The Emerging Markets Insider

Global Calming, Currency factors...

2008-11-04T21:16:37Z

Leading emerging market equity indices were broadly higher early this week. Central banks in Brazil, Russia, India and China continue to ease monetary policies and interest rate benchmarks, as well as follow suit of their Western counterparts by instituting a range of emergency relief measures, including buying shares in banks.

Although the US dollar continues to appreciate as investment funds are repatriated and US and foreign investors seek a safe haven in the dollar and short-term government securities, international financial conditions appear to be stabilizing, at least temporarily, which is good news and a welcome respite.

China's Shanghai Composite Index ended the day 0.5% lower Monday at 1719.77 over worries about slowing earnings growth in the face of economic contraction in key export markets even as the Chinese central bank lowered its one-year lending and deposit rates by 27 basis points (0.27%)--its third cut in six weeks.

And, even though Hong Kong's Hang Seng index is overweighted with financial and property companies, the benchmark index closed up strongly, up 375.7 points, at 14344.37 after recording its worst month in history in October.

India's Sensitive Index rose 5% Monday morning after the Reserve Bank cut interest rates and reserve requirements over the weekend with banking stocks leading the way. Russian shares were trading sharply higher early Saturday in advance of a three-day holiday that began Sunday. The MICEX index was up more than 4.5% led by Gazprom, Gazprom Neft, Skerbank Russia and Federal Grid.

Brazilian banks and shares got a lift as Banco Itau announced that it will buy competitor Unibanco Holdings, which last month announced that it had a 1-billion real (the Brazil currency) exposure related to foreign exchange derivatives on behalf of clients. The transaction will result in the creation of the biggest banking group in Latin America, and spurred speculation of more mergers to come. The Bovespa index rose 2.3% to 38,115 Monday. Banco Itau's shares rose 8.7%, to 14.93 reals.

It's looking increasingly like we may have seen the worst of hedge and private equity fund de-leveraging, redemptions, the unwinding of carry trades and the flight to safety, at least for the near term. If emerging market central bankers, governments and industry leaders can build on the positive momentum, and focus on shoring up their domestic economies and financial systems without resorting to printing money, fund flows from locals rushing to make deposits in the US and elsewhere overseas, may even begin to reverse.

That and signs that leading creditor and emerging market economies have de-coupled from their counterparts in the US and Western Europe are two key signs that I will be keeping an eye on.

Jeff Manera, Editor

G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

Dollar/Yen Relationship...

2008-10-28T21:52:18Z

As the Japanese yen and US dollar continue their seemingly inexorable rise, it's becoming more and more clear just how large and diversified this market has become. The yen reached the almost unheard of level of 93 to 1 USD in early trading Tuesday while the dollar continues to appreciate against other major, and emerging, market, currencies. Even though the Yen quickly reversed from those levels, it still remains elevated relative to historic norms.

Along with share prices and property markets around the world, commodity prices-- whether it's oil, wheat, corn, sugar or metals-- have plummeted right along with them. And even though the price of gold has held up comparatively well, even that safest, most secure form of wealth, has not increased anywhere near the degree many thought it would, and should, have given the depth and seriousness of the financial crisis.

That's not to say that gold won't do well once the massive and ongoing de-leveraging and liquidations by hedge and other highly leveraged funds runs its course, a process that is progressing. Stock market and fund investors around the world are fleeing to preserve their wealth and fleeing to the safety of government guaranteed bank deposits as evidence for a sharp, prolonged and widespread recession mounts.

G7 central bankers, speaking through the US Treasury, took the extraordinary step Monday of warning forex market participants (read bank and fund forex traders) that continued appreciation of the yen poses extraordinary risks for the Japanese and global economy. Japan's prime minister called for central banks and governments to draw up new, additional emergency measures to calm and reassure financial markets' participants as the Nikkei 225 fell to its lowest level in 25 years.

Central banks haven't undertaken a coordinated policy of large-scale, prolonged currency intervention since the 1980s. It looks like they're rapidly coming to the conclusion that it's time for another round. Until the process of de-leveraging and unwinding carry trades runs its course, even coordinated forex market interventions are unlikely to achieve their aims, however.

The big economic news this week in the US will be not if, but by how much the US Federal Reserve's Open Markets Policy Committed cuts the Federal Funds rate, if this will be a second round of internationally coordinated rate cuts by central banks, and how negative Q3 US GDP will be. The Fed committee meets Tuesday and Wednesday. A 50 basis point (0.5%) cut is expected. US GDP is due out Thursday. A negative 0.5% figure is expected.

As I've suggested, a bottoming process is in the making as central bank and government emergency programs and measures begin to be put into effect. This may provide some short short-term support to both the Yen and the dollar, but as central banks intervene in the markets, but beyond that they are both vulnerable.

Jeff Manera, Editor

G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

Are the Interventions Working? Promising Signs...

2008-10-21T20:36:27Z

Conditions in interbank and short-term money markets began moving in the right direction yesterday, U.S. Federal Reserve chairman Bernanke and President Bush came in support of additional government stimulus proposed by Congressional Democrats. U.S. stocks rallied 4% as a result, though on the thinnest volumes in a month.

The Conference Board's Index of Leading Economic Indicators turned positive for the first time in five months in September. The positive economic news, along with expectations that OPEC ministers will cut announce a 1 million barrel per day cut in production when they meet Oct. 24 sent the shares of materials companies, utilities and oil and gas majors upwards.

Don't pop the champagne corks yet though. It's still early days: market experts have noted that it has typically taken a year for the effects of major financial system dislocations, and emergency relief measures, to percolate through and purge accumulated ills that have been many years in the making.

Governments around the world continue to pump money into their banking and financial systems, as well as shore up banks' capital bases, both of which, while necessary, also sow the seeds for future problems. Rapid money supply growth at a time when banks and investment companies are in the midst of a massive de-leveraging that's likely to continue for months raises the likelihood of either hyperinflation or outright deflation depending which way the winds blow through the real economy.

The Swiss National Bank wiped $60 billion of bad debts off UBS' books this past week, giving the bank what one analyst described as "one of the cleanest balance sheets in the business." UBS and its peers are likely to hoard money and capital, however, given their recent losses and uncertainty regarding the value of assets that remain on its books in order to ensure that they meet minimum national and international capital and risk management ratios.

Having received some $25 billion of capital from the US Treasury, Merrill Lynch management said as much publicly. Merrill executives were reported as saying that the firm would hold on to its new funds for at least one quarter as a cushion.

In Asia, the South Korean government decided to guarantee $100 billion in bank debts and supply lenders with $30 billion in dollars to stabilize its financial markets after ratings agencies placed Korean banks on negative watch citing lack of government support to moderate foreign-currency funding risks at Korean banks

If the real economy can hold on and avoid falling into a complete tailspin while governments' rescue plans purge banks and the financial system of toxic debt and assets the recent sell-off in equity markets is creating some attractive value-based investing opportunities.

It will take some cautious market, economy and individual company, watching, to sift through, digest and analyze all the good and bad news that will be coming out in coming weeks and months...Volatility is likely to remain high so covering your back and identifying exits beforehand are even more important.

Jeff Manera, Editor

G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

Are Currencies a Safe Haven?

2008-10-14T19:55:47Z

Stock markets around the world opened up strong and held on Monday, following a rush of news announcements over the weekend by central bankers and government finance ministers seeking to calm and reassure the global investment community and the public that they will do whatever they can to shore up banks, revive the flow of credit and protect depositors.

Rebounds in European and US equity markets followed on the heels of a rebound in Asian markets after central bankers and government finance officials made strong, reassuring statements following weekend meetings in Washington D.C. and Paris.

While governments' emergency relief measures have become crucial, don't believe for a second that we can put the financial system and credit crises behind us. While some of these efforts appear well-conceived and directed, others will prove not to be.

Today, after a bullish burst of early trading the markets faltered, with profit-taking and some normal congestion setting in after such a big run-up.

Currency Thoughts:

The devaluation of the U.S. dollar is one of the factors helping our current currency position in the G3 Global Investor portfolio. And it's also one of the reasons why I'm always watching for a good entry point in some other currencies. Some worth a look include the Aussie dollar, Euro currency, Canadian dollar and the Mexican peso.

Looking south of the US border at a currency not normally talked about actively in currency circles, the Mexican banking system is reportedly sound and the money markets functioning relatively well, even in the face of US and European bank subsidiaries drawing in their horns and money market investors in general more wary.

The big international banks are cutting back their credit lines and closing out positions, which have led to big drops in the Mexican peso, to the extent that the Mexican central bank took the rare step of intervening in the forex market to defend the currency and set up a dollar purchase program. That's reassuring and should calm those with funds in the Mexican money market.

On top of earning higher interest rate returns in the MXP money market is the fairly good prospect of the peso appreciating against the US dollar over the next three to six months and longer term.

Jeff Manera, Editor
G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

More on Who Got Away: Fuld on the Hot Seat...

2008-10-07T20:03:10Z

As financial markets opened Monday, it's looking like global financial markets, and economies, are in for a prolonged period of pain and suffering. Asian equity markets suffered sharp sell-offs that carried over to Europe and the U.S. despite passage of the US rescue plan and steps by European governments and central bankers to rescue failing financial institutions, reassure bank deposit holders by increasing deposit insurance guarantees and announcing their intention to address systemic risk, both domestically and internationally.

Stocks initially rallied in Europe and the US early Tuesday but then reversed course. The Federal Reserve early today announced that it would step in to calm and reassure buyers of commercial paper by acting as a buyer of last resort. The Fed is going to create a commercial paper purchase program outside the rescue/bailout plan approved by the US Congress on Friday.

Further boosting liquidity, a globally coordinated round of interest rate cuts looks like a certainty.

As mentioned in another context in today's Global Investor issue, Australia's central bank cut its key short term interest rate benchmark 100 basis points-- a full percentage point, to 6%, the largest cut since 1992.

Aussie shares, and the Aussie dollar, rose as a result. Countries, such as Australia's and Canada's, with a heavy natural resource export component, and their currencies and stock markets have taken a particularly severe battering as a result of the US-led financial system collapse.

This may have gone too far, too quickly so I'm looking closely at some potential trades in G3 Global Investor to bet on a reversion to the main in that currency against certain cross currencies.

Investors appear to have little faith that even coordinated central bank and government actions can avert a global recession. As reported in Monday's Flash Alert, market pundits expect central bankers to get together and enact a globally coordinated interest rate cut, as well as the continuation of massive monetary injections to boost liquidity and revive lending activity.

Nonetheless, major and emerging equity markets took significant hits Monday and resumed their downward slide Tuesday as news of more weakness in the European and US banking sectors broke.

Common Criminals

Meanwhile, the US Congress wants to get to the bottom of this mess and find out what happened that brought this crisis on, and so quickly. Lawmakers in Washington D.C. are calling financial industry executives on the carpet as investigations into the root causes of the financial system's collapse began yesterday--better late than never, I suppose.

I began to explore the issue of 'Who Got Away?' last week. Today, in the first of a planned series of investigatory hearings, Richard S. "Dick" Fuld Jr., the CEO of now defunct Lehman Bros. testified before a Congressional panel led by Rep. Harry Waxman (D-CA), chairman of the House Oversight and Government Reform Committee.

As Fuld testified, it became clear that Lehman Brothers executives, who had benefited greatly while sowing the seeds of the current crisis, were concerned about nothing and no one but themselves, even as they petitioned Congress to save the firm.

Fuld's testimony revealed that Lehman put millions of dollars into the accounts of departing executives even while pleading for a federal rescue, according to a Reuters' news report.

"Executives who feared for their bonuses in the company's last months were told not to worry," according to documents cited at a congressional hearing, Reuters reported.

This isn't the end of this story - more to come.

Jeff Manera, Editor
G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

Who's to Blame? Who Took the Money and Ran?

2008-09-30T20:15:13Z

Well, news out of the U.S. that revisions to the Bush administration's proposed $700 billion bailout plan failed to pass a vote in the House of Representatives was bad news for U.S. and overseas stock markets. As reported in our G3 Flash Alert yesterday, the Dow went into a 600-plus point freefall as news of the bailout plan's failure broke and the MSCI World Index plunged 5.9%, Brazil's Bovespa tumbled 7.1%, Russia's leading index dropped 5.5%, India's Sensitive index fell 3.8% and the MSCI Asia-Pacific index slumped 2.1%.

Today's a different story, with a dramatic broad-market rally across much of the globe in anticipation of some version of the plan passing later this week.

Negotiating a bailout
As I've been reporting in G3 Global Options issues and in my special alerts to subscribers, we need Congress to take strong, decisive action quickly to shore up confidence in the financial system and perform some form of financial 'triage' that has the capacity to revive the frozen credit markets.

Many believe that "C-level" executives and government officials who managed their organizations into this mess should be held accountable, and be penalized for doing so. The first revision to the Bush administration's bailout plan to make it to the House floor yesterday did include what was deemed "a slap on the wrist" for the wrong-doers, by one news report.

If it had passed, the revised bailout plan would have placed "reasonable" limits on severance packages going forward, for executives at banks, securities brokerages and insurance companies that benefit from the bailout program, according to an AP news report.

It also called on the financial industry to make up some of the difference if the government was unable to recoup its bailout plan investments in five years. The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits, according to an unnamed AP source.

In addition, it would have required that government bailout program administrators at least attempt to gain some relief for mortgage defaulters by renegotiating lower rates and payments so that they could keep their homes.

Where's the hanging judge?
It should be clear that the largest, most complete breakdown of the U.S. financial system since the 1930s didn't just simply happen overnight. Its roots stretch back at least to the late 1990s when financial industry influence over politicians and regulators set the stage for the establishment of a new regulatory regime, along with lax policing, prosecution and enforcement.

Changes to banking, securities and futures industry regulations opened up wide new vistas for leading banks, brokerages and insurers to double and triple the leverage on their capital bases while creating an unending stream of new, ever more complex derivatives that could be traded in relatively opaque, illiquid over-the-counter markets and on exchanges.

The trick was not to hold on any real assets for any length of time, rather to keep transaction volumes flowing, move inventory and book profits as early and as often as possible. All the while, the firms on top of this game were booking handsome profits and their executives were being richly rewarded. This game of musical chairs, fueled by loose monetary policy and lax regulatory oversight, has finally reached its nadir--well let's hope so anyway.

Making off scott-free
Needless to say, financial industry executives are none too popular at the moment. In a Sept. 25 article, Bloomberg reported that top executives at Wall Street's five biggest firms were paid more than $3 billion in the last five years to their top executives while they oversaw and managed their way to collapsing the nation's financial system.

According to the report, Merrill Lynch CEO Stanley O'Neal "earned" $172 million from 2003 to 2007 while his colleague and current CEO John Thain, including his signing bonus, raked in a mere $86 million upon joining Merrill in December. Failed Bear Stearns' CEO James Cayne earned $161 million before the "Bear" went under.

Such astronomical earnings are nothing new or particularly impressive to Treasury Secretary Henry Paulson. The former Goldman Sachs CEO received some $111 million from his former firm between 2003 and 2006!

Jeff Manera, Editor
G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

The Financial Landscape's being Reshaped - Who Wins?

2008-09-23T20:25:45Z

With the history-making, tumultuous events inspiring shocking headlines on almost a daily basis, who stands to benefit?

It's too early to say for sure, but the possibilities are out there for our consideration.

Goldman Sachs Group (GS) and Morgan Stanley (MS) may not the companies they used to be due to the new government regulations and restrictions that will now apply with their conversions to bank holding companies, but both will likely be left standing when the dust has settled - and with substantially less competition to contend with after the demise of Bear Stearns and Lehman Brothers (LEH) and pending digestion of Merrill (MER) by Bank of America (BAC). Both companies possess very strong businesses and are well placed without any competition left.

Insurance firms may be attractive for a number of reasons. First, they will likely gain a big chunk of the market now that AIG has basically disappeared - as well as directly benefiting from the reduced competition. Also they have some pretty attractive assets which may demand inflated prices. Travelers (TRV) and Chubb (CB) fit this theme well as well as some of the major life insurers such as MetLife (MET) and Prudential (PRU).

I will be digging deeper into these and may be recommending one or two of the best positioned in this week's G3 Global Options issue, but it's too early to make bets on these now as there are too many question marks outstanding. If you dip your toes into any of these players, use restraint until we know more. At the very least we should wait and see more details from the bailout being hammered out right now on the congressional floor.

All in all one thing we are certain to see in the next days and weeks will be greater transparency in the valuation of these mortgage securities both here in the US and globally. Hopefully we will have had a jump start in identifying good companies with some potentially profitable holdings.

Jeff Manera, Editor
G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

Oil...

2008-09-16T20:45:41Z

With all the financial turmoil in the equity markets, it's been easy to overlook the steady slide downward in crude oil. But it has suffered a dramatic decline.

As oil traded downward, we took some nice profits on the U.S. Oil Fund puts and oil continued to slide south. It's now trading at about $92 a barrel.

When oil was trading at nearly $150 a barrel, I was loudly suggesting -- and scoffed at by many -- that the markets were being completely manipulated and that huge price spike had little to do with supply and demand, which sounded like a wild conspiracy theory to many at the time. This has been proved to be true. Indeed, a number of reports have come out showing that one invisible entity controlled fully 15% of the oil futures on the way up -- and that at one point 85% of the bullish futures bets had nothing to do with structural trades (for example airlines or oil refiners hedging) but were purely speculative in nature by big money firms. I suspect Goldman Sachs -- who was loudly calling for $200 oil at the time -- was complicit in this manipulation.

Now that all the manipulators and speculators have slithered out of these markets, oil futures are moving straight down as they look for some kind of natural support. Another thing to consider: During the period that oil was so high it caused actual demand destruction -- some of it not so temporary. For example, airlines and the auto industry had to lay off tens of thousands of employees and airlines had to raise rates substantially -- causing many travelers to make alternative plans which they are now accustomed to. Again, some of the demand destruction may be permanent - an unintended consequence of the manipulation games being played when oil was climbing to crazy levels.

More recently, in a twist of fate, the current crisis with AIG I talk about in today's G3 Global Investor issue, has also been putting some downward pressure on oil for the past couple of days -- it has to do with AIG's insuring certain counter party risk to the futures transactions that are now less secure. That downward pressure may be temporary depending on what happens with AIG, but the forces driving crude down are likely to continue.

Where will oil bottom? How do we make money on this new trend?

Well, we made money on the way down. Now, the time is getting closer to play the other end of the equation. I'm starting to look closer at the drilling and exploration companies and the domestic oil plays with strong "proven reserves" for when demand and supply are back in sync.

Of special interest are the oil rig operators who took a hit when hurricane Ike roared into Texas. The likes of Transocean (RIG), Diamond Offshore (DO) and Noble Corp. (NE) are on my radar. I don't think it's time to buy just yet, but these stocks are worth a look.

Best wishes,

Jeff Manera
G3 Global Options
G3 Global Investor
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

Thailand - the Dangers of Cooking...

2008-09-09T20:49:00Z

I dug into the continuing Thailand mess I discussed last week - and the new developments over there are right out of a soap opera!

Update: Thailand continues to experience some significant political turmoil. In the latest twist, the country's prime minister is been ousted on the grounds that he once hosted a cooking show and accepted payment for it!

And while that sounds absolutely ridiculous, it is actually illegal for members of the Thai cabinet to accept payment from private companies. So Prime Minister Samak Sundaravej was shown the door. This has come after protestors wanting government reform have filled the streets of Bangkok and demanded Sundaravej out.

What's really behind this story: Mr. Sundaravej's protesters have been accusing Mr. Samak of being a proxy for widely loathed former Prime Minister Thaksin Shinawatra, who was ousted in an army coup in 2006 amid accusations of corruption and abuse of power.

The investment implications are intriguing. If Thaksin is removed and a more respected leader is installed, the region may become much riper for investment.

I'll keep you updated as this drama develops!

Best wishes,

Jeff Manera
G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

Will China's Growth Play out Longer?

2008-09-02T20:57:58Z

Here in the Emerging Markets Insider blog as well as in past G3 Global Options and G3 Global Investor issues I've discussed my views on China's "Olympic glow" and how it may fade following the games.

So I've continued to keep an eye on the situation, hoping such a sell-off would reap some nice oversold opportunities for us as global investors. We have already seen some weakness in those markets, but now there appears to be hope that the government will put some of its massive resources and capital reserves as an economic stimulus infusion. That would work to prevent or ease a slowdown from happening.

If this thesis of government intervention preventing economic decline proves valid and plays out in real life, industries that could benefit would include steel and iron ore as well as infrastructure and construction firms - especially those who have been badly beaten down and those who have close inroads already paved with the Chinese government.

So, with this new perspective, I've been digging through all the usual suspects in this area. We're already invested in a couple of the likely infrastructure beneficiaries in the G3 Global Options portfolio, but there are others that could even also ride this trend to recover nicely from their current share price levels.

Remember, this country is the world's largest consumer of steel, iron ore, aluminum, nickel, coal and copper, so a big bump in government spending should increase demand for commodities globally and benefit ore minors for example, such as those based in Australia, Peru and Chile.

The obvious players there include the likes of Australia's BHP Billiton and US based (but with most operations in Peru) Southern Copper Corp. (PCU). Those investments may pan out eventually, but I would buy cautiously. I don't believe they have the right fundamental to underlie a solid rally vs. some of their better-positioned peers.

I'm looking into a short list of other companies - one in Brazil and one on the China mainland, which may fit the investment bill better.

More in this week's G3 Global Options issue...

Best wishes,

Jeff Manera
G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

Russia - Investors Wait to See Where the Money Goes...

2008-08-26T20:42:48Z

As the Financial Times reported last week, Russia's foreign-reserves decline signaled the market was more nervous about investing in the region since the recent war in Georgia. As tensions with the West grew more strained by Russia's objection to the U.S. placing a missile defense in Poland, I have to add to the list of Russia's objections at Georgia's desire for NATO membership. We now have a situation that may appear to be calming on the surface, but underneath it's anything but calm.

On the subject of the reconstruction for Georgia in the aftermath of war, G7 finance ministers issued a "ready to support" statement while the U.S. Treasury released a statement, speaking in its role as a G7 member, that the U.S. is ready to help Georgia "maintain confidence in Georgia's financial system and support economic reconstruction."

There are clear winners and losers in every battle, and that goes for following the conflicts, too. I'm well aware of how the World Bank, European Bank for Reconstruction and Development, Asian Development Bank and other global-reaching investment concerns will lead the European Commission to the conclusion that Georgia's reconstruction is of vital importance for future economic growth of Central Europe and beyond, but everyone is still at the damage-assessment stage. The battle-torn nation's infrastructure -- from roadways to railways -- is badly bruised. Let's not forget the people of South Ossetia and Georgia displaced by the war.

Do such geopolitical concerns play a factor in oil price increases, when even a 1% drop in the Caspian oil supply causes concern among traders and investors? British Petroleum (BP) exported that 1% of oil until the operation ground came to a stop due to the fighting in Georgia but also because of a fire on the BTC line, caused possibly by Russian troops. As the investments director of Seven Investment Management put it, "Investors are realizing that the bear has put its paw on the pipeline and geopolitical risk is likely to remain a theme for the next month or so."

Russia has also seen foreign investment fall as investors become more nervous following the war. Mutual funds in Russia, Russian investment funds and Russian stocks have all slid (as if oil-greased) on news of a plan to import large volumes of Central Asian oil into Central Europe while Georgia undergoes reconstruction. These and much more are all of the factors that I'm considering as I assess the scope of Georgian reconstruction while keeping my eye on the threat of another war erupting.

Georgian reconstruction isn't just about rebuilding a civilian nation...

What does Georgian reconstruction mean to investors in the future, besides fixing roads and railroad lines? Since Russian marines captured Georgia's main port, Poti, during the first week of the war, they sunk Georgia's entire navy in the Black Sea and in some of its ports, and then demolished what was left of it.

Military infrastructure is one area not always considered by the G7, the World Bank and others. Surely, NATO membership requires a standing army, navy and reserves among the civilian population. Despite the idea of Russian military power being superior to her neighbors, a plan to rebuild Georgia's military will be part of any progress in Georgia. Now that Moscow has withdrawn most of its forces from most parts of Georgia by the end of last week, Russians still remain in Georgia even as U.S. humanitarian aid ships, in defying Russia, also remain there.

I'm investigating what Central European issues benefit from both military and industrial reconstruction, and when I have a strong sense of where the smart money should go, I'll let my subscribers know about it.

The White House said Monday that Russia "continues to defy international calls" to pull its forces out of Georgia. In fact, even as Russian forces continue to carry out patrols in Poti, a U.S. destroyer is reportedly on its way there in a move that might accelerate the region's tension and ignite another conflict. It's doubtful a Naval destroyer is carrying civilian humanitarian aid and whether its a part of a larger battle group. Neither the White House nor the Pentagon has acknowledged this AP story.

If you're not party to this war, or directly supplying or fighting in it, you may wonder what it all means to you, the global investor. Aside from the tedious but important details of what is unfolding in a region where you may or may not commit your money, the smart investor sees where the money will be spent for both areas of reconstruction we've discussed here.

The proper understanding of the context, and the shifting fortunes of war (especially following the hostilities) informs your global investment strategy and, consequently, your own fortunes in the region. I'll get down to specifics once my analysis includes all relevant factors and adds up to the kind of recos you need in a hostile world.

Best wishes,
Jeff Manera

G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

The Dollar Strengthens, Changing the Climate for Investors

2008-08-19T20:23:37Z

The steady slide of the US dollar over the last couple years proved an earnings boost for many US companies selling goods overseas in local currencies, while reporting the revenues in dollars.

But recently, as the dollar has reversed course, growing in strength against the Euro and yen, I feel a new look at the implications of a stronger dollar is needed to ensure you're not on the backend of dollar recovery implications to your investments. With the economies of Europe and Japan sinking toward recession, I believe the dollar has more reason to gain momentum, and it's time for a fresh look at what the dollar will do to your investment portfolio.

Any boost to the markets from a weak dollar may be fleeting, but as the dollar gains strength, I'm keeping a watchful eye on the consequences of a stronger dollar to the markets in general and your investments in particular - both here and overseas. On the Silicon Valley front, a flood of Q2 earnings reports would have painted a far worse picture were it not for the weak dollar, especially for tech- stocks. Overbought multinationals - are also due for a correction if the dollar strength continues.

Indeed, the dollar's steady weakening has helped improve revenues for US-based tech companies over the past two years, and even companies with non-US currency sales reported a boost when booking their sales into dollars. In Q1 and Q2 the euro and yen appreciated nearly 16% each against the dollar, sending revenues soaring. But over the past two weeks, as the dollar's long slide reversed, the lift anticipated for Q3 for many of the tech companies will be less than half what it was in Q2.

I'm studying the dollar's reversal of fortune and I expect to have at least one reco later this week based on my insights and intel from my staff. Given the exchange-rate shift, for instance, many previous estimates on revenue outlook are now probably too high. The larger a company's non-US.S. exposure, the more risk that current estimates will need to be revised downward.

As mentioned in a recent Barron's article reflecting on the strengthening US dollar, hardware behemoths Hewlett-Packard Co. (HPQ), IBM (IBM) and Sun Microsystems (JAVA) all generate more than 60% of their revenue outside the US and may be vulnerable to the currencies strengthening. Note that IBM's growth would be negligible without the gain from the currency and share repurchase due to a stronger dollar.

But I have a few other potential trades which may work even better - both to the short and long side - as the dollar strengthens, so stay tuned.

US multinationals aren't looking so good anymore as the dollar sustains its climb on weak oil revenues and stock prices

As well as tech stocks, overbought multinationals are due for a correction so, as I see their pilots calling the tower for descent vectors, I think now is the time to short some of these multinationals before their shares -- once strong as based on the weak dollar (until now as the dollar rises) -- don't belong in your portfolios. Since the dollar's substantial newfound strength, while showing its durability as a world currency, has changed some sectors of the investment landscape over the past few weeks, and how this plays out among potential investment targets is the subject of my recos later in the week.

Remember, the odds are impriving that Q2 earnings reports for many of these companies will disappoint shareholders, institutional fund managers and everyday investors, the latter group who will likely be among the last to move out of US multinationals and gain the least from this short. A bet against those companies could mean profits but as it's no easy task to compile a list of recos, I'll spend the next couple of days studying the landscape and I'll have that list ready by week's end... so stay in touch.

One potentially bullish arena which could benefit from the strong dollar: Multinational Banks without much exposure to the US sub-prime market. Watch for more details on at least one of these soon.

Best wishes,
Jeff Manera

G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

The Dollar Strengthens, Changing the Climate for Investors

2008-08-19T20:23:37Z

The steady slide of the US dollar over the last couple years proved an earnings boost for many US companies selling goods overseas in local currencies, while reporting the revenues in dollars.

But I have a few other potential trades which may work even better - both to the short and long side - as the dollar strengthens, so stay tuned.

US multinationals aren't looking so good anymore as the dollar sustains its climb on weak oil revenues and stock prices

As well as tech stocks, overbought multinationals are due for a correction so, as I see their pilots calling the tower for descent vectors, I think now is the time to short some of these multinationals before their shares -- once strong as based on the weak dollar (until now as the dollar rises) -- don't belong in your portfolios. Since the dollar's substantial newfound strength, while showing its durability as a world currency, has changed some sectors of the investment landscape over the past few weeks, and how this plays out among potential investment targets is the subject of my recos later in the week in G3 Global Options.

Remember, the odds are impriving that Q2 earnings reports for many of these companies will disappoint shareholders, institutional fund managers and everyday investors, the latter group who will likely be among the last to move out of US multinationals and gain the least from this short. A bet against those companies could mean profits but as it's no easy task to compile a list of recos, I'll spend the next couple of days studying the landscape and I'll have that list ready by week's end... so stay in touch.

G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

A Russian-Georgian War recap and its investment implications...

2008-08-12T19:00:14Z

The latest news out of Georgia's breakaway region of South Ossetia is mildly encouraging but as politicians make statements and hold news conferences, the only real progress will be up to Russia and, to a lesser extent, their Georgian counterparts. A resolution of the conflict is in the benefit of both combatants and, naturally, to investors in the region. However, look for a continuation of cold-war tensions between the two sides leading to a general cooling of investor sentiment in the region for some time.

On my war radar are a few Russian ADRs (US-traded Russian stocks) which have dropped as war broke out and worsened with war developments, but they may rebound next week with any news of a ceasefire or, even better for investors, a peace pact. I'm especially vigilant of Russian steel issue Mechel (MTL). As you may recall, general investor sentiment toward Russia was already on a decline when Putin started going after MTL. I'm evaluating my position on MTL and other Russian issues in the changing framework of the conflict, and my reco on it and other issues depends on the direction of the war. Another Russian issue, ETF (RSX), has stumbled 6.5%, dipping below $40 early in the conflict against recent highs in the upper $50's. We'll also be looking at rollercoaster commodities, crude oil and uranium.

After a sharp fall earlier in the week, the benchmark RTS stock index - which tracks the performance of the Russian stock market - recovered a little, up 1.2% at 1,742 points by mid-week. Overall, this news isn't so good since the index has declined 24% year to date. Russian market conditions are volatile and threaten to worsen, and until the conflict comes to an end, through diplomacy or a change or strategy at the Kremlin, the market will continue its downward move.

I strongly advise avoiding any new positions (especially any quick-buck maneuvers). Moreover, if you're not in Central Europe equities, stay out for now. If you're in, move quickly as your options are narrowing. The best strategy, for this week at least, is to step aside and wait for a clear view. We'll have more on this Friday as we watch war developments and how it weighs on market conditions in the region.

Best wishes,

Jeff Manera
G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

Gasoline Alternatives, Now And In The Future...

2008-07-29T20:06:10Z

While you're waiting to pump gas at more than $4 a gallon and waiting for the long promised electric car models, consider how you might prefer pumping another gas inside your garage: Natural gas or propane. For a lot less, too!

The cable news pundits, principally CNN Money, are back on the subject of electric and other non-gasoline powered vehicles even when spot-market oil is dipping.

One recently highlighted vehicle is one I've been watching for some time: The Honda Motors (symbol: HMC) Civic GX, which runs on the compressed natural gas (and can also be converted to run on propane or methane)

The Honda's GX has been around since 2006 but if you don't live in California or parts of New York - and aren't one of the lucky ones "in the know," you probably haven't heard of this cool car.

I believe the GX and other natural gas cars could be a big part of the solution - someday - when there are more than a token few natural-gas filling stations along our roadways. In the meantime it's still a very interesting option for those who clock only modest around-town mileage and don't have to refill along the way (and are in areas where these cars are available). If you just clock 50 or 80 miles on a typical day and if you have natural gas at home, you can turn your garage into a natural-gas filling station and worry about your gas utility bills later - it will be a lot less than your current monthly gasoline expenses.

On the electric and hybrid/plug-in hybrid front, most of the major players are planning on coming out with a number of models in the next two to three years, including Ford (F), GM (GM) and Toyota (TM), but I'm skeptical on most of those claims for a number of reasons, especially with GM's much discussed "Volt." You can expect lengthy production delays and lame excuses. Mark my words. The big three and most of the others really don't want you to own electric cars - it kills their whole business model.

But in the meantime, for the rest of us, I believe the electric vehicle recommendation I recently gave my subscribers in G3 Global Options is a far better, and more timely, bet. And I expect this company to actually deliver the electric cars it's promising.

Best wishes,

Jeff Manera
G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net