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The Money Map Advantage
Thursday, November 3, 2005
By Horacio Marquez
#16
** The Other Side of the Valley Is In Sight
Buy On Dips, Especially In Brazil and Japan
We are making good money riding this market recovery. We can see a short-term breather ahead, as the major indexes deal with some technical resistance. This should be a buying opportunity.
As expected, selling season is over, and now it’s time to look at the menu and deploy some capital. Petrobras (NYSE: PBR) is up some 4% today. Oil demand remains strong, Brazil is running on all cylinders and next week, the current warm spell in the northeastern U.S. will be gone.
Tenaris (NYSE: TS) is up some 15% in the last 10 days alone.
And also on fire are Banco Bradesco (NYSE: BBD) and Cerner (Nasdaq: CERN). They are trading at all-time highs, and are consolidating their price levels before moving higher. They’ve posted a 13% and an 8% rise respectively since we recommended them.
Japan is also screaming, with our Mitsubishi UFJ Financial (NYSE: MTU) and iShares Japan ETF (AMEX: EWJ) hitting new 52-week highs. I would hate to be short Japan, especially any financial companies, when it reopens tonight after the Japanese holiday yesterday. Feel free to add to your MTU position on weakness. Remember that we are at the very beginning of a multi-year Japanese virtuous cycle.
For more adventurous investors, you can add the Nomura Topix Banks ETF (listed on the Tokyo stock exchange only: www.nomura-am.co.jp/english/etf ). You can get a quote on Bloomberg.com (market: JP, security: 1615).
Overall, the multi-year global expansion is on track for stellar equity performance.
The markets have been fueled by magnificent U.S. growth, low inflation, productivity, and the eliminated uncertainty of Greenspan’s replacement. An expected 25 basis point Federal Funds hike, and unchanged rates in Europe, also kept the fire going.
U.S. productivity grew at a scorching 4.1% rate in the third quarter. Which allows for higher corporate profits and/or salaries without creating inflation . And Greenspan told us today in his Senate testimony that the economy is robust and inflation risk is “elevated,” but that the key future inflation expectations are under control. Translation: While inflation has risen slightly, it is being dealt with appropriately and the Fed will succeed in controlling it.
We are accepting a slightly higher rate of inflation temporarily. And since this fact did not go unnoticed for the markets, we are gradually getting back to a more normal yield curve - higher interest rates in both the short end and the long end. And with October equity-selling season behind us, higher, sustainable, U.S. non-inflationary economic growth, backed by a strong earnings season, is already setting in motion a gradual portfolio reallocation: Money is flowing out of real estate and bonds, and into cyclical equities and other accelerating growth stories, like Japan, Brazil and emerging markets.
The U.S. housing market once more proves, like Internet stocks once did – and London real estate already evidences – that gravity exists and bubbles eventually pop. Inventories of unsold new and existing homes grew at the fastest rate in 20 years. Due in part to short- and long-term rates continuing to rise and Congress debating mortgage interest deductibility. When it rains, it pours, and the Congress is also likely to reduce the mortgage portfolio sizes of Fannie Mae and Freddie Mac. This will limit the supply of easy credit.
So, housing speculators beware: 25% of last year’s mortgages were for investment purposes, and $1.8 trillion in adjustable mortgages (the main financing vehicle used by flippers) will reset interest rates in the next 18 months. And, the new bankruptcy law is in effect. It doesn’t look pretty – especially when you factor in home-heating and commuting price shocks. This is why we are out of housing and consumer stocks, and we expect that this reallocation back into favored equities will propel the market higher.
But, while the end of the housing surge presages weaker growth in consumer spending, the market is preparing itself for the building boom of the Katrina/Rita reconstruction: Steels, cement and other materials, especially industrial are doing very well. And we are approaching the end of Fed tightening.
Enjoy and profit,
Horacio Marquez
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com , or contact Pillar One Advisor Greg Galloway at 800.438.3040 or 407.667.4729.
Stock
Current Price
Comments
Banco Badesco (NYSE: BBD)
$54.15
Buy. Move sell stop up to $43.
Petrobras (NYSE: PBR)
$67.00
Buy. Sell stop is $55.
Mitsubishi UFJ Finan. (NYSE: MTU)
$13.93
Buy. Sell stop is $10.20.
iShares Japan Fund (AMEX: EWJ)
$12.36
Buy. Sell stop is $10.
Cerner Corp. (Nasdaq: CERN)
$88.63
Buy. Move sell stop up to $69.
MSCI Austria Fund (AMEX: EWO)
$26.01
Buy. Sell stop is $20.90.
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