rhode Island, Massachusetts and dear ol' Maryland - the average state debt per capita was even higher, at $4,606.
We don't need to make too much of this. It's pretty obvious what was going on. The zombies saw one of their own. They wanted someone who would give them something for nothing. In Barack Obama, they got it...maybe even more than they bargained for.
Here's the latest news:
WASHINGTON (AP) - The federal government is on track to record the second-highest deficit of all time with one month left in the budget year.
The Treasury Department says that through August, the deficit totaled $1.26 trillion. That's down 8.1 percent from the same period in 2009, when the government recorded a record $1.4 trillion deficit. But it is on pace to total $1.3 trillion - the second-largest deficit on record.
Soaring deficits have become a major issue with voters heading into the midterm elections. Republicans have highlighted the deficits to illustrate how government spending is on the rise under Democrats. So you see. It just proves our whole point. Nature abhors a vacuum and detests a monopoly. After the fall of the Berlin Wall, America had a monopoly on force. No nation...nor even all the world's other nations put together...posed a serious military threat.
Nature couldn't stand it. She got to work. If America could not be brought down a peg by other nations, she would have to bring herself down. How? The typical ways...spending too much money...getting into expensive wars with nobodies...wasting her resources overseas while letting the zombies take over at home.
First nature needed a stooge - a willing dupe - to implement the program. George W. Bush was perfect in the role. He never met a spending bill he didn't want to sign or a war he didn't want to join.
And then came the decisive election campaign of 2008. Nature must have been worried. What if a real reformer came up? What if he cut the budget, brought home the troops and threw out the zombies? Ron Paul did present himself. And yes, his program would have meant a big reform. But no...the American people - bless their greedy little hearts - wanted nothing to do with it. They had become accustomed to living in a style they couldn't afford. They wanted more of it.
They turned their back on Ron Paul and voted instead for Barack Obama.
Yes, dear reader, it was the Zombie Triumph of 2008. It kept America on track - on the road to perdition.
Regards,
Bill Bonner,
for The Daily Reckoning
-------------------------------------------------------
Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor atjoel@dailyreckoning.com
|
| |  |  |  | Losing Faith in the Zombie-Run Government
Zombies run wild! Yesterday’s market trends were nothing to talk about. Dow up 47. Gold down $4. No real landmark news. So let’s go back to the zombies. Yes, the zombies are taking over. But you knew that. They’re everywhere, of course. In the big banks. In the big companies. In the universities. In the military. In line for food stamps. In line for bailouts. In line for promotions. And in line to be elected to high public office. And the government? Heck, Washington is wall-to-wall zombies.
You say Obama; I say Ozawa! You say boom; I say ka-boom!
Keeping a Close Eye on the Japanese Bond Market | Never Before Seen Banking Phenomena
I am always alarmed at most things these days, given my low regard for governments who have power over me and people who have power over me, who always screw things up and then make me pay for it, one way or the other. But I am never more alarmed than when something is characterized as setting some kind of new record, as in “first time ever,” or, phrased perhaps more famously, “for the very first time in the entire history of mankind, which is highly significant, 3 out of 4 scientists agree!”
Are New Home Prices Rising? Nope, That’s Just Inflation.
Burning the Economic Toast | Jon Stewart Features David Walker: We Have a Dysfunctional Democracy
In a classic Daily Show episode, Jon Stewart interviews David Walker — former United States Comptroller General, President and CEO of The Peter G. Peterson Foundation, and protagonist of the Addison Wiggin-produced documentary I.O.U.S.A. — who explains how the US has become a “dysfunctional democracy” because career politicians are more worried about their jobs than genuinely serving the public.
Bangladesh Latest Buyer in Central Bank Gold Game
Nine Bullish Arguments for Gold | |
|
|
|
The Daily Reckoning U.S. Edition
Posts
