Recession in US and its effect in India
What's a recession? How will US slowdown hit India
The fear of a recession looms over the United States. And as the cliche goes, whenever the US sneezes, the world catches a cold. This is evident from the way the Indian markets crashed taking a cue from a probable recession in the US and a global economic slowdown.
Weakening of the American economy is bad news, not just for India, but for the rest of the world too.
So what is a recession?
A recession is a decline in a country's gross domestic product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down.
What causes it?
An economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less as they fear stocks values will fall and thus stockmarkets fall on negative sentiment.
Stock markets & recession
The economy and the stock market are closely related. The stock markets reflect the buoyancy of the economy. In the US, a recession is yet to be declared by the Bureau of Economic Analysis, but investors are a worried lot. The Indian stock markets also crashed due to a slowdown in the US economy. The Sensex crashed by nearly 13 per cent in just two trading sessions in January. The markets bounced back after the US Fed cut interest rates. However, stock prices are now at a low ebb in India with little cheer coming to investors.
Current crisis in the US
The defaults on sub-prime mortgages (homeloan defaults) have led to a major crisis in the US. Sub-prime is a high risk debt offered to people with poor credit worthiness or unstable incomes. Major banks have landed in trouble after people could not pay back loans.
The housing market soared on the back of easy availability of loans. The realty sector boomed but could not sustain the momentum for long, and it collapsed under the gargantuan weight of crippling loan defaults. Foreclosures spread like wildfire putting the US economy on shaky ground. This, coupled with rising oil prices at $100 a barrel, slowed down the growth of the economy.
How to fight recession
Tax cuts are the first step that a government fighting recessionary trends or a full-fledged recession proposes to do. In the current case, the Bush government has proposed a $150-billion bailout package in tax cuts. The government also hikes its spending to create more jobs and boost the manufacturing and services sectors and to prop up the economy. The government also takes steps to help the private sector come out of thecrisis.
Past recessions
The US economy has suffered 10 recessions since the end of World War II.
The Great Depression in the United was an economic slowdown, from 1930 to 1939. It was a decade of high unemployment, low profits, low prices of goods, and high poverty.
The trade market was brought to a standstill, which consequently affected the world markets in the 1930s. Industries that suffered the most included agriculture, mining, and logging.
In 1937, the American economy unexpectedly fell, lasting through most of 1938.
Production declined sharply, as did profits and employment. Unemployment jumped from 14.3 per cent in 1937 to 19.0 per cent in 1938. The US saw a recession during 1982-83 due to a tight monetary policy to control inflation and sharp correction to overproduction of the previous decade.
This was followed by Black Monday in October 1987, when a stockmarket collapse saw the Dow Jones Industrial Average plunge by 22.6 per cent affecting the lives of millions of Americans.
The early 1990s saw a collapse of junk bonds and a financial crisis.
The US saw one of its biggest recessions in 2001, ending ten years of growth, the longest expansion on record.
From March to November 2001, employment dropped by almost 1.7 million. In the 1990-91 recession, the GDP fell 1.5 per cent from its peak in the second quarter of 1990.
The 2001 recession saw a 0.6 per cent decline from the peak in the fourth quarter of 2000.
The dot-com burst hit the US economy and many developing countries as well.
The economy also suffered after the 9/11 attacks. In 2001, investors' wealth dwindled as technology stock prices crashed.
Impact of a US recession on India
A slowdown in the US economy is bad news for India.
Indian companies have major outsourcing deals from the US. India's exports to the US have also grown substantially over the years. The India economy is likely to lose between 1 to 2 percentage points in GDP growth in the next fiscal year. Indian companies with big tickets deals in the US would see their profit margins shrinking.
The worries for exporters will grow as rupee strengthens further against the dollar. But experts note that the long-term prospects for India are stable. A weak dollar could bring more foreign money to Indian markets. Oil may get cheaper bringing down inflation. A recession could bring down oil prices to $70.
Between January 2001 and December 2002, the Dow Jones Industrial Average went down by 22.7 per cent, while the Sensex fell by 14.6 per cent. If the fall from the record highs reached is taken, the DJIA was down 30 per cent in December 2002 from the highs it hit in January 2000. In contrast, the Sensex was down 45 per cent. The whole of Asia would be hit by a recession as it depends on the US economy. Asia is yet to totally decouple itself (or be independent) from the rest of the world, say experts.
Sunday, 27 July 2008
Sunday, 16 March 2008
Is Britain's economy heading for the perfect storm?
Is Britain's economy heading for the perfect storm?
* Record monthly fall for consumer confidence index
* Investment chiefs deny credit crunch recklessness
* FSA warns lenders to prepare for crisis
* David Prosser's Outlook: Why the R-words are unacceptable here
* Hamish McRae: I've changed my mind: the Bank must lower interest rates if we
are to avoid recession
The storm clouds are gathering over the jobs market; the climate on the high street is growing distinctly chilly; a typhoon of bad debt is buffeting the banks. Could a "perfect storm" be about to hit the British economy?
The signs couldn't be much bleaker. The switchback in sentiment since the credit crisis began in the summer has been violent. The Nationwide Consumer Confidence Index recorded its largest drop yesterday, and joins the GfK/NOP survey earlier this week in suggesting that a wave of pessimism not seen for years is washing over the economy.
House prices have begun to fall, albeit slightly; commercial property is seemingly on the brink of collapse on a par with that seen in the early 1990s. The buy-to-let market is vulnerable. The Bank of England has, unprecedentedly, voiced concerns about the grim prospects for real estate. And the Financial Services Authority has warned of the "very real prospect" of the global credit crunch getting much worse. It is that bad.
Shopkeepers are looking forward to a black Christmas. Sir Philip Green, the boss of Top Shop and BHS, said last night on Sky TV that "business is very, very tough". The British Retail Consortium says that sales grew only marginally in November, having slowed markedly in October. JD Sports, ScS furniture and Greene King are the latest household names warning of setbacks. About 4.4 million credit-card customers still haven't cleared debts they ran up last Christmas, according to MoneyExpert.com.
We're less ready to spend, particularly on "big ticket" items furniture, fridges, cars and so on. We're more pessimistic about our finances. We don't want to take on more debt and we want to rebuild our savings. The credit markets are seizing up again. That means banks are becoming much, much choosier about who they lend to, and are charging ever higher rates, despite the efforts of the authorities to keep money markets functioning normally. No lending; no spending.
That unwillingness to lend the credit crunch has started to affect businesses too, though firms remain generally more upbeat than consumers. Manufacturing firms, and in particular those in the car industry, are happy, a veritable ray of sunshine. However, manufacturing makes up only 15 per cent of the economy. In the financial sector, responsible for more than half of the recent growth in the UK's GDP, the mood is glum.
After months defying gravity, share prices have suffered some dramatic falls. City bonuses will be cut this year and next along with recruitment and investment. Barclays, HSBC and other banks have reported billions in losses, while the future of Northern Rock is uncertain.
Growth in the construction sector eased to a 14-month low in November, according to the Chartered Institute for Purchasing and Supply. The gentle rise in unemployment over the past 18 months may accelerate. The accountants KPMG say that "what we are seeing is that the credit crunch is tightening its grip over the economy... an underlying weakening, with both demand for permanent staff and vacancies down on the levels earlier this year."
Everyone from the Treasury to the IMF has trimmed their forecasts for UK growth; from close to 3 per cent for 2008, down to nearer 2 per cent. The IMF says that even this is now too optimistic. Is it time to start talking about the "R-word" recession, and the possibility that the economy might shrink?
The difficulty is that the credit crisis is a process that feeds on itself rather than an event that can be declared "over". It began with the collapse of the US sub-prime mortgage market and the housing crash there, problems which are intensifying. As more sub-prime customers default because of the credit crunch more banks record losses and stop lending, and more properties are dumped on to the depressed US housing market. That depresses confidence and spending, and the screw turns again.
On this side of the Atlantic we feel the chill because our banks are exposed to sub-prime and because the US economy is the world's biggest. If it slows, it drags us down with it. And the mood of economic gloom Northern Rock, headlines on house-price crashes, higher prices for fuel at forecourts and food at checkouts is reinforcing itself. Confidence is the magic ingredient in any economy; it is evaporating fast. There's no knowing how bad it could get.
The most pernicious aspect of this downturn is how it could turn not so much into a recession, but into "slowflation" slow growth plus inflation. A depressed economy can co-exist with high inflation, as the world found in the 1970s. Low demand and high input costs (such as oil at $100 [48] a barrel; wheat prices at record highs) squeeze profits and employment and cut the real value of wages. It also makes it tougher for the Bank of England to allow interest rates to drift lower.
But the really bad weather would arrive if the Chinese economy stumbled. Next year, more than half the world's growth will derive from China, India and other emerging economies. Were they to falter say because the Shanghai stock market bubble burst the world would almost certainly lurch into recession.
In all events, the worst of the slowdown will hit us towards the end of 2008, going into the spring and summer of 2009; the point when a general election is due. By then the public finances would be well out of control, though that may be the least of ministers' worries. Gordon Brown might not have sowed the seeds of the coming economic storm, but he may well reap the whirlwind.
Business as us
"There is an air of unease among stockbrokers at the moment. In recent weeks the market has been trying to factor in the credit crisis and what it means going forward. Obviously this has affected the bankers most, but it has trickled down to other areas. People in property have been severely hit, as have house building stocks. But further down, even the pub operators have faced trouble. There's certainly an air of caution that has descended on investors ever since Northern Rock there's no doubt about that and I'd say the mood is still cautious going into 2008. The stock market acts as a barometer of where things will be in the next six to twelve months, so investors must broadly expect conditions going forward to be difficult."
Ron Turnbull: Finance director of SCS Upholstery, Sunderland
"Clearly our sales have been worse this year than we forecast, and significantly down on the same period last year. We've been suffering for some time from the interest rate increases, and these are now filtering through to the customer.
"The effect of turmoil in the American sub-prime sector has had a big influence on the confidence of consumers over here. But it's not just that they're feeling more anxious because they see savers queuing up outside Northern Rock; they've actually got much less disposable income than they've had for a long time."
"Banks are less willing to lend to customers, even cutting down on lending to each other. Meanwhile essential spends like utility costs and council tax are rising way above the rate of inflation. All of this is coming together to make consumers much more cautious with their spending, and it is businesses like ours, which are vital to a healthy economy, that are suffering the consequences."
Barnaby Stutter: Store worker, Brixton Cycles Co-operative
"Like any other, our business is not 100 per cent recession- proof. But partly because we're a workers' co-operative, and partly because we've got a lot of fluidity, I think we'll survive any coming troubles. We can move from selling bikes to fixing them; pubs and restaurants, who really are suffering, don't have that sort of option.
"There's a snowball effect: the more people worry about it, the worse it becomes. Our culture seems to thrive on anxiety and people are ready to panic about what they're told to panic about. But retailers on the high street expecting a big Christmas bonanza are going to be disappointed.
"Realists always sleep well at night, and being realistic about the forthcoming festive season means lowering our expectations of it."
Carl Lester: Birmingham fashion boutique manager
"People do seem to be spending less at the minute. I've got two branches selling designer clothes in Birmingham, and overall the business is down.
"I think people who might once have shopped here once a month are coming more like once every two. Also, customers seem to be thinking more about what they already have before they spend.
"We've talked ourselves into a recession, and all of a sudden it seems like we're going to get one. I'm not too worried, as my business survived the same thing happening in the 90s."
Tony Brooks: Owner of the Cluny pub and restaurant, Newcastle
"I'm in no doubt that this is the start of the worst trading conditions in the 28 years I've worked in the industry. If you read the trade papers they're full of terrifying figures about the difficulty of the current climate. But in reality it's even worse than they make out.
"The pub trade in particular is coming under heavy attack from the Government on several fronts. Supermarkets selling ridiculously cheap alcohol make it impossible for us to compete, while the smoking ban has been a massive drain on our appeal. And new planning regulations are so tough it's proving harder than ever for us to make money. Some weeks, pubs are down 20 to 30 per cent on the same period last year.
"The broader economic conditions are making our life hell. Higher interest rates and unaffordable mortgages mean that disposable incomes are fast shrinking. Every consumer has priorities; our industry relies on there being some change in people's pockets after those priorities have been met. Today that spare change is disappearing.
"I'm not exaggerating in saying the next few weeks are going to be very painful, and 2008 will be the worst year ever for our industry, with more than 2,000 pubs almost certain to close."
Peter Clayton: Chief executive of the Association of Professional Recruitment Consultants
"As with any sector, there are noticeable trends in recruitment that are an indication of the health (or sickness) in our present condition. What we've seen over the past few months is a move to contract placements rather than permanent placements, which is a sure sign that employers are feeling shaky. Permanent placements have dropped by about 30 per cent in the last quarter a massive shift.
"These trends haven't been such a prominent factor in the recruitment sector for several years. Employers on the whole are feeling very anxious and less willing to increase their payrolls by expanding staff numbers. Businesses are starting to recruit themselves rather than through agencies which, again, is a sign of anxiety."
* Record monthly fall for consumer confidence index
* Investment chiefs deny credit crunch recklessness
* FSA warns lenders to prepare for crisis
* David Prosser's Outlook: Why the R-words are unacceptable here
* Hamish McRae: I've changed my mind: the Bank must lower interest rates if we
are to avoid recession
The storm clouds are gathering over the jobs market; the climate on the high street is growing distinctly chilly; a typhoon of bad debt is buffeting the banks. Could a "perfect storm" be about to hit the British economy?
The signs couldn't be much bleaker. The switchback in sentiment since the credit crisis began in the summer has been violent. The Nationwide Consumer Confidence Index recorded its largest drop yesterday, and joins the GfK/NOP survey earlier this week in suggesting that a wave of pessimism not seen for years is washing over the economy.
House prices have begun to fall, albeit slightly; commercial property is seemingly on the brink of collapse on a par with that seen in the early 1990s. The buy-to-let market is vulnerable. The Bank of England has, unprecedentedly, voiced concerns about the grim prospects for real estate. And the Financial Services Authority has warned of the "very real prospect" of the global credit crunch getting much worse. It is that bad.
Shopkeepers are looking forward to a black Christmas. Sir Philip Green, the boss of Top Shop and BHS, said last night on Sky TV that "business is very, very tough". The British Retail Consortium says that sales grew only marginally in November, having slowed markedly in October. JD Sports, ScS furniture and Greene King are the latest household names warning of setbacks. About 4.4 million credit-card customers still haven't cleared debts they ran up last Christmas, according to MoneyExpert.com.
We're less ready to spend, particularly on "big ticket" items furniture, fridges, cars and so on. We're more pessimistic about our finances. We don't want to take on more debt and we want to rebuild our savings. The credit markets are seizing up again. That means banks are becoming much, much choosier about who they lend to, and are charging ever higher rates, despite the efforts of the authorities to keep money markets functioning normally. No lending; no spending.
That unwillingness to lend the credit crunch has started to affect businesses too, though firms remain generally more upbeat than consumers. Manufacturing firms, and in particular those in the car industry, are happy, a veritable ray of sunshine. However, manufacturing makes up only 15 per cent of the economy. In the financial sector, responsible for more than half of the recent growth in the UK's GDP, the mood is glum.
After months defying gravity, share prices have suffered some dramatic falls. City bonuses will be cut this year and next along with recruitment and investment. Barclays, HSBC and other banks have reported billions in losses, while the future of Northern Rock is uncertain.
Growth in the construction sector eased to a 14-month low in November, according to the Chartered Institute for Purchasing and Supply. The gentle rise in unemployment over the past 18 months may accelerate. The accountants KPMG say that "what we are seeing is that the credit crunch is tightening its grip over the economy... an underlying weakening, with both demand for permanent staff and vacancies down on the levels earlier this year."
Everyone from the Treasury to the IMF has trimmed their forecasts for UK growth; from close to 3 per cent for 2008, down to nearer 2 per cent. The IMF says that even this is now too optimistic. Is it time to start talking about the "R-word" recession, and the possibility that the economy might shrink?
The difficulty is that the credit crisis is a process that feeds on itself rather than an event that can be declared "over". It began with the collapse of the US sub-prime mortgage market and the housing crash there, problems which are intensifying. As more sub-prime customers default because of the credit crunch more banks record losses and stop lending, and more properties are dumped on to the depressed US housing market. That depresses confidence and spending, and the screw turns again.
On this side of the Atlantic we feel the chill because our banks are exposed to sub-prime and because the US economy is the world's biggest. If it slows, it drags us down with it. And the mood of economic gloom Northern Rock, headlines on house-price crashes, higher prices for fuel at forecourts and food at checkouts is reinforcing itself. Confidence is the magic ingredient in any economy; it is evaporating fast. There's no knowing how bad it could get.
The most pernicious aspect of this downturn is how it could turn not so much into a recession, but into "slowflation" slow growth plus inflation. A depressed economy can co-exist with high inflation, as the world found in the 1970s. Low demand and high input costs (such as oil at $100 [48] a barrel; wheat prices at record highs) squeeze profits and employment and cut the real value of wages. It also makes it tougher for the Bank of England to allow interest rates to drift lower.
But the really bad weather would arrive if the Chinese economy stumbled. Next year, more than half the world's growth will derive from China, India and other emerging economies. Were they to falter say because the Shanghai stock market bubble burst the world would almost certainly lurch into recession.
In all events, the worst of the slowdown will hit us towards the end of 2008, going into the spring and summer of 2009; the point when a general election is due. By then the public finances would be well out of control, though that may be the least of ministers' worries. Gordon Brown might not have sowed the seeds of the coming economic storm, but he may well reap the whirlwind.
Business as us
"There is an air of unease among stockbrokers at the moment. In recent weeks the market has been trying to factor in the credit crisis and what it means going forward. Obviously this has affected the bankers most, but it has trickled down to other areas. People in property have been severely hit, as have house building stocks. But further down, even the pub operators have faced trouble. There's certainly an air of caution that has descended on investors ever since Northern Rock there's no doubt about that and I'd say the mood is still cautious going into 2008. The stock market acts as a barometer of where things will be in the next six to twelve months, so investors must broadly expect conditions going forward to be difficult."
Ron Turnbull: Finance director of SCS Upholstery, Sunderland
"Clearly our sales have been worse this year than we forecast, and significantly down on the same period last year. We've been suffering for some time from the interest rate increases, and these are now filtering through to the customer.
"The effect of turmoil in the American sub-prime sector has had a big influence on the confidence of consumers over here. But it's not just that they're feeling more anxious because they see savers queuing up outside Northern Rock; they've actually got much less disposable income than they've had for a long time."
"Banks are less willing to lend to customers, even cutting down on lending to each other. Meanwhile essential spends like utility costs and council tax are rising way above the rate of inflation. All of this is coming together to make consumers much more cautious with their spending, and it is businesses like ours, which are vital to a healthy economy, that are suffering the consequences."
Barnaby Stutter: Store worker, Brixton Cycles Co-operative
"Like any other, our business is not 100 per cent recession- proof. But partly because we're a workers' co-operative, and partly because we've got a lot of fluidity, I think we'll survive any coming troubles. We can move from selling bikes to fixing them; pubs and restaurants, who really are suffering, don't have that sort of option.
"There's a snowball effect: the more people worry about it, the worse it becomes. Our culture seems to thrive on anxiety and people are ready to panic about what they're told to panic about. But retailers on the high street expecting a big Christmas bonanza are going to be disappointed.
"Realists always sleep well at night, and being realistic about the forthcoming festive season means lowering our expectations of it."
Carl Lester: Birmingham fashion boutique manager
"People do seem to be spending less at the minute. I've got two branches selling designer clothes in Birmingham, and overall the business is down.
"I think people who might once have shopped here once a month are coming more like once every two. Also, customers seem to be thinking more about what they already have before they spend.
"We've talked ourselves into a recession, and all of a sudden it seems like we're going to get one. I'm not too worried, as my business survived the same thing happening in the 90s."
Tony Brooks: Owner of the Cluny pub and restaurant, Newcastle
"I'm in no doubt that this is the start of the worst trading conditions in the 28 years I've worked in the industry. If you read the trade papers they're full of terrifying figures about the difficulty of the current climate. But in reality it's even worse than they make out.
"The pub trade in particular is coming under heavy attack from the Government on several fronts. Supermarkets selling ridiculously cheap alcohol make it impossible for us to compete, while the smoking ban has been a massive drain on our appeal. And new planning regulations are so tough it's proving harder than ever for us to make money. Some weeks, pubs are down 20 to 30 per cent on the same period last year.
"The broader economic conditions are making our life hell. Higher interest rates and unaffordable mortgages mean that disposable incomes are fast shrinking. Every consumer has priorities; our industry relies on there being some change in people's pockets after those priorities have been met. Today that spare change is disappearing.
"I'm not exaggerating in saying the next few weeks are going to be very painful, and 2008 will be the worst year ever for our industry, with more than 2,000 pubs almost certain to close."
Peter Clayton: Chief executive of the Association of Professional Recruitment Consultants
"As with any sector, there are noticeable trends in recruitment that are an indication of the health (or sickness) in our present condition. What we've seen over the past few months is a move to contract placements rather than permanent placements, which is a sure sign that employers are feeling shaky. Permanent placements have dropped by about 30 per cent in the last quarter a massive shift.
"These trends haven't been such a prominent factor in the recruitment sector for several years. Employers on the whole are feeling very anxious and less willing to increase their payrolls by expanding staff numbers. Businesses are starting to recruit themselves rather than through agencies which, again, is a sign of anxiety."
BHP Billiton's bid for Rio Tinto stirs fears of iron ore monopoly
Some of the largest steel makers in Asia are voicing opposition to BHP Billiton's proposed takeover of Rio Tinto Group, asserting that such a takeover would create a "monopoly" in the iron ore trade.
The concerns come as BHP's chief executive, Marius Kloppers, travels the region seeking support for the proposal.
Posco, the South Korean steel maker, said Tuesday that a BHP-Rio combination would increase concentration in raw material supplies.
"We are concerned about it and we think it's not desirable," said Kwon Young Tae, executive vice president in charge of Posco's raw materials department.
The China Iron & Steel Association has also voiced objections to the proposed deal, publishing a statement on its Web site that said the merger would create a monopoly.
Today in Business with Reuters
Alitalia board accepts €747 million bid from Air France-KLM
U.S. central bank chief shifts to crisis mode
China brokerage rethinking Bear Stearns stake
The world's three biggest iron ore producers - BHP, Rio Tinto and the Brazilian mining company CVRD, or Companhia Vale do Rio Doce - account for more than 75 percent of all global iron ore trade, the statement said.
"We do not want to see this merger create an even bigger monopoly," it said, adding that as the world's biggest steel producer, China had the most to lose, and that it relied on imports from Australia for 38 percent of its iron ore. "This is not a good thing."
BHP is pursuing the bid after an offer of three of its own shares for each one of Rio's stock was rejected.
Combining BHP, the world's biggest mining company, with Rio would create a group with 38 percent of the world's seaborne iron ore trade, according to Australia & New Zealand Banking Group. CVRD has a similar share.
Kloppers has said that the proposed combination of BHP and Rio would allow the new company to produce more iron ore at a lower cost.
The proposed union is "a powerful proposition for customers," he said.
Still, Hajime Bada, president of the steel division at Japan's JFE Holdings, said Monday that the would-be merger "will be harmful to the fair trade of iron ore and high-grade coking coal."
The International Iron & Steel Institute, whose members include 19 of the world's 20 biggest steel makers, said on its Web site that the competition authorities should block the planned takeover.
Iron ore prices have tripled in the past five years on increased Chinese demand. Next year, contract prices for the commodity may rise by 50 percent, Macquarie Group estimated last month.
Kloppers met Tuesday with Posco's chief executive, Lee Ku Taek.
"We think this is a good proposal for shareholders and customers, but we have a lot of work to go through," Kloppers said before the meeting.
Kloppers said a merger could mean $3.7 billion in annual savings after seven years through synergies in iron ore, coal and other activities.
"We think the overlap of the operations, the fact that we have a solution on how to put the companies together, and the benefits is a very good proposition," he said Tuesday.
The concerns come as BHP's chief executive, Marius Kloppers, travels the region seeking support for the proposal.
Posco, the South Korean steel maker, said Tuesday that a BHP-Rio combination would increase concentration in raw material supplies.
"We are concerned about it and we think it's not desirable," said Kwon Young Tae, executive vice president in charge of Posco's raw materials department.
The China Iron & Steel Association has also voiced objections to the proposed deal, publishing a statement on its Web site that said the merger would create a monopoly.
Today in Business with Reuters
Alitalia board accepts €747 million bid from Air France-KLM
U.S. central bank chief shifts to crisis mode
China brokerage rethinking Bear Stearns stake
The world's three biggest iron ore producers - BHP, Rio Tinto and the Brazilian mining company CVRD, or Companhia Vale do Rio Doce - account for more than 75 percent of all global iron ore trade, the statement said.
"We do not want to see this merger create an even bigger monopoly," it said, adding that as the world's biggest steel producer, China had the most to lose, and that it relied on imports from Australia for 38 percent of its iron ore. "This is not a good thing."
BHP is pursuing the bid after an offer of three of its own shares for each one of Rio's stock was rejected.
Combining BHP, the world's biggest mining company, with Rio would create a group with 38 percent of the world's seaborne iron ore trade, according to Australia & New Zealand Banking Group. CVRD has a similar share.
Kloppers has said that the proposed combination of BHP and Rio would allow the new company to produce more iron ore at a lower cost.
The proposed union is "a powerful proposition for customers," he said.
Still, Hajime Bada, president of the steel division at Japan's JFE Holdings, said Monday that the would-be merger "will be harmful to the fair trade of iron ore and high-grade coking coal."
The International Iron & Steel Institute, whose members include 19 of the world's 20 biggest steel makers, said on its Web site that the competition authorities should block the planned takeover.
Iron ore prices have tripled in the past five years on increased Chinese demand. Next year, contract prices for the commodity may rise by 50 percent, Macquarie Group estimated last month.
Kloppers met Tuesday with Posco's chief executive, Lee Ku Taek.
"We think this is a good proposal for shareholders and customers, but we have a lot of work to go through," Kloppers said before the meeting.
Kloppers said a merger could mean $3.7 billion in annual savings after seven years through synergies in iron ore, coal and other activities.
"We think the overlap of the operations, the fact that we have a solution on how to put the companies together, and the benefits is a very good proposition," he said Tuesday.
Tumbling dollar, inflation and short supply behind gold rally
A tumbling U.S. dollar, inflation fears and supply shortfalls have driven up gold price, which briefly pushed past the psychologically important 1,000-dollar mark for an troy ounce on Thursday, analysts said.
Gold price rose sharply last year with a 32-percent rally and was up 20 percent this year. Analysts have believed hitting the 1,000-dollar level was just "a matter of time."
The devaluation of the dollar is the main driving force for gold's price hike, analysts said. The plunging U.S. currency made dollar-denominated assets like gold look cheaper and therefore helped drive buying by investors with stronger currencies.
"It's an investor-driven story, with the investor demand coming from U.S. dollar weakness," said Daniel Hynes, metals strategist at Merrill Lynch. Hynes predicted the trend would not abate "anytime soon."
Growing fears about a shaky U.S. economy and the Federal Reserve's interest rate-cutting campaign have plunged the greenback to record lows against other major currencies, especially the 15-nation euro.
The euro rose to a new high of 1.5625 dollars before falling back to 1.5587 dollars in late New York trading, still above the 1.5526 it bought late Wednesday. The dollar traded as low as 99.75yen before recovering to 102.04 yen Thursday.
For now, market players still expect a further interest rate cut by the U.S. Federal Reserve at its rate-setting session next week. A rate cut could add to the weakness of the dollar and drive up gold.
Secondly, worries about rising inflation have prompted investors to rush into gold to hedge against the risk.
U.S. consumer prices rose 4.1 percent last year, the fastest growth since 1990, and latest U.S. data showed inflationary pressure picked up recently.
The drivers for gold remain as investors buy precious metals to create a safe haven against inflation, a U.S. futures analyst said.
Besides, short supply has also contributed to the surge of gold. Supplies were not sufficient due to fast growth of investment demand and a limited increase in output.
Gold output stood at 2,477 tons in 2006, hitting a 10-year low. At the start of the year, power shortfalls forced some gold mines in South Africa, the world's second largest gold producer, to suspend production, leading to gains in gold price.
Back in the 1980s, gold reached 873 dollars an ounce, which is tantamount to 2,235 dollars now when inflation is taken into account. Given that, many analysts believe the current price is still well below historic highs and could rise further.
But other analysts warn risks may accumulate with every gain in gold price. The price could fall on profit-taking, they said.
Gold price rose sharply last year with a 32-percent rally and was up 20 percent this year. Analysts have believed hitting the 1,000-dollar level was just "a matter of time."
The devaluation of the dollar is the main driving force for gold's price hike, analysts said. The plunging U.S. currency made dollar-denominated assets like gold look cheaper and therefore helped drive buying by investors with stronger currencies.
"It's an investor-driven story, with the investor demand coming from U.S. dollar weakness," said Daniel Hynes, metals strategist at Merrill Lynch. Hynes predicted the trend would not abate "anytime soon."
Growing fears about a shaky U.S. economy and the Federal Reserve's interest rate-cutting campaign have plunged the greenback to record lows against other major currencies, especially the 15-nation euro.
The euro rose to a new high of 1.5625 dollars before falling back to 1.5587 dollars in late New York trading, still above the 1.5526 it bought late Wednesday. The dollar traded as low as 99.75yen before recovering to 102.04 yen Thursday.
For now, market players still expect a further interest rate cut by the U.S. Federal Reserve at its rate-setting session next week. A rate cut could add to the weakness of the dollar and drive up gold.
Secondly, worries about rising inflation have prompted investors to rush into gold to hedge against the risk.
U.S. consumer prices rose 4.1 percent last year, the fastest growth since 1990, and latest U.S. data showed inflationary pressure picked up recently.
The drivers for gold remain as investors buy precious metals to create a safe haven against inflation, a U.S. futures analyst said.
Besides, short supply has also contributed to the surge of gold. Supplies were not sufficient due to fast growth of investment demand and a limited increase in output.
Gold output stood at 2,477 tons in 2006, hitting a 10-year low. At the start of the year, power shortfalls forced some gold mines in South Africa, the world's second largest gold producer, to suspend production, leading to gains in gold price.
Back in the 1980s, gold reached 873 dollars an ounce, which is tantamount to 2,235 dollars now when inflation is taken into account. Given that, many analysts believe the current price is still well below historic highs and could rise further.
But other analysts warn risks may accumulate with every gain in gold price. The price could fall on profit-taking, they said.
Thursday, 8 November 2007
Should Tata Motors Buy Jaguar and Land Rover?
Should Tata Motors Buy Jaguar and Land Rover?
Tata Motors, India's largest car maker, has been in the news for the past month because of reports that it is interested in taking over Jaguar and Land Rover, two marquee brands that Ford Motor Company has put up for sale. The Tata Group made a huge acquisition last year when it acquired the Dutch company Corus for more than $12 billion, making Tata-Corus one of the world's largest steelmakers -- and some analysts believe that by pursuing Jaguar and Land Rover, the Tatas are trying to hit another home run. But does it make economic sense for Tata Motors to take over these two iconic brands from Ford? What could Tata Motors do for Jaguar and Land Rover that Ford could not do? India Knowledge@Wharton discussed these questions and more about India's fast-growing car industry with Wharton's John Paul MacDuffie, a management professor and co-director of the International Motor Vehicle Program.
: Does it make economic sense for Tata Motors to take over Jaguar and Land Rover from Ford? And, what would Tata Motors do for these iconic brands that Ford could not do?
I think that there are probably several interested buyers of Jaguar and Land Rover that may share certain attributes. I think for a company in a developing country that's looking to put itself on the map in this industry, particularly Tata, which would not be a new entrant, but certainly with passenger cars and certainly in this high end luxury segment, they would be very new. And, as a former British colony there might be a certain sense of pride in acquiring the "Jewel in the Crown" so to speak.
One of the advantages that you might imagine is that India is a low cost manufacturing base. This is not very much a factor here. I suspect that as a condition of the sale that Ford would insist that the buyer not move manufacturing outside of the UK -- at least not right away. There are a lot of political sensitivities in the UK about that with respect to the auto industry.
Tata has admirable cost reduction skills as they have shown in the development of the Indica, which is a small car. And there is great excitement and impatient interest in the so called $2,500 or Rs 1-Lakh car which Tata has been promising for some time. People have looked at this closely and think that Tata has a lot of the skills to really do that. So the company that is quite savvy about cost control can probably apply those skills even to a luxury car segment.
Ford has been investing in Jaguar and Land Rover. Land Rover actually sells at a pretty good margin; Jaguar is more financially troubled. Ford is selling not so much because these brands are in the worst trouble that they've ever been in, but simply because Ford's overall crisis and Mulally's desire for focus is pushing them towards just concentrating on the core business.
So Tata or any new buyer could pick up these firms presumably at a pretty good price and at a point where they are already on the upswing towards being in better shape. And that might make it easier to look triumphantly like you've managed them beautifully.
News reports suggest that while India's car market is smaller than China's, it's growing at 20% a year, which is faster than the Chinese market. What factors are driving this growth and what are the implications for global auto companies?
Forsome time the fact that the China market growth rate was so much higher than India was attracting some attention for similar reasons. People expected that the opportunities were pretty large in both. I think that perhaps the main factor is that we are talking about economic dynamics affecting the per capita income of people where there's quite a lot of price elasticity.
So if the price of vehicles comes down a rather small amount, there are a very large number of people who suddenly can imagine purchasing a car. These are particularly people with some rising income levels of their own. The competition that causes the prices to drop and the other economic trends that are raising incomes can suddenly bring a large number of people over to what is sometimes called the motorization threshold. This is the point where people suddenly feel that they are able to buy a vehicle. I think that is probably the main thing.
Of course the outside investor interest in India has grown in recent years. People rushed first into China and then a little more slowly into India. But India then looked less crowded competitively, so that brought sort of a second rush. Perhaps the main constraint in this that has affected some of the investment, is that the infrastructure in India is really not adequate to take on a lot of new vehicles.
China governmentally at different levels has recognized this for a long time and they have been pouring huge amounts of money into new highways and other infrastructure. India has not. So we could have years of terrible, even worse congestion in India before that gets solved. But, my guess is that it might break some political logjams on the infrastructure side, if market growth continues.
Looking at the big Japanese automakers -- Toyota, Honda and Suzuki -- all of them have been expanding capacity in India for the past few years. Could you comment on the strategies that these companies are adopting in India? And do you think that they ought to be focusing more on the domestic Indian market -- which I believe, right now, is about 1 million cars sold a year but is projected to grow by 2012 to about 3 million cars. Should they focus on the domestic market or should they use India as a base to export cars to other markets?
There's a slightly different story about each of the companies that you mentioned. And you left out one that I think should be included which is Hyundai, the Korean Company. Suzuki has by now a pretty long history in India, having come in as a partner in Maruti which was half owned by the Indian government. And, partly because of that government investment and some other favorable regulations, Maruti at one time had a staggering 80% of the market, at the very small car end, and they really represented the first sort of modern automotive technology to come into India in some time. This was back now some 20-plus years.
The government has just in May of this year completed the selling of all of its ownership of Maruti. Suzuki now has a controlling 54% share. Suzuki has poured a lot of new investment into the Maruti plants and into expanding the Maruti product line. The classic automotive models like the Ambassador are perhaps a historical legacy in India. They often had very long lives because it wasn't easy to replace them and you could get them repaired any place in the country. There was a huge amount of expertise, spare parts and the like.
Maruti is starting to benefit from the same thing; If you've got a Maruti, you can get it repaired anywhere and you can keep it on the road for a long time. Suzuki is going to try to take advantage of all of that head start lead that they have. Toyota came in much more recently and decided initially not to come in at the very low end of the market, but at a slightly higher end. My sense is that they slightly misgauged how much demand there would be at that level. The product didn't sell as well as expected, although they have gotten some valuable experience there.
They, just like everybody, are trying to find just the right low cost car to bring into India to catch some of this swelling demand. I think the other Japanese companies like Nissan are in not terribly different situations. Honda generally comes into every country with motorcycles first, so that's where more of their Indian investment has been, but they're also aiming to grow.
Hyundai is the real surprise. They came in relatively [recently] and built a plant that was almost an exact duplicate of a plant in Korea. This included lots of automation, which you wouldn't expect. They made the Sonata, which is a fairly mid-sized upscale car. But they also then brought in some small cars and managed to bring the price point down enough so that they have had really spectacular growth. And they have done some savvy things with their marketing to align their products with some iconic Indian images and people. In a way, they are the biggest success story of all of the newcomers in the Indian market and they are going to be tough competitors.
Last month, Toyota's chairman, Fujio Cho, was in New Delhi and he said that in the next couple of years Toyota is planning to launch a new small car. They considered a lot of different countries, but he did say that India might well be the first country where they launch it. Now, given everything that you just said about Suzuki and the popularity of the Maruti in India, do you think that Toyota will be able to take on Suzuki in the Indian market? And if so, what should their strategy be?
MacDuffie: Toyota is a very able competitor, as we all know. Overtaking Suzuki and let's say Hyundai, as the most successful newcomer, probably depends on, first of all, getting the product right. Toyota had rather slow sales in Europe for quite a number of years, in which they mostly took models that were world models sold also in Japan. When they finally focused design effort and actually set up a design studio in Europe and produced a small car just for the European market, they suddenly started to take hold. They were doing lots of other things at the same time.
I would assume that they have India in mind as the first place that their design efforts are very much focused on consumer acceptance. That will be necessary from a styling and feature point of view, but probably price point will be the most important. Everybody is trying to innovate in every possible way to get the price point low enough.
Some of that involves the re-use of components from other vehicles; some of it involves judicious decisions about where you can cut back on lighter weight steel, and what paint jobs [you can use] that aren't based on dealing with road salt in the northeast U.S. It's the creativity to get the right mix of those kinds of cost cutting moves. I expect that Toyota will be very good at that and a lot of other companies will be trying.
If you have the right product at the right price point -- then I think the Toyota advantages of a strong brand will kick in very strongly. Now again, Maruti has been perhaps a bit of a national favorite. Although, people know of course, that Suzuki is behind Maruti. Probably Tata, as Tata becomes stronger, will be even more the national pride purchase for an Indian consumer.
The Hyundai example again suggests that right product and right price, smart marketing and moving quickly are the key. Perhaps I will just say that Toyota is often a bit cautious and careful. And if speed does end up mattering, that may slow them down. But they have a tremendous track record for steady improvement and learning from their mistakes better than almost anybody. I think that if we look out five to ten years, we can expect Toyota to be strong
Among the U.S. auto industry's many challenges are the ongoing negotiations between General Motors and The United Automobile Workers Union aimed at coming up with a new contract to replace the one that expired on Saturday. A major sticking point seems to be GM's plan to turn over health care expenses to the UAW, by way of a trust that would cover GM's unfunded health care obligations to employees, retirees and their families. How would a trust work and why would the union agree to this?
MacDuffie: Those are very good questions and there are negotiators laboring away in windowless rooms right now, in the Detroit area, trying to solve them. This is probably the most striking feature of what I think are correctly labeled historic negotiations this year between the UAW and the Big 3. GM was picked as the first target [because it is] probably the healthiest financially at the moment. This is not to say that this makes them all that healthy.
The trust is something that has been done once before on a kind of experimental basis in the auto industry, both at GM and Ford. It puts funds into the trust which can be used for health care liabilities and the trust is then managed by the union. After the GM and Ford experience, this has been used twice with supplier companies. Both Goodyear and then, more recently, Dana negotiated these VEBAs [Volunteer Employees Beneficiary Association Plan].
So, there is beginning to be a little bit of experience with them. But the scale of what would be involved to do this for GM is of such a magnitude that it would be difficult to predict exactly what will happen.
Billions, like $50 billion, $55 billion?
Exactly. One of the big issues is how much money gets put into the fund up front and where does that money come from? The companies would like to put in as little as possible at the beginning and hope that the funds they put in will accrue at a rate that will cover the eventual liabilities. People will be retiring over time -- these costs are not incurred all at the beginning. The union would like that amount to be as high as possible.
If we look at the precedent, both the Goodyear and the Dana settlements were funded at about 70% to 71% of the calculated health care liabilities. In the run up to these negotiations, analysts were saying that GM would probably shoot for 50% -- wanting to fund at a level of 50%. The UAW would be thinking of something more like 90%. So already that reveals a big gap; those percentages apply to very big numbers.
The next issue is where does the money come from? Is it put in as cash, or is it put in as stock? If a lot of it is based on stock, then the future amount in the fund depends on the future stock performance. So that's a kind of bet by both sides on exactly what the future performance of the company will be.
Just from some of the press coverage that I've seen, I understand that there is talk of some contingencies that would deal with unexpected future events affecting the total amount in the fund. I guess one possibility that this contingency would cover is what if the fund generates huge surpluses? What if the U.S. implements a national health care plan and suddenly a lot of those costs are taken off the back of the fund? So there would be a provision to handle that, probably more importantly for getting the union support and also some provision if the funds run out.
Part of the experience with the small experiments at GM and Ford was that the funds ran out much sooner than expected. So the union has that in their very short-term memory as a risk.
There's a pretty big gap between the 50% figure that GM wants to fund it with and the 90% figure that the union wants GM to fund it with. Where do you think they'll end up?
It's hard to predict because I think it will be combined and interacted with many other features of the deal. But, I think that the union will be aware of the political risks for the union leadership [if they bring] forward a proposal that looks like it's giving away these hard won health benefits or putting them at risk.
After all, the leadership can only put together a contract -- but it has to be voted on by the membership. The health care concessions that the UAW made to both GM and Ford in the last couple of years were approved by a very narrow margin. In fact, at Ford it was narrow enough to make everybody very, very nervous. So if they put together a deal that doesn't get ratified, then it's much more politically complicated to put a new package together.
What's your prognosis of how the deal will work out this time overall?
: Well, my sense is that both sides are ready to try to do something very different here. I mean they could end up with something that is more of a continuation of past patterns -- but it wouldn't really deal with this health care problem. My guess is that there's a lot of energy going into trying to find a creative solution to this. That will probably push up the level higher than GM originally wanted. But it will probably be less than the union wanted because of some of these contingency plans which may reassure some of their concerns.
You know, with the Goodyear and Dana benchmarks of around 70-71%, and given that the automaker workers have thought of themselves as kind of the aristocracy of the blue collar, for them to take a deal that's not as good as the Goodyear and Dana workers would be tough. So I wouldn't expect it to be below that level.
If we can switch gears and talk about Chrysler for a moment. A few weeks ago there were reports about them hiring away James Press, the head of Toyota's North American operations. And, of course they have their new CEO, Robert Nardelli. What do you think the outlook is for Chrysler in the coming year?
Well this is another, in a sense, completely new terrain. There's never been another automaker owned by a private equity firm and perhaps no private equity firm owning such a large and iconic company. So there are a lot of things to watch. The new owners did state, very clearly, that they intended to invest and rebuild Chrysler. They were not interested in what many often assume is the basic private equity motivation, which is to turn and flip the assets quickly.
It was quite important to get the head of the UAW to say that he would support the deal. And in putting together what some consider a kind of dream team of automotive and executive talent to run Chrysler, it seems to back that up. Now, Nardelli's reputation from GE, but even more from Home Depot, is certainly as a cost cutter more than anything else. So that perhaps brings some anxieties on what his preferred and natural approach will be.
Many people, and I would agree, have thought that Chrysler's problems are more on the revenue side than on cost side. They've got to get their product mix right and begin to attract consumers on that basis. Jim Press, on the other hand, has an absolutely stellar record of building Toyota sales in North America and is a proven revenue booster. You know, Toyota has had people poached from them during the years that they have been so successful in the U.S. before -- but never an executive who was anything like the level of Jim Press.
And of course Jim had recently been appointed as a member of Toyota's Board of Directors -- the first non-Japanese in that position. So if I think of examples where other people have left Toyota with the intention of applying Toyota's methods in another company, it turns out that there's an awful lot in the broader organizational culture and organizational systems that make it possible for that person to execute so well. Jim will be stepping away from all of that at Toyota and into a different situation.
On the other hand, sales has always been more customized to the market, and the Toyota sales organization in the U.S. has very successfully, I think, argued with Japan about the best way to sell cars in the U.S. So, these are not really the things that he will bring in terms of insights into selling cars in the U.S.... It's a question of whether the people and the systems and the culture behind it will work.
My sense is that Jim Press was approaching probably the last few years of his career at Toyota, where they quite strictly do ask people to retire at a certain age. This Chrysler opportunity was a challenge probably greater than any he would have been offered at Toyota.
I have a couple of questions about Nardelli. First, I wonder if you have any first impressions of how he is doing. And second, at Home Depot he faced certain interesting challenges in dealing with shareholders which are particularly relevant because Home Depot is a public company. Now, in an environment that is controlled by a private equity entity, I wonder whether you feel his leadership style will be a positive or a negative in this new context.
Well, he won't have to deal with shareholders, so that's the first obvious plus. Although, people talk about this being a kind of redemptive opportunity for him; he might look for opportunities to redeem himself on that front as well. I think running an auto company is a big and complicated job even if you come from within the industry. He obviously comes from outside.
Alan Mulally at Ford has shown quickly that he's determined to have a clear and simple strategy; to remove various obstacles to that, to stay focused on a few central challenges and then to work closely with the people who really know the business. So, to see Nardelli and the other people at Cerberus putting together a strong team is a good sign. How Nardelli then manages that team, I think is the real key.
It's certainly true that there were many reassurances at the time that the sale was announced that the cost saving plan, which Dr. Zetsche from Daimler Chrysler had announced, was as far as they were going to go with cost cutting. But I did see recently that Mr. Nardelli said in light of the sub-prime crisis, in light of the credit crunch and in light of the impact on car sales, there might need to be a reexamination of that. So, that seems true to form and would again perhaps stir up some anxieties that he'll reach for the cost cutting lever first.
With all of the fall-out from the sub-prime mortgage crisis and hints of less consumer spending and lower consumer confidence, what's the outlook for the auto industry?
Well, it's sensitive to interest rates and it always has been. Cars have a longer life than they ever have. Often upgrading a vehicle or getting a new vehicle at the end of a lease is more of an option than an absolutely necessary activity. I think it is in that sense an immanently postponable thing for people. And the U.S. has a very thriving used car market which is where people often turn if they are feeling pinched.
The other variable is gas prices and product mix, particularly of the Big 3 automakers. Products that are relatively expensive and not very fuel efficient are going to be even more vulnerable. But anyone who truly needs a car and wants some of the new fuel efficient offerings that are relatively new in the market, probably has to go to the new market, or perhaps to a part of the used car market. I don't expect a deep, deep drop. But these are conditions that will make it harder for GM, Ford and Chrysler precisely at a time when they could have used a boost.
I'd just like to end with a question about China. There have been news reports about a car price war in China that's eating into the profits of companies like GM, VW, Hyundai, as well as China's own auto manufacturers. This is obviously good for consumers. What are the implications for the companies and could this type of price war occur in other countries, or is China unique?
MacDuffie: That is a fairly familiar pattern of a gold rush mentality in which a very rapidly growing and promising market, first of all, provides phenomenal returns to some of the first movers who get in and start to establish a dominant position. Often that advantage does lag for a while, even when other newcomers come in.
But everybody is benefiting and at a certain point, even with rapidly growing markets, it's suddenly a crowded market place. Then the price competition starts to erode things. Sometimes those that have made the least commitment will actually back out of markets. This was a story in Brazil, for example, in the mid 1990s, when there was also a lot of turbulence in government regulation and tax policy which heavily affected those trends.
The consumer credit picture in China has jumped around a bit and that's affected demand. But ... nobody is going to leave China. It's too big and important. Everybody is going to want to hold on to a piece of that market rather than concede it to the Chinese domestic companies that are coming on strong.
I think everybody believes that there are things to learn from the pursuit of these low cost cars that can apply to a lot of the rest of their business. So, both in China and in India there are incentives to stay in that game. It wouldn't surprise me if, in a few years, the same phenomenon is showing up in India for a similar reason.
Sunday, 7 October 2007
The Face of britain after 2010
Four major events will occur by 2010 that could have a devastating effect on your wealth.
First, let me show you exactly what these 4 landmines are, and where the biggest opportunities lie today...
Landmine #1: Even higher energy prices will crush the bull market in stocks
I'm sure you've felt the effects of rising energy prices in recent years. In 2006, for example, electricity bills in the U.K. rose 27% on average, and gas bills jumped 40%.
This was only the first sign of things to come. Energy costs are locked into a worldwide uptrend that will probably last the rest of your life. They are the product of a supply/demand squeeze, caused by the tremendous economic growth and industrialisation taking place in Asia. Unfortunately, it is a situation that will only get worse. In fact, our analysis suggests that within a few short years, the oil squeeze will cause energy prices to double, undermining both stock market returns and the world economy.
Consider, for example, that India's economy has been growing by more than 8% a year for the past four years, while China's annual growth rate has risen from 7% in 1999 to 10.5% today. That's nearly four times that of the U.K., and three times that of the U.S. This rapid Asian growth is pushing up demand for all types of commodities, including oil - which is why oil prices have climbed nearly seven-fold since 1998.
And yet, in Asia, per capita consumption of everything, including energy, is still very low compared to the West. While the average Brit consumes 10.4 barrels of oil per year and the average American burns through 26 barrels, the Chinese use only 1.5 barrels per person, and the Indians less than one barrel.
4.4 billion people all wanting fridges and cars means a HUGE demand for oil, whilst oil production is probably now in decline
As economic growth raises the average Asian's standard of living, his energy consumption will grow too. Soon every Chinese family will want a car. Every Indian family will demand a refrigerator and an air conditioner. Bearing in mind that China and India alone hold 4.4 billion people, the amount of additional oil needed to meet Asian demand will be staggering.
In fact, the International Energy Agency expects global oil consumption to rise by 50% in future years - largely as a result of Asian growth.
Rising oil demand would not be a huge problem - if oil production could increase by an equal amount. But no one has discovered a major oil field in nearly four decades. Instead, a growing body of evidence suggests that global oil production peaked in May 2005, and has already begun to decline.
American oil production, for instance, has been falling since 1970, despite the U.S. having the best technology in the world. Oil production on the North Sea started dropping in 1999, with the result that Britain is now forced to import oil from abroad. Today, we're also seeing oil output declining in countries such as Mexico, Kuwait, Russia, and Venezuela. Iran, currently the world's fourth largest oil exporter, has just introduced petrol rationing to avoid becoming a net importer in a few years!
In fact, the only countries where anyone believes oil output can still increase are Iraq (which we can't count on anytime soon) and Saudi Arabia. And Saudi Arabia is hardly a safe bet. According to analysis by Matthew Simmons, former energy advisor to U.S. President George W. Bush, Saudi Arabia has far less oil than it officially claims, and may be at its maximum production already.
I'm not saying the world will run out of oil, but from now on it will be harder and harder - if not impossible - to pump enough oil to satisfy demand. And that will lead to ever higher oil prices. Commodity expert Jim Rogers believes oil will reach $150 a barrel within a few years, more than twice what it costs today. If you think £1 is too much to pay for a litre of petrol, just wait. In a few years, it will seem like a bargain.
Of course, while the energy squeeze will certainly lead to economic hardship and lower profits for most corporations, it is also creating some spectacular investment opportunities.
Get ready to make triple-digit profits from oil shares!
As energy becomes more expensive, companies in the energy industry will see their profits expand exponentially. I would not be surprised to see some energy stocks double and triple in value in coming months. It's the one industry I feel you must have in your portfolio.
That's why, for the past five years, the team at MoneyWeek has been helping investors make money from leading oil shares. In August 2002, when many analysts were predicting oil prices to fall, in response to a "quick" victory in Iraq, we told our readers to BUY 4 oil companies poised to benefit from Asian growth and Venezuelan instability. By the end of 2005, oil prices had soared 115%. Those who heeded our advice made...
100% from Sibneft236% from Surgutneftgas275% from Lukoil300% from Premier Oil
One of our more recent picks, Heritage Oil is up 758% since we tipped it!
And as the oil squeeze continues, we'll help you find equally promising opportunities in the energy industry.
Opportunities such as 2 undervalued oil majors you can buy now for cheap, and watch skyrocket as the oil squeeze tightens.
Which downtrodden, overlooked industry could become the next big source of gains as oil prices rise.
The world's leading supplier of oil exploration equipment and services - whose fees (and revenues) are set to rise 75% this year.
Cutting edge developers of alternative energy, whose technology will become increasingly in demand as oil prices soar.
11 ways to cash in on the global rush to build nuclear reactors.
"Money Week encouraged me to go 100% oil, and I have gone £38K to £62K in a year." Garry Morrow, N Ireland
But while the oil squeeze may be the first of the Financial Landmines to hit the markets, it's by no means the scariest. You also need to be prepared for...
Landmine #2: The return of 1970s-style inflation will erode "safe" income streams, while making life more expensive
As oil prices rise, they add to the cost of everything - from getting to work each day, to transporting food to your table, to manufacturing virtually every product you buy. Another word for rising prices is, of course, inflation. And soaring inflation is the second landmine that will attack your savings over the next few years.
If you're old enough to remember the 1970s, then you know skyrocketing oil prices can drive inflation into double figures. During the 1970s, as OPEC embargoes forced oil prices from $5 to $40 a barrel, inflation in the U.K. averaged 13% a year - reaching a high of 27% in 1975. This time however, oil supplies are not tightening for political but for geological reasons - which means a solution will be much more difficult to find.
Every investor needs to pay attention to inflation, because rising inflation can cripple returns from nearly all investments, even those traditionally considered "safe." It increases expenses, reducing corporate profitability and share price gains. And it eats away at the returns from bonds and cash. For instance, if you keep your savings in bonds that pay annual interest of 6%, but the inflation rate climbs to 13%, then you will lose 7% of the purchasing power of your savings each year. That's what happened in the 1970s, and is likely to happen again.
Earlier this year the Consumer Price Index breached the Bank of England’s inflation target for the first time since it was introduced. It has since eased back a little, but don’t be fooled. Food prices are soaring, oil prices are higher than most experts believed possible this time last year, and crucially, the supply of cheap goods from China – which has helped keep official inflation down in the West – may be drying up, as manufacturing costs and soaring wages push up prices in the East. As energy and commodity prices continue to rise over the next decade, we expect to see inflation return to double figures once more. And when it does, the last place you want your money is in so-called "safe" investments, such as bonds. They won't be safe any more.
Of course, while rising inflation dampens the returns from most investments, it creates new opportunities in areas most investors will miss. Let me give you an example...
Be amongst the first to profit from the push for alternative fuels
Inflation is already becoming a problem in the food industry. Food prices are now increasing at a rate of 6% annually - the highest rate in a decade. Fish prices rose 12.6% in the past year. Vegetables are up 10.2%.
Several factors are causing food prices to climb - including rising wealth in Asia and climate change. But what may surprise you is that the oil squeeze is also a major factor. You see, as developed nations become more concerned about future oil supplies, they are promoting the use of new fuels made from agricultural products. Europe wants biofuels to meet 10% of energy demand by 2020. By 2012, half the cars made in the U.S. will be designed to run on 85% ethanol, a biofuel made from corn.
One consequence of producing more biofuel is that food becomes more expensive. For instance, the U.S. ethanol policy has already caused corn prices to hit a ten-year high in the spring of 2007. That's in spite of the fact that 2006 saw the third-largest crop on record. Protests took place in Mexico because the price of tortillas rose by 60% to 70%.
As the U.S. increases its ethanol production, corn prices will continue rising. And as they do, so will demand (and prices) for other grains, as people substitute wheat or rice for corn. Meat prices also climb, since most corn has traditionally been used to feed livestock. Higher meat prices will in turn raise demand for fish. And as more land becomes devoted to growing corn and other biofuel crops (such as rapeseed and tropical oils), less will be available for food production, adding to the supply/demand pressure, food prices, and inflation.
But while rising food prices are making life more expensive for everyone, they are also creating new opportunities for smart investors to profit. Taking advantage of these opportunities is an excellent way to preserve and grow your wealth as inflation rises. For example, we expect investors in food commodities and agriculture will make excellent returns as the push towards biofuels continues. That's why we'll keep you informed about such opportunities as...
How to use exchange-traded commodities (ETCs) to profit directly from rising food prices - and the 2 best diversified plays.
The 3 food giants best positioned to pass on higher food costs to consumers, and grow their earnings (thanks to their dominant market positions).
5 agricultural businesses whose shares will soar as nations struggle to increase crop yields to meet rising food demand.
4 companies that will profit from America's ethanol rush.
How to make substantial profits from the weather-driven ups and downs of 7 key soft commodities.
Of course, you may be asking, "Couldn't the Bank of England halt the rise of inflation by raising interest rates?" In theory, yes. The problem is that raising interest rates high enough to curb inflation runs the risk of detonating a third financial landmine...
Landmine #3: The collapse of the property bubble will devastate householders and turn "buy-to-let" into "buy-to-lose-money"
Since 1776, real estate prices and the economy have followed an 18-year cycle. The general pattern is 14 years of stable or rising prices, followed by four years of recession. In the light of this pattern, MoneyWeek advised readers in 2005 that the property market would experience two final years of rising prices, driven by reckless lending, before the next downturn began.
Now it's two years later, and the property boom is reaching its peak. Worldwide real estate markets have become dangerously overblown. In the U.K., property prices have risen 156% since 1996. In the U.S., they've doubled. And record high prices are occurring throughout Latin America, Africa, and Asia. Even concrete dwellings in Afghanistan, without running water, now sell for $300,000 - six times their cost two years ago.
The risk, as with all housing booms, is that property eventually becomes unaffordable for the average buyer, leading to a collapse in demand. According to the Land Registry Office, the average house in the UK now costs £211,000. If someone were to buy such a house with a typical 6%, 25-year, variable rate mortgage, he or she would pay roughly £1,264 a month. Unfortunately, the average worker only earns £1,550 a month - which means their housing costs would eat up 90% of their earnings! Not many households can manage such payments.
Nor are the deals any more appealing in the buy-to-let market. Last year, 58% of all mortgages sold were to speculative buyers, including buy-to-let. Yet, rental property yields owners just 3% income on average. That's less than what you can make in gilts. If you have to pay 6% mortgage interest on your rental property, you are probably losing money.
In fact, the only motivation for investing in buy-to-let right now is the hope that property prices will continue climbing - so that you can make a profit when you sell. And the only thing that's kept property prices rising is today's extraordinarily low interest rates.
Alert! History tells us that interest ratescould now practically double
This leads us back to the problem of inflation. You see, the Bank of England has kept interest rates low in recent years because it has been trying to stimulate the economy and ward off recession. (The housing boom was a side effect.) For comparison, in 1991, the last time inflation was as high as it is now, interest rates were close to 10%. Yet today they are a mere 5.75%.
The problem with low interest rates is that they allow inflation to keep rising. This puts the Bank between a rock and a hard place. If it raises rates to curb inflation, it risks recession. And if it lowers rates to stimulate growth, inflation rises.
So far, the Bank has tried to maintain a balancing act, raising rates as cautiously as possible - a mere 1% since last summer. But even slightly higher rates makes keeping up the mortgage payments on the family home much more difficult. Home repossessions are already at their highest rate in five years. According to Dr. Neil Blake of Business Strategies, if interest rates rise by just 0.75%, we could see 55,000 repossessions. That would certainly put a cap on housing prices.
As property prices stop rising, owners of rental property and other speculators will see their potential profits disappear. They will cease buying, and instead try to cut their losses by selling properties as quickly as they can, forcing prices down even faster. The result would be the end of the property bubble, and a decline in property values.
Ultimately, we believe the Bank of England will fail in its balancing act. It will neither increase rates fast enough to contain inflation, nor keep them low enough to prevent recession. According to the 18-year cycle, 2007 will be the last year when economic growth will occur. After that, a new recession will begin. But this time it will happen alongside rising inflation.
The result will be stagflation, that nightmare of the 1970s that gives investors the worst of both worlds. It will be a time when both unemployment and the cost of living rise at the same time. What's more, we believe this period of stagflation will be accompanied by a 20% to 30% decline in property values. If you own rental property, you may have only a few months to get out while prices are still rising.
Again, however, there are steps you can take today to avoid being hurt by this third landmine. In fact, there are ways you can make a considerable amount of money as the property bubble bursts. My team can show you...
2 stocks to sell short when property prices plunge - turning other people's loss into your windfall.
The newest buy-to-let scheme which you must avoid, because it will cost average investors big time.
The one country where real estate prices will continue to soar over the next few years - and your 5 best opportunities to profit from this trend.
One type of property you absolutely must avoid during the coming downturn.
... and many other ways to protect and grow your assets as the economy moves into stagflation.
However, there is still one more landmine I need to warn you about...
Landmine #4: The impending US dollar crash & the end of paper wealth
Over the past five years, the American dollar has fallen some 20% against other major currencies. This is an important trend to watch because many of the biggest companies in the FTSE 100 earn a sizeable percentage of their revenues in dollars. A falling dollar could eventually drag down share prices.
More importantly, the U.S. dollar has been the world's reserve currency for many years. A collapse, or even a serious run on the dollar would threaten the stability of the world's financial system.
Unfortunately, the fundamentals for the dollar are uniformly bad. In the first place, economic growth in the U.S. appears to be slowing. This year, the IMF expects the U.S. to underperform Europe. The Federal Reserve will therefore be under pressure not to raise interest rates (or even lower them) at the same time that rates are rising in Europe and Asia-Pacific. This makes the dollar less attractive to investors seeking income.
At the same time, inflation is rising in the U.S. at the highest rate in 10 years, just as it is here. Rising inflation is simply another way of saying dollars are becoming worth less - another reason not to own them.
Investors must also be concerned with the high level of government debt in the U.S., which currently exceeds $8.6 trillion - the largest debt anyone, anywhere, at any time in history has ever amassed. Would you want to lend money to such a spendthrift? Most likely holders of U.S. bonds will be trading them in over the next few years in exchange for something more secure. And this will put further downward pressure on the dollar.
And then there's the problem of the U.S. current account, which shows the balance of goods, services, and money flowing into or out of the country. Since 1990, the U.S. has been incurring ever higher deficits in its current account. Right now, the deficit stands at 6% of GDP. This is the level at which any smaller nation would experience a run on its currency. It's clearly unsustainable.
The rule of thumb among economists is that it takes a 10% drop in a currency to cause a 1% drop in the current account/GDP ratio. According to the Economic Policy Institute, this implies the dollar needs to fall at least 30% to 40% to reach a sustainable level.
Of course, when the dollar falls, other currencies go up. So you can protect yourself somewhat by investing in securities not denominated in U.S. dollars. Don't buy U.S. bonds. And don't buy shares in companies whose earnings are in dollars.
The real danger: a meltdown of the global financial system
The real danger, however, is that a collapse in the dollar would cause investors around the world to lose faith in the financial system, and in all forms of paper (or electronic) wealth. There are in fact no other currencies ready to take the dollar's place as the world's reserve currency. The Euro is the most likely candidate, but Europe has its own problems, including a declining population, social unrest due to immigration, and an out-of-control welfare state. The Bank of Japan is viewed as incompetent. China is hardly ready to step into the role of the world's financial bulwark. And the pound is laboured with similar problems to the dollar, including rising government debt and a record high current account deficit.
In a serious dollar collapse, most likely all currencies would lose value. The result would be skyrocketing worldwide prices for tangible assets. In other words, inflation.
If that occurs, the only people to preserve wealth (and make money) will be those who own commodities of all kinds, including metals, food, and fossil fuels such as oil.
And so we have come full circle.
Well, almost.
You see, there is one currency that would survive when all others are failing. It's the oldest currency in the world, and the only one whose value does not depend on any nation's financial management skills. That currency is... gold.
The one asset you can profit from in any financial storm
Gold traditionally gains value during periods of high inflation and declining currency values. During the inflationary 1970s, gold was one of the best investments. In the 1990s, when inflation was low, demand for gold waned and gold companies cut back on exploration. But since prices bottomed in 1999, gold has more than doubled in value. As a traditional store of wealth in most of Asia, gold is enjoying rising demand as that part of the world develops. Whilst in the West, increasing interest in "safe haven" investing is drawing more investors to the precious metal.
One reason we like gold is because gold can gain value in both inflationary and recessionary times. If central banks allow inflation to rise (by keeping interest rates low), currencies will lose value relative to gold. But if the banks raise interest rates too high (triggering a recession), gold will retain value better than paper assets, so its price will still rise. In other words, gold provides insurance against all types of economic woes.
Don't get me wrong. I'm not saying you should trade in all your investments for gold coins and bury them in the cellar. But keeping just 10% of your investments in gold or gold-backed securities can insure your savings against any weakness in the financial system. If the next few years turn out half as grim as I expect, you will be very glad to have some gold.
That's why MoneyWeek gives you the information you need regarding the best opportunities in gold, precious metals, and other commodities that can weather the coming financial storm.
For example, back in 2001, we recommended Merril Lynch's Gold & General Fund as an easy way for investors to get exposure to gold. Since then, this unit trust has produced a 165% gain. And our three top gold stocks are showing gains of 94%, 44%, and 174% respectively.
6 ways to profit from gold and precious metals
And in coming weeks, you can look forward to getting more great tips on gold and precious metals, such as...
Which gold mining stocks are currently underpriced.
How to profit from mergers & acquisitions in the gold industry.
Why some gold stocks have produced enormous gains in the last two years - and where to find similar opportunities right now.
The 10 mystery metals set to deliver major profits - and the shares that will benefit.
Why this precious metal (which is NOT gold) could be the single best investment you can own today.
Which precious metal ETF looks set to lag its fellows - and the one that's most likely to lead.
Thursday, 4 October 2007
warrent buffet one eyes on small portion that multiplies very soon
Buffett's Largest Stock Purchase in Years!
Find Out Why The Most Successful Investor in History Has Just Bought 39 Million Shares of This Stock ...
Dear Investor,
Imagine, for a moment, that you wanted to build the first highway ever built in your entire state. You knew that the initial price to build it would be very expensive, but that didn't deter you.
Owning the only highway in a state full of dirt roads is just too tempting a prize. Once it's built, companies would be able to ship five times the amount of products each year, generating billions of dollars in extra revenue.
But that's not the best part.
Once the highway was built, your capital spending would be minimal. That's because the majority of your costs are upfront costs. For example, it may cost you $10 billion to build the highway but only $1 billion each year in upkeep to maintain it.
In other words, once you're finished building it, you'll be able to sit back while the money rolls in. In short, you'd own a business where sales and cash flow were increasing while capital spending, a huge portion of your costs, was decreasing!
That was the realization that occurred to me after I researched Warren Buffett's recent purchase of 39 million shares of Burlington Northern Santa Fe Railroad (SYM: BNI) in the $80/share range.
Not only has it been his largest stock purchase in years, but it reminded me of what made Buffett a great investor: the ability to "see" things before the rest of the investing public.
In fact, I’m so bullish on this one stock, I’m convinced that it will be the best stock idea you’ve heard all year. This is a recommendation that can make you 50% — 100% richer in the next 2-3 years. If you’re patient, however, I’m confident that you can easily make 10 to 20 times your money over the long term on this stock.
Don’t worry. This isn’t one of those “teaser” reports that talk up a fantastic new investment idea, pique your curiosity, but never quite give it to you unless you order something. I can’t stand that kind of sneaky marketing. In fact, if you want to skip right to the equity research report and read all about this company that has me so excited.
I do hope you’ll read a bit more before getting to the stock pick, however, because you deserve to know something about who came up with it.
I want to make sure you understand how much your investing life will change for the better with your Tycoon Report subscription.
Once you see who I am, what The Tycoon Report is all about, and what we’ve been able to do for our subscribers, you’ll wonder why you’ve never heard of us before.
A Brand New Kind of Stock Advisory Service That Gives You an Almost “Unfair” Advantage, Once Reserved for Professional Money Managers
For way too long, the “little guy” investor has gotten the short end of the stick, while the big shots at the Wall Street firms made out like bandits.
“I’ve subscribed to a lot of paid services that don’t give me half of what I get from reading The Tycoon Report. Keep it up guys” — Arnold V., Naples, FL
You’d never guess it from all those commercials the big investment firms run. But the sad fact is Wall Street doesn’t have much use for the individual investor ... the so-called “little guy.”
Sure they want the little guy’s money. They’ll take every cent he (or she) can put into a mutual fund or a brokerage account.
Yet when it comes to giving something in return – reliable research, for instance – forget about it.
The real research – the stuff somebody might actually be able to use to pick a stock – that goes to the big institutional investors and the fat cats at the top of the financial food chain.
The individual investor gets leftovers. Warmed-over and watered-down gruel that’s gone stale before it ever gets to him.
And the really bad thing is ... the little guy? Friend, that’s you.
That’s right. Every single one of us who tries to invest on his or her own (or with the dubious assistance of a broker) ... is what Wall Street contemptuously calls “the little guy.”
The reason I know so much about Wall Street’s rotten ways is because I used to be part of it all.
I was a senior equities analyst at one of the leading investment firms, and then owner of my own firm at 100 Wall Street. My stock picks helped make our big institutional clients richer and richer … while the individual investors who were supposed to be the mainstay of our firm got zilch.
And, compared to most other outfits, we were “good guys”. At least we never knowingly touted shaky stocks like a lot of other analysts.What I saw my fellow analysts doing made me sick to my stomach. I knew it was only a matter of time before the law came down hard. And I didn’t want to be around when some of my peers were led away in handcuffs.
Finally, after yet another sleepless night, I told my fiancee I was quitting ... saying sayonara to that big paycheck and the cushy corner office ... and going out on my own.
Several years later, we’re proud to say that The Tycoon Report has started to make a difference.
The Tycoon Report is the only publication that gives the individual investor ... “the little guy” ... the same information once available exclusively to the big institutional investors or the super-rich ... information critical to making serious money in the market.
Our Principles: What Makes The Tycoon ReportThe Most Valuable Investing Resource You’ll Ever Have
Our goal is simple: To level the playing field in favor of individual investors.
This isn’t just talk for us … we take what we do seriously.
Below are our founding principles. Some commentary has been added to each principle to further explain what it means to us.
1. We seek to create institutional quality research for individual investors.
Institutional investors (hedge funds, mutual funds etc) have access to better research than individual investors do. They are supported by teams of independent analysts, and the reports they read are the result of in-depth financial analysis.
By delivering in-depth and objective research to you, we seek to level the playing field.
2. We are a research firm only. Our goal is to provide you with research you can trust.
“Dylan, why are you giving The Tycoon Reoport away for free? Forget I said that. But seriously, I’m very thankful for everything you do. You’ve definitely taught this old dog some new tricks.” — Robert H., Ithaca, NY
Please forgive the populist tone here, but the sheer audacity of what some brokerages pawned off as research in the 90’s was stunning. As a result, the New York State Attorney General forced many of them to fund separate independent stock research firms.
We here at Tycoon Publishing have no interest in the “conflict of interest” business (we’ve seen what it does to people). We do what we do because we enjoy it and we’re good at it. Therefore know that we will never accept any payment, in any form, to recommend the shares of any company. Period.
3. We will try to explain our investment decisions in a way that enables you to become both a better investor and a better businessperson.
In addition to the research we offer, we try to present our facts in a way that will help you understand the rationale behind our thinking.It is our hope that during the course of our relationship you will gain a more sophisticated framework for making investment decisions both as an investor and as a businessperson. We believe that the more educated you become, the more likely it is that you will appreciate and recommend our work.
4. We will always admit our mistakes.
Only fools never admit and learn from their mistakes. Good investors are not born, they’re forged. It’s that simple.
5. Everybody we hire to give you investment advice will actually have real investment experience.
“I think there’s a real movement going on. Guys like me are sick and tired of the same old bad information. I don’t know if you realize how valuable what you’re giving us really is. I recommend The Tycoon Report to anyone who will listen. Thanks — a fan.” — Roy O., Palm Beach Gardens, FL
Need we say more? Well, we will. Why?
Because many of our “competitors” aren’t real investors — they’re marketers and journalists pretending to have the real world experience that separates the men from the boys.
All of our writers are battle tested traders first. The Tycoon Report is a powerful tool for a lot of individual investors out there … we’re not about to let somebody write to our audience until we’re absolutely convinced of their talent and professionalism.
6. We will always cherish your business, because if it wasn’t for you we wouldn’t be here.
It was Frank Sinatra who once said, “If you think customers are not important, try doing business without them for a while.”
Although he was referring to another singer who didn’t like to sign autographs, he could have been talking about any customer in any business.
In our offices we keep that quote posted on the wall just to remind us how fortunate we are to have you as part of our Tycoon Report family.
More Winning Trades than Most Paid Services
At the end of the day, if reading The Tycoon Report makes you a better investor, we feel like we've done our job. Leveling the playing field for the individual investor means arming you with the tools and the wisdom to beat Wall Street at its own game.
“The Tycoon Report is my new coffee. I get a headache if I don’t start my day with it.” — Donna H., San Diego, CA
This is NOT, in other words, a stock picking newsletter … it’s a newsletter that will help you pick great stocks for years to come.That being said, our writers can't always resist sharing trade recommendations with Tycoon Report readers.
Have a look at some of our past recommendations, and ask yourself if you've gotten the same kind of performance from some of the services you pay good money for:
Date
Investment
Closing Price on Recommendation Date
Subsequent High*
% Return
8/5/2005
Gold
$444/oz
$730/oz
+64
11/1/2005
Suncor (SU)
$53.72
$89.19
+66%
11/1/2005
Phelps Dodge (PD)
$56.24
$96.90
+72%
11/11/2005
Jun 160 OSX Calls
$32.00
$42.70
+33%
11/22/2005
2 Sep 200 OSX Calls
$20.00
$38.90
+143%%**
12/6/2005
Research In Motion (RIMM)
$61.95
$86.75
+40%
1/4/2006
China Mobile (CHL)
$24.50
$30.55
+25%
1/17/2006
PALM, Inc. (PALM)
$17.48
$24.00
+37%
3/14/2006
China I-Shares (FXI)
$71.80
$83.73
+17%
3/14/2006
Salesforce.com (CRM) - Short Position
$39.78
$24.90 (subsequent low)
+37%
4/28/2006
NBTY, Inc. (NTY)
$22.65
$26.49
+17%
* Data for “subsequent highs” calculated through date of this writing (6/26/06). ** Combined June 160 OSX and 2 September OSX call trades.
The Best Investing Education You Can Get …And Tuition Is Free!
“What can we do to empower individual investors? How can we truly level the playing field? What kind of value can we give people in The Tycoon Report?”
“As one of those who got involved in the daytrading craze … made a lot of money … and lost a lot of money, I appreciate good advice when I see it. Where were you when I started investing? It’s painful to think of what my account would look like if I’d found you back in ’99.” — Walter R., St. Joseph, MO
We ask ourselves these questions every single day.
And we keep coming back to the same answer: Knowledge is power. And for too long, it's what individual investors have lacked.
So, one of the foremost goals of The Tycoon Report is to provide a world class investing education to our readers, with each and every issue.
Readers who've been with us since the beginning have learned a lot, including …
A simple method for doing your own stock valuations;
How high levels of corporate debt can predict fraud (i.e. simple steps you can take to avoid disasters like Enron and WorldCom);
How to make more with your mutual funds;
The proper way to use stop-losses;
The basics on trading options … and more complex strategies such as “calendar spreads,” options straddles, and how to use options as “insurance” against your long stock holdings;
When to short a stock vs. when you should use put options;
How to remove emotion from your investing approach
Find Out Why The Most Successful Investor in History Has Just Bought 39 Million Shares of This Stock ...
Dear Investor,
Imagine, for a moment, that you wanted to build the first highway ever built in your entire state. You knew that the initial price to build it would be very expensive, but that didn't deter you.
Owning the only highway in a state full of dirt roads is just too tempting a prize. Once it's built, companies would be able to ship five times the amount of products each year, generating billions of dollars in extra revenue.
But that's not the best part.
Once the highway was built, your capital spending would be minimal. That's because the majority of your costs are upfront costs. For example, it may cost you $10 billion to build the highway but only $1 billion each year in upkeep to maintain it.
In other words, once you're finished building it, you'll be able to sit back while the money rolls in. In short, you'd own a business where sales and cash flow were increasing while capital spending, a huge portion of your costs, was decreasing!
That was the realization that occurred to me after I researched Warren Buffett's recent purchase of 39 million shares of Burlington Northern Santa Fe Railroad (SYM: BNI) in the $80/share range.
Not only has it been his largest stock purchase in years, but it reminded me of what made Buffett a great investor: the ability to "see" things before the rest of the investing public.
In fact, I’m so bullish on this one stock, I’m convinced that it will be the best stock idea you’ve heard all year. This is a recommendation that can make you 50% — 100% richer in the next 2-3 years. If you’re patient, however, I’m confident that you can easily make 10 to 20 times your money over the long term on this stock.
Don’t worry. This isn’t one of those “teaser” reports that talk up a fantastic new investment idea, pique your curiosity, but never quite give it to you unless you order something. I can’t stand that kind of sneaky marketing. In fact, if you want to skip right to the equity research report and read all about this company that has me so excited.
I do hope you’ll read a bit more before getting to the stock pick, however, because you deserve to know something about who came up with it.
I want to make sure you understand how much your investing life will change for the better with your Tycoon Report subscription.
Once you see who I am, what The Tycoon Report is all about, and what we’ve been able to do for our subscribers, you’ll wonder why you’ve never heard of us before.
A Brand New Kind of Stock Advisory Service That Gives You an Almost “Unfair” Advantage, Once Reserved for Professional Money Managers
For way too long, the “little guy” investor has gotten the short end of the stick, while the big shots at the Wall Street firms made out like bandits.
“I’ve subscribed to a lot of paid services that don’t give me half of what I get from reading The Tycoon Report. Keep it up guys” — Arnold V., Naples, FL
You’d never guess it from all those commercials the big investment firms run. But the sad fact is Wall Street doesn’t have much use for the individual investor ... the so-called “little guy.”
Sure they want the little guy’s money. They’ll take every cent he (or she) can put into a mutual fund or a brokerage account.
Yet when it comes to giving something in return – reliable research, for instance – forget about it.
The real research – the stuff somebody might actually be able to use to pick a stock – that goes to the big institutional investors and the fat cats at the top of the financial food chain.
The individual investor gets leftovers. Warmed-over and watered-down gruel that’s gone stale before it ever gets to him.
And the really bad thing is ... the little guy? Friend, that’s you.
That’s right. Every single one of us who tries to invest on his or her own (or with the dubious assistance of a broker) ... is what Wall Street contemptuously calls “the little guy.”
The reason I know so much about Wall Street’s rotten ways is because I used to be part of it all.
I was a senior equities analyst at one of the leading investment firms, and then owner of my own firm at 100 Wall Street. My stock picks helped make our big institutional clients richer and richer … while the individual investors who were supposed to be the mainstay of our firm got zilch.
And, compared to most other outfits, we were “good guys”. At least we never knowingly touted shaky stocks like a lot of other analysts.What I saw my fellow analysts doing made me sick to my stomach. I knew it was only a matter of time before the law came down hard. And I didn’t want to be around when some of my peers were led away in handcuffs.
Finally, after yet another sleepless night, I told my fiancee I was quitting ... saying sayonara to that big paycheck and the cushy corner office ... and going out on my own.
Several years later, we’re proud to say that The Tycoon Report has started to make a difference.
The Tycoon Report is the only publication that gives the individual investor ... “the little guy” ... the same information once available exclusively to the big institutional investors or the super-rich ... information critical to making serious money in the market.
Our Principles: What Makes The Tycoon ReportThe Most Valuable Investing Resource You’ll Ever Have
Our goal is simple: To level the playing field in favor of individual investors.
This isn’t just talk for us … we take what we do seriously.
Below are our founding principles. Some commentary has been added to each principle to further explain what it means to us.
1. We seek to create institutional quality research for individual investors.
Institutional investors (hedge funds, mutual funds etc) have access to better research than individual investors do. They are supported by teams of independent analysts, and the reports they read are the result of in-depth financial analysis.
By delivering in-depth and objective research to you, we seek to level the playing field.
2. We are a research firm only. Our goal is to provide you with research you can trust.
“Dylan, why are you giving The Tycoon Reoport away for free? Forget I said that. But seriously, I’m very thankful for everything you do. You’ve definitely taught this old dog some new tricks.” — Robert H., Ithaca, NY
Please forgive the populist tone here, but the sheer audacity of what some brokerages pawned off as research in the 90’s was stunning. As a result, the New York State Attorney General forced many of them to fund separate independent stock research firms.
We here at Tycoon Publishing have no interest in the “conflict of interest” business (we’ve seen what it does to people). We do what we do because we enjoy it and we’re good at it. Therefore know that we will never accept any payment, in any form, to recommend the shares of any company. Period.
3. We will try to explain our investment decisions in a way that enables you to become both a better investor and a better businessperson.
In addition to the research we offer, we try to present our facts in a way that will help you understand the rationale behind our thinking.It is our hope that during the course of our relationship you will gain a more sophisticated framework for making investment decisions both as an investor and as a businessperson. We believe that the more educated you become, the more likely it is that you will appreciate and recommend our work.
4. We will always admit our mistakes.
Only fools never admit and learn from their mistakes. Good investors are not born, they’re forged. It’s that simple.
5. Everybody we hire to give you investment advice will actually have real investment experience.
“I think there’s a real movement going on. Guys like me are sick and tired of the same old bad information. I don’t know if you realize how valuable what you’re giving us really is. I recommend The Tycoon Report to anyone who will listen. Thanks — a fan.” — Roy O., Palm Beach Gardens, FL
Need we say more? Well, we will. Why?
Because many of our “competitors” aren’t real investors — they’re marketers and journalists pretending to have the real world experience that separates the men from the boys.
All of our writers are battle tested traders first. The Tycoon Report is a powerful tool for a lot of individual investors out there … we’re not about to let somebody write to our audience until we’re absolutely convinced of their talent and professionalism.
6. We will always cherish your business, because if it wasn’t for you we wouldn’t be here.
It was Frank Sinatra who once said, “If you think customers are not important, try doing business without them for a while.”
Although he was referring to another singer who didn’t like to sign autographs, he could have been talking about any customer in any business.
In our offices we keep that quote posted on the wall just to remind us how fortunate we are to have you as part of our Tycoon Report family.
More Winning Trades than Most Paid Services
At the end of the day, if reading The Tycoon Report makes you a better investor, we feel like we've done our job. Leveling the playing field for the individual investor means arming you with the tools and the wisdom to beat Wall Street at its own game.
“The Tycoon Report is my new coffee. I get a headache if I don’t start my day with it.” — Donna H., San Diego, CA
This is NOT, in other words, a stock picking newsletter … it’s a newsletter that will help you pick great stocks for years to come.That being said, our writers can't always resist sharing trade recommendations with Tycoon Report readers.
Have a look at some of our past recommendations, and ask yourself if you've gotten the same kind of performance from some of the services you pay good money for:
Date
Investment
Closing Price on Recommendation Date
Subsequent High*
% Return
8/5/2005
Gold
$444/oz
$730/oz
+64
11/1/2005
Suncor (SU)
$53.72
$89.19
+66%
11/1/2005
Phelps Dodge (PD)
$56.24
$96.90
+72%
11/11/2005
Jun 160 OSX Calls
$32.00
$42.70
+33%
11/22/2005
2 Sep 200 OSX Calls
$20.00
$38.90
+143%%**
12/6/2005
Research In Motion (RIMM)
$61.95
$86.75
+40%
1/4/2006
China Mobile (CHL)
$24.50
$30.55
+25%
1/17/2006
PALM, Inc. (PALM)
$17.48
$24.00
+37%
3/14/2006
China I-Shares (FXI)
$71.80
$83.73
+17%
3/14/2006
Salesforce.com (CRM) - Short Position
$39.78
$24.90 (subsequent low)
+37%
4/28/2006
NBTY, Inc. (NTY)
$22.65
$26.49
+17%
* Data for “subsequent highs” calculated through date of this writing (6/26/06). ** Combined June 160 OSX and 2 September OSX call trades.
The Best Investing Education You Can Get …And Tuition Is Free!
“What can we do to empower individual investors? How can we truly level the playing field? What kind of value can we give people in The Tycoon Report?”
“As one of those who got involved in the daytrading craze … made a lot of money … and lost a lot of money, I appreciate good advice when I see it. Where were you when I started investing? It’s painful to think of what my account would look like if I’d found you back in ’99.” — Walter R., St. Joseph, MO
We ask ourselves these questions every single day.
And we keep coming back to the same answer: Knowledge is power. And for too long, it's what individual investors have lacked.
So, one of the foremost goals of The Tycoon Report is to provide a world class investing education to our readers, with each and every issue.
Readers who've been with us since the beginning have learned a lot, including …
A simple method for doing your own stock valuations;
How high levels of corporate debt can predict fraud (i.e. simple steps you can take to avoid disasters like Enron and WorldCom);
How to make more with your mutual funds;
The proper way to use stop-losses;
The basics on trading options … and more complex strategies such as “calendar spreads,” options straddles, and how to use options as “insurance” against your long stock holdings;
When to short a stock vs. when you should use put options;
How to remove emotion from your investing approach
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