On the financial services side, Singapore is fast becoming Asia's offshore financial center. Assets under management in the country's private banking industry are growing at rates of up to 30%. In a recent Barron's article, Justin Ong, a partner at PricewaterhouseCoopers, notes that China is creating 30,000 new millionaires every year, with India, Indonesia, and Taiwan not far behind. This newly minted group of millionaires is attracted to Singapore's low rate of corruption, rigorous legal system, and secrecy laws that are now considered stricter than even Swiss laws.
]]>The Democrats must capture only 22 ECVs from the remaining 16 in-play states to win the presidential brass ring. From the 16 in-play states (states that split ECVs over the last four elections), the ones that count the most are Florida (27 ECVs), Ohio (20), Georgia (15), Tennessee (11), Missouri (11), and Arizona (10). If recent presidential election math runs true to course during the 2008 election and the GOP and the Democrats snare the normal 135 and 248 ECVs, respectively, from the in-the-bag states, the Democrats need only Florida to move into the White House. The Democrats last won Florida in 1996. But even if they lose Florida, the Democrats could take the White House by instead grabbing Ohio and any one of the other states on my short list above. Some nasty math for the GOP.
]]>Manufacturing employment holds the key. If shop floors are busy, recession can be fended off. As an indicator of a still-cooking environment, I'd like to see the indicator for manufacturing hours worked per week hold above 40.7 hours. Last month, it fell by two ticks, to 41.1 from 41.3 hours. A decline below 40.7 hours to, say, 40.1 hours will usher in a broad-based U.S. recession.
]]>But the volatility in financial stocks signals the end of the credit cycle. When the credit cycle ends, banks start to clean up their balance sheets. Bad loans made during good times are written off, and the focus shifts to rebuilding capital. The actors in every credit cycle change, but the story is always the same. In the last cycle, the write-downs were on technology and telecom loans; in the previous cycle, it was emerging market debt; prior to that, commercial real estate; and in the early 1980s, energy firms were the culprits.
In the current credit cycle, structured finance is the linchpin -- think collateralized debt obligations (CDOs), asset-backed securities (ABSs), and structured investment vehicles (SIVs). The Ph.D.s on Wall Street were once again wooed by the elegance and cleverness of their own inventions -- and, of course, by the piles of cash these vehicles generated for their employers. As is often the case with this crowd, common sense and business savvy were lacking -- "simple is sophisticated" is absent in the Ph.D. finance curriculum.
]]>The Growth Fund of America should have been closed at about $100 billion. Just to take a 2% position in a new stock requires the fund to invest $4 billion. Young Research estimates that the number of stocks that the Growth Fund of America can buy without violating the fund's fundamental investment policies is 87. For a 1% position, the field of candidates moves out to only 185. After accounting for management fees and transaction costs (huge when you take a $4-billion position) the only chance the Growth Fund of America has of even matching the performance of the S&P 500 is through sheer luck.
]]>Burlington Northern (NYSE: BNI) is the only major railroad that is still reporting volume growth during the housing recession. The railroad hauls more grain products than any other railroad, including grain for ethanol, and ethanol itself. Burlington Northern is also a big mover of low-sulfur coal. The company hauls enough coal to light up 10% of the nation's homes.
Canadian Pacific (NYSE: CP) was the first transcontinental railroad in North America, and today it is the region's sixth-largest railroad by revenue. Canadian Pacific is making aggressive moves into the energy transportation business. The company has plans to lay new tracks into Alberta's oil sands processing area, and a recently announced acquisition of Dakota, Minnesota & Eastern Railroad (DM&E) will allow Canadian Pacific to build new tracks into the coalfields of Wyoming's Powder River Basin. DM&E also provides Canadian Pacific with exposure to the grain-and-ethanol transportation business.
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