NEW SILK ROAD

an interesting article from bloomberg

There's a New Silk Road, and It Doesn't Lead to the U.S.

Trade routes bring Brazilian buses to Egypt and Chinese trains to the Mideast

By Simon Kennedy, Matthew Bristow and Shamim Adam

As the U.S. emerges from the recession, American investors often wonder where the growth is going to come from. Perhaps they should talk to Ruben Bisi, international operations director for Marcopolo, Brazil's biggest bus maker. It's having a banner year, with revenue up 47 percent so far. You won't see Marcopolo buses in the U.S., though. They're cruising the highways and city streets of Argentina, Colombia, Mexico, Egypt, India, China, and South Africa. Brazilians often have a better relationship with these customers than big multinationals do, says Bisi. "We are from an underdeveloped country as well," he explains. Almost 40 percent of Marcopolo's sales of $1.1 billion come from outside Brazil: It sold 460 buses to South Africa for the World Cup.
Marcopolo is a traveler on what Stephen King, chief economist of HSBC (HBC), has dubbed "the new Silk Road"—a 21st-century version of the trade routes that crisscrossed Asia almost 2,000 years ago, linking merchants in China to their counterparts in India, Arabia, and the Roman Empire. The new Silk Road spans the globe, connecting companies and consumers in Latin America, the Mideast, Asia, and Africa, and generating some $2.8 trillion in trade, according to the World Trade Organization.
King says emerging markets will grow about three times faster than rich nations this year and next. "There are now massive trade connections within the emerging markets," he says. "It means in one sense the emerging world is protected from the worst ravages of the developed world." The WTO estimates intra-emerging-market trade rose, on average, by 18 percent per year from 2000 to 2008, faster than commerce grew between emerging and advanced nations.
The developed world will increasingly compete with these fast-rising countries for resources like oil and iron ore. The established multinationals will also encounter new pressure from emerging-market rivals, many of them state-supported. Yet for Western and Japanese companies that are the best in their industries, the opportunities are great. One example: Caterpillar (CAT), the world's largest maker of construction equipment, raised its full-year earnings forecast last month on higher demand in developing countries for mining, energy, and rail equipment.
While the U.S. and other developed countries hope to find their place on the Silk Road, the central player is China. Chinese exports to the emerging world accounted for about 9.5 percent of its gross domestic product in 2008, compared with 2 percent in 1985, King figures. Last month the Saudi Railways Organization awarded a contract to China South Locomotive & Rolling Stock to supply 10 locomotives. The Mecca-Medina rail contract went to Beijing-based China Railway Group (CRWOF). Shenzhen-based Huawei Technologies, China's top maker of phone equipment, is investing $500 million in its research center in Bangalore. China Mobile, the world's biggest phone carrier, may soon invest in Africa.
India and Brazil are stepping up their efforts, too. India's Tata Group was one of the largest investors in sub-Saharan Africa in the six years through 2009, according to the Organization for Economic Cooperation & Development. Many Silk Road companies are becoming aggressive acquirers. "We saw the same phenomenon with American and European companies 50 to 100 years ago as they went global," says Shane Oliver, head of investment strategy at AMP Capital Investors, which manages about $95 billion in Sydney. Brazilian mining company Vale (VALE) has invested in three copper projects in Zambia and the Democratic Republic of the Congo. In April the company agreed to pay $2.5 billion for iron ore deposits in Guinea.
Such trade used to be conducted in dollars and euros, even when the deals did not involve U.S. or European companies. Today companies in emerging markets are more willing to take reals, rupees, and, above all, yuan as the Silk Road economies prosper. "If emerging-market fundamentals continue to be superior," says Kieran Curtis, who helps oversee $2 billion at Aviva Investors in London, "there is the potential for serious currency appreciation against old-guard currencies."
With trade comes competition. About a third of the order book of Brazilian plane maker Empresa Brasileira de Aeronáutica (ERJ), or Embraer, comes from emerging-market customers, up from 1 percent in 2005. Yet Embraer doesn't have the field to itself. The Brazilians are bracing for a fight from Russia's Sukhoi and Commercial Aircraft Corporation of China, which are both developing airliners. Traffic on the Silk Road is getting pretty heavy.
The bottom line: Trading ties among developing nations are intensifying fast and may eclipse emerging-market ties with the West.

The DOW Fall - Picture and Timing

many readers have called and asked for a better picture than the one offered by yahoo.

here it is with the dow weekly, click on it for a better view. also included is the 2823 chart

the trouble is that when readers read such forecasts, they assume it is going to play out immediately. the reason is they did not read the fine print - not the fine print, it is the normal print. it said this is going to play out in 4-6 years with many twist and turns.

every time an uptrend is broken, the chart will usually retraces up to the exit point of the broken uptrend, looking at the uptrend of 2009, dow broke the uptrend at about 11,000, so expect it to approach or even slightly north of that target.

also the us mid term elections might bring the dow index to lofty heights than where it should go.

The biggest lie about U.S. companies

this is an interesting article from marketwatch.

The biggest lie about U.S. companies

Commentary: Healthy balance sheets? They owe $7.2 trillion, the most ever

By Brett Arends

BOSTON -- You may have heard recently that U.S. companies have emerged from the financial crisis in robust health, that they've paid down their debts, rebuilt their balance sheets and are sitting on growing piles of cash they are ready to invest in the economy.

You could hear this great news pretty much anywhere -- maybe from Bloomberg, which this spring hailed the "surprising strength" of corporate balance sheets. Or perhaps in the Washington Post, where Fareed Zakaria reported that top companies "have accumulated an astonishing $1.8 trillion of cash," leaving them in the best shape, by some measures, "in almost half a century."

Or you heard it from Dallas Federal Reserve President Richard Fisher, who recently said companies were "hoarding cash" but were afraid to start investing. Or on CNBC, where experts have been debating what these corporations are going to do with all their surplus loot. Will they raise dividends? Buy back shares? Launch a new wave of mergers and acquisitions?

It all sounds wonderful for investors and the U.S. economy. There's just one problem: It's a crock.

Investors hear July echoes

This July resembled the previous July in several key respects. What does this suggest for the markets for the rest of 2010?

American companies are not in robust financial shape. Federal Reserve data show that their debts have been rising, not falling. By some measures, they are now more leveraged than at any time since the Great Depression.

You'd think someone might have noticed something amiss. After all, we were simultaneously being told that companies (a) had more money than they know what to do with; (b) had even more money coming in due to a surge in profits; yet (c) they have been out in the bond market borrowing as fast as they can.

Does that sound a little odd to you?

A look at the facts shows that companies only have "record amounts of cash" in the way that Subprime Suzy was flush with cash after that big refi back in 2005. So long as you don't look at the liabilities, the picture looks great. Hey, why not buy a Jacuzzi?

According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007; it's twice the level seen in the late 1990s.

The debt repayments made during the financial crisis were brief and minimal: tiny amounts, totaling about $100 billion, in the second and fourth quarters of 2009.

Remember that these are the debts for the nonfinancials -- the part of the economy that's supposed to be in better shape. The banks? Everybody knows half of them are the walking dead.

Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP. That's a postwar record. In 1945, it was just 20%. Even at the credit-bubble peaks in the late 1980s and 2005-06, it was only around 45%.

The Fed data "underline the poor state of the U.S. private sector's balance sheets," reports financial analyst Andrew Smithers, who's also the author of "Wall Street Revalued: Imperfect Markets and Inept Central Bankers," and chairman of Smithers & Co. in London.

"While this is generally recognized for households," he said, "it is often denied with regard to corporations. These denials are without merit and depend on looking at cash assets and ignoring liabilities. Cash assets have risen recently, in response to the fall in inventories, but nonfinancials' corporate debt, whether measured gross or after netting off bank deposits and other interest-bearing assets, is at peak levels."

By Smithers' analysis, net leverage is nearly 50% of corporate net worth, a modern record.

There is one caveat to this, he noted: It focuses on assets and liabilities of companies within the United States. Some U.S. companies are holding net cash overseas. That may brighten the picture a little, but the overall effect is not enormous, and mostly just affects the biggest companies.

That U.S. companies are in worse financial shape than we're being told is clearly bad news for those thinking of investing in U.S. stocks or bonds, as leverage makes investments riskier. Clearly it's bad news for jobs and the economy.

But why is this line being spun about healthy balance sheets? For the same reason we're told other lies, myths and half-truths: Too many people have a vested interest in spinning, and too few have an interest in the actual picture.

Journalists, for example, seek safety in numbers; there's a herd mentality. Once a line starts to get repeated, others just assume it's correct and join in.

Wall Street? It's a hustle. This healthy balance-sheet myth helps sell stocks and bonds. How many bonuses do you think get paid for telling customers the stark facts, and how many get paid for making the sale?

You can also blame our partisan age too. Right now, people on the right have a vested interest in claiming businesses are in healthy shape. That makes the saintly private sector look good, and demonizes President Barack Obama and Big Government for scaring away investment. Vote Republican! Meanwhile, people on the left have an interest in making businesses sound really healthy too: If greedy companies are hoarding cash instead of hiring people, they can cry "Shame on them! Vote Democratic!"

As ever, the truth is someone else's problem and no one's responsibility.

When it comes to the economy, let's just hope the public is too hopped up on painkillers and antidepressants to notice. If they knew what was really going on, there'd be trouble.