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July 26, 2009

Words from the (Investment) Wise for the Week That Was (July 20 - 26, 2009): Part II
by Prieur du Plessis

Forbes: Commercial real estate - from bad to worse
"Veteran property investor Tom Barrack expects a refinancing crunch over the next few years to cause misery.

"Two years after the credit markets began to freeze up, a crisis looms in the $3 trillion commercial real estate market. Investors who need new funding find themselves without any willing lenders while fundamentals like rising vacancy rates and plunging rents worsen.

"California billionaire Tom Barrack sees opportunity in the wreckage. The chief executive of Los Angeles-based Colony Capital, who made tidy profits by buying up soured up real estate debt during the S&L crisis, talked with Forbes about the troubled commercial real estate market and the broader economy.

"What's going on in commercial real estate?

"Barrack: It's bad and it's getting worse at the moment. The $700 billion commercial mortgage-backed securities (CMBS) market still has no new money for buyers or refinancing. About a third of that is due at the end of 2010 and 2011 and the majority between 2010 and 2012. So you have $750 billion in refinancing needed over the next 24 months and you don't have one lender.

"Why is it so hard to get new funding?

"Partly because new equity is needed from the owner to provide any loan because the underlying real estate is 30%-50% less valuable than it was at the time of origination. Where is that going to come from? Everybody's tapped out. All the real estate guys have gone from G4's to electric golf carts.

"The object of the drill for everyone in commercial real estate - and this is everyone in the world - is just get to the other side of Death Valley. If you can make it to the other side of Death Valley, there's hope. But even when the economy does start to roll out, commercial real estate takes a while behind the tail of that economy to catch up."

Click here for the full article.

Source: Maurna Desmond, Forbes, July 14, 2009.

Chart of the Day (Clusterstock): Now this is a misery index!
"Remember the Misery Index? It adds together unemployment and inflation to get a quick and dirty measure of, well, misery. But by this measure, since we're in deflation, the current recession doesn't look so bad.

"So Huffington Post came up with its index, which uses the broader measure of unemployment (U6), along with a more narrow basket of prices on essential goods, adding in other things like food stamps and credit card delinquencies. We think HuffPo's does a much better job of capturing the current misery than the old one."

Source: Joe Weisenthal and Kamelia Angelova, Clusterstock - The Business Insider, July 22, 2009.

Financial Times: Banks use Tarp funds to boost lending
"A large majority of US banks claim that government bail-out money has allowed them to write new loans to customers, while a minority has used it to buy rivals, according to a report by the programme's watchdog.

"The audit by Neil Barofsky, special inspector-general for the troubled asset relief programme (Sigtarp), reveals a continuing argument with the US Treasury over how much information should be disclosed by recipients of the money.

"Some 83% of the 360 recipients surveyed by the Sigtarp team said that they had used funds from the government for lending.

"That may provide a boost to both the banks and the Treasury after a week in which Goldman Sachs, one former recipient of Tarp funds, was criticised for preparing to pay large bonuses.

"Some 43% said that they had bolstered their capital cushion, 31% made other investments, 14% repaid debt and 4% made acquisitions.

"While Mr Barofsky's team celebrated the data as a step towards transparency, the Treasury has declined repeatedly to force banks to report their use of Tarp funds.

"Herb Allison, former chief executive of Fannie Mae now heading the Treasury programme, said in a letter in the report: 'It is not possible to say that investment of Tarp dollars resulted in particular loans, investments or other activities by the recipient.'

"The Treasury maintains that recipients should not be restricted in their use of Tarp funds, which have been paid as part of this year's $700 billion programme to shore up the US banking system."

Source: Tom Braithwaite, Financial Times, July 19, 2009.

Financial Times: US rating agencies escape overhaul
"Credit rating agencies would face a raft of new disclosure rules and restrictions but would not be forced to overhaul their business models under proposed US legislation sent to Congress on Tuesday.

"The plan by the US Treasury is aimed at reducing conflicts of interest at rating agencies, boosting the regulatory authority of the US Securities and Exchange Commission over the agencies and reducing the financial system's reliance on credit ratings.

"But critics said the plan, an element of the Obama administration's broader financial regulatory blueprint, fell far short of what was needed. The proponents of an overhaul of ratings agencies charge that they overlooked the risks of investing in complex, 'structured' securities linked to risky mortgages, many of which carried triple A stamps of approval.

"Barney Frank, head of the chairman of the House financial services committee, on Tuesday endorsed measures that would overturn requirements that require the use of the credit ratings agencies.

"'There are a lot of statutory mandates that people have to rely on credit rating agencies. They're going to all be repealed,' he told Reuters.

"The business models at Moody's Investors Services, Standard & Poor's and Fitch Ratings - which are paid by the companies whose debt securities they rate - remain largely intact."

Source: Joanna Chung and Aline van Duyn, Financial Times, July 22, 2009.

Chart of the Day (Clusterstock): American banks on thin ice
"The financial crisis has passed in the sense that the sheer panic is gone. The structural issues remain, though.

"Today's chart is a wonky way of gauging banking industry health, based on a data series collected by the Fed. It shows the percentage of assets held at banks whose allowance for loan losses exceeds their total non-performing loans - a key sign of health. In other words, the vast majority of banking sector assets -- over 80% - are currently in institutions where loan loss allowances (ALLL) are below total non-performing loans."

Source: Joe Weisenthal and Kamelia Angelova, Clusterstock - The Business Insider, July 21, 2009.

Financial Times: Hedge funds see surge in investment
"Hedge funds have seen a huge increase in investment in the second quarter, as investors rush to capitalise on the industry's resurgence.

"More than $142.5 billion has been allocated to hedge funds over the past three months, one of the industry's biggest inflows of client money to date, according to data published on Tuesday by Hedge Fund Research, a leading provider of industry data.

"Hedge funds have enjoyed strong performance over the year to date, with the average strategy returning around 9%. Many larger funds have performed even better, with some delivering returns of up to 30% on clients' investments.

"Net, more than $100 billion has flowed into funds since the industry's nadir in March, bringing the current industry capital - the amount of money invested in funds - to $1,430 billion.

"The number is still far lower than its peak of $1,930 billion, however."

Source: Sam Jones, Financial Times, July 21, 2009.

BCA Research: Global bonds - pause in the structural bear
"The near-term outlook for government bonds remains relatively benign as the economy is in a transition phase between a severe recession and a modest recovery. The longer-term outlook is more ominous.

"Government bond yields have backed up decisively from their December lows on the sharp rebound in leading growth measures as well as business and consumer confidence. However, yields will now need evidence that real economic activity is beginning to recover in order to ratchet significantly higher.

"On this score, we are constructive towards the macro outlook and expect that the developing inventory cycle will gain momentum in the months ahead, supporting business activity. But until the G7 consumer is ready to increase spending, even modestly, the benchmark 10-year Treasury yield is likely to stay below 4%.

"In contrast, we remain bearish on the longer-term outlook for government bonds, due to poor valuations and mushrooming government indebtedness in many economies. Clients with extended investment horizons should be below benchmark duration. Bottom line: Upside for government bond yields is likely to be limited over the next few months, but the cyclical and structural outlook remains bearish."

Source: BCA Research, July 22, 2009.

David Fuller (Fullermoney): Long-term government bonds at interesting juncture
"US Treasury Bond yields are at an interesting level and the next move of consequence is likely to be extremely important.

"I though the 10-year yield bottomed in 2003 and was building a large base, but the economic collapse changed all that. At just above 2% at year-end 2008 it was obviously discounting a depression but that meltdown has been retraced with the help of quantitative easing.

"I think the US government would like to hold yields near current levels, at least until an economic recovery has gained traction. Technically, we have a medium-term uptrend in long-dated government yields.

"I think the next significant move will be upwards, although I do not know when but watch for a sustained move above 4% for the 10-year Treasury as confirmation of further upside.

"If the advocates of deflation Japan style are right, yields may not advance very much for many years. I do not think they are right but the charts will show us."

Source: David Fuller, Fullermoney, July 23, 2009.

Bloomberg: Pimco says "overweight duration", buy US Treasuries
"Pacific Investment Management Co., manager of the world's largest bond fund, said it will buy five- to 10-year Treasury securities, reversing a policy to steer clear of US debt.

"'With Treasury yields near the top of our expected range, Pimco plans to overweight duration and take exposure to the five- to 10-year portion of the yield curve,' Pimco said today in a report on its website.

"The strategy may be a change for the Newport Beach, California-based firm, which has avoided Treasuries in recent months. Bill Gross, manager of Pimco's Total Return Fund, the world's largest, has said before today that he has no interest in buying Treasuries.

"Investors should buy emerging-market currencies to protect themselves against the risk that US policy makers will allow the dollar to slide should they lack the skill to 'drain the system of emergency liquidity at the appropriate time', Pimco said.

"'In light of an expected long-run erosion in the value of the US dollar, Pimco will look to take positions in select emerging market currencies that we believe have the most compelling appreciation potential,' Pimco said in the report. 'For now, these include primarily the currencies of Brazil and Mexico.'"

Source: Dakin Campbell and Valerie Rota, Bloomberg, July 20, 2009.

Financial Times: Investors regain appetite for credit risk
"An important barometer of European appetite for risk in the credit market on Tuesday improved to a level not seen since just before the collapse of Lehman Brothers last year.

"The Markit iTraxx Europe, the continent's main credit default swap index, which tracks the 125 most liquid names in the investment-grade class, fell below the 100 basis points mark for the first time since September 2008. It closed at 97.37 basis points.

"CDS are over-the-counter derivatives that offer insurance against the non-payment of unsecured debt, usually corporate or sovereign bonds. The cost of cover is measured in basis points, each point being equivalent to €1,000 payable annually on €10 million of debt.

"The recent tightening of CDS indices comes on the back of a strong rally in European equities, which have risen for seven consecutive sessions.

"Gary Jenkins, head of fixed income research at Evolution, said: 'It's a reflection of the fact that credit remains the asset class of choice. Companies are focused on cash flow generation, debt reduction and improving balance sheet strength, which is close to being the perfect backdrop for credit.'

"In spite of some fears that uncertainty surrounding the economic outlook will continue to pose challenges for credit, the market is likely to take heart from the an upsurge in companies raising money via a spate of bond and rights issues. Following the implosion of Lehman, the cost of insuring against the risk of default on European corporate debt shot up by almost 20% in two days and continued rising until it peaked at 215 basis points last December."

Source: Ed Hammond, Financial Times, July 21, 2009.

Bespoke: High-yield spreads back below '02 bear market highs
"Merrill Lynch's Index of the spread between high yield bonds and comparable Treasuries has just recently moved back below the highs seen during the prior bear market ('00-'02). At 1,041, spreads are down 52.29% from record highs seen last December, making it much easier for companies to do business. Spreads still have a little bit further to drop to get below levels seen just before the Lehman bankruptcy, but the current downtrend should have enough momentum to break through to the downside."

Source: Bespoke, July 20, 2009.

Bloomberg: Fund managers switch from money markets to stocks
"Investment managers are showing an appetite for more risk, moving cash from money-market funds into equities on expectations economic recoveries will gain traction.

"The chart of the day shows benchmark MSCI equity indexes for North America, Europe and Asia Pacific excluding Japan, and assets in money-market funds tracked by the Investment Company Institute. Global equities as measured by the MSCI World Index rose 46% from a more than 13-year low in March. Since then, money-market fund holdings sank 6.6% through March 15 from near a 20-year high, data compiled by Bloomberg show.

"'There is still a lot of money sitting on the sidelines waiting to be invested as the global economic situation stabilizes,' said Pauline Dan, chief investment officer at Samsung Investment Trust Management in Hong Kong, which overseas $67.6 billion in assets. 'It's reasonable to expect that some of this money is going back into equities to seek returns.'"

Source: Jonathan Burgos, Bloomberg, July 23, 2009.

Bespoke: Goldman Sachs raises year-end price target - should we care?
"Goldman Sachs' David Kostin raised his year-end S&P 500 price target from 940 to 1,060 this morning [Monday]. While this means Kostin has become more bullish since issuing his prior target, it's important to remember that he started 2009 with a year-end price target of 1,100 (which would have been a 2009 gain of 18.6%). A couple of weeks before the March 9 index bottom, Kostin lowered that 1,100 target to 940 on February 26. At that time, the S&P 500 was already down more than 15% for the year at 752. Now that the S&P has moved back up to meet his 940 year-end level, he has upped the target to 1,060, which would be a gain of 12.55%.

"Below we highlight a chart and table showing Goldman's year-end price targets going back to the start of 2008. At the start of 2008, Goldman's Abby Cohen (who was replaced with Kostin in March of last year) predicted the S&P 500 would finish 2008 up 15.74% at 1,675. By the end of 2008, that price target was 85.44% above the actual year-end S&P 500 price level. When Kostin replaced Cohen in March of '08, he lowered Goldman's 2008 price target from 1,675 to 1,380, which at the time would have meant a change of 4.33%. That target ended up being 52.78% above the index's actual year-end level. On July 21, 2008, Kostin actually raised Goldman's year-end 2008 target from 1,380 to 1,400, but then the market crashed in September and early October, and Kostin was forced to lower the target all the way to 1,000.

"From the time Kostin upped his '08 target from 1,380 to 1,400 to the time he lowered the target from 1,400 to 1,000, the S&P 500 fell 28%. In terms of market calls, 2008 was just as tough of a year for Goldman as it was for most.

"Today's news that Goldman has raised its year-end 2009 price target is making headlines and potentially impacting the market on the upside. But based on both Cohen's and Kostin's recent calls amidst the current market environment, their prognosticating alone should not suffice to arouse the bulls."

Source: Bespoke, July 20, 2009.

Bespoke: Bottom and top line beat rates - not everything is positive
"Yesterday we highlighted the earnings per share beat rate for US companies that have reported their quarterly numbers since July 8. In the first chart below, we have updated the numbers to include today's reports. As shown, the beat rate increased a bit more today up to 72.3%. The highest beat rate we've seen since 2001 was 73% in Q3 '06, so this quarter definitely has a shot to top that.

"But while the bottom line numbers are coming in much better than expected, top line numbers have been weak. In the second chart below, we highlight the revenue beat rate so far this earnings season. Of the US companies that have reported revenues, only 49.1% have come in better than expected. While almost everything about this earnings season has been positive so far (including stock market performance), the revenue numbers are one area where things still look pretty bad."

Source: Bespoke, July 22, 2009.

Reuters: Corporate cost-cuts - early gains soon turn to pain?
"Much of Corporate America has slashed costs to stay in the black during the recession, but wielding the knife too heavily could also remove the ability to grow in a recovery.

"'If you cut into flesh long enough, eventually you find bone,' said David Rosenberg, chief economist at Gluskin Sheff in Toronto. 'Cost cutting is not a bottomless pit.'

"Firing people, introducing hiring freezes, halting investments, trimming budgets or even skimping on office supplies are time-tested ways to prove the old adage that a penny saved is a penny earned.

"A slew of companies reported better-than-expected first-quarter results because aggressive budget slashing more than made up for falling sales. According to Rosenberg, 40% of companies missed their top line expectations in the first quarter.

"And as the bulk of results for the most recent quarter hits in the next two weeks, many US companies are expected to do the same again. Some already have.

"'So far, earnings season is good, but if you were to call it revenue season, it'd be more of a mixed bag,' said Peter Boockvar, an equity strategist at Miller Tabak & Co in New York. 'What this shows is that companies are able to deal with cost structure, but that the revenue is light shows that we're still in a difficult economic environment.'"

Source: Nick Carey, Reuters, July 21, 2009.

Barry Ritholtz (The Big Picture): Financial profits and rising debt era
"Last week, we looked at the Total Credit Market Debt to GDP ratio. Here's another variation of the chart looking at two differing periods - pre-1981 and post-1981. Note that as debt rose, so too did financial firm profits."

Source: Barry Ritholtz, The Big Picture, July 23, 2009.

Andrew Goodwin (SVG European Focus Fund): Banks to lead recovery
"While some people still deem banks as toxic and uninvestable, Andrew Goodwin, fund manager of the SVG European Focus Fund, believes European financials will lead the market recovery.

"'At the moment, banks continue to present a huge buying opportunity,' he says. 'Banks offer the best earnings and valuation leverage in the stock market today and these should lead the market and economic recovery.'

"He says the sector became massively oversold at the start of the year as fears of a large-scale banking collapse intensified.

"'This drove valuations down to all-time lows,' Mr Goodwin notes. 'But those with disciplined investment processes have continued to buy through the chaos and beyond, and can now take advantage of the large discounts to book value at which they are trading.'

"He argues that the market frequently underestimates the future profit potential of banks, especially as operating profits remain robust.

"'In late 2002, at the height of the Japanese banking crisis, investing in Japanese banks was considered 'mad', yet these investments went on to make some spectacular returns.

"'Now European banks are deemed by many as similarly in 'crisis' and many investors are keeping a wide berth, but several have delivered strong performances and there are various indicators which suggest there is significant upside yet to come.'"

Source: Andrew Goodwin, SVG European Focus Fund (via Financial Times), July 21, 2009.

David Fuller (Fullermoney): Monetary policy a tailwind for stock markets
"There are problems a plenty for the US economy, which is why Bernanke indicated twice in WSJ article that, '... economic conditions are not likely to warrant tighter monetary policy for an extended period'. Consequently monetary policy will remain a tailwind for the US stock market.

"Fed policy will influence other central banks so global monetary policy should remain a tailwind for all stock markets, at least well into 2010. Stronger economies are likely to tighten monetary policy before the US, with China at the head of this list.

"Medium to longer-term risks for stock markets, in addition to market jitters during the first anniversary of last year's meltdown, and the considerably greater risk posed by an eventual tightening of monetary policy, would include slow GDP growth which weighs on corporate profits once labour-shedding productivity increases have been largely completed.

"A softer USD, which we are likely to see, would be another tailwind for Wall Street by increasing export earnings and making US equities cheaper for overseas investors. However, an accelerated decline in the USD and/or a break beneath last year's lows would most likely have the opposite effect by creating market turmoil.

"Commodity price inflation will be an increasing risk as global GDP growth gradually increases in 2010. The biggest problem, should it occur, would be another spike in energy prices. The canary in the coalmine signalling higher inflationary expectations would be rising long-dated government bond yields."

Source: David Fuller, Fullermoney, July 21, 2009.

Bespoke : China on run of a lifetime
"China's Shanghai Composite is currently up 81%, and as shown in the chart below, down days in recent months have been few and far between. Even though rest of the BRIC (Brazil, Russia, India, China) countries have posted big gains year to date, China has broken away from the pack. Overbought has become the new norm for the Chinese equity market, and anyone that has bet on a pullback has gotten absolutely crushed. Remember, however, that the sharper the increase usually means the sharper the fall, so when a correction does finally come, watch out."

Source: Bespoke, July 22, 2009.

MoneyNews: Mobius - Chinese stock market could surpass US
"Templeton Asset Management emerging markets head Mark Mobius said China's stock market might surpass the United States as the world's largest by value in as little as three years.

"The reasons are China's state-owned companies will sell new shares and the nation's 1.4 billion people will put more of their money into the market.

"'The Chinese population is just dipping its toe into equities and they've got a long way to go,' Mobius told Bloomberg, adding that state-owned companies are 'coming up with more huge' initial public offerings.

"Currently, China's market is valued at $3.2 trillion, compared with $11.2 trillion for the US market, according to data compiled by Bloomberg.

"Though Mobius considers China's mainland-traded stocks, known as 'A' shares, to be 'somewhat overvalued', he thinks the market will move higher as earnings climb.

"'We can expect corrections along the way' for emerging markets, Mobius said. 'I would expect a more steady, jagged movement upwards.'

"China's stocks are up sharply this year, and valuations are already high, the Wall Street Journal reported."

Source: Julie Crawshaw, MoneyNews, July 20, 2009.

Bloomberg: High frequency trading
"The battle between high frequency traders and institutional investors - interview with Former NASDAQ Chairman Alfred Berkeley."

Source: Bloomberg (via You Tube), July 23, 2009.

Financial Times: China to deploy foreign reserves
"Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country's premier, said in comments published on Tuesday.

"'We should hasten the implementation of our 'going out' strategy and combine the utilisation of foreign exchange reserves with the 'going out' of our enterprises,' he told Chinese diplomats late on Monday.

"Mr Wen said Beijing also wanted Chinese companies to increase its share of global exports.

"The 'going out' strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom and Bank of China.

"Qu Hongbin, chief China economist at HSBC, said: 'This is the first time we have heard an official articulation of this policy ... to directly support corporations to buy offshore assets.'

"China's outbound non-financial direct investment rose to $40.7 billion last year from just $143 million in 2002.

"Mr Wen did not elaborate on how much of the $2,132 billion of reserves would be channelled to Chinese enterprises but Mr Qu said this was part of a strategy to reduce its reliance on the US dollar as a reserve currency.

"'This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets.'"

Source: Jamil Anderlini, Financial Times, July 21, 2009.

Mansoor Mohi-uddin (UBS): Sterling still faces headwinds
"The pound has gained a reprieve this year after its sharp plunge in 2008 - but is the real sterling crisis still to come?

"Mansoor Mohi-uddin, managing director of foreign exchange strategy at UBS, points out that the 1976 sterling crisis followed on from sharp exchange rate falls in 1974-75.

"And he says there are clear parallels for sterling now with the mid-1970s, given the UK's bleak economic outlook and with monetary and fiscal policies very loose.

"'In 1976 the pound collapsed because policymakers failed to tighten fiscal policy as the economy recovered,' Mr Mohi-uddin says. 'This caused investors to flee sterling as they became unwilling to fund the UK's fiscal and current account deficits. As a result, the IMF had to bail out Britain.'

"To avoid a sequel, the UK must tighten fiscal policy when the economy recovers and raise interest rates, he says.

"'Fortunately, politicians should tackle the UK's huge budget deficit after the next election. Moreover they are unlikely to alter Bank of England independence. But if a hung parliament in 2010 or high unemployment paralyses fiscal policy, sterling will face major risks again. Even without an outright crisis, the conduct of economic policy will remain challenging over the next 12 months as the election looms and politicians face persistently high jobless rates.'"

Source: Mansoor Mohi-uddin, UBS (via Financial Times), July 20, 2009.

Chris Turner (ING): RBA may rein in Aussie dollar
"The Reserve Bank of Australia's strong track record in market intervention suggests the Australian dollar's upside could be limited, says Chris Turner, head of foreign exchange strategy at ING.

"'The minutes of the last RBA meeting revealed the central bank had been strategically selling the Australian dollar in June,' he says. 'While strategic intervention - or 'replenishing FX [foreign exchange] reserves' - is prevalent in Asia and now in Switzerland, we are interested because of the RBA's previous success in reining in the currency.'

"So what is driving the RBA's decision to replenish FX reserves? Mr Turner says that just as in early 2004, the RBA believes the dollar has strengthened a little too fast, too early in the global recovery cycle.

"'Perhaps the RBA believes the improving US outlook and expectations for Federal Reserve tightening in 2010 can start to provide some real resistance to further Australian dollar strength against its US counterpart.

"That might be an aggressive conclusion, yet the RBA [has] previously timed the market well.'

"He says the RBA's FX activity runs counter to the view it will be the first in the G10 to raise rates as an Asian expansion boosts Australia's economy. 'We would certainly not argue with that view,' he says."

Source: Chris Turner, ING (via Financial Times), July 23, 2009.

David Fuller (Fullermoney): Outlook for gold
"Basically, gold seems to be on schedule for an upside breakout in August or September. However, I am not interested in faith-based analysis so rather than issue a wish list of reasons why this may occur, I would rather identify chart levels that would potentially negate the bullish outlook. Call it a worry list, justified on the basis that if we are not rationally looking out for what could go wrong with our favourite positions, we are not thinking.

"As one who is long both bullion futures and gold shares, I would prefer not to see another downward dynamic such as occurred following the brief look at $1,000 last February or following the more recent early-June high. I would not like to see this month's reaction low near $905 taken out, and I would be seriously concerned if the April low near $865 was breached.

"Since gold has been tracking the S&P 500 Index recently, I would be concerned if Wall Street fell back sharply in a deeper reaction and base extension phase. This medium-term risk, as investors ponder the anniversary of last year's meltdown, does concern me despite recent strength. I would also be concerned if the USD firmed within its narrow ranges evident against most other currencies since early June.

"To repeat, this is my wish list for the next few months. On a longer-term basis, I think the bull case for gold bullion, as a store of wealth in a fiat currency world, is more obvious than at any other period in my lifetime."

Source: David Fuller, Fullermoney, July 20, 2009.

Bloomberg: China may overtake India in gold demand, Council says
"China may overtake India to become the world's top gold consumer this year, the World Gold Council said, as the nation became the first of the major economies to rebound from the global recession.

"Jewelry demand in China expanded in the first quarter while dropping in India, Marcus Grubb, a managing director at the London-based council, said today at a conference in Hong Kong. Chinese gold demand will keep rising, he said.

"China's economy grew 7.9% in the second quarter after a 4 trillion yuan ($586 billion) stimulus package spurred record lending and consumption. India's gold purchases slumped 54% in the six months ended June after a decline in the rupee pushed up the cost of owning bullion, cooling demand from housewives and jewelers, the Bombay Bullion Association said.

"'There is a possibility that China might overtake India as the world's largest gold consumer this year,' Hou Huimin, deputy head of the China Gold Association, said by phone from Beijing today. 'India's gold consumption is reportedly dropping this year due to the financial crisis.'

"Total demand from India in the first quarter fell 83% to 17.7 metric tons, from 107.2 tons a year earlier, according to figures from the World Gold Council. Purchases in China rose 1.8% to 105.2 tons from 103.3 tons. Total Chinese demand for gold was six times that of India in the first quarter, the council said in May.

"China consumed nearly 400 metric tons of gold last year, while demand in India was more than 650 tons, according to council data, which cited statistics from GFMS Ltd."

Source: Sophie Leung, Bloomberg, July 24, 2009.

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Back to Part I

Dr Prieur du Plessis
investmentpostcards.com

With 25 years' experience in investment research and portfolio management, Dr Prieur du Plessis is one of the most experienced and well-known investment professionals in South Africa. More than 1 000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He also published a book, Financial Basics: Investment, in 2002.

He holds the following degrees: BSc (Quantity Surveying) (Cape Town), HonsB (B & A) (cum laude) (Stellenbosch), MBA (cum laude) (Stellenbosch); and DBA (Doctor of Financial Management) (Stellenbosch).

Prieur is chairman of the Plexus group of companies, which he founded in 1995. Previously he was general manager: portfolio management at Sanlam, responsible for the management of investment portfolios with total assets in excess of $5 billion.

Plexus is a pioneer in the mutual fund industry and has achieved a number of firsts under Prieur's leadership. These include the authoritative Plexus Survey, a quarterly analysis of the consistency of the performance of unit trust management companies, the Plexus Offshore Survey, the Plexus Unit Trust Indices, and the PlexCrown Fund Ratings.

Plexus is the South African partner of John Mauldin, American author of the most widely distributed investment newsletter in the world, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental Index™ methodology in the Pan-African area.

In 2001 Prieur received the Santam/AHI Business Leader of the Year award for corporate leadership, business acumen and entrepreneurial flair. He was also profiled in the book South Africa's Leading Managers (2006). Plexus received the AHI/Old Mutual Enterprise of the Year award in 1997 and was also included in the book South Africa's Most Promising Companies (2005).

Prieur is 52 years old and lives with his wife, TV producer and presenter Isabel Verwey, and two children in Welgemoed, Cape Town. His recreational activities include long-distance running, motor cycling and reading. He belongs to the Cape Town Club, Johannesburg Country Club, Gordon's Bay Yacht Club and Swiss Social & Sports Club.

Copyright © 2008-2009 Dr Prieur du Plessis

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