MEME: BLACK FRIDAY, THANKSGIVING/CHRISTMAS
Personal Observation: I normally go to work around 6AM being on the West Coast, so on Friday I decided that before going to work I would go to Gart Sports in downtown Bellevue to pick up a weight bench that was on sale for six hours beginning at 5:30AM.. To my shock, the parking lots around Bellevue were ALL FULL, and I had trouble finding parking at 6AM! The check out queues were deep and it was impossible to get a store clerk's attention. I can only extrapolate what is going on in the rest of the country! It should be a killer 1st week!

THEME: MEXICO VS CHINA
The falling dollar and implicit strengthening of the Yuan is beginning to cause stress on the international system. The only question is when it will create a crisis...

Mexico's peso fell to a record low on investor concern a split in the country's biggest opposition party will derail legislation before Congress aimed at boosting growth and investment in Latin America's biggest economy.

The peso was the worst performer this week and month of the most-traded currencies after Mexico's opposition lower house leader who has sought an accord with President Vicente Fox on his growth initiatives was called upon to resign by party members.

``This raises concerns we are moving toward an ungovernable situation,'' said Pablo Septien, who helps manage $150 million in fixed-income assets at Finaccess Mexico SA in Mexico City.

``The key problem the Mexican peso has now is that the economy remains flat on its back and the external sector shows little or no benefit from booming U.S. growth,'' said Callum Henderson, a currency strategist at Bank of America in London.

THEME: SCEPTICISM
In this market, its not the cream that rises to the top...

Schwab's 'F' stocks rise to top of the class

Investors who stumble across the recent results of Charles Schwab's stock-rating system are in for a surprise.
Schwab's computer-driven model divides about 3,500 stocks into five categories rated A (most likely to succeed) through F (poorest prospects). The system, which premiered in May 2002, performed as expected during its first year.

Although stocks in all five categories were down on average, stocks rated A and B declined about half as much as the broad market, while D-rated stocks fell twice as much and F-rated stocks were down three times as much. The new system won accolades when Schwab revealed those first-year results in May 2003.

Since then, a very different picture has emerged.

From May 6, 2002, through Oct. 20, 2003, Schwab's F-rated stocks did the best, with an average return of 30.09 percent. The D-rated stocks were second best, with a 25.4 percent increase. Stocks rated C and B were next, with an identical 23.3 percent average increase. In last place were the A stocks, which rose 22.4 percent.

(To calculate these returns, each week Schwab figures the performance for each of the five categories over the previous 52-week period. The numbers cited above are for 25 separate year-over-year periods ending Oct. 21, 2002, through Oct. 20, 2003.)

So what's out of whack: the model or the market?

Schwab says it's the market, not its model, that's out of kilter.

"The average A-rated stock is a lot less risky than the average F-rated stock," says Greg Forsythe, a Schwab senior vice president, who created the system.

"There are periods of time when investors seem to be risk-seeking. When those periods occur, we have seen that F-rated stocks will, at least temporarily, outperform A-rated stocks. For the last 12 months, we've been in one of those rare, but not unprecedented, environments," he says.

Schwab's A-rated companies tend to be bigger, with positive and growing earnings and cash flow. They also tend to be less volatile and have lower price-earnings and price-to-book-value ratios.

F-rated companies tend to be smaller and more volatile, with falling and often negative earnings and cash flow and higher valuations. "The times when risk pays off are few and far between," Forsythe says. "It happened during the bubble period. But you can't forecast when these rotations begin and end."

Forsythe says he would "always, always, always, always buy A-rated stocks. The research we have is that the vast majority of the time, the As will outperform."

Value Line, which has a stock-ranking system similar to Schwab's but much older, "has had the same sort of experience," says Samuel Eisenstadt, research chairman of Value Line Publishing.

"The stocks that have done the best since the beginning of this year are the stocks with the poorest earnings, the poorest prospects, selling at fractional prices. They went up half a point or a point and were the highest percentage gainers," he says.

Kathleen Pender writes for the San Francisco Chronicle.

Kathleen Pender commentary

THEME: AGING BOOMERS/PENSIONS
Some numbers from Justin Lahart, CNN

Then came the crash. According to calculations from Credit Suisse First Boston's accounting group, pension plans of companies in the S&P 500 went from being overfunded by $250 billion at the end of 1999 to being $225 billion underfunded at the end of 2002. Companies like General Motors and IBM were forced to pony up billions of dollars just meet their plans' obligations. So far this year, pension costs have trimmed Honeywell's earnings per share by a quarter.

And now? Credit Suisse First Boston reckons that, despite this year's stock market gains, at the end of the year S&P 500 pension funds will be underfunded to the tune of $247 billion. Pension costs will rise from this year's estimated $19 billion to $26 billion -- which comes to about 5 percent of what analysts think S&P 500 earnings will be in 2004.

Congress is busy crafting get-out-of-jail-free cards for companies with big pension shortfalls. Last week the House passed a bill, now headed to the Senate, that would reduce the big pension payments that airlines must make by 80 percent. Congress will allow companies, as it did last year, to calculate the present value of future benefits using high-grade corporate bond yields rather than the (lower) 30-year Treasury yield. This will reduce their costs.

Pension funds borrowing at cheap rates and investing in stocks can support the market in the next few years, but within 10 years when the boomers start withdrawing in earnest, the 401K plan will prove to be devastating to the developed countries. The only real solution will be to engage the youngest and most underdeveloped economies. The youngest and MOST underdeveloped being Muslim countries and Africa. China is benefitting now and hence hurting Mexico. But in the time frame of 20 years, the Islamic countries will be a vast pool to be tapped.

THEME: FREE TRADE
The Empire of the Sun strikes back...

Japan notified the World Trade Organization in Geneva today that it would assess tariffs of 10.7 billion euros, or $12.6 billion, on American-made goods. Tariffs on steel imports will make up about 45 percent of that amount. The rest of the tariffs will affect clothing, leather goods and other products.

"We set the amount equal to the American tariffs," said Nobuyuki Sato, a deputy in the Tariffs Bureau. The tariffs will take effect in 30 days, Sato said, if the United States measures are not removed.

Given the volume of trade between the world's two largest economies, the penalties are largely symbolic. More telling, less than 1 percent of the nearly three million tons of steel that Japan imported last year came from the United States.

THEME: GOLD
From NYT, speculators are buying, hedgers are pulling back...

A third force of note is speculators. They have been betting heavily that gold will rise. Look at the net of the futures contracts to buy and sell gold outstanding on the Comex division of the New York Mercantile Exchange on Sept. 2. The net equaled almost 123,000 contracts to buy about 12.3 million ounces of gold, the biggest weekly position by far in the Commodity Futures Trading Commission data going back to 1983.

But since then, these positions have been trimmed, with the net buy contracts totaling 93,160 as of Nov. 18. While this is the ninth biggest weekly net position, the fact that it has shrunk may be another reason why gold has still failed to break through $400.

Another positive for gold that has been tempered is the proposal for a so-called exchange traded fund for gold. Sponsored by the World Gold Council, this exchange traded fund would allow retail investors to buy gold easily through their brokers in amounts as small as a tenth of an ounce. Some analysts argue that the price of gold may already have run up in anticipation of this buying. But the Securities and Exchange Commission has not yet approved the proposal. "I am sure getting tired of waiting," lamented John Hathaway, a gold fund portfolio manager at Tocqueville Asset Management.

It is also not a bad idea to listen to analysts who argue that a small amount of gold in a portfolio, something under 5 percent, can be an effective way to diversify one's investments, regardless the outlook for gold.

Even a small shift in everyone's portfolio to Gold will make a massive difference. ETFs will help speculators trade via their stock accounts. If the commodities boom continues into next year, look for a rash of new hedge funds to be set up to take advantage of this trend. NYT times adds legitimacy to this argument...

SPEC: UTILITIES

PROFESSIONAL INVESTORS HAVE VERY little use for utilities right now. Merrill Lynch's latest monthly fund manager survey revealed that 49% of respondents claimed to be underweighted in utility stocks. It's understandable, given the vogue-ish interest in cyclicality and upside earnings volatility. But this bias may be somewhat short-sighted.

Stephen Goldfield, managing director of Imperium Capital Management, focuses on utilities and other energy-related issues, playing both the long and the short side. And he believes right now that the market is not fully appreciating some trends favorable to utility stocks.

Goldfield also thinks the summer blackout (and the official report on it last week) has helped focus regulatory attention on bolstering electrical infrastructure and away from crimping utilities' returns with negative rate-increase rulings. Finally, the energy bill in Congress should effectively revoke the Public Utility Holding Company Act and eliminate PUHCA's perceived discouragement of industry consolidation.

On his list of potential takeover candidates in the smaller-cap arena are CH Energy, Dayton Power & Light, Scana, Vectren and PNM Resources. Among larger companies, Goldfield points to PPL, First Energy and XCEL. The last, he points out, could be a logical add-on acquisition for Berkshire Hathaway, which bought Mid-American Energy not long ago. Berkshire's Warren Buffett has been outspoken about his interest in more utility investments, and about his reluctance to make any until the PUHCA is repealed.

Among stand-alone investment plays, Goldfield names OGE Energy, Ameren Energy, Pinnacle West and Scottish Power. Pinnacle West is favored for its 4.8% dividend and its fast-growing Arizona territory. Scottish Power, with 60% of revenue from the U.S., falls through the cracks in Wall Street research coverage, has a 5.1% yield and an attractive valuation.

SPEC: VIDEO GAMES
Ryan Jacob, The Jacob Internet Fund (JAMFX)

Take-Two Interactive Software (TTWO) is another attractive business and the fund's largest position. Jacob also owns Electronic Arts (ERTS), but Take-Two trades at a lower multiple.
Jacob also likes the company's prospects to capture a recurring revenue stream as online video game sales take off. Said Jacob, "We feel pretty confident over the next year or two we'll see a big boom for Net gaming."
Shares of Take-Two closed on Thursday at $33.40, up 71 cents.

THEME: FREE TRADE/CHINA
Chinese premier is coming....

The escalating spat threatens to put a damper on Chinese Premier Wen Jiabao's first visit to Washington in early December. Officials in both countries had hoped Wen's trip would be a high-visibility confirmation of a transpacific relationship that had improved dramatically because of China's support of the U.S.-led war on terrorism and the prominent role its leaders have played in defusing tensions on the Korean peninsula.

THEME: FREE TRADE/EU
Shocking comments from the EU...

The European Union (news - web sites) is threatening sanctions on up to $6 billion of U.S. goods in a transatlantic trade row, and EU Trade Commissioner Pascal Lamy said the 15-nation bloc was prepared to hit back at the United States.

"Retaliation is the last resort that the system provides, the final tool that can be used to incentives compliance," Lamy said.

"Retaliation clearly hurts...But we are ready to retaliate if necessary," he told the Irish Institute of European Affairs in Dublin ahead of the start in 2004 of Ireland's EU presidency.

And China too...

Italy, current holder of the rotating EU presidency, indicated it might want Europe to adopt a tougher stance.
China has been a cause of complaint for Italian Finance Minister Giulio Tremonti, who says the playing field is not level because of the Asian giant's less-regulated labor market.
"Europe must copy America. If it pretends nothing has changed, the prospects look rather negative," Tremonti told a labor meeting in Rome.

THEME: DEBT BUBBLE/DOLLAR

Analysis: Euro strong but endangered

WASHINGTON, Nov 21, 2003 (United Press International via COMTEX) -- The Cato Institute's 21st annual monetary conference Thursday, on the future of the euro, achieved more or less unanimous consensus: the euro can be expected to be very strong against the dollar in the next two years, soaring to $1.50 or more, but is in severe danger of disintegration in the long term.

As Kenneth Rogoff, former chief economist of the International Monetary Fund said, ther euro was "a religion" and many of the reasons for inventing it in 1998 were non-economic. Nevertheless, it has had a fairly successful first 5 years, and now looks likely to be very strong against the U.S. dollar, because of the U.S. trade deficit, now 5 percent of gross domestic product, and the likely increase in the share of central bank reserves denominated in euros. According to David Hale, former chief economist for Zurich Financial Services, the euro was now the currency of 30 percent of international bond issues, up from 25 percent in 1999, and 25 percent of global bank liabilities, up from 20 percent. The largest non-government borrowers in euros were American, with Fannie Mae having $45 billion of euro liabilities (presumably the majority having been swapped into dollars.)

As the foreign exchange markets for euros deepen, and the U.S. current account deficit continues to increase, the euro is likely to be startlingly strong. The United States now has foreign debt, net of foreign assets, equal to 25 percent of gross domestic product and that figure is increasing by 5 percent per annum because of the trade deficit. Hale pointed out for comparison that Britain, holder of the world's last reserve currency, had in 1914 net foreign assets of 150 percent of gross domestic product. With Japan's public sector debt rising above 140 percent of its gross domestic product, thereby causing continuing credit problems, and China facing a banking crisis, extreme strength of the euro appears inevitable.

Rogoff suggested the likelihood of a 40 percent rise over the next 2 years, above $1.60, a figure with which Hale and University of Virginia professor Leland Yeager appeared to agree, although National Bureau of Economic Research's Anna Schwarz was somewhat less bearish on the dollar. This is quite contrary to current market expectations and would have a huge effect on world trade patterns.

In the longer term, however, the euro has serious structural weaknesses, because of the unfounded pension liabilities in a number of eurozone countries. This would not be such a big problem if all countries of the euro zone had the same problem; the currency would simply enter a period of serious structural weakness and substantial inflation, as the problem was overcome.

Jose Pinera, Chilean health minister 1978-1980, and instigator of the world's first privatized pension system pointed out that in the eurozone this was not the case. Some eurozone countries, Finland, Ireland and Luxembourg, have sound public finances, and others, such as the Netherlands (and, outside the eurozone, Britain) have substantial well funded private pension systems. However, there are a number of core eurozone countries, in particular Germany, France, Italy, Spain and Austria that have pay-as-you-go public sector pension systems, which appear attractive in their early years but the bills for which are now coming due as baby boomers retire and birth rates have fallen substantially below replacement levels. Immigration may mitigate the problem somewhat but is unlikely to solve it, since a solution would require that in 2030-50 young immigrants would be paying very high taxes to fund the social costs of aged locals -- a prospect unlikely to be politically feasible.

The long term solution to this, according to Pinera, is for these countries to move to a privatized, fully funded pension system, similar to that now found in 23 countries, and abandon the pay-as you go system, originally invented by German Chancellor Otto von Bismarck, who now "threatens to damage Europe in the 21st Century by this invention as much as he damaged it in the 20th by his other invention of a militarized German super-state."

Laurence Kotlikoff, former assistant secretary of the United States Treasury, presented the results of a study in which he had been involved while at Treasury, which showed that the United States' net unfunded deficit, taking into account Social Security and Medicare liabilities, was $45 trillion, or four times gross domestic product. The eurozone countries with unfunded pension systems have relatively an even larger problem, for two reasons: they allow much earlier retirement than in the United States (often at 50-55), and they do not benefit from the U.S.'s replacement level birth rate and high immigration.

In the short term, the eurozone countries with unfunded pension problems will start to run into serious budgetary difficulties around 2010, at a level that will make the current problems of budget deficit overruns above the levels of 3 percent mandated by the euro's Stability Pact seem tiny. At that point, those countries will need inflation to reduce the real value of their liabilities (though this will be difficult because many of the liabilities are indexed) and will seek through the common currency to offload costs on other euro members which don't have pension problems - an asymmetric shock, in other words. Because of its asymmetric nature, this shock is likely to result in either a breakup of the euro or massive fiscal transfers between countries, only possible within a wholly united Europe.

As Nobel laureate James Buchanan pointed out the euro, because it is now in existence, is "constitutionally efficient" and is unlikely to disappear other than through an enormous economic trauma. However, he welcomed the continuing existence of competing European currencies, sterling, the Swedish krone, and the Swiss franc, since they would provide a convenient alternative store of value and means of payment in case of difficulty.

MEME: Thanksgiving/Santa Claus Rally/January Effect

For 35 years prior to 1987, the stock market performance on the Wednesday before Thanksgiving and the Friday afterward had a great track record, except for two occasions, according to the Stock Trader's Almanac.

Since then, only half of the days before and after the holiday have been strong, but, "going long into the weakness Wednesday and staying in through the following Monday improves the record immensely," the Almanac said.

While past isn't always prologue, the day before and after Thanksgiving generally have been positive for the market, yielding net gains in 42 of the last 51 years, according to The Stock Traders Almanac. "We attributed the Thanksgiving strength to the 'holiday spirit' and to the fact that November has been a top performer since 1950," the Almanac says.

December, in fact, on average has been the best month of the year for stock gains, according to Ned Davis Research, a stock-market-research firm in Venice. The Dow Jones Industrial Average has risen in 72 percent of Decembers since 1900, going up 1.5 percent on average. By either measure, that is more than any other month.

Meanwhile, late-November isn't too soon to start thinking about the "Pre-January Effect" -- that tendency, some traders say, for small stocks to lag their larger peers in December. With the small-cap Russell 2000 index already up 37.3% this year, "traders will be quick to sell the small-cap stocks in which they have big gains this year," notes Larry McMillan of McMillan Analysis Corp.

THEME: CHINA/GOLD

China, which is a major influence on many commodity prices, but is so far a small player in the gold world, may yet emerge as a bigger factor on gold prices. A representative of China's central bank, the People's Bank of China, told a gold conference in London yesterday that China may buy more gold for its central bank reserves.

China has increased its gold holdings by a third in recent years to 600 tonnes worth about $12.4bn, or a fraction of its $380bn in official foreign reserves. (3.2%)

THEME: CENTRAL BANK GOLD

On Friday May 7th 1999, the UK Treasury announced it was to sell 415 tonnes from its 715 tonnes of gold reserves, leaving 300 tonnes balance.
The sales will reduce the proportion of gold in UK official reserves from 16.7% to about 7%.
In July 1998, the European Central Bank announced that 15% of its currency reserves will be held in gold, and as at January 1999, the Eurosystem, which comprises the ECB and the eleven member's national central banks, held 12,574 tonnes of gold making it the world's largest holder of gold, with over one third of total world reserve holdings, a total of about 34,000 tonnes. It is followed by the USA which keeps 53% of its reserves in gold.

THEME: CHINA VS MEXICO

Mexico Fears China Leads Export Market
By MARK STEVENSON
Associated Press Writer

November 23, 2003, 3:38 PM EST

MEXICO CITY -- It's a trade war being fought in the streets: Mexico's army of 1.6 million street vendors is resisting police attempts to confiscate imports from China, and the government has responded with everything from buy-Mexican ads to a special anti-import police squad.

Long known for the work of its artisans, Mexico now imports such handicrafts as painted figurines of Mexican saints and leather sandals from China. This year, China also displaced Mexico as the second-biggest exporter to the U.S. market, leaving Mexicans feeling cheated and worried the country is being left behind.

"It's not just fear, it's panic," said Mexico City historian Lorenzo Meyer. "We were supposed to be the ones moving ahead. We had free-market reforms, and now we're losing out to a communist-run country. In 500 years, this country has never been able to get ahead economically."

Newspapers regularly run stories on the threat. "The Chinese want Mexico's oil," "Chinese products proliferate in handicraft markets," and "Border factories fight Chinese threat" are just a few recent examples.

Mexico's frustration at being outmaneuvered in low-wage manufacturing has generated a rising tide of anger at the Asian giant. Textile and shoe workers have begun trashing Chinese goods in the streets. The government has started airing "Buy Mexican" ad campaigns, and police have rounded up Asian vendors and staged increasingly violent raids against street stalls selling contraband imports.

The anger isn't just over imported goods. Since 2000, Mexico has lost more than 200,000 maquiladora, or manufacture-for-export, jobs, with many factories moving to China.

The damage is everywhere. China is producing statuettes of Mexico's patron saint, the Virgin of Guadalupe. And plastic Chinese flip-flops are the preferred footwear in many parts of rural Mexico, replacing Mexican leather sandals that had been worn here for centuries.

In the north-central state of Guanajuato, dozens of shoemaking businesses have closed recently, including Botas Fox, the family business of President Vicente Fox. Shoemakers complain they are being driven out of business by cheap Chinese imports.

"We just can't compete with the labor costs," said Sandra Santamaria, project director for Mexico's Apparel Industry Chamber. "Labor in China costs 48 cents per hour, and in Mexico it's $1.20."

Mexico has imposed dumping duties of more than 500 percent on Chinese apparel, but that hasn't stemmed the influx. Many Chinese goods are smuggled in or imported under labels from other countries. Not including these clandestine goods, China currently runs a trade surplus with Mexico of more than $5 billion.

Some Mexicans blame themselves. "We've never been able to defend ourselves against the Americans, or the Chinese," said one anti-import sign posted outside a Mexican clothing store. "But, then again, we haven't seen any Chinese. All we see are disloyal Mexicans who don't want to pay for Mexican goods."

Fox, who has described China as "an opportunity, not a threat," created a special anti-contraband police squad in October, but it remains to be seen how effective it will be.

In one recent raid in Mexico City, police rounded up Koreans -- who allegedly run many of the import operations -- and deported 11 of them, drawing complaints of discrimination from the Korean community.

Earlier this year, police raids on contraband markets in Mexico City earlier this year met with resistance from vendors who hurled sticks and stones and trashed vehicles to defend their merchandise.

Some have said it's not a bad thing that low-wage jobs are fleeing to China.

"It forces Mexico to do more value-added, better-educated work," Deputy Economy Secretary Angel Villalobos said.

The Chinese have argued Mexico should improve its own products, rather than complaining about other countries.

"China was inundated with foreign products, but we did not blame those countries. Instead, we learned how to produce like them," said Xingmin Yin, the deputy director of Fudan University's China Center for Economic Studies in Shanghai.

MEME: SELL IN MAY, GO AWAY
Standard & Poor's Chief Investment Strategist Sam Stovall

Actually, what is interesting is that people like to point to the fact that the fourth quarter is very good for the S&P 500, gaining about 4% since 1945 versus the second best performing quarter, which is the first quarter up about 2.5% so a lot of emphasis placed on the S&P in this quarter and so my thought was let's also go back in time and take look at how the industries have performed and then what kind of frequency of that performance we are likely to see. And interestingly enough, there were ten industries that had outperformed the market about 70% of the time or better, so it gave us some pretty strong frequency numbers.

THEME: FREE TRADE/CHINA
Just the beginning?

Vice Commerce Minister Ma Xiuhong called on the United States to lift its steel tariffs, imposed in March 2002 to protect U.S. steel manufacturers but declared unlawful by the WTO this month.

"If the United States did not observe the WTO ruling, China would raise the tariffs of some U.S. products and plans to do so were under discussion," Xinhua reported, citing Ma. The agency's Web site, Xinhuanet, used slightly stronger language, saying China "is going to raise tariffs on some U.S. imports, and plans are being studied."

THEME: HOUSING BUBBLE
Here is one way the bubble will burst:

With the help of federal grants, a new program aims to tell seniors about the benefits of reversing.
November 20, 2003: 1:38 PM EST
By Sarah Max, CNN/Money staff writer

BEND, Ore. (CNN/Money) – "House rich, cash poor" is a dilemma more older Americans are finding themselves in these days, particularly if they are footing the bill for long-term care in or outside of the home.

Though rising home values have boosted the net worth of seniors -- 80 percent of whom own their own home -- they do little to improve their day-to-day finances.

To address the problem, the National Council on Aging (NCOA), a nonprofit advocacy group, is developing a "Use Your Home to Stay at Home" program to promote the use of reverse mortgages as a way to pay for long-term care.

The concept is simple: With a regular (forward) mortgage you put more equity into the house when you make your payments. With a reverse, you pull equity out of the house.

"People are sitting on a lot of equity," said Scott Parkin, a spokesman for the NCOA, which estimates that, collectively, seniors have more than $1.8 trillion in home equity. "What we're saying is you can use this money to prevent going on Medicaid."

Seniors who don't have long-term insurance or can't afford to pay costs out of pocket often qualify for Medicaid, which foots the bill for certain long-term care expenses. But Medicaid generally only covers care at nursing-home facilities.

"There is a great opportunity here for people to stay out of nursing homes and get the care they want in the place they want, which is normally at home," Parkin added.

There is, of course, also an opportunity to reduce Medicaid's responsibility for long-term care costs, which are expected to double in the next 30 years. Among the panel of experts working on the program are representatives from the National Governors Association and the National Conference on State Legislatures.

Last month, the program received $295,000 in grants from the Centers for Medicare & Medicaid Services (CMS), the federal agency that oversees the programs.

"It looks like the government is trying to reduce its costs," said Steve Weisman, an estate planning lawyer in Cambridge, Mass., and author of "A Guide to Elder Planning: Everything You Need to Know to Protect Yourself Legally and Financially."

While reverse mortgages make sense in some cases, they also carry hefty up-front costs and can quickly eat into home equity. There is a risk, said Weisman, that this niche product will be "oversold as being too good for too many people."
The skinny on reverse mortgages

Representing just a fraction of all loans, reverse mortgages allow homeowners to borrow money from the equity in their home either in a lump sum, as a line of credit or through monthly payouts.

If you opt for the line of credit, you pay interest only on what you actually use. Recently, the interest on the Home Equity Conversion Mortgage (HECM), the most popular such loan, was 3.46 percent.

Unlike other kinds of home loans, however, a reverse mortgage doesn't require taking on additional monthly payments. Nothing is owed until the homeowner sells, moves or dies.

You don't have to own your home outright to do a reverse mortgage. "If you owe money on the house you can use part of your reverse mortgage to pay off your current debt," said Ken Scholen of AARP (the group formerly known as the American Association of Retired Persons).

You do, however, need to be at least 62 years old.

The amount you'll receive from a reverse mortgage depends primarily on your age, the value of your home and current interest rates. Recently, a 75-year-old with a $200,000 home could borrow $125,400 with an HECM.
The price of reversing

For all of their convenience, a reverse mortgage still may not be the best solution for tapping your home's equity.

"If you're only going to be in your home a couple of years, the cost of this loan is very, very high," Scholen said, explaining that initial costs for a $200,000 home easily could add up to $10,000.

Up-front costs for the HECM include:

* Origination fee equal to $2,000 or 2 percent of the loan limit, whichever is greater.

* Mortgage insurance premium equal to 2 percent of the maximum claim amount or home value, whichever is less. (This up-front insurance is waived only if the all of the loan is used to pay for long-term care insurance.) There also is an ongoing annual premium equal to 0.5 percent of the loan balance.

* Other closing costs, such as title insurance, and fees for appraisal, credit reporting, escrow, document preparation and recording. Depending on the size of the loan, these costs could exceed $2,000.

* Servicing set-aside fee. This is money taken out up-front to the projected monthly costs of servicing a loan. According to the National Reverse Mortgage Lenders Association, this fee can amount to several thousand dollars.

The other major problem with reverse mortgages, Weisman said, is that because you don't pay down your debt until you sell, move or die, the interest compounds quite a bit over time.

Mandatory mortgage insurance ensures that you (or your heirs) don't end up owing more than the house is worth. But it's entirely possible to drain all or most of your home's equity.

"One thing I always encourage people to do is seriously consider the alternative of selling and moving before doing a reverse mortgage," Scholen said.

"Some people decide that staying in their home is more valuable than they had even realized," he added. "Others decide it's better to just move."

THEME: INFLATION
Bernanke admits inflation bias...

``In periods when energy prices and utility costs are rising, as in the first half of 2003, the BLS procedure may overstate the deceleration in rents net of utilities and hence in owners' equivalent rent,'' Bernanke said. ``As a result, on this particular count, the slowdown in the CPI inflation may have been slightly overstated in the first half of 2003.''

In the past 12 months, primary rents rose 2.8 percent compared with the 2.1 percent increase in owners' equivalent rents.

THEME: CHINA: THE PHANTOM MENACE
Ron Insana of CNBC

Ron Insana is here for today for “Insana's Insights.” The focus today, the dollar and commodities and commodities have been going up a lot.

Yeah and they've been moving of course Tyler, an inverse lock step and that Tony Creszenci from Miller Taybak gave five reasons this morning in a missive to clients as to why the dollar fell so sharply today intraday. One of which was that there was new data from the Treasury Department showing that foreign investors have been slowing their purchases of U.S. securities, something that could conceivably pressure the dollar and you see that the index is down sharply today by more then a point to 90.33. He pointed out that in September foreign investors bought just 5 1/2 billion dollars of treasuries compared to an average of about 39 billion dollars a month in the previous four months, they've also slowed their pace of equity purchases. He said there's also been this – and this is rumor not necessarily fact, a so-called bid list circulated on Wall Street of corporate securities that are presumed foreign investor wants to sell, agency securities and the like, and also terrorist activity on the rise, that's hurting the dollar. Technical selling and the dollar exacerbated the down side and then this morning, at 10:34 am the Bush administration invoked a so-called safeguard on China's textile trade in response to a request from U.S. firms that asked for temporary quotas on Chinese goods. So then the specter potentially --

THEME: MARKET TOP

Investment Executives Polled at Annual Paulson Investment Conference

NEW YORK, Nov. 18 /PRNewswire-FirstCall/ -- Last week, Paulson Investment
Company, Inc. (Paulson Investment) polled executives at the 26th Annual
Westergaard SmallCap Conference regarding their outlook on small-cap markets
in 2004. 98 percent of respondents expect growth in small-caps in 2004, with
56 percent anticipating significant growth and 42 percent moderate growth,
rather than negative or no growth.
"Our goal for the survey was to identify what the investment community
anticipates in small-cap market activity in 2004, including growth in industry
segments and investment banking," said Chet Paulson, chairman and founder of
Paulson Investment Company.

and this quote...

Surprising as recent gains have been, they're borne out by fundamentals that are improving the cost of capital for riskier businesses, said Satya Pradhuman, director of small-cap research for Merrill Lynch.

"Small-cap returns, now that they're twice that of the overall market, have become sexy," Pradhuman said. "So while we believe investors must be prepared for a world of lower absolute returns, we also believe smaller stocks will continue to outperform."

Will the last bear please turn out the lights?

THEME: FREE TRADE

Dan DiMicco, president of U.S. steel producer Nucor, said Tuesday, however, that the administration had notified him of no compromise proposal. Nucor began running newspaper ads Tuesday in the Washington area urging the administration not to back down under the threat of EU retaliation. "The president made a promise; we're counting on him to keep it," the Nucor ad said.

THEME: BABY-BOOMERS
USA TODAY

If you're counting on them to finance your retirement, you could be in for a big disappointment.

A new study by AARP suggests that most boomers will receive a small inheritance, if they get anything at all. As of 2001, only about 17% of boomers had received any inheritance. Those that did receive money didn't get much, AARP says. The median inheritance was $47,909.

This wasn't supposed to happen. A few years ago, studies predicted that boomers would inherit trillions of dollars from their parents, a comforting thought for people who hadn't saved much for retirement. But those studies failed to take into account longer life expectancies, soaring health care bills and long-term care, AARP says. All those factors can erode retirees' savings, reducing the size of their children's inheritances.

In addition, a large chunk of retirees' assets aren't transferable. Pensions and Social Security (news - web sites), which can't be left to heirs, account for about half the wealth held by people age 50 and older, AARP says.

For baby boomers, the results point to an inescapable conclusion, says John Gist of AARP Public Policy Institute: "It means they're going to have to save more."

Yet, several other recent studies suggest boomers aren't getting the message. Hewitt Associates, a human resources consulting firm, recently reported that more than 40% of workers who switched jobs last year cashed out their 401(k) plans instead of rolling the money into another retirement savings account. Another survey by Plansponsor.com found that the average participation rate in 401(k) plans fell 3.6 percentage points this year to 72.6%.

The Hewitt study is particularly troubling because a cash-out will leave permanent scars on your retirement portfolio. You'll have to pay income taxes on the withdrawal, plus a 10% penalty if you're under age 591/2. As if forking over a third of your savings to the government isn't bad enough, you'll also give up years of tax-deferred compounding.

Unfortunately, the cash-out trend isn't limited to the young and the restless. While cash-outs were highest among workers ages 20 to 29, about a third of job changers ages 50 to 59 took their 401(k) distributions in cash.

While the greatest percentage of cash-outs involved plans valued at less than $10,000, 20% of job changers with a balance of between $40,000 and $49,000 opted to take cash and enrich the federal government.

The basis of the Bear Market Cycle that we are in is that Boomers do not have enough savings for the future. Drugs will extend their lives and they will live longer. They will also need to work longer. Eventually though, they will need to cash in on the final asset that is supporting them: rising housing prices. This effect will be permanent and you can bet that the 401K system will not have any money for them when they rush en masse to the exits

MEME: PRESIDENTIAL CYCLE
More confidence in this meme...

Delving further into the subject of investment manias, money manager Jeremy Grantham said that he has identified 27 investment bubbles in financial history.

In all 27 cases, he said, prices came back to the trend line that prevailed before the bubble started.

Grantham also talked about the effect of the U.S. presidential election cycle on the stock market. Years one and two in a president's term show stock performance 4 percent and 4.6 percent below the long-term trend, he said.

Year three shows performance 8.7 percent above trend, and ``this is a classic year three'' with strong gains by small stocks, growth stocks, and low-quality stocks.

THEME: MARKET TOP

"My guess is that there will be some weakness in those stocks toward the end of the year. You are starting to see it now," Mr. McLaughlin (Terence McLaughlin, president and chief investment officer at New York money-management firm Lighthouse Growth Advisors) says. "It just amazes me that people have just clamored back into these names with no eye toward valuation," given the pain people suffered during the long bear market. "We are adding a bit to health-care and more recently, in the last six or eight weeks, adding to industrial-type names" such as 3M and United Parcel Service, he says.

"The prevailing sentiment is that the market will do better between now and year-end," says Andy Brooks, head of stock trading at Baltimore mutual-fund group T. Rowe Price. "I am looking at it that way. It is sort of that the economy is improving and that's all you need to know."

Note that ROTATION is always the beginning of a top. Its like Mario jumping from rock to rock, trying to avoid sinking into the flames...

MEME: PAUSE THAT REFRESHES

Sectors that didn't do as well during the market's eight-month run up, such as pharmaceuticals, are gathering steam as investors rotate money out of good performers, such as technology issues, said Alfred Goldman, chief market strategist for A.G. Edwards & Sons in St. Louis.

"This is very normal market action," Mr. Goldman said. "A pause to refresh."

Uncle Al is always on cue with this one. Not a reassuring sign as Uncle Al rode the bear all the way to the bottom.

MEME: SANTA CLAUS RALLY
1st appearance this year! From WSJ,

Should they sell, and lock in their big gains? Or should they hang on, betting on a Yuletide rally? (November, by the way, usually is a pretty good month, too.)
"The market is nervous," says Tim Heekin, director of trading at San Francisco brokerage firm Thomas Weisel Partners. "People are reluctant to make any big sales," for fear of missing out, he says, but "they want to preserve their gains. If there is a whiff of anything negative coming out, we could have a real selloff."

MEME: DON'T FIGHT THE FED
We have seen this one since 2001...Igor is a Gen-X bear to bull convert.
From Smartmoney, IGOR GREENWALD

ALL THE GREED, hope, hype, pain, fear and loathing of the stock market's ups and downs over the last six years can be plausibly reduced to a single causal relationship.
The rule since 1998: Stocks speed after the Federal Reserve pushes the gas pedal, and skid once it applies the brakes.
So it's notable that the Fed all but put its feet up on the dashboard in recent days to underscore its deep reluctance to slow down this gravy train any time soon.

THEME: CAPITULATION(?) & TECH
I have noted the overriding skepticism that fund managers, and in particular growth fund managers, have displayed towards tech. Now the Mother of All Funds is admitting that neglecting tech, and emphasizing financials and pharmaceuticals have hurt them. I think implicit in this admission is that steps have been made to correct the underperformance, i.e., Fidelity has capitulated and has finally bought tech. But have they dumped big pharma???

Fidelity Investments' flagship Magellan stock fund lagged the broad market in recent months and cost the biggest U.S. fund company millions of dollars in management fees, according to data released on Monday.

Robert Stansky, who has headed the biggest actively managed U.S. stock fund since 1996, said the fund trailed Standard & Poor's 500 index (SPX) recently and blamed bets he made on technology, financial and health care stocks.

"The fund's underweighting in the (technology) sector relative to the S&P 500 -- particularly in large tech bellwethers such as Intel and Cisco -- was the single biggest reason why it trailed the index during the six-month period," Stansky said on Fidelity's Web site.

The company's semiannual report, which was released alongside Stansky's remarks, showed Magellan's underperformance cost Fidelity $20.4 million in the first half of its fiscal year, which ends on March 31. In the same period a year ago, the fund's underperformance cost Fidelity only $388,000.

Stansky rarely speaks publicly about his portfolio and his comments offer a glimpse into how he invests the fund's $65 billion in assets under management.

He said major pharmaceutical companies like Pfizer, Merck and Schering-Plough underperformed the market and his decision to overweight financial stocks was "negated" by stocks that did not do well.

"He was in a defensive mode and underestimated investors' new appetite for risk," John Bonnanzio, editor of independent newsletter Fidelity Insight, said of Stansky.

Looking ahead, Stansky said he may consider making some adjustments to his holdings, particularly now that technology stocks have consistently been among the year's top performers.
He said a key sign will be the willingness among company executives to boost spending.

THEME: CHINA/COMMODITIES
From the FT

China effect convulses commodity markets
By Kate Burgess
Published: November 14 2003 13:53 | Last Updated: November 14 2003 13:53

Buying crazes are endemic to investment markets. This year it is commodities, which have been hailed as a newly attractive asset class driven by the growing power of China.

The traditional arguments for buying commodities are that prices of raw materials don't move in line with equity markets. Some advisers tout the virtues of commodities as real assets during times of geopolitical and economic uncertainty.

Others latch onto signs of recovery in the US, the world's biggest economy, citing the attraction of raw materials during the early phases of an economic cycle when global growth, demand for goods and production pick up.

A few also cling to the argument that commodities are a hedge against inflation. The theory is that the prices of raw materials rise when price indices rise. But the correlation has broken down over the past 20 years.

However, in recent months all the theories have been overshadowed by what analysts are calling the China effect. "Chinese demand for commodities is revolutionising global commodity markets," says Merrill Lynch Investment Managers. "China has already overtaken the USA as the largest consumer of iron ore, steel and copper."

In the first half of this year, iron ore imports to China rose by 45 per cent and copper imports by 40 per cent. This voracious appetite has pushed the copper price to a six-year high and nickel to a 14-year high.

China - the world's sixth largest economy, according to Merrill Lynch - now accounts of between a fifth and a third of the world's consumption of alumina, iron ore, zinc, copper and stainless steel.

"We've rarely seen this combination of cyclical recovery in the US and structural change in China," says Tom Elliott, JP Morgan Fleming's strategist. "The largest user of commodities is very rarely the fastest growing user as well; it is quite remarkable. It is difficult to see an end to the run".

Some of the materials imported are turned into finished goods for export. China exports much of the iron ore it imports once it has processed it into steel, for example. Similarly, China's alumina imports are turned into aluminium and exported.

China's exports are exceeded only by those from three nations: the US, Germany and Japan. If current growth rates are sustained they will exceed those of the US in less than a decade.

But the case for continuing growth rests heavily on the Chinese authorities' ambitious plans to develop the country's infrastructure and on hopes that the country's 1.3bn people are becoming avid consumers, clamouring for sophisticated goods.

"Already Volkswagen sells more vehicles in China than it does in Germany, while China consumes the same amount of global commodities as the US," says JPMorganFleming. "By value, demand in 2003 for non-oil commodity imports will be up to approximately $7bn compared with less than $2m in 1996. Growth is phenomenal and the impact on the world should not be underestimated."

Eric Lonergan, a strategist at Cazenove, points out that China's share of world copper consumption has risen from less than 5 per cent in 1990 to 20 per cent in 2003. This demand is growing in a similar fashion to those of Japan in the 1960s and early 1970s, an era that ended with a surge in commodity prices.

Lonergan believes this surge will continue, coinciding as it does with the end of a 20-year bear market in commodity prices, during which producers have clamped down on production and severe supply constraints have emerged.

Capital spending by mining companies has barely grown, in real terms, over the past 20 years, explains Lonergan. China may be pouring money into expanding production and capacity, but globally the rising costs of bringing on new capacity in many metal markets, as a result of environmental pressure and the long lead times between discovery and production, will keep the lid on supply.

The bull case assumes that China's pace of growth will be unchecked. Yet there are signs of unease in China itself. There are mounting concerns about what some see as runaway imports and an overheating economy.

Beijing has already made clear, say old China hands, that it wants to see a moderation in the growth of China's property, iron and steel, cement, aluminium and vehicle sectors by tightening bank reserve requirements to limit credit.

Even the bulls acknowledge that the greatest danger to a continued boom in growth and prices would be if tougher measures to put the breaks on growth coincide with too much investment in production capacity in China. If, as some suggest, Chinese producers have built up large inventories of metal, prices could tumble.

Some also admit to concerns about China's creaking banking sector. Banks are already burdened with a legacy of non-performing loans. According to official estimates they make up 23 per cent of bank loans. Unofficial estimates put the figure at nearer 50 per cent of banking assets.

Cazenove argues that making too much of China's banking problems misses the point. "China is unique in development history by growing at a sustained rate of close to 8 per cent and simultaneously accumulating net external assets," says Lonergan.

Previous growth miracles in the developing world, and in Asia other than Japan in the 1980s and 1990s, have been financed by large external borrowing. "China, by contrast, has no balance of payments, inflation or - in our view - banking sector problems," adds Lonergan.

Lonergan is more concerned by the amount of money flowing into commodities. He points out that annual production of gold, platinum, copper and aluminium is worth just 1.15 per cent of US pension assets. Even a tiny shift in asset allocation would have a huge impact on the supply/demand equation for metals. "It makes the sector very volatile," he says.

Instability represents the greatest danger for private investors. There may be merits in putting a few per cent of big portfolios into commodities as a diversifier, but only if investors can withstand shocks.

This time the risks are two-fold because the reason for buying commodities is as much an emerging market story as a commodities story.

THEME: INFLATION

"The things that make up the bulk of consumer expenditures for most U.S. households -- all of them seem to be moving up significantly," said Carlos Asilis, portfolio manager with the hedge fund Vega Asset Management.

So what's keeping the reading on inflation low? Asilis thinks one big piece of the picture is housing. In computing the CPI, the Bureau of Labor Statistics assigns a 22.2 percent weighting -- the most of any item -- to something called "owners' equivalent rent of primary residence." Basically, it's an estimate of what homeowners might pay in rent if they rented their homes instead of owning them.

To calculate this, the BLS looks at actual rents, compares them to owned residences and then uses that to calculate housing costs.

The problem? The low-interest rate environment has meant that many people who might otherwise rent now own -- in fact, home ownership rates are at record highs. As a result, rents have come under pressure, and "owners' equivalent rent" has grown at just 2.1 percent over the past year -- less than the overall CPI and far lower than the costs for education, health care and so on.

You can catch the circularity here. Because the inflation reading is low, rates are low, which has upped home ownership, which has pressured rents, which has put a cap on "owners' equivalent rent," which has helped keep the inflation reading low. Etc.

Another big chunk -- 8.2 percent -- of the CPI is new and used motor vehicles. Over the past year vehicle prices have fallen 3.6 percent, thanks to tough competition. Part of that is due, again, to a kind interest-rate environment. Although zero-percent financing doesn't factor directly into the box score the way the BLS calculates inflation, it has brought the cost of buying down, prompting many consumers to trade in their almost-new car for a brand new one.

"What you're seeing is a glut of gently used vehicles, and that's putting pressure on all vehicle prices," Lehman Brothers economist Joe Abate said.

As I said before, CPI is a dubious number

SPEC: ELLIOT SPITZER FOR PRES 2008
I think people are missing the obvious partisan political potential of Elliot Spitzer. In a search of Google News for "Elliot Spitzer Democrat" on 2 articles showed up. In the after math of the bubble, populist sentiment which is fueled by revenge for stock market losses, is the force behind much anti-capitalist sentiment. Elliot Spitzer is astutely riding this wave. His clashes with the SEC will only increase in scale and scope. He must be planning a doozy because he believes the SEC went behind his back. He will clearly use the states to gang up on the mutual fund companies because the SEC & the Republicans clearly have no stomach for it.

THEME: FREE TRADE
Bush is going to UK next week. Are we headed for a trade showdown???

US aerospace trade chief warns on EU stance
By Caroline Daniel in Washington
Published: November 13 2003 19:31 | Last Updated: November 13 2003 19:31

The head of the leading US aerospace trade body has warned that European "belligerence" over steel tariffs and tax reform could harm commercial aviation trade.

In an interview with the FT, John Douglass, president of the Aerospace Industries Association, said there was a feeling in the US that "some countries, mainly France and Germany, and occasionally Canada, exploit the US market."

"Our government gives equal treatment to Airbus and they reap huge economic benefit from the US market, at the same time as [France and Germany] fight us in the UN and around the world. If that continues, don't you think trade would be affected by that, and sooner or later we could say we are not going to give them access?"

Mr Douglass's comments come against a background of growing concern in Washington about the disappearance of US manufacturing jobs.

The aerospace industry has been hard hit: employment has fallen from a high of 1.3m during the cold war to less than 600,000, and Boeing, the US aerospace group, is poised to lose its lead in new commercial aircraft orders to Airbus, its European rival.

"There is nervousness about the sabre-rattling by the EU on trade issues. People are getting tired of [cases being taken] to the WTO [World Trade Organisation] and every other damn thing that comes down the pike.

"There will be a reaction to the economic belligerence by the EU . . . every time we see Pascal Lamy [EU trade commissioner] threaten to sue us over something it runs against the grain of how Americans think about Europe. It is like a neighbour who is constantly calling the cops and complaining," Mr Douglass said.

While he said those concerns would continue in the run-up to US presidential elections next year, he expected President George W. Bush to make a statement on December 17, when he would announce increased aerospace R&D funding and talk about a replacement to the space shuttle. "Inevitably there will be an increase in space spending because they have got to replace the shuttle."

Mr Douglass said he hoped the industry would receive further support from the federal government.

MEME: PRESIDENTIAL CYCLE

"The economy is always the best in the third year of a presidential term," said Louis Navellier, president of Navellier Management Inc. in Reno, Nev. "And election years are the second-best years for the economy."
"This is economic nirvana," Navellier said. "I think I saw Alan Greenspan almost smile on TV yesterday."

MEME: JOBLESS RECOVERY
The Father of the Jobless Recover speaks!!!
From LA Times article

The trouble, economist Nick Perna said, is that "if every company was lean and mean, the economy would be in serious recession."
Perna - who is credited with coining the term "jobless recovery" more than a decade ago - is hopeful that, as confidence builds and the economy expands, hiring will follow. After all, the jobless recovery of the early '90s eventually gave way to a lengthy, job-packed expansion.
"In the best of all worlds, we'll get rapid productivity growth and, when people are displaced, they're able to find work in other sectors," Perna said.

John Challenger, chief executive of Challenger, Gray & Christmas, the placement firm, is more bleak.
"My sense is that hiring and job creation will be meager," he said. "There are huge transformative forces at work, with technology and globalization forcing us in different directions. I think we're in uncharted territory."

THEME: ASSET BUBBLES
Some perspective on asset sizes...

``From 1950 to 1982, housing was roughly equal to gross domestic product in the U.S.,'' says Joe Carson, head of global economic research at Alliance Capital Management. ``Now it's 40 percent bigger than GDP. From 1965 to 1995, equity market capitalization was 50 percent of GDP. Now it equals GDP.''

MEME: SUSTAINABILITY
MEME: CORRECTION
MEME: WALL OF WORRY
THEME: SCEPTICISM

Richard McCabe, chief market strategist at Merrill Lynch, believes "the market's recent lukewarm response to positive economic and corporate news surprises could be a prelude to an interim correction within its ongoing cyclical bull market."

"When pushing the accelerator of a car, and it goes from zero to 100 miles per hour ... at some point (the rate of pickup) can't sustain itself," says Richard Cripps, strategist at Legg Mason Wood Walker.

What drives the market higher is the classic "wall of worry." The appearance of the memes cited above is symbolic of this phenomena. During the bear market, the memes that drove it were "bottom" and "capitulation." When people focused on these memes, invariably the market got weak. This makes for an easy short-term trade.

THEME: SCEPTICISM
Great quote from Art Cashin:

If there was a downside, said Art Cashin of UBS Financial Services, it was relatively light volume. "It's as if the food's great, the drinks are chilled, the band's great, and there are only four people at the party," he told CNBC's Closing Bell.

THEME: MUTUAL FUND SCANDAL
Jon Markman, MSN

If your fund hasn't surfaced in the scandal yet, don't be too smug. The SEC last week said it believes that as many as half of all mutual funds allowed preferred customers to engage in a borderline-illegal practice known by the misnomer "market timing." Meantime, as many as 25% gave those elite customers the ability to employ an outright fraudulent practice known as "late trading."

* Market timing: Large customers were allowed to profit either from quick trades on stale prices in illiquid bond funds or from time-zone differences in the prices of international stock funds. Because most funds restrict investors to a maximum of four to six trades per year, these customers in some cases were permitted to create "smurf" accounts to hide their actions -- a technique long used by money-launderers. Just as cartoon Smurfs all have the same blue bodies but different names, smurf accounts have different names on their titles but actually belong to a single person or corporate entity.

* Late trading: Large customers were allowed to buy mutual funds at closing prices after 4 p.m., permitting them to benefit from price-moving news after hours.

Private attorneys who've filed lawsuits against funds now say that these publicized practices are just the tip of the iceberg. One attorney told me that insiders have come forward to allege that late trading in some cases occurred as late as an hour into the next day's trading.

"We've been approached by whistle-blowers at various major funds and have gotten the sense that the practice was endemic," said Robert Nelson, an attorney at Lieff Cabraser Heimann & Bernstein. "At some places, with management approval, you could get a Tuesday fund price an hour into trading on a Wednesday. Because of the way shares were cleared, the potential for abuse was enormous."

Clearly the story on this one is far from over. The potential litigation cases could be miles long. I think that before this is over, the "revenge factor" will take over and we will need to see a mutual fund on the gallows pole

THEME: CHINA
Some food for thought...

ORVILLE SCHELL

THE People's Republic of China is a country in precarious transition from one political/economic system to another. Monumental contradictions abound.

Indeed, probably no nation of global significance has more unresolved issues concerning its ruling principles and structures. But what really makes forecasting its future so difficult is not only that recent developments have so often defied prediction, but also that virtually opposite, if logical, scenarios are plausible.

China emerged over the past decade and a half as a paradigm of economic energy, determination and progress. Few other areas in the world have been deemed an 'economic miracle' for so long. Through thick and thin, China has managed to maintain impressively high economic growth rates.

In 1989, China rose from the ashes of the Tiananmen Square massacre. In the early 1990s, it weathered the implosion of the Japanese economic miracle, and maintained a steady course through the Asian economic crisis later in the decade. This year, it came through the Sars epidemic with banners flying. Now it seems to have repelled America's efforts to force it into revaluing its currency.

Anyone who has visited China's large cities over the past few years must be impressed by the energy, pace and scale of development. The sheer number of projects - from highways, ports, railroads and airports to skyscrapers, housing developments, telecom infrastructure and industrial parks - leaves even sceptics gasping in awe.

But behind the dazzling skylines and impressive statistics, another reality exists, one replete with unresolved problems and daunting numbers that suggests a far darker scenario. Consider the following:

# China must create some 12 million to 15 million new jobs annually just to keep up with population growth.

# The government must deal with an estimated 270 million unemployed or underemployed people.

# A 'floating population' (dispossessed rural workers who have moved to the cities to find work) of between 100 million and 150 million is growing by almost 5 per cent annually, representing the largest migration in human history. These migrants exist with no job security, no long-term housing and no health care.

# There are 800 million rural peasants who have been largely left out of China's latest boom, creating rising, but frustrated, expectations.

# China has no functioning pension system, and the cost of creating one is estimated in the hundreds of billions of dollars.

# New stock markets are all too often little more than elite-manipulated casinos, leaving China without the capacity to form the kind of indigenous pools of investment capital needed to power its own development.

# State banks must provide 98 per cent of all financing for local companies. But, having been used to keep state-owned enterprises afloat for too long, the banks are essentially insolvent. Standard and Poor's estimates it would cost US$518 billion (S$901 billion) - 40 per cent of GDP - to clean up their non-performing loans.

# Environmental degradation from rapid industrialisation, overpopulation, and uncontrolled resource exploitation is extreme and, given the pressure to maintain high growth rates, very difficult to remedy.

# Since 1998, the Chinese government has become increasingly reliant on ever larger bond issues for fiscal stimulus, pushing debt onto the next generation.

# Estimates of the government's growing aggregate liabilities (bank debt, unfunded pension plans, bonded indebtedness for infrastructural projects, among others) range from 70 per cent to more than 150 per cent of GDP. The government's ability to collect tax revenue remains weak, yielding less than the equivalent of 15 per cent of GDP.

Fears of an investment bubble caused by uncontrolled, indiscriminate and excessively exuberant investment and growth have led many experts to worry about a meltdown akin to that experienced by Silicon Valley in the late 1990s.

These fears are compounded by the fact that China's Leninist one-party government, now almost completely dependent on its 'economic miracle' for legitimacy, has shown few signs of implementing political reforms to complement economic reform.

So China's entire system is in a state of perilously balanced transition. And since every economy is cyclical in nature, even some of China's most ardent boosters are left to wonder what resources the party and government will have to draw on, should growth rates drop, even to a respectable 3 to 4 per cent.

What would Beijing rely on for legitimacy if unemployed workers begin agitating; if angry peasants begin to besiege local government offices in large numbers; if factionalism incites a crisis in leadership; if conflict erupts in the Taiwan Strait; or if the global economy remains sluggish?

China may have seemed a 'miracle' over the past decade. But good economic times rarely test a political system. The real test is a political system's ability to survive the inevitable cyclical downturns, political shocks or social upheavals that almost inevitably challenge a country, particularly developing ones.

Economists and political observers who are sceptical about the durability of China's 'economic miracle' point to the country's sclerotic political system, its precarious economic institutions, the hazardous balance of hundreds of millions of marginal Chinese, and the economy's reliance on outside capital.

They are right to wonder whether the 'miracle' can continue to survive the kind of shocks that have rocked almost every other part of Asia to its foundations at one time or another over the last decade. China has weathered much, but its big test has yet to come.

# The writer, a noted author on China, is a dean at the University of California at Berkeley. Copyright: Project Syndicate

THEME: CAPITULATION
Michael Sivy, CNN/Money Contributing Columnist

What should you own, if you want to ride the next market upswing?
I argue for picking the dominant companies in America's fastest-growing industries. It's always important to diversify as broadly as possible -- and that means including income investments and inflation hedges to reduce the risk and volatility of your portfolio, as well as some aggressive growth stocks if you want to pump up your potential return.
But your core holdings should be large, seasoned companies in sectors that are growing faster than the overall economy.
I used to maintain a table of 100 blue-chip growth stocks on this Web site. And since we discontinued it, I've received many e-mails asking us to start it up again. We've revisited the list and trimmed it to 70 stocks.
The Sivy 70 will be featured in the December issue of Money magazine and will be posted on this Web site next week. To provide ongoing coverage of these stocks -- as well as to offer general market insights and other stock recommendations -- I am once again writing the Sivy on Stocks column for CNN/Money. It will be published every Tuesday and Thursday.

Another Johnny Come Lately. He was quite negative on stocks earlier this year, but miraculously, he's a bull now! Notice that by popular demand, he is publishing stock picks....

THEME: ASIA

Holdings of US Treasury and agency bonds by foreign central banks have for the first time exceeded $1,000bn, calming fears that a rise in Asian currencies against the US dollar would prompt mass selling of US assets.
The US Federal Reserve's latest weekly data show that foreign central banks hold $799bn in Treasury and $203bn in quasi-governmental agency bonds.

THEME: INSIDERS SELLING
Craig Columbus of Thompson Financial

It's getting a bit repetitive, but for the month of October, the total level of insider buying was only $52 million. That's insiders in total. And that's the lowest monthly total since 1995. The average -- the garden variety -- is about $175 million, so you're far below the average. Now selling was about $3.2 billion, which was one of the higher monthly totals we've seen. You put that all together, the ratio of dollars sold for dollar bought is $59 sold for every $1 bought. And that's the worst monthly reading we've seen in the 15-plus years we've been tracking this.

When is the drop that runneth over???

THEME: FREE TRADE

Pascal Lamy, the European Union trade commissioner, said that the EU would slap tariffs of 8 per cent to 30 per cent on $2.2bn worth of US imports beginning on December 15 unless the US removed the steel tariffs. The additional duties would amount to €600m to €700m ($690 to $800) per year.
The case was brought by the EU, Japan, South Korea, China, Switzerland, Norway, New Zealand and Brazil, which said in a joint statement that the verdict "leaves the US with no other choice but to terminate its WTO-incompatible safeguard measures without delay". Japan has said it is also prepared to levy trade sanctions against the US.

Begun, the Clones Wars has...

THEME: FREE TRADE

In an October Christian Science Monitor/TIPP poll, for example, only 43 percent of Americans say free trade is "good for the economy," down from 52 percent when a similar question was asked in May 2002.

Greg Mankiw, Pres. Economic Adviser, was on Kudlow & Cramer basically saying that we need to engage China, and that a booming Chinese economy would be good for our imports. This is the stance that Republicans want. Treasury Sec. Snow's show on the Hill was just a bone tossed to the voters that the Administration wanted to get tough with China. If we go into 2004, and jobs start to slip again, expect Dems to really push this theme hard.

Even the pro-free-trade Bush administration is taking China to task. "America's patience is wearing thin," Commerce Secretary Don Evans wrote Wednesday in the Wall Street Journal. He criticized China for a "loss of momentum" in moving toward compliance with its WTO obligations.

How do the Bushies think we are going to have any pull at WTO with our steel tariffs, lumber tariffs, not to mention pulling out of Kyoto agreements. Bushies have no international credibility. Even BBC show "Dead Ringers" has a scathing parody of Bush as a regular feature (and the Brits are our allies). You'd never see anything that harsh on US networks.

THEME: TECH

In an effort to shake things up, Vanguard fired the original skipper in June 2001, commissioning Alliance Capital as the replacement. Unfortunately, performance went from bad to worse. Despite promises to the contrary, there has been little improvement. Alliance, in a letter to Vanguard chairman Jack Brennan last year, wrote that "underperformance for U.S. Growth is behind."

It appears that they were looking backwards when they made the pledge, because underperformance continues. I doubt they'll be sticking their necks out making any such promises again.

Since Alliance took over as adviser, U.S. Growth has dropped 28.3 percent over the three-month period from June 1 through Oct. 3. This compares to a 10.5 percent loss for the S&P Barra Growth Index (SGX: news, chart, profile) and a 17 percent drop for the Russell 1000 Growth Index (RLG: news, chart, profile), the fund's benchmark.

U.S. Growth, which ballooned to $22.3 billion in assets in August 2000, has shrunk, through losses and shareholder defections, to just $7.1 billion. Investors pulled $170 million out of the fund in 2003 alone. Contrast that with the $85 million or so that has flowed into Vanguard's Growth Index (VIGRX: news, chart, profile) fund, which is a passive, $8.4 billion fund tracking the same large-cap growth stocks.

Alliance cites several reasons for the fund's poor performance in their August annual report, writing "The underperformance of our portfolio is a product of our unwillingness to chase ... extremes in investors' risk tolerance."

Calling their positioning prior to March 2003 "insufficiently defensive," it may be that they abandoned a higher-risk strategy for a more conservative stance just when taking risks might have paid off.

Alliance's poor stock-picking in the health care sector (accounting for between 25 percent and 31 percent of holdings during the August to August period addressed in their letter) caused the biggest drag on performance, with that portion of the portfolio losing 3.2 percent compared to a gain of 6.6 percent for health care stocks in their benchmark.

Fund managers have been desperately trying to keep up with the market without buying tech. At what point with they capitulate?
When they capitulate:
1. Buy healthcare laggards (big pharm)
2. Financials
3. Energy

THEME: DEBT BUBBLE

"Usually consumers repair their balance sheets during a recession," said Dan Dekar, chief investment officer at Smith Breeden Associates. "But this time, consumers have been encouraged to take on more debt."
But with the easing cycle now believed to be at an end, economists argue households will need to start cutting back. Quarterly data compiled by the Fed shows that the ratio of household debt payments to personal income has risen steadily over the past decade and remains at near-record levels. "Eleven per cent household debt growth in a stable interest rate environment is not sustainable," said Jan Hatzius, senior economist at Goldman Sachs.

This shocking tidbit from UK...

"The biggest problem amongst individuals in the spiral of debt is credit cards," said Mike Gerrard, personal insolvency expert at Grant Thornton, the accountancy firm. "Typically, an individual with serious debts will have a mortgage in the region of £50,000 to £100,000 and commonly credit and store card debts of £50,000."

Debt bubble, even if it is gingerly deflated is likely to sap the strength of any rebound recovery. Incremental rises in income are likley to go to debt repayment rather than extra spending.
Trade: buy credit debt vs equity.

MEME: JOBLESS RECOVERY

"We can finally put the nail in the coffin of the jobless recovery," said Ken Mayland, president of ClearView Economics. "We are back on a rising job track."

"The jobless recovery is over," Wells Fargo economist Sung Won Sohn declared in a report.

"We have lift off," said Naroff Economic Advisors president Joel Naroff. "So much for the continuing dirge that we are in a jobless recovery."

The last fortress of doubt in the minds of the economic pundits has fallen: JOBS. Without a "jobless" recovery, we have an old fashioned recovery. This means that:
1. Buying bonds = insanity
2. Shorting stocks = insanity

THEME: AGING BOOMERS
Carl Camden is the President and Chief Operating Officer of Kelly services, one of the largest temporary staffing and placement companies in the country:

We never slowed down in health care. All through this recession, there was a tremendous demand for health care. Financial services are still strong in spite of the slowdown in the mortgage area. And for most of the staffing companies, manufactured-related staffing already climbed back in a stay at pre-recession levels. It's not growing much any more, but it's at pre-recession levels.

MEME: PRESIDENTIAL CYCLE
Donald Luskin, Smartmoney:

My friend Fred Goodman - the dean of technical analysts who writes a daily technical report for my Web site - has been focusing on it a lot lately. Fred has paid particular attention to the fact that the market tends to do well in the last two years of a presidential term - in other words, during the run-up to the election (which is right where we are now). But he's already beginning to look ahead with trepidation to the first two years of the new term: With the election over and done, the market tends to do poorly.

So what do we do with this information? For the short term, it's simple: Get ready for a great year ahead, not only because the market tends to turn in above-average performance in the fourth year of the cycle. Take a look at the chart, and you'll see that the fourth year has also been the least risky of them all. It's the one with the narrowest range between best and worst performance (which means that if past is prologue, there's less uncertainty about the exact result you can expect). And it's also the one with the least-bad worst case. The worst fourth year ever was a loss of only 10% - all the other years have had worst-case losses that were multiples of that.

More people are talking about the Presidential cycle because it looks more likely that Bush will be re-elected. Bring it on!!!

THEME: EASY FED (?)

``If the economy gets a full head of steam,'' interest rates ``will have to rise,'' Jack Guynn, president of the Federal Reserve Bank of Atlanta and a voting member of the policy-setting Federal Open Market Committee, said yesterday.

This is the 1st official salvo that I've heard.

THEME: PRODUCTIVITY
WSJ:

For more than 200 years, "The Marriage of Figaro" has been performed with a full orchestra. But when the Opera Company of Brooklyn stages the Mozart opera in January, the pit will be occupied by only 12 musicians -- and one technician overseeing a computer program that plays all the other parts.

As the U.S. enjoys explosive growth in productivity, with an 8.1% third-quarter gain reported Thursday, the effects are reaching into far corners of the economy. The low-budget opera company in Brooklyn saves enough money on musician salaries with its high-tech orchestra that it can offer more performances per season.

Once confined to the computer sector and a few technologically savvy companies, productivity gains have spread into the nation's vast service sector, from airports to pet stores and package deliverers. Moreover, companies now are reaping the benefits of not just their technology investments in the 1990s but of organizational changes that made the technology work for them.

"It took a while for businesses to learn not only how to use information technology, but how they needed to organize themselves," says Robert Solow, a Nobel Prize-winning economist at the Massachusetts Institute of Technology known for his work on productivity.

MEME: TEN-BAGGER
From Motley Fool:

"Any piece of moderately good news may be enough to drive the stock to multi-bagger returns in 6-12 months." -- Zeke Ashton, March 2003

Bull must be back because they are using Peter Lynch's "bagger" terminology again. The question is when will greed get dangerous? The bubble is being blown, can the Fed keep it from popping?
feedback

THEME: CHINA
China stock sales...

Shanggong said yesterday it expects to raise no more than US$50 million from the sale of 100 million B shares to 14 pre-selected overseas institutions, such as FAG of Germany and Shanghai Industrial Asset Management (Hong Kong) Co Ltd.

Shanggong said it will use the proceeds to buy 81.1 percent of Durkopp Adler AG, a German sewing machine manufacturer, and build new workshops using technology obtained from the German company.

Is China going to do reverse takeovers? NYT had a story about a manufacturer setting up in S. Carolina. Also, Haier is looking to set itself up as a global manufacturer of refrigerators.

THEME: EASY FED

``Based on labor market data alone, asserting that an employment recovery has begun would be premature,'' Bernanke said, adding he does expect job growth in the ``next few quarters'' as demand rises and productivity gains start to wane.

Bernanke is the leader in the cheap money campaign. If he needs a few more months of job growth, then it is unlikely that we'll see higher interest rates until we get at least 3 good reports.

THEME: UK INTEREST RATES

Inflation is lower in the U.S. than in either of the two countries. But ``don't forget the differences in the way we measure inflation,'' said Joe Carson, head of global economic research at Alliance Capital Management. ``In the U.K., they don't quality adjust as much as we do. And the RPIX,'' which rose 2.8 percent in the year ended September, ``includes housing prices.''
Substituting house prices for imputed rental values in the U.S. consumer price index would add about 0.8 percentage point to the reported CPI and 1 percentage point to the core CPI, Carson said. The reported year-over-year increases are 2.3 percent and 1.2 percent, respectively.
``We've statistically lowered inflation,'' Carson said.

US CPI is a dubious figure. Quality adjustments and neglecting food & energy & housing... Where is the healthcare inflation? Education? Taxes?

THEME: MUTUAL FUND SCANDAL
TSC:

Because the value of a mutual fund is inherently determined by the fund's holdings, redemptions won't cause a downward spiral, as in Enron shares. But large redemptions -- of which we're already seeing much of in these funds -- certainly take a toll on fund performance.
First, the trading costs of redemptions essentially get passed on to existing shareholders -- not paid by the exiting ones. Second, redemptions often force fund managers to sell holdings they would otherwise like to keep. Such internal churn nearly always increases the tax burden on the fund, and generally disrupts the overall portfolio management.

The mathematics of a "run" on a mutual fund are that the last one out pays the heftiest taxes. Right now, no one is really concerned about this. They are more afraid of "missing out" on the bull market than the fear of getting dumped lots of capital gains taxes, and getting creamed by a falling market due to redemptions. It is important to keep an eye on this...

THEME: CAPITULATION
Robert Walberg:

Momentum: All the major market indices are enjoying strong double-digit gains this year. The number of stocks establishing new 52-week highs each day continues to dwarf the number of stocks setting new lows. Volume figures remain bullish, as we routinely see more volume on up days than on down. The indices continue to hold above their 50- and 200-day moving averages, with both averages trending higher. Why on earth would you want to sell stocks in a market exhibiting this kind of underlying strength?

feedback

THEME: IPOs/GOOGLE
CNN:

Not everyone will be invited to the party, however. "A flight to quality remains the front mission of the Street's investment banking community," says IPO Monitor senior analyst Jeffrey Hirschkorn, noting that 11 of the 20 companies that went public in the third quarter were profitable, and only seven were in the red.

People are hotly anticipating the return to IPO mania. The Street figures as long as it can restrict supply to quality names, the IPOs will continue to do well in the after market. This will be important for keeping the bubble going.
Everyone is anxiously waiting to see the Google IPO happen and whether the result is good.

THEME: CAPITULATION

Fred Nazem, venture capitalist and hedge fund manager, also has lost religion. As a backer of Tenet forerunner Republic Health, Nazem Group did well, he said. But as a value play, he says, there are better opportunities elsewhere.

Deep value is capitulating because the momentum bull market is creating performance panic.

THEME: CHINA
WSJ:

Netcom's case depicts how the Chinese government is trying to reinvigorate the flow of overseas listings, which it sees as an essential ingredient to making state enterprises self-sufficient. The pace of deals has lagged since 2000, in large part because of the weaker conditions in overseas stock markets. With the global economy now showing signs of improvement, China wants to clear the backlog of long-anticipated IPOs like Netcom's so it can fill the pipeline with state-owned Chinese banks and other companies in urgent need of overhauls.

China is benefitting from dollarizing its economy. The key is that it has synchronized its economy with the US so that the interest rate ebbs/flows are not in conflict with fiscal policy.
The China Boom is based on the fact that China is growing way too fast for the low US interest rates. This creates a bubble because labor rates do not go up, yet commodities & goods go up in value. Wealth is created. Speculation is the final outcome.

Investors applied for 89.2 billion shares in Yangtze Electric Power Co. Ltd. on the secondary market, which offered 2.326 billion shares or 29.61 percent of its expanded share capital, its underwriter said in a statement in the Shanghai Securities News.

The Chinese stockmarket riots are returning!!! Destroy the natural beauty of China? Who cares we're rich! Remember how there was such controversy about the damning of the 3 Gorges?


THEME: CHINA VS MEXICO

"Mexico has been hurt because it has lost production and jobs to China, because of U.S. economic slowdown and disappointing domestic reforms," said Meg Browne, currency strategist at HSBC.

Mexico was the giant sucking sound for GHB, and now China is the sucking sound for GWB.
The Republicans do not really want protectionism. They want prosperity for their corporate rich patrons.

THEME: BULL MARKET

"Traders found some weakness in the factory orders in the ISM report after digging around," said Jack Ablin, chief investment officer at Harris Trust.

Why is it so important to dig for weakness? Because people are still biased negatively. This is the required mindset for a bull market.

BULL: stocks down=people happy, stocks up=people anxious/nervous
BEAR: stocks down=people suicidal, stocks up=people hopeful, sanguine relieved

THEME: BUBBLE REDUX

Well Fred Kobrick joins us now. He is president of Kobrick Capital. He has market outlooks and strategy for us as well. Good to see you again Fred, welcome back. Well we have already had somewhat of the reverse. That is we have really had a tremendous run in Cisco and Intel and many of these stocks. And the opposite of the bubble of 2000 doesn't mean that we'll have everything cave in. I think we'll have more of what I would call normalcy. Expectations get higher and higher. Prices and valuations get higher and higher. And usually then expectations reach too far.

People like the bull market, they'd just like it to slow down a bit so that they can catch a ride on it.

Majority of fund managers are negative on tech.



MEME: BEATING THE MARKET
CNBC:

Leave it to "Barron's" Magazine to identify recently seven -- not one, not two, not ten -- seven portfolio managers. They're calling them "market wizards" for their ability to beat the market through thick and thin years. And in fact, that is what the real pros have to do -- it's not difficult make money when the market's doing well. The key is to make money when the market's doing poorly. One of those is going to join Consuelo Mack in a moment for today's "Strategy Session." Consuelo, this is not an easy feat -- to be a winner, good times and lean.

THEME: THE TAPE
The tape on SP is more agitated and active when it goes up than when it goes down. Again, the sign of a bull market.
When the tape slows down and gets quiet, that is the time to BUY!!!!!!!!

THEME: CHINA VS MSFT

The Chinese government plans to throw its financial weight behind Linux-based computer systems that could rival Microsoft's Windows, in one of the world's fastest-growing technology markets, a government official said Wednesday.

China would build a domestic software industry around Linux--a cheaper software standard that can be copied and modified freely--said Gou Zhongwen, a vice minister at the Ministry of Information Industry.

"Linux is an opportunity for us to make a breakthrough in developing software," he was quoted as saying on the ministry's Web site. "But the market cannot be developed on a large scale without government support," he said.

SPEC: CHINESE COMPUTERS
Is it possible that one day Legend computers will be bigger than DELL????

THEME: SCANDAL

"If you are a clerk and you steal some money, you get banned for life," says Ken Morris, a former Morgan Stanley trader and an outspoken critic of the exchange who helped point us to some of the juicier cases. "If you are a specialist and you break the rules and fail at your job of protecting the public interest, you pay a small percentage of your profits for the year. This is a failure of self-regulation."

People feel disgusted because there is every indication that the market is crooked yet it is rallying like mad.
People want the market reach some calm, pristine state of purity where they can just pick up stocks like picking cherries.

SPEC: EURO WEAKENS

The ECB holds its first rate-setting meeting on Thursday since the appointment of Jean-Claude Trichet as governor, and is expected to keep key interest rates steady at 2 per cent.

There is a small chance that Trichet will come out pro-growth, i.e. a true Frenchman, and spoil the fun for the Euro.


THEME: COMMODITIES/GOLD
Newmont Mining (NEM ) plans to offer 20 million shares.

Strength of gold market can be gauged by whether NEM can set a new high after the offering.
KGC managed to do so. Are we still early in a bull market for gold? Or is the market saturated?

THEME: CAPITULATION
Igor Greenwald of Smartmoney:

In the short term, it's probably a lot more relevant that what is now shaping up as an economically robust fourth quarter will lead into another the massive dose of fiscal stimulus set to kick in next spring in the form of rebates making good on the tax cuts passed this year.

This GenXer was quite cynical. He never announced he was buying when he was buying, but now he is happy to tell you he made money.
Any bears left???

Corporate earnings are improving -- and to some extent, so is their quality, says Charles L. "Chuck" Hill, director of research for Thomson Financial's First Call, who sees a sustainable, gradual recovery, despite the earning surge in the second half of 2003.

Ole Chuck Hill has been talking out of both sides of his mouth. Very quick to be cynical about earnings, but always ending his comments with a bullish bent.
Notice the keyword is "sustainable." Those who use it are capitulating.


THEME: CHINA/COMMODITIES
Note:
Lind-Waldock is offering a Cantonese/Mandarin service. There must be tremendous demand amongst Chinese speculators in commodities.

WSJ:

Rumors of China curtailing its corn-export program due to lower production in 2003 as well as a means of rebuilding stocks bolstered corn to five-month highs in the two prior weeks. The possibility of China exiting the export scene rattled world markets, sending CBOT corn futures bounding higher on the prospects of a possible return of Asian business to the U.S. market, analysts said.

During this stretch, large speculative commodity funds amassed sizable positions in the market. According to some analysts, that buying wasn't based on the market's fundamental characteristics, as 2003 corn production is projected at record levels.

"The market overdid it to the upside, and even if China cuts back on its export activity, that would only provide a gain of a couple hundred million bushels in use," said Bill Nelson, associate vice president with A.G. Edwards and Sons in St. Louis, Mo.

Then again.....

Base metal prices resumed their upwards move on Tuesday following Monday's retreat. Investment funds returned to the market with vigour, pushing nickel prices to a fresh 14-year high and copper to a new six-year high.

"Monday's lower prices proved irresistible to the funds and the Chinese, who came back into the market as buyers at the lower numbers," said Alan Williamson, metals analyst at HSBC.