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The Daily Reckoning Weekend Edition Saturday, September 11, 2010 Buenos Aires, Argentina -------------------------------------------------------- The emerging vs. submerging debate continues: two more charts, Investing today with an eye on the road towards 2030, Plus, all this past week’s reckonings, cataloged and ready for your intellectual digestion... --- Weekend Edition Video Presentation --- 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.) -------------------------------------------------------- Joel Bowman, reporting from Buenos Aires, Argentina... “If I have a handful of silver it is because I work and my wife works, and we do not, as some do, sit idling over a gambling table or gossiping on doorsteps never swept, letting the fields grow to weeds and our children go half fed!” – Pearl S. Buck (from the character Wang Lung in Buck’s novel The Good Earth) Arriving in Argentina’s capital city after a month-long journey across the United States, we are once again reminded of perhaps the most thrilling aspect of a developing market: that it is, indeed, developing. This, for value-seeking investors and gypsy newsletter writers alike, is a source of excitement one simply wouldn’t be without. Much has been written on the subject of emerging vs. submerging markets, 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. “The primary drivers are rapid economic growth and the maturing of equity markets that are at earlier stages of development,” Moe, as quoted in The Financial Times, wrote in a report Friday. “Developed-market institutional asset management pools will need to increase their holdings of emerging-market equities.” Investors with an eye to the future, therefore, 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%. How do these nations achieve such veracious growth rates, puzzled politicians in the west want to know. Pearl Buck’s character, Wang Lung, answered the question in the quote above, but for the slow-minded policy wonk, we’ll simplify: 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. Put another way, producers outnumber parasites and factory floor hands outnumber Congress floor copouts. 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: For economists fretting about “unfair trade imbalances” who have their knickers in a knot now, just wait until they see what’s coming down the pipes. When we attended the screening of Addison and Kate’s movie, I.O.U.S.A., in our then home country of Taiwan, we took the opportunity to quiz a few of the local audience members after the screening. One woman, clearly shaken by the movie’s warning against (ironically, unsustainable levels of American debt), winced: “I am scared. I don’t even save 50% of my income!” Eventually, however, savers turn into spenders. Keeping up with the Changs or the Patels is just as much a part of human nature as is keeping up with the Joneses. At first it’s just a night out at the movies or a new handbag, then, before you know it, Mr. and Mrs. Chang are splashing out on a new ride. Clearly, the winds of economic change are at the emerging markets’ backs. Yet, despite their uncompromising capacity for – and incredible track record of – growth, many stocks in developing economies trade at very competitive valuations. The MSCI Emerging Market Index is valued at 14.2 times reported profits, according to data compiled by Bloomberg. The MSCI World Index, meanwhile, trades for 15.1 times earnings. That may not seem like much of a difference, but remember that those are very broad measures. Drill down into individual markets and you’ll find that Russia, for example, trades for just 6 times earnings, as does the Middle East’s abandoned wonder, Dubai. Dig further and find individual Chinese, Indian and other emerging market companies, with impressive, double-digit growth rates, solid cash holdings and little debt, trading at even steeper discounts. 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-dependant layabout looking to borrow somebody else’s axe to grind. So buy the Cash for Clunker economies if it helps you sleep at night...but don’t expect the hard workers in developing economies to share their handful of silver with you if you do. Joel Bowman for The Daily Reckoning P.S. Earlier this year we ventured to the largest emerging market of them all with Chris Mayer, Addison Wiggin and Bill Bonner. Basically, we wanted to take a closer look at China’s booming economy. Chris Mayer, our resident value investor, took the opportunity to compile a special report while on the trip. In it he details his 8 best stock picks from behind the Great Wall. Chris tends to focus on stocks that trade at deep discounts while growing their business through simple, predictable means, like providing food or water to the Middle Kingdom’s rapidly expanding middle class. If you’re interested in downloading Chris’ report and catching the upswing, you can do so right here. -------------------------------------------------------- Here’s a Question: What Will YOU Do When Government Retirement Goes Broke? Starting September 30, your government “safety net” will officially begin to shrink. But you can protect yourself - and find out how to collect regular income checks from the “other” gov’t-backed retirement program... Simply Click Here (and turn your speakers on) to listen to our full presentation. -------------------------------------------------------- ALSO THIS WEEK in The Daily Reckoning... Speculating in Gold By Adrian Ash London, England So gold is now at “fair value” says Bill Bonner, long-time gold bug and my former boss/partner-in-crime at The Daily Reckoning’s London HQ. No, he won’t sell yet...if ever...says Bill. But gold’s huge under-pricing a decade ago has clearly passed by. Value-hungry investors got their “reversion to the mean,” and in the form of 400% gains, too. What one ounce of gold bought 2,000 years ago – a good suit of clothes, in Bill’s oft-repeated example – it now matches, if not exceeds in price, here in late 2010. From here, that makes it a “speculation”. The Stock Market Has Hit Its Low!...Sort of By Puru Saxena Hong Kong, China Global stock markets are in a multi-year bull-market and nominal prices are likely to appreciate for several more months. In our view, we are currently amidst a normal multi-week consolidation phase and most stock markets are likely to stage a sharp year-end advance. No More Bones to Pick By Patrick Cox Marco Island, Florida As I have observed many times, stem cell therapies hold enormous promise for curing disease and repairing tissue. Stem cell science even has the potential to stop or reverse the aging process – at some point. The companies like BioTime Inc. (AMEX:BTIM) that I have recommended to the subscribers of the Breakthrough Technology Alert are expanding their ability to grow the tissues of the human body from their stem cell lines. You say Obama; I say Ozawa You say boom; I say ka-boom! By Bill Bonner Baltimore, Maryland The Nobel Prize committee has never withdrawn a prize. It might want to consider it. In Tuesday’s New York Times, prize winner, in economics, Paul Krugman reveals either that he knows nothing about economics...or that there is nothing worth knowing in it. We’re beginning to think it’s the latter. -------------------------------------------------------- New Presentation: If This Iran News Leaked, There’d Be Panic in the Streets Nobody in the Pentagon knows how to handle this. Nobody in the White House has a clue what to do. This epic, 1,354-year old conflict could be about to boil over - bringing suffering on par with what Europe experienced during the 1930s. Watch this new presentation before it’s too late, right here. -------------------------------------------------------- The Weekly Endnote: Finding a place worth investing in is not always easy. Whether you are looking to invest capital, resources or even a few years of your life, the choices are many, varied and often riddled with undesirable obstacles. One of the best ways to ensure a successful choice is, as the old saying goes, to keep it simple. So, when looking for a new place to live, your gallivanting editor did just that. “Why did you choose Argentina?” a friend wrote to us earlier in the week. “It wasn’t just for the wine and the steak, was it?” To answer our friend’s email as simply as possible, “Yes.” Until next time... Cheers, Joel Bowman Managing Editor 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 at joel@dailyreckoning.com The Daily Reckoning - Special Reports: Gold: The Truth About Gold Fiat Currency: Using the Past to See into the Future Have You Heard of the OTHER Government Backed "Pension Program?"