Global Dividend Yield Trends
James Picerno submits:

Dividend yields don't tell you everything, but they tell you a lot - sometimes.

Wednesday Outlook: Commodities, Emerging Markets
David Fry (ETF Digest) submits: << Return to page 1 - The Bad News Is the Good News
















































Good earnings growth is still primary to investors. With earnings this season moving along better than expected, investors feel pretty good about things overall. They isolate oil as a speculative one-off event, financials have bottomed and housing woes aren’t a big deal overall.

To bears all this is selective spin. But, the tape is the reality and that’s the bottom line.

There will be no post tomorrow as I’ll be giving a talk in the early evening while in Boston and then we travel Thursday to Chicago arriving in the evening.

Have a pleasant day.

Disclaimer: The ETF Digest maintains positions in TLT, TBT, XLE, MOO, XLB and ILF.
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Tuesday Outlook: Unremarkable Volume, Breadth
David Fry (ETF Digest) submits: Sharply higher energy prices, the Yahoo (YHOO)/Microsoft (MSFT) merger collapse and rumors of trouble with the BoA (BAC)/Countrywide (CFC) deal stopped bullish investors in their tracks Monday. But, bears were only able to do a little damage as volume and breadth were unremarkable.






















































































There was plenty of news to digest yesterday but I think many investors are scratching their heads and looking over their shoulders not quite sure what to make of things. This accounts for the light volume and uninspiring breadth.

It seems a little strange that we’ve rallied as high as we have with the onslaught of negative news continuing. But, the powers that be have the microphone and the big stack to play with. Stocks aren’t cheap based on PEs but there’s a lot of cash on the sidelines looking for a home and rationalizing investments.

We’re in Boston now and spent Monday with State Street going over some of their products and ideas about the future. Today I do some interviews and then give a talk Wednesday before heading to Chicago.

Disclaimer: The ETF Digest maintains positions in: IYR, TLT, TBT, XLE and ILF.
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12 Notes on Global Markets
David Merkel submits:

1) Desperation and the Dollar: In mid-March, pessimism over the US economy and monetary policy were so thick that people were considering the old Greenspanian rate of 1% Fed funds as possible. Well, times change, at least for now. The orange line above is the 2-year Treasury yield which gives a fair read on expectations of monetary policy, which bottomed in mid-March. It took the Dollar a little longer to move along, but the present course of dollar is up in the short-term (consider the Euro). That doesn’t address the possibilities of a wider lending problem, or the overly aggressive fiscal policies that will be employed by the next President. (Deficits don’t matter, until they are big enough to matter.) (Click charts to enlarge.)

Selling iShares Malaysia as Inflation Hits Asia
Trader Mark submits:

I need to raise some cash, and I am worried about global inflation beginning to hit the Asian countries hard. While China will subsidize itself to the nth degree since they are rich, and India is doing the same to a smaller degree - the smaller countries don't have the same horde of reserves. With Western governments continuing to flood the world with currency (something I don't see changing anytime soon), global inflation will only continue to accelerate and the normal everyday people of Asia are going to get blasted.

Copper Proves the Commodities Bull Isn't Over - Yet
Otto Rock submits:

Bubble this; bursting that; it's all over for commodities; U.S. recession the death of copper; or buy financials and sell metals (the latest fashionable clarion call, you might have noticed).

Brazilian Stocks on Fire
Hickey and Walters (Bespoke) submit:

After the country's credit rating was upgraded on Wednesday, Brazil's benchmark Bovespa stock index has been the place to be over the last two trading days with a gain of 10%. Following the gain, the Bovespa has broken out of its six-month trading range.

Brazil: Let the Feeding Frenzy Begin
Otto Rock submits:

...but be smart and take the short-term profits.

Thinking In Themes: What Color Are Your Markets?
Brett Steenbarger submits:

Themes give the stock market color; they capture the movement of capital from certain sectors of the economy to others. Many traders are color-blind. They fail to detect the themes underlying market moves and, as a result, fail to understand *why* those moves are occurring.

BMW Shifts Cars from U.S.: A Sign of Decoupling?
Markham Lee submits:

While not definitive, here is an interesting way to look at the “decoupling” discussion: BMW is diverting cars from the U.S. market (a market it still expects to increase sales in) to emerging market countries due to the weak dollar and slowing economy.

Brazilian Government Debt Upgrade Good News for Latin American ETFs
Vinny Catalano submits:

According to news sources, Brazil's government debt has been upgraded. This had been expected in the second half of this year. So, this announcement caught investors off guard and pleasantly surprised.

Friday Outlook: Commodities, Emerging Markets
David Fry (ETF Digest) submits: << Return to page 1 - The Dollar 'Returns'

Also much discussed yesterday was that Uncle Buck might rally since the Fed wasn’t going to cut to say 1%. It’s almost too funny to contemplate the logic but the tape is the tape.



















































A look at where we are currently in the overbought/oversold conditions follows.










That should do it for this week with the daily commentaries. Remember, until I return from this long trip there will be no podcasts. I’m heading to Boston today and will be giving a talk in Cambridge. If you’d like to attend, email me.

Again, let me repeat, I’m so glad to be a technician that is systematic and disciplined. If I invested emotionally in these market conditions I’d have lost my shirt since I don’t find anything to like. But, Da Boyz on Wall Street are playing with a big stack of chips and have a firm grip on the tape right now. Even a crummy employment report won’t slow them down since they’ll spin that to “old news”. It rankles me every time I hear some commentator wax bullish about how inflation is contained. But that’s the message and they’re in charge.

Have a great weekend.

Disclaimer: The ETF Digest maintains positions in XLE, IYR, MOO and ILF.
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Asset Class Review: April Was a Great Month
James Picerno submits:

The major asset classes had their best performance month in April since last October. Only TIPS and foreign developed market bonds suffered red ink last month, as our table below shows. On balance, April was the strongest monthly tally since the perfection of October 2007, when everything was in the black.

Brazil, the Bovespa Index, PBR and Me
Otto Rock submits:

Yesterday I was watching Petroleo Brasiliero (PBR) fight with US$116 and feeling all pleased with myself about the short at $124. I'd pencilled in a $10 drop at the time, and at one point there was less than a buck to go for my target cover price. Nice quiet day, I thought.

Talk of a Latin American 'Bubble' Gains Steam
IndexUniverse submits:

By Murray Coleman

U.S. trade gap narrows in March
The nation's trade gap narrowed in March, as a weakened U.S. economy led to the sharpest decline in Americans' demand for foreign imports in more than six years, according to a government report released Friday.

Microsoft appeals $1.39B antitrust fine
Read full story for latest details.

Allianz quarterly profit falls 65%
Read full story for latest details.

Japan stocks fall

Dollar slips as Europe maintains rates
Read full story for latest details.

Toyota issues glum outlook
Read full story for latest details.

Europe leaves rates unchanged
Read full story for latest details.

Best Buy extends reach into Europe
Read full story for latest details.

Unilever profit up 34%
Read full story for latest details.

Government sides with Appleton Paper
Read full story for latest details.

Nokia's N810: A real globetrotter
Behind the scenes with a new gadget that's a real globetrotter -- the Nokia N810.

Toyota to hike prices on U.S. models
Read full story for latest details.

Top UBS banker held in tax probe

Apple ends iPhone exclusivity
Vodafone and Telecom Italia announce that they have both signed contracts with Apple to carry the iPhone in Italy.

UBS to cut 5,500 jobs
Read full story for latest details.

BAE failed to follow ethical standards - report

NYSE Euronext profits triple
Read full story for latest details.

Deutsche Telekom eyes Sprint bid
Read full story for latest details.

Immigrants and U.S. jobs
As the U.S. economy sheds jobs, concern is growing over competition between native-born and foreign-born workers.

U.S. gas: So cheap it hurts
Despite daily headlines bemoaning record gas prices, the U.S. is actually one of the cheaper places to fill up in the world.

China: Latest Indexes Indicate Inflation
Michael Pettis submits:

China’s PPI numbers for April were released today and, to no surprise to those of my readers who agree with my argument that inflation in China is primarily a monetary problem, they weren’t good. Year on year the index was up 8.1%, a little below market expectations but above last month’s 8.0%. This was fastest pace of increase in four or five years. Just six months ago year on year PPI inflation was well under 3%.

Datascope Corporation Q3 2008 Earnings Call Transcript

Universal Travel Group Shifts Perceptibly to Online Services
China OTC Player submits:

First of all, look at this chart. In the space of less than a month, Universal Travel Group's (UTVG.OB) website, CNUTG.com (not to be confused with its CBA-HOTEL.com site), has gone from nowhere to be the ~4,400 most trafficked site in all of China. Additionally, the website is also gaining traction in South Korea (ranked ~11,000) and Vietnam (ranked ~24,000). This reinforces what I have already been saying - while UTVG's strategy last year was to shore up its physical footprint across China, this year is all about online presence.

Coca Cola: Olympic Sponsorship is a Profitable Tradition
Max Zeledon submits:

The Coca-Cola Company (NYSE: KO) loves the Summer Olympics. Very few brands have the lasting power of appeal and recognition that Coca-Cola enjoys throughout the world and the Olympics is the ideal place to showcase that power. Sugar-based sodas might be unpopular here at home, but the rest of the world is still drinking Coke.

Why Banks Are Hoarding Money
Michael Pettis submits:

There is an article in today’s Financial Times, whose title, “Battle-scarred bankers lapse into a hoarding habit,” immediately triggered my interest. The article argues that one of the recent “paradoxes” of the international markets, that recovering stock prices for the leading international banks seem to indicate that the worst of the credit crisis may be over, while very high LIBOR rates seem to indicate the opposite, may be resolved by considering that high LIBOR rates are not a response to credit concerns but rather to old-fashioned hoarding:

Until now, bank analysts have assumed that the high cost of interbank borrowing stemmed from a sense of mutual distrust. This would suggest that, on two occasions in the past eight months, banks have been so nervous of counterparty risk – the danger of one’s trading partners failing to honour their financial commitments – that they did not wish to extend funds to each other.

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American Oriental Reports Greatly Improved Q1
ChinaBio Today submits:

American Oriental Bioengineering, Inc. (NYSE: AOB) reported greatly improved financial results in its first quarter. The company booked a 51% increase in revenue and a 46% jump in net income. Revenues were $38.8 million, and the company recorded net income of $9.4 million. Earnings per share moved up to 12 cps from 10 cps during Q1 of 2007. An increase in the outstanding number of shares kept the number from climbing higher.

The only negative note in the otherwise positive report was a large increase of $2.3 million in sales and distribution costs, representing an 85% increase. Unlike some of its China biopharma competitors, American Oriental is not reporting any difficulty with its Accounts Receivable. In fact, they dropped $2.1 million to $14.3 million, a 12% decline.

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China: How Long Will the Inflation Respite Last?
Michael Pettis submits:

The Chinese stock market started the day well, with the SSE Composite starting below yesterday’s close but quickly trading up to 3767 within the first hour of the morning – a hefty 2.3% jump from yesterday’s close. But investors quickly lost heart, and the market subsequently gave up nearly 200 points from its peak today to close down at 3578, for a very ugly 4.11% loss for the day, with banks, real estate-related companies, and Olympics-related companies leading the way down. The steepest declines took place in the last 90 minutes of trading, when a slew of selling orders ran up against a sharp decline in trading volume. For all the talk of government support it does not seem that there is a great deal of confidence in the market.

A lot of investors are still wondering what, if anything, the government can do next to stimulate the market. I don’t doubt that there are still things government agencies can do to signal official intentions, but there doesn’t seem much they can do actually to influence real supply and demand in the market for more than a few days. As expected, their many interventions are losing credibility. Institutional investors seem to be using every rally as an opportunity to get out of their positions, while retail investors are filling internet bulletin boards dedicated to discussing the stock market with anxious and angry comments.

On the inflation front, according to a Credit Suisse report today, Dong Tao, who has had a pretty good call on Chinese inflation, is expecting the April CPI number to come in at 8%. Like many other analysts he expects second-quarter inflation to stay high, but well below the drastic first-quarter numbers. However he, like me I might add, is worried that as food price rises decelerate non-food inflation will soon take center stage and drive the index up higher in the send half of 2008. In that context I should mention a piece from Capital Economics on the subject of inflation in Asia. “Inflation has re-emerged as a unifying theme across many Asian economies in recent weeks. Driven by the continuing high international oil and food prices, persistent upside surprises to inflation have forced a rethinking of monetary policy in the region.”

I think this should not be a surprise. After the 1997 Asian crisis a number of Asian economies, including China, have been so determined to protect themselves from a repeat of those events that they put into place a set of systematically mercantilist polices aimed at limiting exposure to external debt – often by managing their currencies so as to run persistent current account surpluses and burgeoning reserves. The problem with these policies, as I have discussed often on this blog, is that they seem to have misjudged the cause of the earlier sequence of crises.

Financial crises do not occur because countries have currency mismatches. They occur because they have asset-liability mismatches, of which the currency mismatch is only one form. By managing domestic monetary policy so as to minimize the risk of a currency mismatch several Asian countries may have simply transferred the balance sheet risk into a different form. Specifically, interventionist currency regimes have often resulted in significant monetary expansion, which create not just the risk of inflation but can also lead to domestic balance sheet imbalances, most dangerously in the banking system. Remember that in the 1920s the US also experienced massive capital inflows on the trade and capital account, resulting in the accumulation, in John Maynard Keynes’ words, “all the gold in the world.” The result, in the case of the US, was not a national balance sheet impregnable to disruption. On the contrary, the US experienced the stock market crash of 1929 and the banking crisis of 1930-31 that led to the consequences with which everyone is familiar. The lesson is that current account surpluses and massive reserve accumulation are no guarantee against financial disruption.

Headline food prices do seem to be moderating in China, so we will see a deceleration in CPI price rises, but I am not sure this is for all the right reasons, and I wonder if food price increases can continue to be restrained. As a long-time trader and observer of developing countries I always get a little nervous when government officials keep repeating that they don’t have a problem in some specific area, so I guess I am getting a little nervous about yet another announcement, this time from the NDRC, that they have “ample grain to keep food prices stable”, as the prominent headline in today’s China Daily put it.

We are starting to get these assurances nearly every two or three days now. “Our grain supply and demand is basically stable, our reserves are full, and we can ensure supply and stable grain prices,” the NDRC said in its statement. The same article pointed out that customs and commerce authorities are cracking down on illegal grain exports by traders hoping to profit from surging international prices. It points out that whereas price of rice in Thailand has soared from $300 a ton to $1000 a ton in six weeks (wow! can this possibly be true?), the price of rice in China is still frozen at $300 a ton.

Not surprisingly this seems to have led to wide-spread rice smuggling. Another article in the same issue of China Daily also makes this point: “But there are concerns about how long the nation can hold its rice price at about one-fourth of that in overseas markets, given recent reports of illegal rice exports in the past months.” Not only do we have a problem of local “businessmen” smuggling oil out of the country to take advantage of the heavily subsidized prices in China, but the smuggling problem now seems to be spreading to grains too.

I suppose this was only to be expected. With such long and complex borders, and with an endemic corruption problem, it was inevitable that the huge disparities between the subsidized prices of certain commodities in China and their equivalents in neighboring countries would lead to “arbitrage,” as the more polite among us might put it. I have no idea of how extensive this smuggling is, but given the fact that the authorities are publicly admitting the problem (and twice in a single issue of the China Daily), I would guess that it is a big problem. The monetarist in me would also point out that smuggling rice out of China will have a similar monetary impact as bringing foreign currency into China, so this is not just a problem for the Ministry of Finance, who has to raise taxes to pay for the subsidy going to smugglers, but also for the PBoC.

One final note: John Garnaut, of the Sydney Morning Herald, wrote an interesting article three days ago on unemployment in China. As worthless as the official unemployment numbers are (the Economist recently argued that they are the least accurate of all the important economic numbers provided by the Chinese government), it may well be that unemployment in China is much lower than many in the government think. If this is true, the social consequences of further monetary tightening may not be as grave as many government officials fear, especially given that the expected economic slowdown caused by China’s slowing export growth is likely to have been counteracted by a recent surge in infrastructure spending. There may still be time to take the steps needed to reduce China’s out-of-control monetary growth.

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The Long Case for American Oriental Bioengineering
Value Investor Congress submits:

These are notes from the Day 1 sessions at the 3rd Annual Value Investing Congress West, being held May 6-7, written by Jonathan M. Heller.

Zeke Ashton, of Centaur Capital, opened with some observations of some of the things that we, as value investors, think we should not do. Among them:

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Hedge Funds See Best Prospects in Emerging Markets
Research Recap submits:

Most hedge fund investors have a bearish outlook for 2008, but they still expect more than $200 billion to flow into the industry, according to Deutsche Bank’s sixth annual Alternative Investment Survey. Much of that money is likely to end up in emerging markets.

“Hedge fund investors’ prediction that the Middle East and North Africa will be the top performing region in 2008 indicates a clear redistribution of capital towards emerging markets,” according to Sean Capstick, London-based Co-Head of Deustche’s Hedge Fund Capital Group.

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Buffett Would Buy Back into PetroChina - For the Right Price
FP Trading Desk submits:

Warren Buffett said he bought PetroChina (PTR) after reading the annual report. He concluded it was worth more than $100-billion, and it was selling for approximately $35-billion.

He said:

I didn’t need to know that it was $97-billion or $103-billion. They don’t take things out to three decimal points. If someone walked through the door and looked around 303 pounds or 310 pounds – didn’t matter – they were fat.

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The Dollar and Asia: Time for a Reversal?
Macro Man submits:

Is the worm turning, if ever so slightly, for the dollar? Regular readers will recall that last summer, Macro Man began to contemplate the notion that aggressive Fed easing would generate a "dollar down bubble." The view played out as well as possibly could have been expected, in both the currency and the commodity space; Macro Man's only regret is that he was hors de marche when the most impulsive breakdown in the dollar occurred. And yet he now finds himself less tactically bearish of the buck than he's been since August of last year.

Recent data from Europe suggests that some of the pain of tighter credit is starting to spread. While there is still no assurance that the ECB will act in the near or even medium term to cut rates, it seems clear that the endgame will be an ECB rate cut. That, combined with the nosebleed valuations of EUR/USD (and many of its closely correlated peers), makes dollar shorts less attractive at the moment. When when considers that Voldy and co. have been selling EUR/USD, there's even more reason for concern on dollar shorts.

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Progress or Pipe Dreams? Private Equity / Venture Capital in China
Shaun Rein of the China Market Research Group submits:

This transcript was originally published as part of JP Morgan's Hands-On China Series.

Private equity is helping reshape the business and investment landscape in China. Private equity and venture capital is helping launch new companies, grow regional players into national competitors, and improve the governance and strategic know-how of companies across China.

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Simcere’s Q1: Revenue Increases 26%
ChinaBio Today submits:

Simcere Pharmaceutical Group (NYSE: SCR) released its first quarter financial report showing modestly higher revenues and a large increase in net profit. In Q1, Simcere booked revenues of 394 million RMB ($56.3 million), a solid increase of 26% from the year earlier period, and net income of 112 million RMB ($16 million), a much larger jump of 68%.

Sales of its leading first-to-market products climbed during the quarter, but its branded generics business suffered a decline. The company’s cancer drug, Endu, saw its revenues rise 64% to 64 million RMB ($9.1 million), which was 16% of the company’s total. Simcere’s two stroke treatments, the Edavarone injections, brought in 152 million RMB ($21.7 million) of revenue, which constituted 39% of Simcere’s sales and represented an 89% year-over-year increase. The revenue from Simcere’s branded generics slipped 8% to 177 million RMB (