February 20, 2014

February 20, 2014

Guild Investment Management Market Summary 

What selected commodities do we think are attractive?  We make one new recommendation for our Gold Subscribers today, and discuss global GDP and the economies and industries we favor in this market environment.  Upgrade your subscription today to read our full analysis. 

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Africa, the Land of Opportunity?

Last year, we wrote in this letter about the ramp-up of Chinese infrastructure investment in Africa.  We did so primarily from the perspective of China rather than its African beneficiaries.  Lending to Africa is attractive to China for a host of reasons.  It provides an outlet for Chinese capital, at rates eagerly welcomed by African governments.  The use of Chinese firms to build out African infrastructure reduces excess capacity in some of China’s heavy industries.  (Those same industries have been hardest hit by the slowdown and reorientation of the mainland economy towards higher value-added manufacturing and consumer goods.)

And finally, the whole process serves Chinese geopolitical interests by growing the Chinese sphere of influence.  As the west’s contribution to Africa wanes, African leaders will increasingly look to China as a major source of funds for development.  Chinese money already accounts for two thirds of African infrastructure investment.

Many Motives for Involvement — But Is the Investment Sound?

Pension Funds’ Improving Health 

What Does This Mean For the Markets?

Rising interest rates and a sustained rally in stock markets are improving the health of pension systems in S&P 500 companies.  This will provide greater financial flexibility for companies whose pensions are now fully-funded — to buy back shares, return money to investors, or invest in greater capacity or in research and development.  Pension funds are also shifting their investment allocations to weight equities more highly — another tailwind for markets.

Will we get better returns on investments?  What effect will it have on pension providers and stock holders? 

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Internet Investment in China Attracts Scrutiny from Central Bank

Are the risks within the authorities’ capacity to handle?

A tiny slice of China’s savings are beginning to flow into new online investment vehicles run by Chinese internet giants such as Alibaba, Tencent, and Baidu.  Chinese regulators are now looking at the phenomenon — and so are China’s big commercial banks, who may sense the rise of a possible threat to their dominant position.

As we’ve described recently in our coverage of the Chinese banking system and the government’s attempt to rein in shadow finance, Chinese savers face a situation where bank deposits’ returns are capped — currently at 3.3 percent.  With inflation running at an annual rate of about 2.5 percent, many turn to other options, such as the “trust products” that are coming under increasing pressure this year.

Online Financing: Are the Books Performing Well?

Guild Basic Needs IndexTM

Since 2000, prices of essential needs in the GBNI have increased over twice the pace of CPI.  Don’t dismiss the gyrations in the prices of basic needs.  The gyrations affect behaviors.

GBNI<br /><br /><br /><br /><br />
December 2013 .jpg

Track our analysis in these letters at www.gbni.info.

Drug shortages — a vision of things to come?

A new report says that the Food and Drug Administration has been effective at slowing down the growth of critical drug shortages in the U.S.  But longer term, margin and price pressure on generics manufacturers will make it hard for them to maintain and improve their facilities.

How will this affect the medical landscape?

In Last Week’s Global Market Commentary, We Also Discussed:

  • New Analysis Shows More Unintended Consequences of the Affordable Care Act
  • Germany Energy Policy:  Destructive to the Economy?
  • The Chinese Banking System — Fragile?
    A Note on Solar Energy Economics