Spain is too big to save and too big to fail. The only way for Spanish debt to remain at 6% is for the ECB to basically buy it (or lend to Spanish banks so they can buy it, or whatever creative new program Draghi and team can think up). When Spain goes, it is just a matter of time before we lose Italy and then, yes, even France. The line must be drawn with Spain. And the only outfit with a balance sheet big enough that can also do it in a politically acceptable manner is the ECB, and the only way they can do it is with a printing press.

Will it buy time? Yes, but time for what? To fix government deficits? To deal with bank debts? Sovereign debt? To somehow solve the massive trade imbalances between Germany and the European periphery? To force voters to accept a fiscal union? In the midst of a crisis? If there is some conspiratorial cabal that has a secret plan, they have kept it well hidden. Because from here it looks like they are making up the “plan” as they go along.

Their actual intentions are no secret. They will do whatever it takes to keep the European Union and eurozone together. And whatever it takes is a very open-ended plan. But it is going to cost them trillions of euros.

Someone is going to have to pay that bar bill. And there’s going to be one helluva hangover.

We are back to TANSTAAFL: there ain’t no such thing as a free lunch.

Source: John Mauldin – Waving the White Flag

As prices fell, TV pundits immediately paraded the usual suspects. They cited disappointing U.S. job figures, renewed concerns over European debt in general, and the Spanish situation in particular, while so-called “analysts” clamored over a possible double-dip recession.

These concerns are not new, nor are they revelations.

Plus, the essential reasons why the price should be moving in the opposite direction – namely up – haven’t gone anywhere. The constriction produced by supply/demand considerations remain, and the insufficient volume available to meet unexpected demand surges and the geopolitical environment – especially the impending European boycott of Iranian crude imports – remain in full force.

The overall market dynamics still point strongly to a rise in price.

Yet the overall movement of crude oil futures has remained peculiarly restrained. In fact, WTI has given back 6.1% in the past week, and some 2.7% for the month.

Here’s what’s really happening… see more details.

Do you call this currency Australian Dollar or Australina Yuan? The same applies to the New Zealand Dollar or Yuan.

Besides all the exciting and potentially damaging political news flowing from China, we got some other surprising news that suggests growth in the region is likely worse off than many now believe.

The bad news came from the two major Western commodity-based currency nations in the region — Australia and New Zealand. This news may be confirming the technical picture for both currencies: Both appear vulnerable and could soon tumble. Let’s take a look …

I often refer to Australia as a satellite country of China given the inordinate amount of its growth driven by Chinese raw materials demand. The central bank there — Reserve Bank of Australia — cut interest rates by 50 basis points. Traders were expecting a rate cut, but only 25 basis points. The Aussie plunged on the news.

And here’s what Reserve Bank Governor Glen Stevens had to say:

“This decision is based on information received over the past few months that suggests that economic conditions have been somewhat weaker than expected, while inflation has moderated.

“In Australia, output growth was somewhat below trend over the past year, notwithstanding that growth in domestic demand ran at its fastest pace for four years.”

This almost sounds tame when you consider housing prices in Australia are starting to accelerate lower, unemployment is rising, and the latest Purchasing Manager’s Index (PMI) for both manufacturing and services are contracting!

I don’t think it’s much of a stretch to say the latest deceleration in China’s economic growth is hitting Australia hard. And the Aussie is feeling the pressure, approaching a key support level — 1.0221

The Kiwi is the name currency traders use for the New Zealand dollar. The Kiwi got hit hard on Thursday on surprisingly bad employment news. New Zealand’s unemployment rate rose to 6.7 percent from 6.3 percent. Most analysts thought the unemployment rate would remain unchanged.

Economists are now expecting a rate cut by the New Zealand central bank when they meet in June. But traders aren’t waiting for June … they sold the Kiwi on Thursday.

Based on the commodity-currencies in Asia, it appears economic growth is clearly decelerating. If this proves true, both the Aussie and Kiwi could have plenty of room left to fall against the U.S. dollar given that both currencies have enjoyed the “Asian risk premium” for years.

Source: moneyandmarkets.com

Imagine if we could squeeze that whole process into just a few months… a few weeks… or even a few days. Because that’s exactly what could be happening.

At least a half-dozen labs and companies are working on this, right now.

If they get it right, we could literally “make” as much gas for your car as you need. We could makefuel for planes, trains, and diesel trucks this way too.

All without drilling wells orfighting Middle East wars, ever again.

It’s coming.

In fact, America’s biggest oil company has already invested $300 million.

And the U.S. Department of Energy says that if this works… we could replace all U.S. oil and gas demand using this single, revolutionary process.

Find out more by clicking here Technology Profits Confidential and learn these 6 breakthroughs:

#1: The End of Oil Shortages Forever?
How “Pond Scum” Could Soon Power Your Car

#2: Why It’s Time to Throw Out Your Laptop?
You’ll Never Need to “Save” a File Again

#3: The “Smart Bomb” Drug That Could.
Soon End Cancer Worries Forever

#4: How “Nano-Medicine” Could Soon.
Save Your Life and Make You Millions

#5: The NEW Biotech Wealth Explosion From Now Till 2014.
Over 1,600 Breakthrough Drug Patents!

#6: What if You Could Collect a “Royalty” on Almost Every Mobile Device Sold This Year?

After all, the American people now owe the Chinese government nearly $1.5 trillion. This could be the Currency War of 2012 and beyond.

I know big numbers don’t mean much to most people, but keep in mind… this tab is now hundreds of billions of dollars more than what the U.S. government collects in ALL income taxes (both corporate and individual) each year. It’s basically a sum we can never, ever hope to repay – at least, not by normal means.

Of course, the Chinese aren’t stupid. They realize we are both trapped.

We are stuck with an enormous debt we can never realistically repay… And the Chinese are trapped with an outstanding loan they can neither get rid of, nor hope to collect. So the Chinese government is now taking a secret and somewhat radical approach.

China has recently put into place a covert plan to get back as much of its money as possible – by extracting colossal sums from both the United States government and ordinary citizens, like you and me.

The Chinese “State Administration of Foreign Exchange” (SAFE) is now engaged in a full-fledged currency war with the United States. The ultimate goal – as the Chinese have publicly stated – is to create a new dominant world currency, dislodge the U.S. dollar from its current reserve role, and recover as much of the $1.5 trillion the U.S. government has borrowed as possible.

Lucky for us, we know what’s going to happen. And we even have a pretty good idea of how it will all unfold. How do we know so much? Well, this isn’t the first time the U.S. has tried to stiff its foreign creditors.

Most Americans probably don’t remember this, but our last big currency war took place in the 1960s. Back then, French President Charles de Gaulle denounced the U.S. government policy of printing overvalued U.S. dollars to pay for its trade deficits… which allowed U.S. companies to buy European assets with dollars that were artificially held up in value by a gold peg that was nothing more than an accounting fiction. So de Gaulle took action…

In 1965, he took $150 million of his country’s dollar reserves and redeemed the paper currency for U.S. gold from Ft. Knox. De Gaulle even offered to send the French Navy to escort the gold back to France. Today, this gold is worth about $12 billion.

Keep in mind… this occurred during a time when foreign governments could legally redeem their paper dollars for gold, but U.S. citizens could not. And France was not the only nation to do this… Spain soon redeemed $60 million of U.S. dollar reserves for gold, and many other nations followed suit. By March 1968, gold was flowing out of the United States at an alarming rate.

By 1950, U.S. depositories held more gold than had ever been assembled in one place in world history (roughly 702 million ounces). But to manipulate our currency, the U.S. government was willing to give away more than half of the country’s gold.

It’s estimated that during the 1950s and early 1970s, we essentially gave away about two-thirds of our nation’s gold reserves… around 400 million ounces… all because the U.S. government was trying to defend the U.S. dollar at a fixed rate of $35 per ounce of gold.

In short, we gave away 400 million ounces of gold and got $14 billion in exchange. Today, that same gold would be worth $620 billion… a 4,330% difference.

Incredibly stupid, wouldn’t you agree? This blunder cost the U.S. much of its gold hoard.

When the history books are finally written, this chapter will go down as one of our nation’s most incompetent political blunders. Of course, as is typical with politicians, they managed to make a bad situation even worse…

The root cause of the weakness in the U.S. dollar was easy to understand. Americans were consuming far more than they were producing. You could see this by looking at our government’s annual deficits, which were larger than ever and growing… thanks to the gigantic new welfare programs and the Vietnam “police action.” You could also see this by looking at our trade deficit, which continued to get bigger and bigger, forecasting a dramatic drop (eventually) in the value of the U.S. dollar.

Of course, economic realities are never foremost on the minds of politicians – especially not Richard Nixon’s. On August 15, 1971, he went on live television before the most popular show in America (Bonanza) and announced a new plan…

The U.S. gold window would close effective immediately – and no nation or individual anywhere in the world would be allowed to exchange U.S. dollars for gold. The president announced a 10% surtax on ALL imports! Such tariffs never accomplish much in terms of actually altering the balance of trade, as our trading partners simply put matching charges on our exports. So what actually happens is just less trade overall, which slows the whole global economy, making the impact of inflation worse.

Of course, Nixon pitched these moves as patriotic, saying: “I am determined that the American dollar must never again be a hostage in the hands of international speculators.”

The “sheeple” cheered, as they always do whenever something is done to “stop the speculators.” But the joke was on them. Within two years, America was in its worst recession since WWII… with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation. Instead of becoming richer, millions of Americans got a lot poorer, practically overnight.

And that brings us to today…

Roughly 40 years later, the United States is in the middle of another currency war. But this time, our main adversary is not Europe. It’s China. And this time, the situation is far more serious. Our nation and our economy are already in an extremely fragile state. In the 1960s, the American economy was growing rapidly, with decades of expansion still to come. That’s not the case today.

This new currency war with China will wreak absolute havoc on the lives of millions of ordinary Americans, much sooner than most people think. It’s critical over the next few years for you to understand exactly what the Chinese are doing, why they are doing it, and the near-certain outcome.

In tomorrow’s essay, I’ll explain the rest of the story… and what it means for you as an investor.

In June 2012, China has announced plans to open something called the Pan Asia Gold Exchange (PAGE).

This is basically a direct competitor to the London Metals Exchange and the COMEX in New York.

The way things work right now, the futures market in London “fixes” the spot price of gold each morning and afternoon, based on trading in London and on America’s COMEX market.

But both of these markets back gold contracts with only 10% of the actual metal. The new China PAGE market could have a much larger gold backing, and could forever change the way gold is traded.

How China’s Secret Gold Plan Will Affect You

To me, it is now abundantly clear that China is accumulating so much gold for two simple purposes…
#1. First, they want to diversify as much of their foreign reserves as possible away from U.S. dollars and other devalued currencies, which are backed by nothing but a foreign government promise.

#2. And second, China wants to establish a world-class currency, backed by as much gold as possible, which can eventually be integral to the world of international trade… and perhaps even become the world’s top “reserve currency” one day soon.

I think it’s going to continue to drive gold prices higher… much higher in the years to come. And it’s going to make some gold investments extremely lucrative over the next few years.

Source: Porter Stansberry S&A Investment Research

Over the past two centuries, every great leap forward has been driven by a corresponding technological advance related to energy.
Coal — along with the steam engine and the transcontinental railroad — catapulted the economy into the new industrial age.
Electricity lit up the nation’s cities, transformed communications and set off a chain reaction of inventions, innovations and changes that continue to this day.

Gasoline and the internal combustion engine drove the next great fuel revolutions, as Henry Ford began to mass produce the Model T.
Each of these energy revolutions was sparked by a new technology.
Each was powered by a new source of fuel.
And each made early investors wealthy beyond their wildest dreams …

• J.P. Morgan and The Railroad Revolution

J.P. Morgan amassed a fortune of about $1.3 billion, approximately equivalent to $28 billion today.

• The Electric Revolution and the Making of a Giant

Adjusting for the subsequent growth in the U.S. economy, Vanderbilt’s fortune at the time of his death would be equal to approximately $143 billion today.

Rockefeller founded the Standard Oil Company and pioneered vertical integration for the industry, controlling development, refining, distribution and marketing. Plus, at the same time, he also integrated the industry horizontally — investing in other, related fuels.
Within a decade, his companies had achieved a virtual monopoly over the industry, emerging as the largest corporate empire in the entire world. How much would his fortune be worth in today’s dollars? Approximately $700 billion, far more than any other individual ever.

We have every reason to believe that crude oil simply cannot continue to be the primary fuel source of energy in this century.
Fortunately, however, there is an alternative, and I’m not talking about a utopian vision of solar or wind power.

Source: Money and Markets

The Great Energy Reversal

Change No. 1: It moves the U.S. market from a price-taker to a price-setter.

Change No. 2: Having sufficient domestic volume makes us less susceptible to pricing spikes.

Change No. 3: (and most important): Crude is no longer “the fuel of choice.”

Now, this is not going to happen overnight. The domestic replacement of reliance upon some of the crude oil and oil products import volume will not be inexpensive or quick.

The international stage will still pressure both prices and availability.

But, as we roll out this new energy balance, what happens here in America will have a greater determining factor in our market pricing and value.

Source: Energy Advantage

Most people think that China’s current economic status is a mirage created by government stimulus and relies on exports. However, examination of China’s economic growth over time reveals that consumption and gross capital formation are the two pillars lifting China to the top.

Balance is also a crucial goal for China’s economy – the economy must not grow too quickly or risk a sharp correction. Just this year, China has weathered an epic battle with inflation, drought and floods, poor global macroeconomic conditions, massive accounting/corruption scandals and a tragic accident on one of its marquee achievements-the country’s high speed rail system.

China remains the beacon of hope for the global economy, the largest and, many times, the “sole engine of the world economy,” BCA Research says. China’s real gross domestic product (GDP) is forecasted to grow 8.9% in 2011 and 7.8% in 2012, according to ISI Group. This is a slower rate of growth compared to recent years but “doesn’t look like an economy struggling under tighter credit conditions,” research says.

Ending the country’s dependence on exports is the “professed pursuit of quality over quantity,” says GaveKal and became an immediate necessity for China to maintain economic stability after exports collapsed by 40% from September 2008 to January 2009, triggering a sharp slowdown in growth, BCA says. Recent data shows China has kicked the habit as exports have contributed little to the country’s growth in 2011. Net exports accounted for 18% of China’s total 14.2% GDP growth in 2007, according to CLSA’s Andy Rothman. During the first half of 2011, exports have a negative contribution of -0.7% of China’s 9.6% GDP growth and accounted for only 12% of total industrial sales revenues. We’ll debunk more tall tales of China’s export economy in a moment.

Transitioning Workforce and the Importance of Housing in China

While China’s “ghost cities” have stolen headlines, China’s real estate market sits on a much stronger foundation than China bears would have you believe. In reality, the property market is actually in a much healthier position than it was at the start of the year. CLSA says the government’s focus on keeping housing price growth under control and limiting the availability of mortgages has resulted in “none of the 70 cities monitored by NBS price increases of more than 1%” on a month-over-month basis in July.

Despite this relatively tame market, GaveKal cites Nouriel Roubini as saying these “ghost towns” are evidence that China’s excessive investment in capital stock has crossed a critical threshold – a bubble.

There are many questions surrounding the global market but the Chinese economy remains headed toward the moon. The country, of course, remains vulnerable to external forces but we believe the economy’s strong momentum will be enough to carry the country through, should volatile times persist.

Source: MoneyMorning

Fast food can be an occasional unhealthy indulgence – but fast food stocks can be a healthy dose of profit for your portfolio.

Imagine you were one of the first to buy shares of McDonald’s Corp. (NYSE: MCD), the world’s largest publicly traded fast food company.

When the “golden arches” opened its doors in 1960, it offered just six menu items – including a 15-cent burger and five-cent fries – at its 102 locations. Now it operates more than 33,000 restaurants in 118 countries and serves more than 64 million customers a day.

McDonald’s went public in 1965, selling its shares for $22.50; now its stock trades around $90 a share.

That means today, after 12 stocks splits, 100 shares of the original McDonald’s stock that cost you $2,250 would have grown to 74,360 shares worth roughly $6.7 million – and that doesn’t even count dividends paid out by the company.

No other restaurant chain has matched McDonald’s success, but others have shown phenomenal growth with impressive profits – and I’m going to show you how to find them.

Four Must-Have Factors for Fast Food Stocks
To find a winning fast food stock we have to look at what will drive growth – and related profits – in the future. There are four dominant themes you need to look for.

McDonald’s Corp. (NYSE: MCD), recent price $90.79 – This may be an obvious choice, but it’s hard to argue with success. Mickey D’s strong second-quarter earnings pushed the stock up almost $5 a share in July, and it held most of the gain in spite of the debt-ceiling debacle and resulting market plunge. The company’s profit rose 19%, earning $1.41 billion, or $1.35 a share, on revenue of $6.91 billion.

Year-over-year growth in international revenue grew 5.4% despite a shaky global economy. McDonald’s is making a major push in China, with plans to double its number of franchises over the next three years. It’s also among the first to offer drive-thru service, recognizing China’s recent climb to No. 1 in the world auto market, as well as a “McDelivery” service in dense metropolitan markets.

The company is trying to increase U.S. revenue by remodeling restaurants, adding more playgrounds, and redesigning drive-thru operations to increase efficiency. It broadened the menu to include gourmet coffees and milkshakes, and healthier options like putting fruit rather than fries in kids’ Happy Meals. McDonald’s is also targeting a slightly richer demographic these days, looking to capture some mid-range diners who are scaling back to save money.

Current analyst estimates project full-year earnings for McDonald’s to hit $5.21 a share this year and $5.73 in 2012. The $2.44 dividend provides a current yield of 2.7%, and the median one-year price estimate for the stock is $99.00 a share.

Source: Larry D. Spears, Money Morning

Or was it having the reserve currency of the world since 1945?
No, that would not have been enough. Was it taking that reserve currency off the gold standard on August 15th 1971? And then being able to simply double her debt every seven and a half years for the past four decades?

America is the most powerful county this Earth has ever known. Not even the Ming Dynasty came close to the power and influence that modern day America has.
So how did this happen?

Are Americans smarter, taller, faster or better looking than the rest of the world? Maybe Americans just work harder or longer than anyone else on this planet, maybe that’s it. Or maybe Americans are just better at educating their kids…maybe that’s it?

Well, I went looking to figure out if there was one thing, one thing that set America and Americans apart from the rest of the planet.
And guess what? I found it.

I found the one thing that Americans have over every other county. They didn’t always have this “one thing”. But once America acquired it, they exploited it.
And I mean America exploited it, like Sarah Palin exploited her Vice President nomination in 2008.

So what is this “one thing”?

What do you think? Was that what made the difference?

Let me ask another question, do you think the world will allow America to double her debt again (read: will they continue to buy America’s debt)?

What does this mean for the stock market? The bond market? The commodities market? The price of houses sitting in the middle of two of America’s deserts (Las Vegas and Phoenix)?

What does it mean for the conventional big box financial advisors’ clients? And what should I do? If the US cannot or is not allowed to double their debt again, what does it mean for people’s retirement…and for the future of the US?

I want to be clear. There are a few people that are not only avoiding the pain but are getting richer. Their accounts are growing and their retirement has never looked better. Just because the US is detoxing doesn’t mean you have to.

What happens to the American Miracle when America can no longer take on more debt?

Source: RC Peck

You can use dry ice for a lot – keeping a picnic lunch cool, generating fog for backyard karaoke. Now it’s about to revolutionize computing all over again.

More important, it’s going to touch off a scramble for a wonder substance that’s in high demand, and produced mostly in China. If you feel you missed out on the rare earth boom, you’re on the cusp of something equally lucrative.

The story begins with two breakthroughs, both revealed in the last 10 days.

Researchers at IBM announced this month they’ve built the first integrated circuit made of something called graphene.

The wafer you’re looking at is as thin as humanly possible — exactly one atom layer thick. And yet it’s powerful enough to…

Make mobile phones work in places they can’t now
Make almost any electronic device run faster, with less electricity
Power devices that can see inside the human body without harmful X-rays.

You can’t do that with the stuff that’s made up integrated circuits for the last 40 years — silicon. Graphene is on its way to becoming “the new silicon.”

Also this month, researchers at Northern Illinois University made a parallel breakthrough, equally important: They hit on a way to manufacture graphene in high volumes.

Instead of previous methods — splitting graphite crystals with tape, or heating silicon carbide to high temperatures — the NIU scientists came up with something so simple your teenager could do it in the garage (although we wouldn’t advise it) — burning magnesium in dry ice.

“Up until now,” says professor Narayan Hosmane, “graphene has been synthesized by various methods utilizing hazardous chemicals and tedious techniques. This new method is simple, green and cost-effective.”

Graphene is derived from graphite — which itself is derived from the humble carbon atom. The two scientists at the University of Manchester who isolated graphene in 2004 won the Nobel Prize for physics in 2010.

“As a material, it is completely new,” declared the Royal Swedish Academy of Sciences upon bestowing the prize. “As a conductor of electricity, it performs as well as copper. As a conductor of heat, it outperforms all other known materials.

“It is almost completely transparent, yet so dense that not even helium, the smallest gas atom, can pass through it.

“It is not only the thinnest material in the world,” adds The New York Times, “but also the strongest: a sheet of it stretched over a coffee cup could support the weight of a truck bearing down on a pencil point.”

So it will have uses other than electronics. Physicist Michio Kaku from City University of New York envisions more lightweight aircraft and stronger plastics, among other innovations.

Here’s the rub: “Good graphite is not that easy to find,” says our natural resource maven Byron King. “Graphite prices have more than doubled in recent years.” No graphite, no graphene.

On top of that, Byron continues, “China controls 80% of the global graphite market — just like China runs 97% of the world supply of rare earths.” And China’s reserves are dwindling.

So not only are we looking at “the new silicon” in terms of potential… we’re also looking at “the next rare earths” in terms of scarcity. And yes, just as with rare earths, the rush is on to find new sources outside China.

Many lie in developing countries run by dictators who’d love nothing more than to nationalize a big graphite find as soon as some company does the hard work of proving it up. But one of the largest is in North America — 8 million tons — controlled by a tiny firm Byron recently uncovered.

It can produce graphite for $400 a ton and sell it for $2,000. That’s $12.8 billion of potential for a company with a market cap of $58 million.

Source: Agora Financial: The Great Rare Earth Supply Crunch

This is the fifth consecutive month that commodities have outperformed the stock market — their longest streak since 1997.

The key reason commodities outperformed stocks and bonds is the weak dollar.

In the midst of the longest commodity boom since 1997 (see below), the hottest commodities right now are, alas, without a corresponding ETF.

Nor can sophisticated investors trade it in the futures market. But there is a way you can still make money in what appears to be an aggressive uptrend:

The blue line represents the price of neodymium — used in everything from portable headphones to hybrid cars. The red is samarium — an essential metal for precision-guided missiles.

Both are rare earth elements — under the tidy production grip of our friends in China. You’ll recall China slashed rare earth export quotas 35% at the start of this year… on top of a 40% cut six months earlier. World prices for many of these minerals have doubled in 2011… on top of a fourfold increase last year.

New developments make it look as if this trend is with us to stay.

As we’ve been detailing, one after another, attempts to break the Chinese stranglehold are smacking head-on into obstacle

• Lynas, an Australian firm, and a former Byron King favorite, attempted to open the world’s largest rare earth refinery in Malaysia but ran headlong into stubborn regulators. An operating permit is being withheld as protesters raise alarms about the rare earth ore’s radioactive contamination — which is naturally occurring, and low level. Approval has been delayed six months
• Toyota’s running into its own regulatory roadblocks trying to partner up with companies to mine and refine rare earths in Vietnam. The deal was announced last fall, but now production won’t get under way till 2013
• In Japan, Dowa Holding’s attempts to recycle rare earths from old electronics is proving more difficult than first thought. Its factory is up and running, recycling 19 metals — but no rare earths.

The Chinese have even upped the ante again too. As of April 1, new taxes on rare earth miners were imposed. What used to cost producer 50 cents per kilogram of refined product now costs $8.

So the scramble to bring rare earths into production outside China moves into higher gear. Industry darling Molycorp — which is gearing up to reopen a rare earth mine in California — recently made investors do a double take when it bought a 90% stake in a rare earths producer in Estonia.

“Does this mean,” wonders our Byron King, “that Molycorp is hedging its bets? Things might not go as well as planned with the California schedule? It’s possible.”

Readers of Byron’s premium advisory Energy & Scarcity Investor have already made hay with Molycorp, collecting 178% in a scant four months. They collected 109% in two months on another of the sector’s “usual suspects”… and they have open gains of 93% and 147% on other rare earth developers.

But for the biggest potential gains, Byron remains focused the big question — who will be the first outside China to go into production?

Source: Addison Wiggin – The 5 Min. Forecast

Earlier this month, the trio demonstrated just how serious they were, with the Peruvian and Colombian stock exchanges entering into a full-blown merger agreement. These are the three best-run countries in Latin America, with a combined gross domestic product (GDP) of more than $500 billion.

If they get their act together, it’ll be these three countries – and not Brazil, that much-ballyhooed “BRIC” country – that are the “must-have” havens for our money.

Colombia, Peru and Chile have benefited enormously from the zooming surge in commodities and energy prices.

Peru is a commodities bonanza, with major potential in everything from gold to fish. Colombia, on the other hand, is already a significant oil exporter. And in recent years the country has caused the curve of its oil production to turn sharply upward – it produced about 760,000 barrels a day in 2010, and production is increasing at about 10% annually. And Chile is a world leader in copper.

Each of the three countries is larger than any country in the European Union (EU), but their total population is relatively modest at 92 million. Total GDP was $528 million in 2009, but growth is rapid: Colombia grew at 4.4% in 2010, Chile at 5.1% and Peru at an extraordinary 8.7%. While all three countries have excellent relations with the United States (Chile has a free-trade agreement and Colombia has negotiated one subject to ratification by the U.S. Congress).

Also worth noting: China is active as an investor in all three countries, especially Peru.

The real secret to the success of these three countries is that they are competently run and have kept their public sectors under control. Chile, for example, has a public sector (as a share of GDP) that’s about half the size of Brazil.

The big question for investors is whether the countries’ free-market orientation will be maintained. The outlook is the most solid in Chile, where the social democrat government that left office in March 2010 was quite market oriented, and the new government of President Sebastian Piñera is even more so.

In Colombia, a free-market government led by Alvaro Uribe has been replaced by another free market government led by Juan Manuel Santos, in office until 2014.

In Peru, the outlook was cloudy at the time of the last election in 2006. But the prosperity that the country has seen since then has improved matters. Three of the four leading candidates for the April 2011 presidential election are free market in outlook; should one of these candidates win, the collaboration with Colombia and Chile can be expected to continue.

The main gain for the three countries from working together is the ability to achieve economic scale.

Combined, Colombia, Chile and Peru have GDP of about 1% of the world’s total, so if they can persuade investors that they really do represent a single bloc, they will attract a renewed flow of both direct investment by big companies and portfolio investments by the largest institutions.

The stock market merger that I outlined above is the first – and easiest – way for them to cooperate. And it should bring in a flood of new money once it’s completed.

Source: Martin Hutchinson

To counter deflation’s bad effects, and to stimulate the economy – the US plans to spend billions of dollars over the next few years.

Since, the US runs a large deficit, it can finance this stimulus in only two ways:
1. Issuing Debt
2. Printing Money

As the global recession tightens its grips on countries across the world, the appetite for US debt is getting smaller. The yields on US government debt are already at all time lows, and then there is the small matter of – the stimulus that other countries need.

Countries like China, India, Japan, Russia etc. also need to stimulate their domestic economies. They plan to do this by using their dollar reserves, and buying more debt at this time is hardly feasible.

The other option for US to finance this debt is by printing money. Many countries ranging from Germany to Argentina to Zimbabwe have already done this throughout the history of the world. While, you may not see a 100 billion dollar US banknote, inflation is the natural consequence of printing money or quantitative easing and is unavoidable in the current circumstances.

Domestic Inflation effectively reduces the ability of American consumers to buy Chinese goods, Russian oil and Indian software, among other things. As prices rise, people can afford lesser goods and services.

More importantly, domestic inflation reduces the ability of the Chinese, Indian and Russian exporters to sell their stuff to US, and keep their own domestic economy going.

Inflate or Die

Faced with the increased supply of dollars in the market, other countries have two options:

1. Let the values of their own currencies rise, relative to the dollar.
2. Print more domestic currency to match the depreciating dollar.

If the central bankers allow their domestic currencies to rise, then many exporters will lose their competitive edge, and ultimately shut shop.

What if they let the dollar fall?

Developed countries like Canada who are also major exporters to the US can in fact, let the dollar fall, and allow their domestic currencies to rise. This will contain inflation, although it will impact exports, and slow the growth of their economy. Since, Canada is already a developed and rich country – it can allow that.

Countries in the developing world can’t allow a hit on their growth – because that will have severe social and political consequences.

So, there you have it, inflation export – from one country to another – due to the tightly integrated financial markets, and the reserve currency of these markets – dollar.

Source: OneMint

This reminds me of the valuations being assigned to Internet companies leading up to the “dot.bomb” crash. There’s no way a company that relies on nothing more than bits of information – the vast majority of which are summarily ignored by the community that supposedly finds it so compelling – should have a valuation approaching The Walt Disney Co. (NYSE: DIS), equal to The Boeing Co. (NYSE: BA), and greater than Time Warner Inc. (NYSE: TWX).

Still, for the sake of argument, let’s play along and suppose that the $500 million capital infusion is for real and that the $50 billion valuation it implies is correct. Then the question becomes: What does the transaction say about Goldman Sachs, which arranged the deal, and the regulators supposedly overseeing it?

Nothing good that’s for sure.

The way I understand the deal is structured, Digital Sky is investing $50 million and Goldman is investing $450 million for a stake in Facebook that they plan to package and resell to investors. That makes Goldman a principal in the deal, which means in very plain terms that they can no longer claim any obligation to the investor (their customer) who bought the other side. It’s important to keep that in mind.

Now let’s move on to the valuation.

I wonder exactly what the Russians are getting for their money, because Facebook is still a private company, which means nothing it does is reportable.

Reports suggest that some 1/12 of the world’s population gathers together on the popular social networking site – which now ranks ahead of Google as the world’s most-trafficked Web site – and that the collection of human data that’s stored there makes Facebook the largest, self-fueled marketing database in human history.

That point is well taken.

But exactly what is Facebook going to do with all of that data? The presumption appears to be that Internet advertising is the “golden egg.” Unfortunately, that theory’s been dead – or at least passé – for years.

Even if there are products for sale, which to date is not the case, the backlash that’s building about sharing sensitive information online could kill the company overnight – $50 billion or not. Then there’s the fact that people are losing interest in the two-way drivel that at the end of the day becomes nothing more than another e-mail platform cloaked under the guise of “social media.”

Sure, Facebook has a lot of people trolling through its site, but the important question is how do they monetize that traffic? In other words, they face the same old dilemma salesmen have faced since the beginning of time: How do you convert the “tire-kickers” into buyers.

Personally, I think the more interesting aspect to this transaction is Goldman’s involvement. By helping raise $500 million, the firm is doing more than simply pocketing huge fees. Goldman is positioning itself for the eventual initial public offering (IPO), which this fund raising postpones – at least for the moment.

It would not surprise me in the least to learn that Goldman Sachs has a contractual right to be the manager of Facebook’s IPO. If that proves to be the case, it would mean Goldman has effectively fronted Facebook $450 million for the privilege of orchestrating the company’s forthcoming IPO – and then gotten its money back by selling its stake in the company off to high-end clients looking to get a piece of the social media giant.

But let’s not get ahead of ourselves.

For the moment, Facebook remains a private company and does not have to discuss anything it does – such as the costs it incurs, the mounting complaints regarding personal data, or where it spends its money. Nor does Goldman have to disclose how it’s profiting from the deal or acknowledge related trading positions it’s establishing in the process.

Speaking of which, the other thing that catches my attention when it comes to this entire matter is that Goldman reportedly wants to create another of its “special investment vehicles” – one that would allow a select few additional investors to put as much as $1.5 billion into Facebook. That would mean more fees for Goldman, while also ensuring that it keeps its “investors” outside of the Security and Exchange Commission’s (SEC) public disclosure rules.

Sound familiar?

It should, given that special investment vehicles and limited disclosure played a key role in creating the financial crisis that’s still not over and from which Main Street is still reeling. Never mind the irony that – thanks to a taxpayer funded bailout – Wall Street bonuses are bigger than ever and that it’s already back to business as usual.

All is not lost, though.

Several sources are now reporting that Facebook may already be over the 499-investor limit threshold that requires public disclosure. If this is true, Goldman and Facebook could both be dragged kicking and screaming into a hostile court of public opinion that will highlight just how stacked the deck is.

And speaking of stacked decks, let’s talk about conflicts of interest for a minute. According to the one page investment profile Goldman sent to its wealthiest clients, “GS Group may at any time further reduce its exposure to its investment in Facebook without notice to the fund or investors in the fund.”

If that’s not a conflict of interest, I don’t know what is.

This clause would allow Goldman to hedge or trade against the very same clients it’s now putting into the deal. That, in turn, means the firm can exit or burn the house down without warning!

Of course, I love the small print, which also states that the content of the offering “is not guaranteed as to accuracy or completeness.” Maybe that’s why there’s another line near the very bottom that advises potential clients: “Do not contact Facebook.”

Could you imagine investing your hard earned money into a prospective stock offering and agreeing not to talk to the issuer to do due diligence? What ever happened to the Prudent Man Test – or at the very least common sense?

Sadly, though, my guess is that Goldman will find a way to steer clear of the entire shooting match at all costs to avoid disclosing its business practices – the same way it paid a $550 million fine last year to settle charges of securities fraud related to mortgage investments.

Incidentally, the SEC was very proud of its pound of flesh and the $550 million penalty –apparently they didn’t realize that Goldman booked more than $13 billion in the process.

Source: Keith Fitz-Gerald

Thus, doing the rare earths gig is far more than basic exploration, mining and crushing. Doing rare earths correctly involves being really good in chemistry and chemical engineering as well. There’s nothing easy about it.

The big rare earths story for 2010 was how an otherwise obscure sector of the mining and processing industry became a destination point for billions of dollars of new investment. As 2010 drew to a close, we were in a market mania, in some respects, with some rare earth stocks “melting up.” The story was driven by China and its precipitous reductions in export quotas – front page news across the globe.

You may have seen the statistic that China controls about 97% of the world’s rare earths supply. Let’s not quibble about the exact number – a few fractions one way or the other. And when China ratcheted down its rare earths quotas during 2010 – part of a long-range strategic industrial policy, I must add – it shook the Western world to its industrial foundations. It’s all been a shock to the global trading system.

This shock has produced some shockingly large gains in the shares of rare earth mining companies. A lot of these stocks have become very volatile and frothy. So caution is warranted. But the rare earth story is very real and very exciting.

Don’t miss this one!

Source: Byron King

The audience snickered when she pointed to the recent lower unemployment figures as proof that reform isn’t the job killer that many have made it out to be. Although DeParle cited various facts and figures, she probably didn’t convert any opponents.

But the fact that the Affordable Care Act didn’t cause complaint from the CEOs of the companies directly impacted by it is crucial. On the contrary, they seemed to embrace it – and that’s why I believe it’s going to stick.

The Republicans can fight all they want to get it repealed, but mark my words, as long as the industry is in favor of it, reform is here to stay.

I’ve argued in the past that healthcare reform is President Obama’s legacy and he won’t back down. And perhaps most importantly, with the endorsement from the healthcare sector and the huge lobbying dollars it dishes out, members of Congress will revert to form: Listen to the money talk.

It appears that healthcare companies got what they wanted from reform, which is why they’re not complaining about it. Executives would rather deal with the devil they know rather than the unknown.

I expect some companies to emerge as big winners in the new climate of healthcare reform. Which ones?

Two Winners From Healthcare Reform… And One Trying to Sneak Around It

WellPoint (NYSE: WLP), the largest health benefits provider in the United States, is well positioned to handle both the new influx of patients and regulations. Due to reform and the expansion of Medicaid, WellPoint expects to gain 10 million new customers by 2015.

But Molina Health (NYSE: MOH) might end up as the biggest winner. The company is focused exclusively on government-sponsored healthcare for low-income families – right in the sweet spot of what reform is trying to accomplish.

In 2010, the company expects its medical loss ratio (the percentage of revenue spent on healthcare for its customers) to come in at 85.4%, above the 85% mandated threshold.

Conversely, Healthspring (NYSE: HS) sits below 85%. And rather than discuss any efforts to comply with the requirement, management instead discussed accounting tricks to get above it. Watch for the company’s future guidance on February 17… I suspect it won’t be pretty.

One other point on healthcare reform here: As part of the deal that the industry struck with the government, drug companies will pay an excise fee. However, not one executive I saw appeared annoyed about it. I wouldn’t even call it begrudging acceptance. Rather, they were pragmatic and suggested that these fees are simply part of the agreement – one that they’re satisfied with.

For example, Amgen (Nasdaq: AMGN) CEO Kevin Sharer said his company will pay a fee of $150 million to $200 million after tax. But the upside is that reform “protects innovation and sets a framework for follow-on biologics that’s fair.” In other words, in order to protect his company’ patents, he was willing to pay the fee.

And that leads me to another key theme – and the second of the big three trends that will dominate in 2011…

How to Profit From the “Patent Cliff”

The “patent cliff” situation has loomed large now for the past few years. And today, it’s finally here.

Simply put, the concept refers to the number of everyday blockbuster drugs whose patents are about to expire. As I mentioned in last week’s column, this includes Pfizer’s (NYSE: PFE) cholesterol drug, Lipitor and Merck’s (NYSE: MRK) Singulair, which tackles asthma.

The subject has been a constant topic of conversation this week – and it’s one that gives investors an excellent chance to capitalize. Understandably, though, large pharmaceutical companies like Pfizer, Merck and Bristol-Myers Squibb (NYSE: BMY) didn’t want to focus their presentations on the ominous topic.

But the fact remains that generic companies like TEVA Pharmaceuticals (Nasdaq: TEVA) and Impax Laboratories (Nasdaq: IPXL) are set to take advantage of the enormous opportunities that the patent cliff represents – and spent time at the conference discussing how their robust pipelines will facilitate that.

Source: Marc Lichtenfeld

The world energy landscape has changed with new developments in extracting natural gas from shale beds and tight sands. Innovative extraction technologies have dramatically altered the economics of natural gas extraction in North America. South Africa’s Sasol Corp., for example, is teaming up with Talisman (NYSE:TLM) to turn otherwise stranded gas into liquid fuel in northern British Columbia. It’s a truly revolutionary process – a point that The New York Times made a few days after I mentioned this joint-venture to the subscribers of Outstanding Investments.

Companies like Consol Energy (NYSE:CNX) and MarkWest Energy (NYSE:MWE) are also benefitting from US, Canadian and now global shale gas development. Even our friends the Chinese are coming to the US, to learn how we’re cracking shale for gas, so they can duplicate the effort back in the Motherland.

At the same time, the technology for freeing shale gas is finding its way into the oil patch, with companies like Venoco (NYSE:VQ) working to turn California’s Monterey Shale into a vast new oil resource. There are a lot of hydrocarbon molecules out there. The trick is to harvest them.

Forward-looking investors should not ignore the fact that shale gas development will provide enormous opportunities for the oil service guys, particularly Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).

There’s much more to come with the shale gas revolution. We’re just in the early innings on this one. There’s plenty of good investing ahead, and a lot of hydrocarbon molecules yet to be sucked out of the crust.

Source: Byron King

In a word, No!

If gold is in a bubble, then it’s one heck of a bubble. Not even the 2008, economy-wrecking market crash could pop it. Gold is not in a bubble; it’s in a big bull market, plain and simple.

As stories about quantitative easing and other forms of overt currency debasement crossed the newswires last year, investors became increasingly concerned about the value of the paper they call “wealth.” Increasingly, these concerned investors have been shifting some of their wealth from paper to gold…and other hard assets.

Plus, it’s easier than ever to “own” gold (so to speak) via the rise of exchange-traded funds (ETFs) like SPDR Gold Trust (NYSE:GLD). With a click of your mouse, you can buy into the new gold rush – although in many respects it’s better to buy real gold and take delivery, a point that I’ve made over and over.

At the same time, the world’s gold buyers are chasing declining mine output. That is, despite the rising price of gold, the world is likely past the point of Peak Gold output. All the output from new mines isn’t replacing the decline in output from older mines.

But demand is the main story in the gold market…demand for real money, not the paper kind. The monetary universe is changing in a fundamental way, with the price of gold serving as the barometer, thermometer and inclinometer. The cozy old economic order – post World War II, with the US dollar as the world’s reserve currency – is passing away, and things won’t ever go back to the long, lost “good old days.”

I’ve had endless discussions with skeptics about “why gold prices are rising.” Of course, the skeptics can deny, up and down, the meaning of rising gold prices. But at the end of the day, investors and savers around the globe are becoming increasingly fearful of holding paper currencies.

I won’t even go into the monetary problems that national governments across the world are facing with fiat currencies. Just accept the fact that mankind’s monetary default position is gold, and that’s been the case for 5,000 years or more. Don’t fight history.

Here at Agora Financial, we’ve been recommending that readers buy gold since the late 1990s, when it was selling for under $300 per ounce. We still like it at $1,375 an ounce.

When it comes to gold, there’s one key idea to take into 2011: Gold is money. And gold makes better money than the government-issued kind. The big risk of owning currency and bonds is that any Tom, Dick & Harry – OK, the politicians and bankers – can create as much of it as they want. This year and next, your biggest risk is in not understanding that concept.

Source: Byron King

The Chilean miners’ experience reminded us once again of the huge gulf between countries that work and countries that don’t. Just as the Chilean earthquake last February caused only 521 casualties compared to the 200,000 in Haiti the previous month, so the Chilean mine disaster brought together expertise from all over the world in a remarkably effective and competently managed rescue effort. It is a distinction that does not simply measure the difference between rich countries and poor countries: the 2008 Sichuan Chinese earthquake killed an estimated 90,000 people, while the Russian coal mine disaster in May killed 90 people both in countries of comparable wealth per capita to Chile.

Earthquakes are terrifying and mining is a dangerous job anywhere, but you’re much more likely to survive an earthquake or a mine disaster in some countries than in others. Indeed Chile’s performance both in the earthquake and this mine disaster was of the highest quality probably only in Germany, Scandinavia and maybe Singapore could one reliably expect public rescue services to work so effectively.

For investors, the Chilean earthquake and mine disaster experiences have an important lesson: Countries with really good management should be promoted sharply up investor league tables, for a number of reasons.

First, they are likely to enjoy better economic results. Their efficiency will use resources and labor better, there will be fewer sink-holes of value destruction in the public sector and the uncompetitive private sector and they will generally be more open to new ideas and new techniques. The mine rescue for example used people and equipment from all over the world a drill rig and drill bits from Schramm of Pennsylvania, a German-designed rescue pod and video equipment from Japan. Chile’s ability to assemble a state-of-the-art operation for a unique situation demonstrated the country’s ability to flourish in a competitive globalized market.

While there are other countries with Chile’s management capability though not many they do not have Chile’s wealth of natural resources and they generally have labor costs a substantial multiple of Chile’s. Chile has shown itself well managed under governments of both its political parties, but its current pro-business regime seems likely to be more active in removing obstacles to growth and encouraging the investment needed for it. Since it has the capabilities and resources of a much richer country, Chile seems likely to become one in pretty short order, and investors in Chile should benefit from the rapid growth that this emergence will bring.

Investors seeking exposure to the overall Chilean economy should first consider the iShares MSCI Chile Investible Market Index Fund (NYSE: ECH), which invests in the overall Chilean market index. At $500 million, this is large enough to be decently liquid and has an expense ratio of only 0.86%, very reasonable for a single country fund. Its main disadvantage, as for the Chilean market in general, is a price/earnings (P/E) ratio of 25 and a yield of only 1.1%, but you should remember that Chilean trailing earnings currently include the recession of 2009 and the difficult post-earthquake period, so even without rapid economic growth an earnings rebound would be likely.

For a higher yield, you should look at Vina Concha y Toro SA (NYSE:VCO) the country’s largest wine producer, which although trading on 21 times earnings has a dividend yield of 3.9%. Chilean wine has a quality advantage over most other producers in that the country’s remoteness allowed it to avoid the 1873 phylloxera blight, so its grapes are generally considered of exceptional quality. VCO is thus a leader in the country’s exceptional agribusiness sector, selling a product that is marketable at a premium above other commoditized wine producers.

It’s difficult to get direct exposure to Chilean mining because the dominant copper producer, Codelco, is state owned, while the smaller Chilean mining companies like the San Esteban company which owned the San Jose mine where the rescue took place have generally suffered from low investment and have sub-standard safety records. However one major participant in Chile’s mining is Freeport McMoran Copper and Gold (NYSE: FCX) which has three copper/gold mines in Chile and is investing $700 million in expansion of its El Abra project. FCX’s stock price has run up in the last few weeks, as with most mining companies, but at a 12.64 times trailing P/E ratio it remains good value.

Chile isn’t just a spice for your investment portfolio; it’s an essential ingredient!

Source: Martin Hutchinson, Money Morning

This isn’t easy to do. But when you look at it over history, a simple pattern does emerge…

Each generation, the pattern switches.

One generation gets obliterated by the stock market, knocking everyone out of stocks. Then the next generation lives through a soaring stock market.

It’s not clockwork… but it seems there’s more at work than just chance. Take a look:

If you had lived through the Great Depression – if you had lived through an entire generation where stocks lost money (17 years from 1930-1947) – would you ever consider buying stocks again?

Probably not. Yet that’s when you should have bought… Stocks rose by more than 500% in the next generation, from 1947 to 1965.

Folks who invested heavily throughout the 1970s learned you could “never” make money in stocks. You needed real assets, like real estate and gold. Boy, were they wrong in the 1980s and 1990s. Gold fell in half from its 1980 peak to 1999.

If the last investment generation ended around 1999, and if the pattern holds, then we could see stocks do poorly for something like 17 years… or until roughly 2016. That’s pretty close to what Shiller is saying.

The popular wisdom in 1999 was that you always want to be invested in stocks. Nobody wanted gold. But since the end of 1999, stocks (as measured by the S&P 500 index) are down, as I’m sure you’re well aware. Meanwhile, commodities (as measured by the CRB Index) are up over 100%.

The last generation of stock investors is still holding some love for stocks. And they’re still a bit afraid to commit to commodities like gold. But they will. History suggests they’ll have given up on stocks and be fully loaded in commodities… by 2016.

Looking at the last time we were in a similar cycle, I have two important points to share with you…

1) The March 2009 bottom may be the ultimate bottom in stocks, not 2016. In the last great bear market (’65-’81), the ultimate bottom was in 1974, not ’81. Investors spent the next few years giving up on stocks and looking to “the action” in commodities.

2) Commodity prices could go “parabolic” in the coming years. They did in the late 1970s, at the very end of their bull market. It’s what happens at the end of great bull markets. It’s just like stocks in the late 1990s – they “went parabolic” at the end of their bull market.

So there is some good news…

Commodities could go parabolic from here. And stocks may have already bottomed. So even though it could be years (until roughly 2016) before another rip-roaring bull market in stocks arrives, we may have seen the lows for this generation.

Or none of this could be true, of course… But it has worked roughly this way for the last 100 years.

Source: Dr. Steve Sjuggerud

The decline in sales growth was due to increased competition from Yahoo and Microsoft. Also, Google’s market cap was near $150 billion (it’s the 14th-largest company in the S&P 500 based on market cap). Because of its sheer size, it’s much more difficult to grow sales at the 50%-plus rate management was used to seeing.

Still, the company has $30 billion in cash – about $100 a share – and no debt. Revenue growth is expected to rebound to 14% annually through 2012. Also, Google remains dominant in Internet search. So despite my pessimism, I did not suggest shorting Google.

Instead, my advice was to buy Apple.

Apple is also a large-cap tech company with a huge cash hoard ($24 billion). The stock is trading at the same multiple as Google… with one major difference: Apple is expected to grow its sales by more than 27% annually through 2012. That’s about twice the rate of Google.

As you can see from the chart, shares of Apple (black line) have outperformed Google (blue line) by about 8% since my recommendation.

I am not saying this just to pat myself on the back. My point is that comparison analysis is an important tool for traders… Before you buy any stock, take a look at the company’s competitors.

Right now, Apple is the king of tech. Its recent iPad project is a huge success. When the tablet first launched in April, analysts projected sales of 2.5 million by the end of 2010. Today, one analyst predicts Apple will sell 28 million iPads by 2011.

Apple is also seeing strong sales for its new iPhone. Almost every customer buying an iPad or iPhone buys “apps,” programs that can be downloaded through Apple’s online store for a fee. This creates a steady revenue stream on top of hardware sales. The diversity among revenue streams means Apple isn’t a one-product company like Google, which is dependent on advertising revenue.

Going forward, Apple remains the better play compared to Google based on valuation and growth potential. In fact, I can’t find one tech company I’d rather own today than Apple.

Source: Frank Curzio

One of the other players coached him: “He’s trying to tell you a story with the way he’s betting. The question is, do you believe what he’s telling you?” My opponent believed me and folded. Good thing for him, too, as I had a full house!

Like a good poker player, the stock market is also telling us a story. The difference, however, is that the market is usually believable!

But here’s what many investors don’t understand: the market tells us the story of what will happen, not what has happened.

For example, my father is constantly asking me why the market was up or down on a certain day. Perhaps your family and friends do, too. But they’re missing the point.

Sure, the market sometimes responds to data or news. But it doesn’t usually react to the news. The news often reacts to the market.

Why? I’ll show you…

What Comes First… Market Behavior or News?

The point about the “market behavior in relation to news” equation resonated with me when I listened to a fascinating speech by Elliott Wave Theory expert, Bob Prechter.

In this instance, though, Prechter didn’t discuss Elliott Wave. Instead, he showed the correlation between all kinds of data and events that took place after important moves in the market.

Take wars, for example. They tend to break out when the market is bad – something that makes sense when you think about it. When the market is down, people feel poorer and are more irritable. It’s easier to get them to support a war. Plus, elected officials want to distract the public from their economic woes.

There is a precedent for this theory…

I attended Prechter’s talk in the spring of 2001, as the market was in the middle of the dotcom collapse. In March 2003, the United States invaded Iraq. At that point, the market was down 45% from the highs of March 2000. I can’t help but wonder if that war would have ever been fought if we were still in a bull market.

Bulls, Bears and Birth Rates

Bear markets also spark decreases in birth rates.

Again, it makes sense that when people are less comfortable financially, they put off new financial burdens like a child. Not to mention, financial stress makes people less amorous.

The opposite is true of bull markets. During and shortly after bull markets, the birth rate usually rises.

I was reminded of Prechter’s talk last week when news came out that the U.S. birth rate was the lowest in history.

In 2007, for example – the top of a four-year bull market – there were 14.3 babies per 1,000 of the population. That year, more babies were born in the United States than in any other year in America’s history.

But in 2009, the figure dropped to 13.5 babies born per 1,000 people. The marriage rate also decreased from 7.3 per 1,000 in 2007 to 6.8 in 2009.

Look Forward, Not Back

The fact that the stock market is a forward-looking mechanism makes me less concerned about every piece of economic news that the pundits use to justify their “next Great Depression” or “Big Bubble” theories.

Take 2008, for example. As the market plunged on the back of the financial crisis and several huge corporate meltdowns, it indicated that a nasty recession was on the way. In addition, it perhaps predicted an election victory for Obama, as he was perceived as anti-business.

But a funny thing happened. In 2009, the market rallied hard. The upward move in stocks suggested that the economy was no longer falling off a cliff. Yes, things were still tough, but the panic that many felt in late 2008 was no longer justified.

So what story is the market trying to tell us today – and how do we interpret the data?

Are You Asking the Right Question?

Currently trading around 1,050, the S&P 500 is down 16.1% from its late April high. So does it signal that a double-dip recession is headed our way?

If the index slips much further, I believe it does. However, if it can hold its current level and work its way higher, better days may be ahead.

The bottom line here is that the market predicts the country’s future economic direction, rather than news moving the market. So the next time stocks head in a certain direction, don’t ask, “What happened to make the market move?” Instead ask, “What is the market telling me is going to happen?”

Hoping your longs go up and your shorts go down.

Source: Marc Lichtenfeld

According to the World Bank, the economy of Latin America grew twice as fast as the United States last year. And it’s on track to do the same this year.

So while the United States and Europe worry over huge deficits and threats to a fragile recovery, some smart Oxford Club members have already been scoring with these winners…

125% on Panama’s Copa Holdings in 40 days…
361% on Argentina’s Mercado Libre in 7 days…
135.7% on Mexico’s Fomento Economico in 60 days…

Foreign investment in Latin America will grow to more than $100 BILLION this year.

According to the Economic Survey of Latin America 2009-2010, the leaders in growth this year are…

Brazil… with a projected gross domestic product (GDP) expansion of 7.6%…
Uruguay and Paraguay with 7%…
Argentina with 6.8%…
Peru with 6.7%…
Chile with 5%…

According to the International Monetary Fund (IMF), growth in the region is being supported by a rise in worldwide trade that benefits countries that export commodities.

Mexico is the largest oil producer in Latin America, while Brazil is the world’s biggest coffee, sugar and beef producer and a leading producer of soybeans, corn, cotton and rice.

Strong demand in Asia for commodities like iron ore, tin and gold, combined with policies in several Latin American economies that help control deficits and keep inflation low, are encouraging investment and fueling much of the growth.

Latin America’s growth largely reflects a deepening engagement with Asia, where China and other countries are also growing quickly.

In fact, China surpassed the United States last year as Brazil’s top trading partner. And is the second-largest trading partner in countries like Venezuela and Colombia.

And capital flows to emerging markets could continue to increase as faster growth and low debt make them more attractive to investors than some advanced economies.

Opportunities abound not only in commodity-based plays, but also among companies catering to Latin America’s growing wealthy population and middle class.

According to Forbes, “Latin America’s rich are expected to increase their total wealth to $10.3 TRILLION by 2012, more than double what it was in 2005.”

“The total wealth of the region’s rich will have increased at the double-digit rate of 10.8% a year, compared with a worldwide rate of 7.7%.”

The bottom line is that Latin America’s vast natural resources and growing GDP are driving the next phase of development in the region.

And savvy investors who get in now could watch their investments easily double or triple as the Latin America boom continues…

Recent growth spurts around Latin America have surpassed the expectations of many governments themselves…

Smaller countries are also growing fast…

The key to making a fortune in this age of global markets is to invest in the most rapidly growing companies of today – many of which are international companies – so you can enjoy a life of total financial independence tomorrow.

Source: Oxford Club

Lots and lots of pills: sleeping pills, anti-depressants, anti-oxidant pills. They’re everywhere. It’s big business for Big Pharma and the companies are very good at marketing their products.

Comedian Chris Rock referred to this trend, noting that drug companies keep naming symptoms until they find one that you have:

Are you sad, are you lonely, are you hot, are you cold? You gotta take this pill! And they don’t even tell you what the pill does… they just keep naming symptoms. I saw a commercial the other day that said, “Do you go to bed at night and wake up in the morning?” I got that! I’m sick, I need that pill!”

America’s big pharmaceutical companies push their drugs on the public harder than any street corner dealer – and it’s proven to be a highly effective and lucrative strategy. In 2009, for example:

• Merck (NYSE: MRK) earned $12.9 billion on sales of $27.4 billion.
• Pfizer (NYSE: PFE) earned $8.6 billion on revenue of $50 billion.
• Novartis (NYSE: NVS) earned $10.3 billion on sales of $44.3 billion.

The Clock is Ticking

There’s a huge problem looming for these mammoth pharmaceutical companies.

Starting as soon as next year, many blockbuster drugs will lose their patent exclusivity, which will open the floodgates to generic drug competition.

Pfizer’s massive Lipitor drug is one of them. Bad news, considering it generated $11 billion in sales last year. Another $3 billion worth of drugs will also go generic next year.

And it gets worse in 2012. Over $30 billion worth of brand-name drugs will face cheaper competition. That includes Merck’s Singulair, Pfizer’s Viagra and Forrest Labs’ (NYSE: FRX) Lexapro.

So what are the Big Pharma firms doing about it?

Biotechs on the Buyout Block

The executives at these drug giants aren’t sitting around, sipping Cognac and reminiscing about the glory days. They’re busy building up their drug pipelines by partnering with other companies. In some cases, they’re acquiring them outright.

And not all the objects of their affection are tiny biotechs that require a roll of the dice and a large tolerance for risk.

Already, we’ve seen Roche buy major biotech firm, Genentech. And another big biotech, Genzyme (Nasdaq: GENZ), is reportedly a target of Sanofi-Aventis (NYSE: SNY). GlaxoSmithKline (NYSE: GSK) and Johnson & Johnson (NYSE: JNJ) are also being mentioned as possible suitors of Genzyme.

Here are a few others that could be acquired in the next 12 to 18 months.

~ Bristol Myers Squibb (NYSE: BMY): Over the past few years, this large cap drug company has been repositioning itself as a biopharma organization.

While it loses its patent exclusivity on Plavix next year, Bristol-Myers has a deep drug pipeline. Within it are some very promising cancer drugs that the firm acquired when it bought Medarex last year.

While Bristol-Myers boasts a market cap of over $42 billion, it’s still small enough and attractive enough for one of the drug giants to acquire it. Right now, it’s trading at a reasonable valuation and offers a dividend yield of over 5%.

~ Biogen (Nasdaq: BIIB): With a solid drug pipeline and a blockbuster multiple sclerosis drug in Tysabri, which doesn’t face generic competition until 2015, Biogen could be an attractive takeover target. Activist shareholder Carl Icahn is pushing for the company to be sold.

~ Celgene (Nasdaq: CELG): Some of the healthcare media are speculating that Celgene could be bought out, too. Many large cap pharmaceutical companies would love Celgene’s oncology portfolio, its $2.6 billion in annual sales and earnings per share of over $2. However, the stock is already trading at takeover-like valuation. It’s hard to imagine a pharmaceutical company CEO justifying paying a premium over Celgene’s current price.

~ BioMarin (Nasdaq: BMRN): If the companies I mentioned a moment ago are interested in acquiring Genzyme for its rare disease drugs, they should consider BioMarin in this area, too. BioMarin specializes in rare diseases, whose drugs command premium pricing. Additionally, BioMarin has already proven it can bring drugs to market, as it’s expected to generate nearly $400 million in sales this year and earn $0.10 per share.

Bottom Line: Many pharmaceutical and biotech stocks are cheap right now. And with demand for medicine only increasing and the potential for mergers and acquisitions in the sector heating up, now is a good time to take a look at the group.

Hoping your long go up and your shorts go down,

Source: Marc Lichtenfeld, Healthcare Specialist

The world population is rising by about 80 million people every year. We are expected to reach eight billion people in the next 15 years. That’s a lot of thirsty mouths.

In fact, the demand for water is expected to TRIPLE in the next 50 years. Just consider how much water it takes to produce many of the things we take for granted:

Product Water Needed to Produce
1 Cup of Coffee 37 gallons
1 Glass of Apple Juice 50 gallons
1 Loaf of Bread 150 gallons
1 Hamburger 634 gallons
1 Pair of Blue Jeans 1,800 gallons
1 Bushel of Wheat 5,000 gallons
1 Average Car 39,090 gallons
1 Ton of Steel 62,000 gallons
1 Day of U.S. Newsprint 300 million gallons

We see fresh water all around us, filling lakes, rivers and streams. But the amount of fresh water available to the growing population is truly miniscule.

The problem is that 97% of the water on earth is saltwater. Only 3% is fresh water — and more than two thirds of that is locked up in glaciers or buried deep underground.

That leaves only about 1% of all the water on earth readily accessible for human use!

And, in some parts of the world, the situation is even more dire. Less than 0.01% of the accessible fresh water on earth is available to the entire Middle East — with a population of 203 million!

It doesn’t take an expert to see that’s not enough water — and that those companies that can rectify that situation will make a fortune.

We simply cannot “conserve” our way out of this crisis. The only solution is to find an abundant supply of fresh water.

This is what led President John F. Kennedy to state: “If we could ever competitively — at a cheap rate — get fresh water from saltwater, that would dwarf any other scientific accomplishments.”

The Only Solution to the World’s Water Crisis Has Always Been Too Expensive… Until Now!

The original purpose for this technology was to provide inexpensive cold storage for vegetables.

In 1986 Hakken’s brother had a farm in Norway, overlooking a deep fjord. He wanted to use cold water from the sea to keep his vegetables cold. But the water would have to be pumped 100 feet uphill to the storage building.

That required a lot of energy. And all that water went right back down the hill once it circulated through the cooling unit — a big waste of energy.

But what if he could capture the energy within the force of water moving DOWN the hill… and use it to push the other column of water UP the hill?

That is exactly what Bjorn set out to do.

Thankfully, the thirst for water is not an unquenchable crisis — desalination is the answer.

There are no technology barriers to desalination (also called “desalinization”). The process is simple. We either boil seawater at low pressure and condense the steam (thermal). Or we use high pressure to push it through filtering membranes (reverse osmosis).

The problem is that both of these methods are expensive. They require HUGE amounts of energy. That’s why only about 12 billion gallons of water are desalinated annually –
less than a quarter of one percent of the global demand.

In fact, it was so expensive that China and India found it cheaper to buy water shipped from Lake Superior and Alaska… than to pull fresh water from the ocean!

If water were oil, then discovering an inexpensive way to take the salt out of seawater would be the equivalent of finding an unlimited number of Saudi Arabias. And the company I am about to tell you about has done just that!

ONE COMPANY Holds the Rights to the Technology that Has Solved the World’s Water Crisis!

This company has found a way to make desalination affordable. In fact, their innovation has lowered the cost of desalination to the point that it is CHEAPER than municipal water in some areas.

This Company is to Water What Saudi Arabia is to Oil… Saving the World Has Never Been So Profitable!

From humble beginnings on his brother’s farm, Bjorn Hakken’s invention has become a mission-critical technology in 70% of all new desalination plants (and a rapidly growing number of the 14,000 existing plants)!

This incredible device is revolutionizing the production of clean water. And with a total of 14 U.S. and international patents, they have rock-solid protection for their groundbreaking intellectual property.

Their device is perfected to operate at up to 98% efficiency — just two points away from perpetual motion!

Few machines even come close to this level of efficiency. The engine in the Honda Prius is supposed to be a major breakthrough… and it’s only 37% efficient.

By my calculations, you could make at least +257% over the next year if you invest in this company today.

Hold it longer and you are sitting on potential astronomical gains — too ridiculous to print! And this is not some wild speculation… the company holds 70% of their market and the world’s desalination capacity is about to explode.

Profit from the Rising Tide of Desalination and Make a Boatload From this Life-Saving Technology!

Source: Andy Obermueller, Chief Investment Strategist of Government-Driven Investing
More details here: My Own Portfolio

This is not only a fascinating story, it’s one of the most promising investments I can think of.

It’s a small mining outfit that is literally turning trash into treasure. I think this company is going to make a killing. Here’s why…

It has discovered an ingenious way to extract uranium from coal ash.

I didn’t even know this myself, but coal contains trace amounts of uranium. About 50 parts per million. The uranium stays in the ash after the coal is burned.

This tiny Canadian outfit claims it can extract uranium from coal ash for $35 a pound. The spot price of uranium is about $45 a pound.

So we’re looking at a fat $10 per pound profit.

Not only does it have a patented extraction process, it also has a customer: China. It has signed a deal with the China National Nuclear Corporation to extract uranium from a coal dump.

And let’s be clear: China doesn’t care what the uranium costs, only that it has access to it. China has 21 new nuclear power plants under construction. And they won’t produce a single watt without uranium.

Luckily for China, it has 2.7 billion tons of coal ash. Which means they are sitting on $5 billion of uranium that only this company can extract for them.

At a 22% profit margin of $10 per pound, that’s $1.1 billion in profits. You don’t think that will make this penny stock take off like a rocket?

The nice thing about this pick is that it already has a solid gold mining business. So that takes a lot of the risk out of this small stock. Its uranium recovery project is a bonus.

I think this stock has “10 to 1″ written all over it. It’s a true swing-for-the-fences play.

It’s trading at just under 10 cents a share. At that price you can buy a ton of the stock and have some fun.

So why not take a flyer and buy 50,000 shares?

As soon as this technology is put into the field, you’re going to see a lot of interest in this stock. If that happens, look out. You could get a split and see your 50,000 shares turn into 100,000.

Source: Andy Obermueller, Chief Investment Strategist of Fast-Track Millionaire
More details here: My Own Portfolio

It has already made my readers a ton of money and I expect it will make them plenty more going forward.

For me, the story started about 18 months ago, when I had a long conversation with one of the most inspiring businessmen I’ve ever met.

I honestly think this guy is going to change the world.

Even if he’s half right… or just 10% right… he’s going to make bucketloads of money for anyone who puts a little cash into this stock.

Now, here’s the fun part: This industry’s profits are almost guaranteed by our friends on Capitol Hill.

Congress has ordered a timetable for the production of biofuels. Cellulosic ethanol was one of them. Right now, this country produces just 6.5 million gallons. But by 2022, we need to be making 16 billion gallons a year.

Upping production from 6.5 million to 16 billion is a +246,000% increase, a compound annual growth rate of nearly +100%. And this growth is written into federal law.

That much cellulosic ethanol is going to require a huge amount of sugar. You see, instead of being made from the starch in corn, cellulosic ethanol is made from the sugar in plants.

But the energy in that sugar is out of reach without this company’s patented enzymes. So this company has a golden ticket.

Get in this company now and you could be putting cellulosic ethanol into your Ferrari before long.

Source: Andy Obermueller, Chief Investment Strategist of Fast-Track Millionaire
More details here: My Own Portfolio

This medical breakthrough stock play is one I feel really good about. Because it’s giving 50,000 people every year a fighting chance against a killer disease.

It could be a huge step forward against America’s second-leading cause of cancer death — colon cancer.

Colon cancer is serious business. About 150,000 cases are diagnosed each year and roughly 50,000 people die from it.

Everyone over 50 should be screened for the disease.

But the current test–optical colonoscopy, which inserts a camera inside the colon–is so unpleasant that only half the people who should have one actually get one.

Well now there is a much more pleasant alternative: a virtual colonoscopy. A machine scans your colon from the outside. It’s fast, accurate and pain-free.

A Blue Cross study found that virtual colonoscopies are 90% accurate. But the study stressed that radiologists need good software to get good results. And that’s exactly what this company makes.

It’s on the verge of getting FDA approval for its virtual colonoscopy tool. Regulators say they don’t need any more data, and I think approval is imminent. Could be tomorrow. The product is already being used in Europe. It should hit the U.S. market soon. We’re looking at an opportunity that could pop any day.

President Obama himself recently had a virtual colonoscopy. If the test is good enough for the commander-in-chief, it should be good enough for millions of other people.

When a critical health procedure is all of a sudden cheaper and easier-and pain free to boot-I can’t imagine demand doing anything but shooting up.

The company already pulls in nearly $30 million a year and I think it should earn $1.00 a share soon.

That could push its share price somewhere between $18 and $25. The stock currently trades below two bucks. So this could easily be another 10-bagger in the making.

Some people argue that game-changer stocks are risky. Of course they are. But so is everything else.Some people argue that game-changer stocks are risky. Of course they are. But so is everything else.

Source: Andy Obermueller, Chief Investment Strategist of Fast-Track Millionaire
More details here: My Own Portfolio

It’s been almost a decade – 2001, to be exact – since Goldman Sachs Group Inc. (NYSE: GS) economist Jim O’Neill conceived the “BRICS” acronym as a marketing vehicle that would convey the exciting investment potential of four key emerging markets (Brazil, Russia, India and China).

O’Neill is back – with a new list and a new acronym: The “CIVETS.” Given how much money investors have made from the BRICs, that suggests the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) deserve a closer look. Potentially, they may be the great growth markets of the new decade – or not!

O’Neill’s thesis is that growth is now spreading beyond the BRICs, whose stock markets have been pretty heavily explored at least by institutional investors, and that the CIVETS economies are the next chunky economies where growth seems likely and there is money to be made. Personally, I would buy Chile (nyse:ECH(ETF)) before any of them. But I suppose O’Neill would complain that the Chilean market was not big enough for the titanic wealth of Goldman Sachs!

All the BRICs would have made investors good money in the 2001-2010 time frame. Even so, I would have invested neither in Russia under Vladimir Putin, nor in Brazil until about 2006: The risks in both places were too high for the rewards. But I would have invested modestly in China as far back as 2001. And I did invest – very profitably – in India.

Like the BRICs, the CIVETS don’t offer a sure-fire recipe for investment profits. All the same, I think we’d be foolish not to look at possibilities in Colombia and Indonesia, and perhaps even Turkey, for now. And don’t forget about Vietnam, which will be very interesting when it opens further.

Source: Money Morning’s Martin Hutchinson
List of countries by real GDP growth rate
World Top10 Fastest Growing Economies Map
12 Fastest Growing Economies in 2010

World Market ETFs

Symbol Price Change 52-Wk
Mexico (EWW) 50.63 0.36% 44.37%
South Korea (EWY)48.36 1.02% 38.63%
Brazil (EWZ) 66.42 -0.76% 37.01%
Singapore (EWS) 12.02 0.54% 35.81%
Australia (EWA) 20.73 0.53% 29.91%
Israel (ISL) 14.10 -0.49% 27.95%
South Africa (EZA)57.04 -0.61% 27.28%
Canada (EWC) 26.31 -0.49% 25.75%
USA (SPY) 109.65 -0.01% 22.83%
Russia (TRF) 17.75 0.51% 21.66%
Taiwan (EWT) 12.14 0.83% 18.94%
India (IFN) 31.20 -0.64% 10.40%
China (FXI) 40.48 -0.93% 10.00%
Japan (EWJ) 9.67 0.73% 5.94%

More details here: My Own Portfolio

2. Transformation of transportation
Whether it’s natural gas for big rig trucks, hybrid and electric vehicles, high-speed rail, or improved metro transit… the way we move goods and ourselves is changing.
The Nissan Leaf and Chevy Volt are already the talk of the town, with demand expected to well outpace initial supply.
Just take a cue from Buffett, who has already purchased a major U.S. railroad and took a multi-billion-dollar stake in an up-and-coming Chinese battery maker.

3. Cities go green
The population in the developing world is booming; in the next decade, cities like Mumbai, Manila, Jakarta, Delhi, and Sao Paulo will each soon be bigger than any U.S. city. And the investment potential in green building products and clean infrastructure will be huge.

4. Nuclear power on the march
There are 439 operating reactors in the world… 59 are being built; 149 are on order or planned; 344 have been proposed.

5. Developing world leapfrogs
We’re only a few steps into the energy race.
We started lighting our streets with coal in the 1810s. Drake found oil in Pennsylvania in 1859. Edison built the first coal plant in 1882. The biggest breakthroughs haven’t even come yet.

Source: Green Chip Stocks´s Nick Hodge
More details here: My Own Portfolio

When ExxonMobil plunked down $62 billion for natural gas driller XTO, the message was clear. OPEC is no longer the only game in town. With Saudi’s oil reserves only HALF what are reported, the world needs new answers—and quickly.

One such answer lies in XTO’s natural gas drilling technology. A large measure of energy independence for the U.S. becomes possible, just from this. Not that I’m wrapping myself in that flag, you understand.

But imagine a country where we had more energy, more available and more economically friendly than we could possibly use. I’m not just talking economic “recovery” here. We’d be looking at a standard of living 60% higher, an economy expanding at 5 – 7% a year and a future that we ourselves could dictate.

Energy abundance, from multiple sources, in markets that operate quickly and efficiently, at relatively frictionless levels, will unlock untold wealth across our entire society over the next decade. But investors who “play the majors” may find themselves with less than their fair share of this newfound wealth.

If you can build a LNG ship faster or purify water or scrub gas chimneys cleaner or make the bearings for a wind turbine cheaper, you deserve our investment money because you will double it, triple it or better in the months ahead. Do you want to be Texas rich?

“You could make more money in energy investments over the next several years than in any other sector and during any other period in your lifetime.”
Source: Dr. Kent Moors (advisor to six of the world’s Top 10 oil companies)
More details here: My Own Portfolio

When Pinochet left power, his successors retained enough of his policies to ensure that Chile never built up much public spending or foreign debt. Consequently when the downturn arrived in 2008-2009, Chile had a $19 billion trust fund – saved from the proceeds of copper sales – that it was able to spend on social programs.

The bottom line: Even during this period, Chile was better run than most of Latin America.

Since 2000, a stretch during which Chile was governed by the left, economic growth had been somewhat sluggish.

This January, billionaire businessman Sebastián Piñera was elected as the new president of Chile, making him the first right-of-center leader since Pinochet. Piñera has promised to increase the pace of economic growth by freeing up regulation and cutting taxes on business. The February earthquake has slowed the implementation of more free-market policies, but has not halted it.

Chile is a major producer of agricultural products and a number of commodities, particularly copper. That’s an advantage in today’s global economy, where rapid Asian growth has raised the value of commodities worldwide.

With good management, Chile is destined for rapid growth. The current Economist estimate of 5.0% growth in 2010 and 4.7% in 2011 is almost certainly too low – and by a significant degree (especially the 2011 projection).

With a relatively small government and ample foreign-exchange reserves, the Chilean market should be an essential, albeit modest, part of any international investor’s portfolio, even at its current Price/Earnings (P/E) ratio of 19.3.

And Chile no longer stands alone.

If we take another, closer look at Latin America, we discover that Colombia is the newest convert to the school of shrewd government. The country has had a drug-and-terrorist problem for 30 years, and before that it endured a civil war.

The new president Santos was elected on June 20 with 69% of the vote. He has degrees in economics from London and an MBA from Harvard, and has promised to continue improving the security situation – understanding that he has to do so if Colombia’s appalling poverty is to be alleviated. (Poverty problems are best addressed by foreign investment in high-employment manufacturing and service sectors; this can only happen if the security situation is tolerable.)

Colombia is rich in natural resources – with oil production currently increasing rapidly – although the country also has a vibrant agricultural sector.

The Economist’s forecasters are more pessimistic about Colombia, estimating growth of only 2.4% in 2010 and 3.8% in 2011. Once again, however, those projections really appear to be low, especially if a new U.S. Congress in 2011 finally ratifies the U.S./Colombia trade treaty, signed in November 2006, and never ratified.

Colombia is still at an earlier stage than Chile in its economic development, with a per-capita GDP of $9,200 at purchasing power parity, compared with Chile’s $14,700. However, it is geographically better located, closer to major markets, and thus has considerable upside potential. There is not much we can invest in yet, but a modest purchase would seem attractive.

Source: MoneyMorning by Martin Hutchinson
More details here: My Own Portfolio

The savvy investor John Templeton seized opportunities wherever he found them. And he built his small investment shop into the renowned money management firm Templeton Investments, now part of the $27 billion investment giant Franklin Resources. Before he died, Templeton made it absolutely clear what he believed was the world’s single greatest investment opportunity: The Coming Backflow Boom.

You’ll be better prepared to profit from the new Backflow Boom when you understand where the last one was… and how he and his followers profited from it.

In the first two decades after World War II, Japan had a reputation for exporting worthless junk. It’s hard to imagine in today’s world – dominated by names like Sony, Toshiba, Canon, Honda and Matsushita – but the term “Made in Japan” used to stand for shoddy, poorly constructed goods.

But the Japanese are clever, hard-working people. Manufacturing quality gradually improved. Consumers around the world were soon buying well-made and attractively priced Japanese cars, cameras, televisions and other electronics in droves.

As a result of their phenomenal export success, the Japanese people became more and more prosperous. And then, beginning in the late 1960s – Boom! – the backflow began.

Instead of cash pouring into Japan simply for exports, money began rushing in to finance imports… and all manner of domestic goods and services.

The demand for raw materials, machinery, and consumer goods of every description skyrocketed to unbelievable heights…

And so did the share prices of those select companies in the thick of it.

Templeton foresaw that a wildly successful export nation will eventually experience a transformational Backflow Boom, as surging exports eventually create a tremendous new market for domestic goods and services.

When hundreds of billions start cascading in from overseas, it makes well-placed investors millionaires… practically overnight. In short, it’s the backflow that creates the biggest opportunity of all.

Templeton bought the best-positioned, most undervalued companies he could find – the ones that would benefit the most from the backflow – and created unparalleled wealth for shareholders

Please understand, the new Backflow Boom has little to do with Japan. What happened there is old news. I only wanted to demonstrate how the process works… and how hundreds of investors like you are about to become rich.

The Backflow Boom is only just now igniting in the world’s fastest-growing major economy: China.

The Most Astonishing Opportunity On the Planet

Everyone knows about China’s outlandish growth in exports. That’s no secret.

However, almost totally under the radar, China is transforming itself from a world-class exporter into one of the world’s biggest importers.

In short, the Backflow has begun.

And the short-term profits should be nothing less than astonishing. Yet only the best-connected investors will have any idea how to play it.

So let me show you. Consider, for example, that:

1. China already imports nearly as much as it exports. In 2009, China exported $1.2 trillion worth of goods. But it also imported $1.01 trillion worth. (I’ll bet you didn’t know that.) Understand where this mountain of cash is headed in the weeks ahead and you could make ridiculous amounts of money.

2. Vehicle imports are up 240%. Chinese consumers now buy more automobiles each year than Americans do and have become the world’s largest automobile market. And I can’t wait to tell you about a tremendous surprise coming in this sector.

3. China’s oil production is massive. (It’s currently number four in the world.) Yet it still meets only half of the country’s demand. Learn which energy importers and transporters to buy now and watch your net worth gap higher in the months ahead.

- 1/3 the world’s steel is going to China…

- One half the world’s concrete is being consumed by China…

- 50-70% of the world’s construction cranes are in use in China…

- Despite being the largest producer of grain in the world, China is about to become the largest importer of agriculture products…

- China is consuming exponential amounts of oil – more oil than every other country except the U.S.

4. You probably know that China’s environment is a mess. The rivers are dirty. I’ve been in Beijing when you can look directly at the sun through the smog and when cars drive with their headlights on… at noon! But do you know which companies are about to be awarded the big contracts to clean things up? My contacts have never failed me yet. And – unlike in the West – the contracts don’t go to the most competitive bidders. Let me show you who will be the biggest beneficiaries… so you can trade them for potential maximum short-term profits.

5. The Chinese government has allocated several trillion yuan to spend on bio-fuels and other clean energy alternatives. Money is about to hit this sector like it’s coming out of a fire hose… These are among the first companies you’ll want to buy.

6. China is already the world’s second-largest consumer of luxury goods! It buys 27.5% of all luxury goods sold worldwide. (I’ll bet you didn’t know that either.) Just wait until you see my latest play in this sector… it’s poised for an easy triple.

7. Have you visited China yet? I go to Asia on both personal and research trips many times a year. China is now the fourth-most popular tourist destination and will soon surpass France. You can make tens of thousands in Chinese tourism in the months ahead – if you know where to invest.

8. And the Chinese themselves – tens of millions of them – are now traveling abroad, too. It is estimated that 54 million tourists will vacation overseas this year. Companies now catering to them are poised to show blockbuster profit growth. Many of them will see their share prices rise several-fold in the months ahead.

9. Forget The Great Recession here at home. China’s economy is still red hot, doubling every six and a half years as it has for the past three decades. Growth like this sets the stage for phenomenal share-price growth in select companies.

10. While Americans and Europeans are singing the economic blues, consumer confidence in China is at record highs. The Chinese are rapidly buying homes, cars, computers, cell phones, appliances, financial services, and health care services. This is the heart and soul of The Coming Backflow Boom. Buy the right stocks in these sectors and you could be well on your way to earning over $165,360…

11. Most Americans are stuck in the past, complaining about China’s trade imbalance with us. Yet China recently posted a monthly trade deficit of more than $7.2 billion. You didn’t know that, either? That’s what you get for listening to the mainstream media.

12. And it’s not just trade with the U.S. China is on a shopping spree from the rest of the world, too. Its trade deficit with Korea, for example, is up 76%. Its trade deficit with Taiwan is up 79%. And its trade deficit with Japan just tripled. This is the Backflow Boom at work… and it’s happening now.

13. Credit Suisse recently reported that middle-class Chinese households saw income rise 98% over the last four years. (Compare that to the U.S. or EU) I intend to make my readers a fortune in consumer stocks there in the months ahead.

14. And here’s the kicker. Credit Suisse also reports that China’s share of global consumption will grow from 5.2% of world GDP today to a whopping 23.1% in less than ten years – $15.9 trillion! Based on 20 years in the region, I actually think that’s low.

China’s consumer market is poised to overtake the U.K. and Germany to become the world’s third largest within two years… and replace Japan as the second largest within five years.

This is good to know, of course. But it doesn’t begin to tell you where to put your money to strike it rich in The Coming Backflow Boom. To capitalize on that, you’ll need someone who knows the territory like the back of his hand.

And I haven’t even told you one of the best parts.

As you may know, China’s currency is grossly undervalued. They have been keeping it artificially low to boost exports and reinforce the domestic market. But now that imports will soon exceed exports, this is no longer such a benefit.

China’s currency will almost certainly rise in the months ahead. In fact, Chinese officials have already stated this will happen. And that will take the value of your China holdings higher still.

Source: Keith Fitz-Gerald
More details here: My Own Portfolio

The key to the world’s energy needs for the next 50 years…
Lies under a windswept sea of sand 50 times drier than Death Valley…

Here, on an arid plain in South America, you’ll find millions of tons of a rare element. One that’s capable of replacing 148 billion barrels of oil worth $10.4 trillion… Or more.

This wonder element has become the most sought-after – and fought-over – commodity on the planet.

All the biggest oil-consuming countries are scrambling, shoving each other out of the way to claim their stake. Including the U.S. government.

The riches buried in this harsh land could create 3 TIMES the wealth oil will produce in the next five years… even after oil shoots back to $147 a barrel!

Over the next ten years, this mother lode could generate 6 TIMES the money oil will produce… even if oil passes the $200 landmark.

As I write, a critical battle has broken out across the globe to gain control of as much of this precious resource as humanly possible.

A Worldwide Battle to Control This Wonder Substance

From the Australian Outback to the wilds of northern Tibet… from deep in the vast deserts of Nevada to the arid flats of South America…

The world’s biggest players are wasting no time staking their claims to control the Third Element. Just look at the first steps being taken in this race:

And these are just the opening moves.

Limited Supply vs. Unlimited Demand…

Projected demand for this wonder fuel already exceeds production… by 16 times.
Meridian International Research says annual worldwide global demand could explode 6 times more than current production.
And all this is happening as exploding demand has the potential to drive prices up 100% in 12 short months… and very likely over 400% in the next 36 months.

The Mad Rush for the Third Element

It’s used in everything from medicines to nuclear bombs.
It’s the lightest metal in the universe.
Its extreme flammability makes it one of the most compact and powerful fuels.
And as with oil, there’s not enough of it to go around.
You see, this element is found only in certain places on earth. And its location and form can make it extremely costly to mine and refine.

I’m talking about lithium… the third element on the periodic table.
Until recently, lithium was a minor commodity used in glass and mood stabilizing drugs.
But then along came lithium-ion batteries.
Suddenly, lithium demand went through the roof!

As Forbes magazine noted last year…

When Blackberries and iPods exploded on the scene, demand for lithium carbonate – the refined form used in batteries – doubled from 2003 to 2007.

Lithium’s ultra-light weight and volatility make it the perfect fuel for powering batteries of every size. Lithium-ion batteries are lighter, smaller, and pack more power than conventional batteries. So they’re perfect for cell phones and laptops.

The Electric Car Revolution… Starts Now

What happened to lithium demand with consumer electronics is nothing compared to what’s about to happen in 2010…
he gas engine made petroleum the world’s biggest commodity. The electric car could do the same for the third element.

There’s little doubt that lithium is about to become the “next oil.” And fast.
It’s already on track to replace up to 148 billion barrels of oil or more.

While countless major automakers are tailoring future fleets based on lithium-powered motors, no automaker is betting more on lithium than General Motors.

GM is counting on lithium-ion batteries to power its new electric hybrid car, the Chevy Volt, starting in 2010.

And nothing less than GM’s rebirth as a company is at stake.

The Volt’s battery pack delivers three times as much energy per pound as the nickel-metal-based batteries in the Japanese hybrids. They are so advanced, they have their own computer controls and heating and cooling equipment.

But here’s what will really get OPEC’s attention…
The Volt will cruise for up to 40 miles without touching even a drop of gas>. Now, that 40 mile range is no coincidence – it’s the average distance 75% of Americans travel on their daily commute.

After 40 miles, an on-board internal combustion engine recharges the batteries. It’s expected to get 230 mpg in the city and give the Volt a 640-mile range on a single tank.
In short, the Volt will average approximately 100 miles per gallon of gas.

Every Automaker Will Soon Need Lithium

Starting this year, every automaker on the planet will begin flooding the market with electric-powered cars…

So, which are the best Lithium companies in the world to take advantage of this opportunity?

Source: Money Map Report
More details here: My Own Portfolio

Simply put, this theory states that global oil production will hit a maximum (peak) level before declining.

When oil prices hit a record high of $147 a barrel in July 2008, the focus increasingly turned towards the supply-demand equation and “peak oil” topic. Reaching a consensus, however, is much trickier. Some economists believe oil production has already hit its peak, with reserves now declining; others disagree, arguing that there are untapped oil resources. And some say it’s hard to tell for sure.

But David Fessler wants to introduce you to a new concept: “Peak Energy.”

Using the oil market as a foundation, David expands it and takes an overarching approach to the entire energy sector – one that he says holds unprecedented investment opportunities.

His argument? That the critical energy, energy infrastructure and energy technology sectors are all increasingly interconnected. And the end goal, he says, should be for them to come together to find the alternative energy solutions that will wean the world off its dependence on fossil fuels like oil.

You’ll hear much more about David’s “peak energy” thoughts in the days and weeks ahead, as he prepares to launch a new energy sector advisory service.

(This must be why we haven’t seen David for months – he’s been hibernating in his rural Pennsylvania compound, busily refining the service for the public.)

For now, though, David explores the rise of the oil market and its critical contribution to the human race… and why our over-dependence on this dwindling resource now poses huge problems in terms of cost and the environment.

Can we get more oil? Should we get more? And what are the solutions for breaking oil’s stranglehold on the world? David has the scoop below…

Kiss Goodbye to the “Age of Oil”… And Profit From a New World Energy Order

Picture the scene: It’s 1856 and the Industrial Revolution is just getting underway in the United States.

As America ratchets up its manufacturing and innovation and grows into a vibrant industrial hub, the driving force behind this growth is the greatest energy windfall in the history of the world…

The discovery and commercialization of oil.

Quite simply, it’s a time that heralds the “Age of Oil.” A new energy era.

Flash forward to 2010: We’re still relying mostly on oil to satisfy our energy demands. But the end of the “Age of Oil” is on the horizon and the world faces major energy problems. Supply. Demand. Cost. The environment. The list goes on.

These problems affect the prosperity of countries and people around the world.

That’s because when it comes to economic growth and the future of mankind, there is nothing more precious – and more crucial – than cheap energy.

Right now, however, this is a huge challenge. But for smart investors, this new world energy order holds some tremendous potential gains. It’s why I follow this critical sector – and why I’m about to launch an advisory service devoted exclusively to “peak energy.”

The crux of the energy issue centers on oil…

Cheap for 154 Years… and Now Dwindling

For the past 154 years, oil has provided one of the cheapest sources of energy that mankind has ever had. For the bulk of that period, we’ve never worried about supply, as it seemed endless and there were no other big users.

But we know fossil fuels aren’t infinite in supply. Some fear the oil peak has already passed and that reserves are dwindling. And with many more oil consumers – including China, India and other emerging nations – it’s now a battle to grab the existing oil.

Trouble is… it’s harder and more expensive to find, extract, and produce. Oil companies are struggling to meet the increasing demand.

We Want More Oil… But Can We Get It? Should We Get It?

Many politicians and industrialists scoff at the idea that we’re running out of oil. They argue that we just need to increase our exploration, drill more wells and extract more oil.

As an engineer, you won’t get an argument from me that new technology will help raise the recovery rates from existing fields and new ones when we find them. So, too, will more drilling, more pipelines and more storage terminals.

But in the end, it’s like increasing the dose of radiation for a terminal cancer patient. He might feel better for a while, but in the end, he’s still going to die.

Denial is the easiest way to dismiss the problem. Kicking the can down the road, as the cliché goes. But the bottom line is that oil is a finite resource. And those who say we aren’t running out are kidding themselves.

30 Years and $7 Trillion Later…

Of course, so-called “rogue nations” own a big chunk of what’s left – nations who see the United States as an oil addict, willing to pay anything to satisfy its “fix.” (After all, America is the world’s biggest oil consumer, blowing through one-quarter of the world’s 85 million barrel per day usage.)

And that addiction has come at a staggering cost. Over the past 30 years, the United States has spent over $7 trillion on imported oil.

Until 1970, we didn’t have to worry about our dependence on foreign oil. We only imported 25%. But now the figure is roughly 65% – and rising. In fact, we’re on track to spend $10 trillion more on imports in less than a decade, unless something is done.

The China Model

It didn’t take China long to figure out the energy equation. Its government-controlled oil companies have been quietly traversing the globe, acquiring as much oil as possible. They have to.

Between 2003 and 2009, China’s oil consumption has nearly doubled. It’s now the world’s second-highest oil consumer.

What’s more, if China’s current growth rate continues, it will consume the world’s available oil capacity by 2030.

So what are the options available for breaking away from oil’s stranglehold?

Piecing Together the Energy Puzzle

Ed Ayres, the Editorial Director of the World Watch Institute, articulates the problem best: “We face something so outside of our collective experience that we don’t really see it, even in the face of overwhelming evidence.”

The answer to the problem is really plural. There are several answers. Simply trading in your gas-guzzling Hummer for a Prius is a small step in the right direction, though not really enough.

And while it certainly involves ramping up alternative energy resources like solar, wind, geothermal and tidal, they can’t be increased quickly enough to make up the difference.

My answer: Taking advantage of our wealth of natural gas by converting as much of our transportation sector to run on it as possible.

Other options include increasing offshore U.S. oil and gas exploration, plus boosting clean coal technology.

It’s like completing a jigsaw puzzle. Find the right pieces, then slot them together one at a time. It must be done.

My Passion = Your Gain

In his book, The Long Emergency, James Kunstler writes: “The human race living off the draw-down of non-renewable fossil fuel resources is the equivalent of algae in a pond enjoying a temporary rush of nutrients in one brief session.”

Does Mr. Kunstler have a point, or are we just too entrenched in the politics of “Big Oil?” While there’s little doubt that we’re too addicted to fossil fuels, is ending our dependence on foreign oil a realistic possibility?

It’s interesting to note that after oil prices hit $147, renewable alternatives like geothermal, solar, wind and others burst onto the energy stage and quickly gained traction. But as their ups and downs prove, the transition won’t happen overnight.

We have to wean ourselves off foreign oil. I’m confident it will happen. But challenges and concerns litter the path to global energy resource-sustainability. And the socio-economic implications are unprecedented.

So, too, are the investment opportunities.

The energy sector promises to be the place to invest for decades to come. And next week, I’ll show you how to take advantage of these opportunities.

Good investing,
David Fessler

* Just over a month ago, 32 million cell and Internet users were thrown into the dark, cut off from communication and business transactions. It was the second occurrence in a week
* Just a few days earlier, hundreds of thousands of iPhone users in Great Britain were left in the dark for the third time in a year.
* On October 2nd, nearly 1 million T-Mobile Sidekick users lost all of their personal data – business contacts, appointments, addresses – everything. Outraged customers filed class action lawsuits just two days later – adding to a long list.
* And on January 29, 2010, Google Nexus One users nationwide also lost all of their data after being left in the dark for more than eight hours. No explanation was ever given.

Beyond the outrage and the lawsuits, every crash costs America millions of dollars – with potential losses in the billions…

According to the executive director of Enisa, one of the top network and security agencies in the world, the next “digital 911” could equal the cost of the U.K. banking crisis.

And the telecoms have little choice but to spend. A lot. Every time they try and limit access or bandwith to their customers, they get hammered by the United States courts.

Comcast was sued by 4 towns in Michigan after it was caught delaying transfers of large media files and limiting the amount of data users can download.

AT&T customers filed a class-action lawsuit after experiencing slow connections when the company began “capping” its lines.

80,000 HughesNet customers in California filed a class action suit after being throttled below dial-up speeds for exceeding download caps.

RadioShack and AT&T Mobility were hit with a class action lawsuit after hitting unwitting customers with fees over $5,000 each for exceeding usage limits.

And the problem is only getting bigger.

Bottom line: The most sophisticated information technologies are just so much scrap if they can’t transmit information.

And whether the device is a smartphone, PC, laptop, cell phone or HDTV… whether the connection is wireless or cable… it must have one thing to carry all this data… Optical fiber.

One company that provides it is sitting in the catbird’s seat. Its newly developed fiber is a major breakthrough, and companies are scrambling to install it.

Which company I am talking about?

In case you’re not familiar with it, the 13F is a disclosure document that the U.S. Securities and Exchange Commission (SEC) requires institutional-investment managers to file when they hold $100 million or more of certain U.S.-listed stocks.

China’s $300 billion sovereign wealth fund (SWF) – the China Investment Corp. (CIC) – just filed its first-ever 13F with the SEC, revealing that it purchased about $9.6 billion worth of U.S. stocks last year.

And it confirms much of what we’ve been telling you since the global financial crisis began – namely that China would take advantage of the crisis by purchasing beaten-down stocks, resources, and hard assets … and in a big way.

Even more important, this filing hints at what China is likely to do next – an insight that will help investors figure out where to put their money in order to maximize their personal profits.

CIC holds 84 securities, according to its 13F filing. What’s more, it shows there was significant buying throughout 2009 – with a special focus on Exchange-Traded Funds (ETFs), which now account for 25% of CIC’s self-invested U.S. shares.

The fund began 2009 with a mere $297.5 million in assets, and ramped up its investment activities during last year’s third quarter, when global securities prices were especially appealing. CIC ended the year with total U.S. stock holdings worth $9.63 billion – a staggering 3,136% increase.

CIC disclosed stakes, mostly small, in more than 60 companies, including:

* $498 million in the U.S.-traded stock of Brazilian miner Vale SA (NYSE ADR: VALE).
* $333 million in Visa.
* $29.8 million in Citigroup.
* $19.9 million in Bank of America Corp. (NYSE: BAC).
* $14.7 million in American International Group Inc. (NYSE: AIG).
* $9 million in Coca Cola.
* $6.3 million in Apple.
* $4.1 million in News Corp. (Nasdaq: NWSA).
* $1 million in Canada-based Research in Motion Ltd. (Nasdaq: RIMM).

“It looks like they are aware of their market power in commodity markets and want to hedge against the impact their buying has on commodity prices,” Timothy Condon, chief Asian economist with ING Groep NV told Bloomberg. “I think the reserves, via the CIC, will be used to hedge the risk of a cutoff of key raw material supplies by buying stakes in commodity producers.”

Finally, CIC made sure to mix in a healthy exposure to markets outside the United States. That includes stakes in the iShares Emerging Markets Index (NYSE: EEM), iShares MSCI Japan Index (NYSE EWJ), and the iShares MSCI EAFE Index Fund (NYSE: EFA).

In addition to these holdings CIC has reported stakes exceeding $6 billion in several Hong Kong- and London-listed equities, as well as the debt of Malaysian and Indonesian coal companies. The sovereign wealth fund also has been buying stakes in Australia’s biggest banks. CIC last fall paid $646 million for a stake in Noble Group – a diversified commodities company based in Hong Kong.

CIC will likely broaden its investments in emerging markets this year, particularly in Brazil and Russia where it has made some initial contacts and where opportunities are plentiful, Lou Jiwei, the sovereign wealth fund’s chairman, said in January.

“Emerging markets no longer rely on capital from the outside,” he said. “Emerging markets are key for stabilizing the world economy.”

Source: Bloomberg

This technique is simple, but it requires months of training and dedication to master. The trouble is, it goes against our basic emotional conditioning. Don’t worry if you don’t get it immediately. Keep practicing…

So what’s the secret?

The amateur thinks winning in the market is about predicting the future. The amateur buys some shares and hopes the market rises. He has no idea what to do if something unexpected happens. He wings it completely and ends up trading with his emotions. There’s nothing more destructive to wealth than emotional trading.

The market is a game of probability. It has nothing to do with predicting the future. When you treat the market as a game of probability, money management becomes your most important weapon. What I mean is, the stocks you buy become far less important than the position size you use and the decisions you make after you pull the trigger.

This is the secret to beating the stock market. Maybe one speculator in 1,000 knows this. Until you realize this, you have hardly any chance of making money in the market. It boils down into three easy rules…

Trading Rule No. 1: Risk a constant amount of capital in each trade… and keep it small.

Most investors put more money into their favorite ideas than they put into their least favorite ideas. They have no system for figuring out bet size.

Skillful traders know they can’t read the future, so they give every bet the same chance. They make thousands of small but profitable trades and accumulate their fortunes slowly but surely. The key is to keep your bets small and constant by putting, say, 2% of your total trading capital in each trade.

Trading Rule No. 2: Cut your losses. You are trading against some of the world’s smartest people, armed with incredible research budgets and advanced supercomputers. They don’t trade as a side job or as a hobby. These people live, eat, and sleep the market.

The market is a hostile place. It’s like a medieval army trying to get into your castle day and night. Your stop losses are the castle gates. A position without a protective stop loss is like an open gate. You’re letting the army pour in and take your gold.

To control your losses, use a stop loss. This way you know exactly how much money you stand to lose if your stock falls, before you’ve even entered the trade. The stop loss applies at all times and can never be overridden.

Trading Rule No. 3: If your trading idea shows a profit, add to your position. If it keeps rising, add more. For example, begin your investment with a purchase of $2,000. Once your stock is up Y%, invest another $2,000. Then, once your stock is up Z%, invest another $2,000, for a total cash investment of $6,000. Decide what Y and Z are before you enter the trade. Write them down so there’s no confusion.

I have a mantra that captures the essence of this secret. We call it “doing more of what’s working and less of what’s not.” This mantra drives every decision we make.

By using these three simple money management techniques… that is, push your profits, cut your losses, and keep your positions small and constant… you can beat the market, too. You won’t win every trade, but in the long run, you’ll generate a positive return in your trading account.

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* Google stands to lose anywhere from $400 million to $600 million in annual revenue, as well as a considerable foothold in the world’s largest and fastest growing Internet community.

* Chinese netizens lose access to a search engine that is vital to the free transportation of online information.

* China’s online market loses the innovation and competition that is unique to one of the world’s most dynamic companies.

* And Beijing has been robbed of the illusion that it has enough economic muscle to strong arm the West into playing by its rules.

This whole conflict is very interesting because, up until this point, the government has blithely assumed it’s in control of everything and that its markets would be so powerful that everyone who participates in it would fall in line. This may be the first real chink in Beijing’s armor.

Indeed, China’s central government is guilty of miscalculation. It thought that by putting down roots in China, Google was agreeing to accommodate Beijing’s loose interpretation of privacy and human rights in exchange for a chance to profit from the country’s 338 million Internet users.

Google and Chinese officials have clashed over content and privacy issues since the company launched Google.cn in 2005. Even as critics and human rights groups blasted Google for agreeing to censor information Beijing deemed too sensitive, Chinese officials chastised the company for granting access to “pornographic” information.

But Google’s recent discovery – that China targeted at least 20 overseas firms and hacked into the e-mail accounts of at least two human rights activists – was the final straw.

Fed up with China’s censorship demands and its widespread cyber-espionage, Google has alerted U.S. intelligence officials to China’s intrusions, begun un-censoring its content, and finally indicated that it is ready pack up and leave China.

“These attacks and the surveillance they have uncovered – combined with the attempts over the past year to further limit free speech on the web – have led us to conclude that we should review the feasibility of our business operations in China,” Google Senior Vice President David Drummond said on the company’s blog.

“We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all,” he added. “We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.”

Google’s investigation provoked a response from U.S. Secretary of State Hillary Clinton, who said the allegations “raise very serious concerns and questions.”

“We look to the Chinese government for an explanation,” Clinton said.

However, Beijing may not be so forthcoming with a response to Google’s allegations or the company’s plans to possibly leave the Chinese market. The government has said only that it would look into the matter and has leaned on news outlets to play down their coverage.

Translations of the Google blogpost have been obliterated from Chinese Web sites, as have public discussion boards that centered around the Google missive.

An editorial running on the state-owned People’s Daily Web site compared Google to a “spoiled child” and said that even if the search giant left China it would eventually return because of the importance of the Chinese market. And a separate report in Xinhua echoed that sentiment.

“It will not make any difference to the government if Google quits China, however Google will suffer a huge economic loss from leaving the Chinese market,” Guo Ke, a professor on mass communication from Shanghai International Studies University, told Xinhua. “Chinese Internet users are the real victims if Google quits China. I think Google is just playing cat and mouse, and trying to use netizens’ anger or disappointment as leverage.”

Unfortunately Guo’s opinion – while indicative of what many Chinese policymakers believe – is terribly misguided.

For one thing, the amount of money Google earns from China pales next to the revenue it earns elsewhere.

Dan Brody, who set up Google’s China office and who now runs an Internet media investment firm called Koolanoo Group, told The Washington Post that Google has about $300 million to $400 million in revenue in China. Other analysts peg the figure closer to $600 million. That may sound like a lot, but it’s really just a drop in the bucket for a company that earns $22 billion in global revenue and just launched a smartphone to rival Apple Inc.’s (Nasdaq: AAPL) iPhone.

More importantly, though, no amount of money Google makes in China could ever be worth its credibility.

“From a business and moral perspective, user trust in the West is so important to them,” Brody said.

The big winner if Google leaves China will be Baidu Inc. (ADR Nasdaq: BIDU) – China’s homegrown Internet search leader. The domestic giant already has a commanding 58.4% of the Chinese market, versus 35.6% for the No. 2 Google, according to Beijing-based research firm Analysys International.

Other Web portals like Sohu.com Inc. (Nasdaq ADR: SOHU) and Netease.com Inc. (Nasdaq ADR: NTES) will benefit, too, but Google’s departure really just paves the way for Baidu to dominate the Chinese market.

Google’s “influence on the Chinese Internet industry goes far beyond its role as a search engine, mostly thanks to its strong power of innovation,” said Lu. “The existence of Google in the Chinese market was always regarded as a motivation of Chinese Internet ventures’ efforts to innovate. Without Google, such innovation… would be gone.”

Shares of Google fell $3.39, or 0.57%, yesterday (Wednesday) to close at $587.09. Meanwhile, shares of Baidu surged $52.99, or 13.71%, to close at $439.48.

Source: money morning