The Money Map Advantage
Monday, August 21, 2006
By Horacio Marquez
Email – #54
** Climbing the “Wall of Worry”
Two weeks ago, I was advising to take advantage of the great buying opportunity created by the London airliners plot that was dismantled brilliantly by MI5 and Scotland Yard (who were working also with U.S. intelligence services, we now know). And I also alerted you that I remain very bullish in Brazil’s ETF, in our other Brazilian holdings, Banco Bradesco (NYSE: BBD), Unibanco (NYSE: UBB) and in the rest of our picks. We have been handsomely rewarded with price appreciation between 2% and 5% in our picks.
The “Inflation Doom” Gurus Get Plastered
From the very start of this selloff (which began in May and is now well on its way to getting fully redressed), I have been advocating the view that inflation as a lagging indicator was going to slow down gradually as the U.S. economy soft-landed. As the housing market undergoes a severe correction in the major bubble areas and soft-lands elsewhere, inflationary pressures subsided.
The rest of the data is also pointing toward subsiding inflation risks and a soft landing – not a crash – in economic growth, just as Fed Chairman Bernanke articulated in the last FOMC statement.
Right as we had been predicating, we received very benign inflation numbers and the market took off. U.S. Treasury bonds across all maturities – which, as I had been pointing out, were already trading substantially below the Fed Funds rate – rallied even more. Ten-year U.S. Treasuries closed last week at 4.83%, a low not seen since last April. This tells us that the inflationary pressures discounted by the bond market have already returned to levels predating the May selloff.
All of this is occurring just as some of the best bond investors (notably, Bill Gross of PIMCO), had predicted and taken full advantage of – and it occurred despite the loud protestations of a trio of economists in two notorious Wall Street houses well-known for the superior strength of their bond- and mortgage-backed franchises… They have stepped up their TV appearances to almost daily occurrences as they dig themselves deeper into a hole. Their view, which is also held by many equity managers, has been holding equities back – they will soon have to throw in the towel and put their mammoth cash holdings to better use.
Peace Blooms in Lebanon
As the “fragile peace” (so-characterized by the bears) keeps breaking out, it is supported by a consensus negotiated by Condi Rice, including not only Russia, China, France and the rest of Europe, but also Egypt, Jordan and Saudi Arabia. While Israel and Hezbollah and Iran claimed victory, the reality is that the threat to Israel has been diminished very importantly and the Lebanese will now be much more critical of Hezbollah’s terrorist activities, since they have suffered the consequences of having harbored them in their territory. At the same time, Hezbollah was seriously punished and degraded in their capabilities, and nobody wants renewed violence for diverse reasons.
More Players Start Embracing Our View
From Jim Cramer, who said last week that people should not allow inflation and recession fears to influence their games, to Jack Bouroudjian, a well-known Chicago futures senior trader who sees the possibility of the market breaking up, the bears are collapsing. We saw it long ago, and acted accordingly.
Friday’s session saw some fickle attempts at profit-taking, and despite Dell’s horror story, Ford announcing production cutbacks of 20% of its production, and China increasing interest rates another 27 basis points, all three main averages ended up, as did most of our picks.
Jim Cramer went even further and actually strongly recommended investing in Peabody Energy (NYSE: BTU) for exactly the same reasons that I have been explaining here: diversification of sources and beat up unnecessarily on a temporary production shortfall. Are you a subscriber, Jim? In any case, many thanks. The stock was up 4% last week and should be breaking up strongly this week.
The lower yields in bonds should merit higher earnings multiples than what we see now, which means that balanced funds should be selling some bonds and buying equities to adjust their risk-reward accordingly. This should entice investors to put some of the five trillion in cash to work, at risk of being left behind, especially as next week we have a very light economic calendar.
I am working diligently on a little-known commodity supply-demand imbalance in South East Asia, to analyze the full extent of it and the candidate to play it. Hopefully, I will have a new pick early this week.
Enjoy and profit,
Horacio Márquez
Stock & Symbol
Current Price
Comments
Telivisa (NYSE: TV)
$19.97
Buy
Unibanco (NYSE: UBB)
$75.70
Buy
Peabody Energy (NYSE: BTU)
$47.36
Buy
IShares Brazil Fund (Amex: EWZ)
$40.50
Buy
BHP Billiton (NYSE: BHP)
$42.81
Buy
Banco Bradesco (NYSE: BBD)
$33.39
Buy
Petrobras (NYSE: PBR)
$92.57
Buy
Mitsubishi UFJ Finan. (NYSE: MTU)
$14.20
Buy
iShares Japan Fund (AMEX: EWJ)
$14.03
Buy
Tenaris (NYSE: TS)
$37.21
Buy
MSCI Austria Fund (AMEX: EWO)
$31.34
Buy
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:12AM 3/26/2009
Attention Money Map Subscribers!
Money Map Report,
New China Trader
& Money Moves Alert
are now found at www.moneymappress.com
