Global Stock Market BLOG - Mike Burnick

S&P 500 Finally Makes It Over the Hump – After Seven-Years of Trying

Finally! Yesterday, the blue-chip S&P 500 at last made it to a new all-time closing high, eclipsing its previous high-water mark set more than seven-years ago at the end of the dot-com era on Wall Street in 2000.

I didn’t notice much celebrating on the trading floor of the NYSE however and perhaps for good reason. Global equity markets have remained on a pretty steady upward trajectory for some time now – fueled by rapid global growth, abundant liquidity and a world-wide buyout frenzy.

S&P 500, Late to the Global Equity Party

In fact, most major stock indexes around the world (and many in the U.S.) moved on to higher levels years ago, leaving big-cap U.S. shares in their wake.

For instance, since October 2002 when the current global bull-market was born, the S&P 500 has gained almost 100% in value, but the Morgan Stanley EAFE index of international stocks (excluding the U.S.) is up more than 160% over than period!

It’s also worth noting that in spite of the S&P 500’s new record high, which was preceded several months ago by the Dow Jones Industrial Average, somebody is still left out!

Nasdaq Continues to Lag Far Behind

The Nasdaq 100 Index remains today at just half it’s peak level reached more than seven years ago – the obvious laggard among major global markets.

Many of the companies (Dell, Cisco, Amazon) that make up this wayward index have many miles to go before reaching a new peak. In fact, the Information Technology sector of the S&P 500 (many of these companies reside on the Nasdaq) is still down nearly 61% since March 2000.

So it’s perhaps not surprising that the Nasdaq, heavily weighted toward tech, continues to lag far behind other indexes. Stock market leadership in the U.S. has clearly shifted.

Selective Global Investing Still Key to Success

Energy sector stocks in the S&P 500 for example have gained over 150% since 2000, and the basic materials sector is up 84%, while the index as a whole is now finally back to par – breakeven performance over the better part of the past decade.

This is a big reason why I have consistently cautioned subscribers in my service, Global Market Investor, to be selective with the countries, and sectors they invest in.

In recent months, I have told you about sector-specific ways to play the global energy sector; and another way to hedge your portfolio, and earn nice potential profits from the Nasdaq’s under performance.

So far, these bets are looking good.

Yet Another BRIC Joins the Trillion Dollar Club

“India became the third emerging stock market after China and Russia to surpass $1 trillion in value,” according to a Bloomberg news item published today.

The Sensitive Index of the Bombay Stock Exchange (Sensex) – the rough equivalent to Wall Street’s Dow 30 index – climbed just under 1% yesterday to reach this milestone level.

In fact, this accomplishment occurred in spite of rapid appreciation in the local currency, India’s rupee, which has gained the most among Asia’s major currencies so far this year, compared to the U.S. dollar.

The media reports these facts in casual cause-and-effect manner; as if it makes perfect sense that an appreciating currency should always go hand-in-glove with rising stock prices. But it’s not that simple.

In fact, China’s currency (the yuan) remains loosely pegged to the buck and hasn’t moved up much this year. Meanwhile, India’s rupee has gained about 8% vs. the dollar on a year to date basis. Yet, China’s mainland stock market has left India share prices in the dust -- nearly doubling already this year – while India’s Sensex Index is up barely 5%.

India’s economy has been red-hot, growing on average 8.6% annually over the past four years, and corporate profit growth “has been phenomenal” according to a Hong Kong based asset manager.

But the Sensex is now trading “at 23 times reported earnings, the highest in Asia after China and Japan”, according to Bloomberg. And India is already showing some signs of slowing growth, thanks to ongoing interest rate hikes, which ironically help boost the rupee's value.

In fact, India’s appreciating rupee may end up being a double-whammy for India stocks. That’s because a higher rupee makes India’s exports less competitive in global markets, which may weigh down booming export sales. And corporate profits earned overseas end up buying fewer rupees when converted back into the local currency at year end.

It’s worth noting that China’s market value has more than doubled in the past year to $2.47 trillion – so it would take a massive market correction for it to fall out of the $1 trillion club. However, the other BRIC in the club: Russia, saw its stock market value dip back below this mark in recent weeks, as stocks in Russia continue to under perform in 2007.

India is a member in good standing of this coveted club, at least for now... but I wouldn't be surprised to see a better buying opportunity in the Sensex; perhaps soon, and somewhere south of the $1 trillion level.

Private Equity Going Public

On Wall Street this week investors are anxiously awaiting the initial public stock offering of private equity titan the Blackstone Group.

This IPO provides not only another rare glimpse into the world of private equity, but should also provide a current temperature reading on this red-hot (or perhaps over-hyped) sector of high finance.

In February, shares of private equity firm Fortress Investment Group (FIG) became public in a frenzied IPO that saw its shares surge from a price of $18.50 per share to $35 – on the very first day of trading. Judging by Blackstone’s filings with the SEC prior to its own IPO, returns on this private equity firm may prove to be even more lucrative.

Biggest in the Business

Blackstone Group, with a war-chest of about $80 million in assets, is about twice the size of its private equity rival Fortress, and carries a higher profile in the industry. Private shareholders have also been richly rewarded.

Blackstone’s private equity funds have returned 23% annually on average since 1987; for comparison, that’s about twice the average return for the S&P 500 Index over the same period. The firm’s 2006 net income soared 70% to $2.3 billion, and first quarter 2007 profits more than doubled to $1.1 billion. Talk about firing on all cylinders!

The IPO will raise about $4 billion total, in exchange for a 10% to 15% stake in Blackstone. The company said it plans to sell as many as 133.3 million shares for $29 to $31 each, but if Fortress' debut is any indication, Blackstone's shares may be quickly marked-up much higher in aftermarket trading.

The Blackstone-China Connection

Adding another layer of intrigue and hype (pilled on top of hype) to this IPO; Blackstone announced recently that another $3 billion will be raised in conjunction with the IPO by selling non-voting common shares to the State Investment Company of China in a separate transaction.

China has of course publicly stated its desire to seek alternative investments to diversify its state-held assets, and they obviously like what they see in Blackstone. China will own an equity interest of just under 10% in Blackstone. Just imagine the possibilities!

Proceeds from this deal will be earmarked for “general corporate purposes”, which of course means more fuel for the current buyout spree of mergers and acquisitions that are helping push global share prices higher.

So even if your broker can’t get you a piece of the action, with an allocation of Blackstone’s IPO; your overall equity portfolio may still benefit as a result of even more buyout activity.

Hong Kong “Buzzing” from China’s Latest “Gift”

China is in the news again this week (when is it NOT) as high ranking officials visit Washington; while the People’s Bank back in Beijing announce yet another series of policy measures aimed at reigning in rampant speculation.

People’s Bank of China Governor Zhou Xiaochuan – Fed Chairman Bernanke’s Chinese counterpart – visited with politicians this week and said all the right things. Mr. Zhou pledged that China intends to “follow the three principles of exchange-rate reform and increase the flexibility of the yuan.”

Of course actions speak louder than words, so late last week and certainly timed to coincide perfectly with the Chinese road-trip, the People’s Bank increased the “official” range in which its currency (the yuan) is allowed to move each day against the U.S. dollar. The currency trading band was increased to 0.5% above the official target exchange rate, up from 0.3% previously.  Not a very big move – or a real big surprise.

People’s Bank Knows How to Talk the Talk

Perhaps the People’s Bank has taken a page from former Fed Chief Alan Greenspan’s playbook. They’re getting good at jawboning, accompanied by well-timed policy moves, while at all times remaining very cryptic about their real intentions.

In addition to the exchange-rate move, China also raised bank deposit reserve requirements, while raising both official lending rates, and bank deposit rates. In doing so, China is still trying to quell the speculative froth building in mainland asset markets. But their method is the same as always – moving in baby steps.

The People’s Bank hopes to soak-up some of the excess money sloshing around China and redirect it into bank deposits – rather than stock brokerage accounts. But so far, there’s little sign of success, as most stock indexes continue to surge to record highs. 

Meanwhile, Chinese savers still receive only 3% interest on the Chinese equivalent of a one-year CD, which isn’t much of an incentive compared to stock market gains of 130% last year.

The Real China Show is Changing Channels

The increase in deposit and lending rates, just like the widening of its currency exchange rate, looks a lot like window dressing to me. It’s a circus side-show designed to entertain the media, because they just can’t get enough of the China story.

But as I stated in a previous post (China (Finally) Moves to Help Level the Playing Field for Mainland Investors) the real story in China is Beijing’s recent move to significantly relax investment restrictions on hundreds of millions of mainland investors – and that’s where the real money can be made too.

China’s CSI 300 Index, of mainland listed A-shares is up nearly 90% year to date, but performance has been uneven in recent weeks. In fact, the more speculative Shanghai B share index, which can ONLY be traded by domestic individuals and overseas investors, plunged 5% the other day; the steepest drop in three months.

Expect a Great Wall of Chinese Cash to Move Offshore

The reason appears simple; China’s investment authorities recently cleared the way for mainland investors to move up to 50% of investment assets into overseas markets, through qualified institutional accounts. And it would appear that millions of Chinese investors are already making this move. And why not; after all there is a very big valuation incentive to do so.

China’s A-shares are trading at more than 43 times earnings, which looks rather pricey when compared to the recent past. But in Hong Kong, China’s H-share index trades at just 20 times last year’s profits – and only 15 times next year’s expected earnings. What a bargain!

I estimate that Chinese firms listed in Hong Kong are now about 50% cheaper than the very same company shares listed in Shanghai. That’s like a half-off sale in Hong Kong equities compared to Shanghai. And I expect this valuation gap between the two markets to start closing fast – and in favor of Hong Kong.

After all, with such a glaring valuation advantage - and with China’s mainland investors funding nearly nine million new brokerage accounts in the first-quarter alone – where do you think most of this cash is likely to flow?

The “Mad Rush” into H-shares

In the month of April alone, Chinese retail investors pumped about 175 billion yuan of fresh-cash into stocks! My contacts in Hong Kong recently weighed in with their views on what this means for investing in China going forward.

Ushe Koh, VP of private banking at DBS Bank Ltd believes these moves will “ABSOLUTELY” (his emphasis) lead to increased flow of investment assets to Hong Kong. In Ushe’s worlds, it’s all “part of the whole mad rush for investments” in China, and he sees most of this windfall directed at Hong Kong’s blue-chip shares.

My colleague Jack Flader, CEO of Global Consultants and Services in Hong Kong, tried to subdue his enthusiasm stating wisely that “the hype is always bigger than the reality”.

BUT, Jack went on to say that even if you were to discount the hype by half, the reality could mean cash inflows to Hong Kong shares equivalent to one-third “of the current total stock exchange market cap. HUGE!!!” Again, the emphasis is all his.

The bottom line, as Jack aptly puts it, is that “Hong Kong is buzzing from China’s latest ‘gift’.”

As I explained to my Global Market Investor subscribers recently, Hong Kong is a wonderful, yet often overlooked back-door into the vast profit potential of China. And it’s a market that’s also a much better value than Shanghai.

In fact, I just recommended two very attractive ways to invest in Hong Kong’s H-share market. These ETFs are still a screaming bargain right now compared with the A-shares – and will definitely participate in the long-term upside gains from China’s tremendous growth.

London’s Latest Financial Innovation: Islamic Style

The media had a field-day early this year when it was revealed that the London Stock Exchange (LSE) was elbowing out it trans-Atlantic rival the New York Stock Exchange for the title of top dog in the world of global finance.

Wall Street seems to have lost its way, while new public stock offerings in both London and Hong Kong stole the show last year. In fact, IPOs in Europe raised $86 billion in 2006, compared with just $48 billion raised in the U.S. There were also more bond deals denominated in euro last year than in U.S. dollars for the first time ever.

Tighter U.S. securities regulation is partly to blame, thanks to the Sarbanes-Oxley anti-fraud legislation, and other measures designed to clamp down on Wall Street excesses in recent years.

But the London stock exchange also has financial innovation on its side, which is no doubt a big reason why it’s doing such brisk business these days.

London Leads the Way in Cutting Edge Securities Trading

It was the LSE that was the first to list a wide array of commodity-backed ETF-like products designed to track individual physical commodities.

London also dominates the $2.7 trillion-a-day foreign exchange market, accounting for nearly one-third of all trades compared with a a market share of just 18% for Wall Street.

Recently the LSE announced yet another financial first: Islamic bonds. In fact, the UK may become the first to issue bonds that comply with Islamic, or “Sharia law”, which potentially means another capital market windfall coming London’s way.

Catering to the Muslim Masses

The UK boasts a large population of immigrant Arabs and Pakistanis. In fact, the nation has such a large Muslim community, that Islam is Britain’s second-largest religion. So London has a plan to make itself the global hub for Islamic Finance. But to do so, requires certain financial flexibility to stay in compliance with the teachings of the Quran.

The UK has modified lending laws to make it easier for Muslims to take out mortgages and consumer loans. But now, London’s high-financiers are going even further: they plan to issue UK government backed “Sharia bonds” whose covenants are compliant with Islamic law.

The teachings of the Quran, the basis for Islamic law, include prohibitions against gambling and alcohol among other things. One of the more difficult items in Islamic law, at least when it comes to fixed-income investing, is that the payment of interest is outlawed.

Interest Income vs. Capital Gains

To get around this sticking point, the UK backed Sharia bonds may be structured such that investors get paid a larger capital gain upon redemption, instead of periodic coupon payments.

London’s Islamic bond trade could add up to very big-business for British bankers. According to one, the current size of the Islamic finance industry is more than $750 billion — and it is growing at 15% to 20%.

London may end up attracting many hundreds of billions more from oil-rich Middle Eastern nations; many of them already looking to diversify out of their dependence on U.S. dollars.

A Shot in the Dark: Why India’s Growth May Get Short-Circuited

There are many reasons to be bullish on India in the long-run. This rapidly developing emerging market (the “I” in BRIC) boasts a well-educated population over one-billion strong.

The country also enjoys a booming economy, with annual GDP growth close to 9% at the end of 2006, just a shade behind China’s blistering pace of 11%. What’s more, India’s industrial production is expanding at the robust rate of nearly 13% year over year, compared to just 2.3% in the U.S.

These are all very positive signs pointing toward a bright future for India; but it’s too bad that so many of its citizens and businesses are being left in the dark.

Many Indian’s are Off the Grid

It seems that growth in India’s infrastructure – particularly the electric utility sector – just isn’t keeping pace with the overall economy. And that spells trouble for India going forward. In fact, according to a recent article in the New York Times, about 600-million Indians (roughly half its population) are OFF the electric grid altogether.

Therein lays a dangerous short-term roadblock to this country’s growth. India today is “a portrait of ambition bumping up against reality, namely an electricity crisis that represents one of the major hurdles to India’s ability to hoist itself into the front ranks of the global economy.”

In the suburbs of New Delhi, for instance, a quick glance at the rooftops of buildings shows evidence of this disconnect in stark relief. What you’ll notice are multiple smokestacks huffing and puffing black diesel exhaust into the humid air.

India’s Smokestack Industry

The smokestacks you see, are used to channel the exhaust from countless generators, which must be switched on when India’s power is turned off – sometimes for eight-hours at a time – during the hot summer months. And you thought California’s rolling black outs were bad.

According to a survey by the World Bank, 60% of Indian companies have diesel backup generators installed in their office buildings or factories – a necessity to provide uninterrupted power when India’s unreliable electrical grid goes offline. Many households in India are also forced to rely on diesel generators to provide power.

The chronic electricity shortages throughout India are a painful reality of modern life, in spite of the fact that Indians are very frugal consumers of energy, using up only 600 units of power per person each year, or just 20% of the juice burned up by a typical American.

But if India desires sustainable growth at it’s current rate of nearly 9% - or anywhere close to that level – it certainly must solve its power outage problems first.

Solutions to the Electricity Crisis Proceeding at a Snail’s-Pace

As far as practical solutions go, “India has stepped up generation in recent years at the pace of about 6% a year,” according to the Times article, but that’s merely a drop in the bucket “compared with what neighboring China adds each year and in any case insufficient to keep up with India’s galloping demand.”

One resident of suburban New Delhi, who suffered through a recent 11 hour power outage, says: “We’re living in the Dark Ages.” In a more distant suburb of town, where new construction proceeds at a rapid clip, an 800-unit complex of new row houses and apartments curiously named “Nirvana Country” promises “air-conditioning in all rooms.”

Nirvana is still under construction, but 20% of units are already occupied, and yet the complex hasn’t even been connected to the electric grid yet.

Residents are forced to burn 6,000 gallons of diesel fuel each week to power their generators. Call it a snapshot of modern middle-class life in fast-growing India.

Snapshot of an “American Nightmare” in North Florida

I was on the road again this weekend; but not overseas this time. Instead, I was traveling with my family to spend the weekend with my wife’s brother and his family near Jacksonville, Florida. The occasion was the high-school graduation of my niece - his oldest daughter – the first of three to depart the nest. Naturally, always thinking in terms of potential investments, I came away from this weekend’s fun with two observations of investment interest.

Sports without Exercise

First, I was amazed by just how captivated my kids, ages 12 and 10, and their cousins were by their new Nintendo Wii game console. My young nephews (ages 14 and 10) are already experts at the games including tennis, baseball, golf, bowling, etc. In fact, they can play all these sports and more – without even breaking a sweat – literally!

I was amazed watching my girls and their cousins returning serve after serve – with merely a flick of the wrist – while sitting cross-legged on the living room floor – barely moving at all, much less getting their heart rates up into cardio range.

Call me old fashioned, but I’m very suspicious of these virtual reality sports – which become more realistic with each passing day.  Today, our kids can become proficient at multiple sports without getting any exercise at all. Of course the obvious immediate beneficiaries of this trend from an investment perspective are the game consol makers themselves, including Nintendo, Sony, and the many makers of hit video game software.

But longer term, the more sustainable investment trend worth looking into may be the fast-growing dietary industry. Former Miami Dolphins star quarterback Dan Marino, as well as his old coach Don Shula are now spokesmen for NutriSystems Inc.(Nasdaq: NTRI).

The common stock of this company has performed very well over the last few years, based on booming sales of NutriSystems’ pre-packaged foods that can help you eat right and shed pounds at the same time. As soon as I see NutriSystems brand kids-meals for sale; I’ll be sure to send some to my nephews.

Snapshot of an “American Nightmare” in North Florida

While my nephews sharpen their “athletic” skills with Nintendo’s Wii, their father (my brother in law) supervises luxury home construction for a big builder in North Florida. Business remains surprisingly strong for his company, which is in the process of building a large self-contained community near St. Augustine.

However the headlines in Jacksonville’s local paper told the story of a housing sector in trouble. “The Map of an American Nightmare”; was the gripping title of a story in Sunday’s Jacksonville Times-Union.

It seems that this city, the largest in North Florida leads the nation in foreclosures, with one for every 123 homes. Currently in fact, there are more than 3,000 homes in the Jacksonville area that are in some stage of the foreclosure process, and another 1,100 houses classified as REO (real estate owned) by lenders after a home has been foreclosed.

High-priced Homes Getting Swept Up in Foreclosure

What’s surprising in the official statistics is the number of high-priced homes being caught up in the foreclosure process. In Jacksonville nearly one-quarter of all homes in foreclosure are valued above the median home price for the area, and many of these are homes priced from $300,000 up to $2.2 million.

All of this is more evidence that convinces me that housing is a multi-tiered market, not as homogeneous as economists would have us believe. In fact, there are very different dynamics at work, not just in different regions around the country, but among different kinds of home buyers. The fact is, many American homebuyers over the last five or so years are sitting pretty with homes that have appreciated nicely since purchase.

The current housing slump is being felt most at the individual market level – and even more so at the individual homeowner level. Home prices in Florida and many other high-demand areas around the country went up a lot over the last few years. Price gains ran well above the historic average for several years in a row.

Real Estate is still Local – so are the Problem Loans

There were of course homes purchased at or near the top, as is always the case. But many of the properties currently labeled as “distressed” were either purchased for outright speculative investment purposes; or by those who couldn’t qualify for the American Dream of home ownership with conventional financing, due to either sub-par credit histories, or perhaps due to escalating home prices.

Now the market boom is over; but is this really a bust? Or, are we simply giving back some of the outsized gains in recent years, and unwinding the speculative excesses?

Many millions of American home owners are merely watching this unfold from the sidelines, and are largely unaffected by the so-called “American nightmare”. These are the vast majority of Americans who never subscribed to the “flip-this-house” school of home buying speculation; and who didn’t need interest-only mortgages to swing the purchase.

It will certainly take awhile longer for America to work through the excess inventory of homes resulting from the current recession in housing. And this will continue to impact our home values for a period of time.

But it is only a nightmare for the small minority of those who made poor investment decisions or poor choices in their mortgage loan terms.

The Politics of Oil … Leads to Declining Production

What do energy firms Chevron, Exxon, and BP all have in common?

All three companies were recently forced to participate in Venezuela’s energy “nationalization” program; with each company compelled to fork-over a big share of their oil operations in the country to the government.

These giant oil companies also have something else in common; they are very much in the minority in the battle for control of crude oil supplies worldwide.

In fact, according to a recent report from industry advisor PFC Energy, 80% of the world’s oil is in the hands of national oil companies – such as Venezuela’s PDVSA. This leaves only about 20% of proven reserves in the hands of private oil companies such as Exxon for instance.

Dysfunctional State-Run Oil Firms Control Most of World Supply

Several of these state-run energy firms are quite technologically savvy, efficiently run and respect private capital investment to help expand production. Companies such as Saudi Arabia’s Aramco fall into this category. But unfortunately, too many giant state-owned oil firms operate like PDVSA – and their crude oil output suffers greatly as a result.

Political meddling, if not out-right confiscation of private assets (as in Venezuela or Russia) leads to a double-negative of less private capital investment and bureaucratic inefficiencies in the vast majority of state-controlled energy companies.

Most national oil companies simply lack the profit-motivating incentives to properly allocate capital to reinvest in increased oil production. As a result, many of the world’s leading oil producing regions are experiencing steady declines in output as aging oilfields run dry.

Considering today’s sky-high crude oil prices, nations that are rich in oil reserves should be attracting a windfall of investment from large multi-national firms like Exxon and BP, to help unlock new reserves and bring more crude production online.  But in fact the reverse is true.

Lack of Investment, Corruption, and Inefficiency Leads to Falling Output

PFC Energy singles out several countries with huge energy reserves where output is in steady decline. Besides Venezuela, other nation’s with dysfunctional state run oil operations includes: Iran, Iraq, Mexico, and Nigeria – all major global producers.

And in Kuwait and Russia, oil production has stagnated due to corrupt and inefficient national oil firms.

Just these seven oil producing countries combined account for more than 40% of total global oil production. In other words, two-fifths of total world supply is in decline!

Crude oil production in Venezuela is down about 27% since 1997. Since the U.S. led “liberation” of Iraq, oil production there is down by one-third. In Iran, political tensions and a disdain for western capitalism has led to a lack of investment and declining production.  Civil strife in Nigeria is to blame for its output problems, where an estimated 20% of crude production is shut in due to violence in the Niger delta.

National Oil Companies Prohibit, or Frighten Away Capital

In Mexico, it’s the politics of oil that’s to blame. The country’s constitution expressly forbids foreign ownership of national oil assets. This means a lack of investment and expertise from multi-national firms that would likely boost production in Mexico’s giant Cantarell field, which is instead declining rapidly.

A recent article in Newsweek describes the global oil crunch this way, “The world is not running out of oil, but it will run out of production capacity if the national companies, the new rule makers in this business, don't invest.”

The large multi-national oil firms have both the engineering expertise, and the access to capital, that’s needed to turn around declining global production. But it’s difficult to imagine them doing so in an environment where national oil companies are openly hostile toward outside investment, confiscating the capital that could help boost output.

It's the Return OF Investment that's in Doubt

To paraphrase the great American humorist Will Rogers, when it comes to doing business with national oil companies, it’s not so much the return ON investment that worries western firms – it’s the return OF their investment.

For these reasons, it’s clear that declining global production will continue to keep upside pressure on oil prices. To profit from this trend, I recently recommended several energy sector exchange-traded funds to readers of my Global Market Investor service.

These ETFs provide a great way for you to prepare your investment portfolio for even higher energy prices ahead.

Waltz of the Wiener Börse

My colleague Mark Nestmann recently wrote in nostalgic terms about Vienna, the picturesque capital of Austria.  This city does indeed have a lot to offer; opera, architecture, parks (some, clothing optional), waltzes, and of course the beautiful blue Danube river which flows through this fine city.

Long a haven for private banking in Europe, due to its strategic location in the very heart of “old Europe”, Vienna these days is attracting offers from investors who would like to waltz away with Austria’s booming Wiener Börse – the thriving local stock exchange.

Strategic Location gives Wiener Börse Easy Entry to East Europe

Because of its great location, Vienna has always enjoyed very strong commercial ties to Western Europe, particularly with Germany, the EU’s largest economy.

Vienna also has age-old connections to Eastern Europe too, forged during Austria’s glory-days under the imperial rule of the Habsburgs. And it is these connections that are now paying handsome dividends for Vienna’s stock exchange.

Just a few days ago in fact, the Vienna exchange revealed that it had been approached several times by “various parties, some with firm offers” to buy-out the exchange. These suitors are obviously attracted by the Vienna exchange’s strong growth, due in large part to its unique position as a cross-roads financial market between old and new Europe.

Becoming a Major Regional Exchange

Many of the leading firms listed on the Wiener Börse are banks and insurers who are doing a land-office business expanding financially into fast-growing Eastern European countries, which lie just across Austria’s borders.

The Wiener Börse is forging close ties with many smaller but rapidly expanding financial markets to the east. In fact, the Vienna Exchange is in the process of making a bid for a 44% stake in Bulgaria’s Sofia stock Exchange, which is being privatized by the government.

Vienna’s stock market, in concert with local banks, has a long history of such strategic partnerships. In 2004, Wiener Börse bought a majority stake in the Budapest Exchange, Hungary’s main bourse.

And Vienna also has partnerships with eight other regional exchanges including: Bucharest, Belgrade and Sarajevo. In March, Vienna forged an agreement with the Ukraine to help restructure the country’s financial exchanges.

Sizzling Financial Results, But Exchange is “Officially” Not-For-Sale

As a result of these deals, business is booming on Wiener Börse. Average monthly trading volume surged nearly 50% higher in just the first four months of this year alone, to EUR15.3 billion, up from EUR10.5 billion for all of last year. The exchange’s market cap climbed 36% last year to an all time record EUR145.8 billion.

These numbers help explain why Wiener Börse is attracting so much attention from outside investors who would love to tap into this growth potential. Officials in Vienna claim their exchange is not for sale, saying “it’s not a question of price. Both our owners and management think the market can develop much further.”

In the current supercharged M&A environment, financial exchanges the world over have the urge to merge – we’ll see if Wiener Börse is the next hot-prospect to get snapped up.

Private Equity Firm Takes the Wheel in Auto Finance

In yet another sign of the times, the declining fortunes of American industry were once again placed front and center on the world stage, as DaimlerChrysler AG agreed to dump the Chrysler name – along with the money-losing U.S. auto operation that’s attached to it.

In fact, Chrysler’s business prospects have apparently deteriorated to the point that its German-based parent company is literally willing to PAY someone to take Chrysler off its hands. Take my car… please!

This brings full-circle a transaction pulled off by Daimler, less than a decade ago, that was questioned almost from the very start. As far back as 1998 when the deal to buy Chrysler was announced, shareholders wondered what one of the world’s leading makers of luxury cars (Mercedes-Benz) could possibly find appealing in a declining Detroit automaker that had already suffered a previous brush with bankruptcy.

Luxury Carmaker Pays a High Price to Sell Chrysler

But Daimler AG plunked down its money – US$36 billion worth of it – and took its chances. To be sure, the Chrysler division has generated some profits over the years for its shareholders, but overall it’s been a major money loser, and constant albatross around Daimler’s neck.

The way in which Daimler was forced to cut and run from Chrysler speaks volumes about the economics of the U.S. auto sector. It’s also interesting to see who is stepping in to snap up Chrysler, and why.

According to the official press release, Daimler is selling an 80% stake in Chrysler to Cerberus Capital Management, one of the world’s biggest private equity firms, in exchange for a “capital contribution” of $7.5 billion by Cerberus. But that cash doesn’t go into Daimler’s pockets; it gets pumped back into Chrysler instead. Talk about an acquisition that funds itself!

To swing the deal, Daimler was even forced to pony-up financing for part of the purchase price. In fact net-net, Daimler is spending about $650 million just to get Cerberus to take Chrysler off its hands.

Will Chrysler Get Stripped and Flipped on the Road to Going Private?

Of course Daimler also gets to jettison $18 billion in pension and health-care liabilities as well, so there  is some upside in this deal for the Germans. Still, it’s not a lot to show for a $36 billion investment - so much for German efficiency and managerial prowess.

On the other hand Cerberus, which beat out several other private-equity suitors in the bidding for Chrysler, thinks it’s come away with a pretty sweet deal for its own inside investors.

Although Cerberus’ long-term intentions with Chrysler aren’t completely clear, the automaker has produced decent profits in the past, most recently in 2005. And Chrysler has some attractive assets, including a valuable global brand in the Jeep division.

But some have speculated that Cerberus may simply be planning the typical private-equity “strip it and flip it” transaction, in which some valuable assets are sold off piecemeal, then the remainder of the company gets taken public again at a fat profit for Cerberus.

Cerberus Gets Crowned King of Consumer Finance

The real crown-jewel in this deal for Cerberus however, is Chrysler Financial, the automaker’s captive lending division. Cerberus knows something about profiting from the consumer finance business – after purchasing a 51% stake in GMAC Financial Services from General Motors Corp. last year.

Combining Chrysler Financial with GMAC makes Cerberus the #1 player in auto loans, with a market share nearly twice as big as Ford Motor Credit, its closest rival. That kind of clout in the consumer finance business can pay handsome dividends.

Cerberus will benefit from greater scale in lending, with a much larger base of borrowers, and it can earn lots of extra profits by cross selling add-on services like insurance and extended warranties.

Private equity firms have become big investors in financial businesses over the past few years and this deal for Chrysler, with favorable financing terms thrown in by Daimler, may have just catapulted Cerberus Capital into the driver’s seat in auto financing.

China (Finally) Moves to Help Level the Playing Field for Mainland Investors

China’s monetary authorities took another big step last week toward liberalizing financial markets, in a further attempt to blow off steam from the overheated mainland stock exchanges.

Interestingly enough this important move by the government to expand its qualified domestic institutional investor (QDII) program didn’t merit much mention in the western press, and the story wasn’t covered much better by the local beat either – which is exactly the way I like it.

I see this initiative as a vitally important step toward leveling the investment landscape in China. What’s more from a money-making point of view, this should be a key catalyst for Hong Kong shares, which have quite a bit of catching up to do with their mainland cousins.

Here's the whole story you won’t get on CNBC; first, the BIG news:

On Friday afternoon – Beijing time – after the markets had closed for the week, the China Banking Regulatory Commission announced that mainland investors would now be allowed to purchase overseas equities for the first time.

I have been expecting – in fact hoping for – just such a development for some time. And apparently so have many other investors, who pushed the Hang Seng Index of Hong Kong listed shares to a new record high on unprecedented volume.

A Sea-change in the Way China Invests Going Forward

In accordance with Beijing’s newly modified qualified domestic institutional investors program (QDII), big Chinese commercial banks are now free to invest as much as 50% of funds in overseas stock markets – outside the Shanghai & Shenzhen exchanges – which were previously the only game in town.

We are talking billions of dollars in investment capital in search of higher returns than offered in Chinese savings accounts, which yield less than the “official” inflation rate.

Of course there’s a wide-world of investment opportunities out there, as I’m always telling you. But the average Chinese investor knows that the best game in town is still China itself. How, after all, can an investor go wrong in an economy expanding 11% last quarter, where reported corporate profits are surging 80% year over year.

The investment capital can go anywhere overseas but I expect that it won’t go very far. Hong Kong seems like the most logical destination.

Shanghai & Shenzen: No Longer the Only Games in Town

Here’s the deal; many of mainland China’s biggest blue-chip companies also have shares listed on the Hong Kong stock exchange. This arrangement was originally necessary for these companies to raise much needed capital – back in the dark-days before the Shanghai Stock Exchange was surging to triple-digit gains.

But due to draconian capital controls imposed by the government, pretty much all but the wealthiest retail investors, along with the major banks and brokerage houses were all but forbidden from investing much more than a token amount overseas – which by Beijing’s definition also includes Hong Kong.

But now those restrictions have been lifted by half – and if you know just where to invest, you have the potential to get out in front of billions of dollars in investment capital that is now free to trade in Hong Kong in search of much better values, and higher returns.

Hong Kong’s H-shares a Screaming Bargain compared to Shanghai

Primarily due to the strict capital controls I mentioned earlier, the Chinese markets became a two-tiered trading system. Share prices of some companies in Shanghai were quoted at prices 50% higher, and in some cases twice the price, of the very same company’s shares listed in Hong Kong.

The reason for this disconnect is simple – Chinese mainland investors had no choice due to Beijing capital controls. You could either invest in China’s big domestic oil firm Sinopec – at a 60% premium to the share value in Hong Kong – or you were always welcome to keep you money in a bank CD earning 3%. Either way, you loose.

Yesterday, which was the first opportunity investors had to react to the rule changes announced late Friday, the Hang Seng China Enterprises Index (HSCEI) of 42 mainland Chinese firms, which also have shares listed in Hong Kong, surged more than 5.5% higher to a new record.

The Shanghai exchange was up about 0.8% on the day. That’s a remarkably restrained performance for this year’s hottest global stock index; already up more than 50% in 2007.

The HSCEI by contrast was basically flat this year; that is before yesterday’s big surge.

But now, thanks to Beijing’s partial relaxation of the rules, Sinopec, and many other Chinese mainland stocks just became a whole lot more attractive to purchase ... at least in Hong Kong.

Record M&A Activity Heats Up Global Markets

It is perhaps a sign of the times that global financial markets are experiencing a mergers and acquisition (M&A) frenzy not seen since the dot.com era near the end of the last bull market.

A sharp increase in global M&A activity is being fueled by solid returns in most asset classes – especially global equity markets that are notching new record highs – narrow credit spreads, and an apparent absence of risk. So shareholders are partying like its 1999... all over again.

According to a recent article in the Economist, about $2 trillion worth of M&A deals have been announced so far this year alone. That’s a pace that if continued, would beat the record setting deal flows of 2006 by 60% or more.

A few of the latest high-profile deals to be announced include: ABN Amro, (the large Dutch bank that has several merger options on the table), US aluminum giant Alcoa’s bid for it’s main rival Alcan, and a surprise bid by News Corp. for Dow Jones & Co., publisher of the venerable Wall Street Journal.

The current buyout frenzy is somewhat unique in several respects, and it may also be more sustainable that past M&A binges for these reasons.

First, rather than using shares of stock as collateral to do a deal, would-be acquirers today are using mostly cash. Low interest rates, and high quality corporate balance sheets, make it both cheap and easy for companies today to use borrowed cash for buyouts.

Second, this current cycle of M&A activity is much more broad-based than many seen in the past. In fact, the deal making isn’t focused on just one or two industries, such as technology, or health care. Instead, there’s a great deal of M&A interest across various sectors including: financials, metals & mining, utilities, and consumer goods.

Another interesting twist in all this buyout activity is the fact that it’s global in nature, with some of the biggest deals occurring not just in the U.S., but in Europe, Asia, and even emerging markets.

In April, twice as much M&A activity occued in Europe than in the U.S. And in the four-month period ending in April 46% of all mergers involved cross-border deal flow, such as Australian mining firm BHP Billiton’s rumored interest in UK based Rio Tinto.

Private equity firms are especially active on the M&A trail, now accounting for about 20% of the value of all announced takeovers, according to the Economist. Furthermore, these private equity firms still have lots of cash lying around as potential firepower to sustain the M&A frenzy, with some of the biggest buyout funds about $20 billion in size.

Economies that are still considered “developing” are even getting in on the current M&A boom. According to research from the Bank Credit Analyst (see BCA chart), continued strength in private equity and M&A activity is likely to be a key factor in pushing undervalued emerging markets even higher in price.

Energy Firm Draws a Line in the Sand, Taking a Stand Against Confiscation

In an article posted a few months ago (Capitalization … Nationalization … or Confiscation: Take Your Pick) I told you about a “controversial” investment strategy being practiced by Venezuelan dictator…er President Hugo Chavez – among others: the wholesale nationalization of assets (expropriation might be a more appropriate term) by certain governments like Venezuela – essentially seizing the assets of private companies in the name of nationalization.

Mr. Chavez it seems has taken the nationalization (confiscation) theme to new heights. Not content with his plans to nationalize the oil industry, he quickly added Venezuela’s banking and telecom sectors to the shopping list.

The Caracas Stock Exchange, one of last year’s best performing emerging markets, is now sinking to new lows in the wake of this abject thievery. But Mr. Chavez seems undeterred in his quest.

Perhaps one-day, when the last capitalists have finally packed up and left the country (taking their investment capital with them), Mr. Chavez and his merry band of socialists will find a way to make Venezuela work … but I seriously doubt it.

However, at least one of the victims of this confiscatory crime is attempting to make a stand and fight back.

The Financial Times reported earlier this week that ConcocoPhillips, the giant multi-national energy firm, is objecting to Venezuela’s high-handed expropriation tactics.

The Venezuelan government has moved ahead with its scheme “to seize a minimum 60% stake in all foreign-controlled oil fields.” This mandate took effect on May 1; and according to the FT article “all the major oil groups had signed memorandums of understanding to hand over control” of their oil projects to PDVSA, the state-owned energy firm … all of them that is EXCEPT CononcoPhillips.

Instead, Conoco is still “negotiating” the terms of the asset transfer decree. The company is fighting for a better deal related to “compensation” for its assets, and perhaps even more tellingly, the “terms that are offered with respect to continuing our participation” in Venezuela’s energy exploration and production sector over the long-term.

Whether or not Conoco succeeds in winning terms that are somewhat more palatable, I say bravo to the company for at least trying to stand up for the rights of shareholders.

Even if in the end, Conoco is merely tilting at windmills… at least they are drawing a line in the sand … and refuse to go quietly along with this appalling act of outright confiscation on the part of Venezuela’s government.

France Votes for a Clean-Break with its Recent Past and the EU Moves to the Right

While I was winging my way back from Panama on Sunday afternoon, French voters were streaming to the polls in record numbers – to cast votes – and exercise their democratic right to chose between two opposing social and economic agendas.

The agenda for free-market reforms appears to have won the day in France, which bodes well for continued European Union growth going forward.

The choice facing French voters in Sunday’s Presidential election was between center-right candidate Nicolas Sarkozy and socialist Segolene Royal. Mr. Sarkozy won the day – and 53% of the popular vote – which in and of itself is a noteworthy accomplishment. Mr. Sarkozy after all is the son of a Hungarian immigrant, who just won election to the highest office in France, in spite of growing anti-immigration sentiment in the nation.

But Sarkozy’s platform was one of change – which resonated well with French citizens who have grown weary of the country’s status as the EU’s chronic under-achiever in economic affairs.

Although France is the world’s 6th largest economy, you might not recognize it at first glance.

Germany was once considered to be the sick-man-of-Europe, but in recent years the baton has surely passed to France. With Germany undergoing a strong industrial revival, France is now mired in sub-par growth as too many state-protected businesses are losing out on globalization trading opportunities.

Sarkozy’s has promised to shake France out of its bureaucratic rigidity by promising business and social reforms that should make the country more competitive in global markets.

Mr. Sarkozy campaigned on a platform of reduced taxes, deregulation of France’s strict labor laws, and stimulating more growth in the economy. Why, Sarkozy even dared to challenge the third-rail of French politics – the sacrosanct 35-hour workweek – without losing any fingers!

Sarkozy and France have now won a clear mandate for change, another hurdle still looms, as the new president still needs to win a majority in French parliamentary elections coming up next month.

But on Sunday, the French cast a refreshingly decisive vote for change. And if campaign promises can be believed, that vote promises positive wealth-creating change for France and for the EU at large.

Nothing but Blue-Skies and New Highs

While I was away last week in Panama, speaking meeting and speaking with many Sovereign Society members at our annual Total Wealth Symposium – global financial markets continued to surge on automatic pilot to the upside.

I really enjoyed my stay in Panama – getting the chance to meet and great so many of our members in person; and talk to them about my new service, Global Market Investor, was a very big thrill for me.

It’s also great fun spending time with all of our other terrific speakers at the symposium – and hearing their views on financial markets. Our Sovereign Society Council of Experts is a pretty diverse bunch – hailing from all over the word – and specializing in everything from stocks, bonds and funds, to currencies, private banking.

The Big Bull Run in Global Markets are on Everyone’s Mind

In my conversations with many of the investment experts in Panama, a recurring theme kept cropping up: the amazing, non-stop surge in global stock markets. Of course, stocks have been moving higher pretty much in a straight line since the sharp, but very short global correction nicked share prices back in March.

At the very same time I was in Panama, many of the markets I came to talk about and recommend at the symposium were literally running away from me. In fact, a large number of markets in Europe, Asia and the Americas notched fresh all-time highs last week

The Dow Jones Industrial Average stayed in its upside sprint above 13,000 – notwithstanding the sharp slowdown in U.S. economic growth. Even the much maligned S&P 500 Index of blue-chip American stocks has closed to within spitting distance of its old closing high, just above 1527 – a level not seen in more than seven-years – just before the tech-bubble implosion in 2000.

Gains in Many Overseas Markets are Justified More so Than in U.S.

Gains in the S&P are all the more amazing when you consider the ominous signs of a slowing economy and much weaker earnings growth ahead in the U.S. But the index is being drawn to this magical record level – like a moth to an open flame – and investors should tread very cautiously lest they get burned.

I’m still expecting to see some kind of pullback in share prices soon, and it may happen shortly after a new high is in the record books. At that point, investors take time to look around and wonder “why so high”?

It’s much easier to see and understand the reasons why international stock markets are moving higher. In the Asia ex-Japan region for instance, economies are expanding at a rate of about 8% -- compared with GDP growth in the U.S. of just 1.3% in the most recent quarter. Furthermore, companies in the Asia-Pacific region should continue to post double-digit profit growth rates – while S&P 500 earnings growth slows dramatically to just 5% or so this year.

Contrast the U.S. profit picture with that in mainland China, where first-quarter earnings are soaring about 80% according to recent first quarter reports.

Is a Correction in the Cards for China?

China’s mainland stock markets where among the very few in the region that DID NOT surge to new highs last week … that’s because they were closed for the Golden Week holiday.

But it will no doubt be back to business as usual in Shanghai this week – as these overvalued and overheated markets – which are already up more than 40% year to date – probably surge higher still.

Believe it or not – even amid all this upside price action – there are still a few pretty good-looking (but isolated) pockets of attractive valuation to be found in global stock markets – but not in China – at least not at the moment.

China’s mainland markets, although possessing terrific long-term potential, are currently off-limits to my Global Market Investor portfolio, due to extremely high valuations. Even Hong Kong shares – although much cheaper than mainland stocks – are no longer the bargains they were just a few years ago.

Valuation Getting Stretched in China – But other Opportunities Abound

The strong economic and profit growth numbers coming out of China certainly look good… but perhaps a little too good!  I can’t help but believe that the authorities in China would like to cool things down a bit, and try to reign in the excessive speculation that’s occurring.

This presents the potential for some sort of accident in the near term that could trigger a major correction in Chinese stocks prices. I’m waiting for a bit of a correction and consolidation in Shanghai shares before I would consider jumping in again.

Still, there are several markets in this region, which I discussed at length during my presentations in Panama, which still look ripe for big gains. I’m talking about markets that offer investors much better bargains from a valuation perspective, that China does, but are still growing rich from China’s expansion.

In fact, there are several economies that are among China’s neighbors, which are doing big-business in Beijing – and throughout the fast-growing region.

By focusing on these few select markets, you still get to participate in the exceptional profit potential being generated by the China boom – but in an indirect way – which helps you significantly reduce your investment risk while still participating in more upside gains.

An Insider’s Look at Panama’s Booming Business Community

The Sovereign Society’s Total Wealth Symposium 2007 in is over. I’m writing this on the plane headed back to Miami after four-days in Panama that were chock-full of useful and timely investment ideas and asset protection strategies.

Whenever I get the chance to talk with so many experts in one place, such as this symposium, I always learn a lot and come away with plenty of fresh ideas about investing from lots of smart people who have different perspectives on the market.

This trip was no exception; because I learned a lot about Panama. It was my first trip to this country, but despite the fact that I didn’t personally know a soul in country I had no worries. Instead, I simply turned to the Sovereign Society Council of Experts for information!

I thought it might be a great idea to see something of the vibrant business community in Panama while in town, and I was thinking that a visit to Panama’s Bolsa (its stock exchange) might be a good place to start.

Panama’s Electronic Bolsa

So I talked with our own Bob Bauman, who referred me to our resident Panama expert Derek Sambrook, about touring Panama’s main exchange. Unfortunately as I found out, there’s not much to see… unless you like admiring computer hardware.

Derek and Bob were kind enough to make an introduction for me, with a broker at one of Panama’s leading financial firms: Carlos Ledezma at Grupo Multi-Credit Securities. So I phoned Carlos from my hotel room during a break in the conference action, to inquire about a trip to the bolsa.

Carlos was kind enough to offer me the chance to visit the building where Panama’s Bolsa is housed – but there is no longer any trading floor to be found there. That’s because the exchange went all-electronic a few years ago – elliniating the open-outcry system that used to be in place, similar to the trading action on the NYSE.

At Panama’s Bolsa by contrast, the only thing to see according to Carlos is some Hewlett-Packard computer servers in a cool air conditioned room at the exchange -- so much for my trip to the bolsa.

Real Estate and Banking are the Key Drivers of Business

Of infinitely greater value however was the fact that Carlos was also kind enough to spend time talking with me about Panama’s thriving business and investment climate, including a rundown on trading activity on its bolsa.

It seems that trading volume on the exchange, at least in terms of common stocks, has slowed down a bit in recent years. There has instead been a shift more towards trading in bonds and other fixed-income securities.

Most of the biggest companies listed on Panama’s Bolsa are banking and financial service firms – and many of these are booming due to two key drivers. First, construction is still booming in Panama -- both residential and commercial.

There’s been a huge increase in demand for condos in Panama City in recent years, with a good deal of it coming from American’s searching for an overseas vacation destination. A great deal of this building boom is of course being financed by Panama’s leading banks, as Carlos pointed out.

M&A Activity Heats up in Panama Banking Sector

The second key driver that makes banking an attractive sector in Panama is takeovers. There have been a number of high-profile mergers in the country’s financial service and banking sector – both between local banks – and with large multi-national firms such as HSBC recently buying into Panama’s banking sector.

Plus, a multi-billion dollar expansion of the Panama Canal is set to take place over the next several years. While many major Wall Street banks will be among the biggest players financing this expansion, Panama’s local banks will also get a role to play in all the ancillary business activity that’s sure to follow in the wake of the canal’s reconstruction.

Unfortunately, there isn’t yet an exchange-traded fund to give you direct and diversified access to Panama’s Bolsa, much less it’s banking sector. So for now, individual banking stocks traded in Panama are the only way to go, but maybe soon there will be a Panama ETF that I can talk to you about.

In the end, I skipped the tour of the server room at Panama’s Bolsa – maybe next time in town. Also when I’m next in Panama City, I owe Carlos Ledezma a nice dinner in one of the city’s fine restaurants … just a very small repayment for the wealth of information he gave me about Panama.

P.S. If you would like to explore your investment options in Panama, you’ll need a very knowledgeable local broker to show you the ropes. If so, you should contact Carlos. You can call him at (507) 263-0231, or send him an email at:cledezma@grupomulticredit.com

The Greening of Dry Cleaning

I’m enjoying the fourth day of my stay here in beautiful Panama City, Panama where I’m speaking at the Sovereign Society’s Total Wealth Symposium. But one very BIG part of traveling that I most definitely DO NOT enjoy is the task of packing and unpacking a week’s worth of suits, shirts, ties, etc.

It’s funny – I always dutifully take my dress shirts and slacks to my friendly neighborhood dry cleaner – at least a week before I depart. Get everything cleaned and starched – then pack it all in my travel bag for the trip. Of course when I arrive at the hotel on the other end of my journey, and it’s time to unpack – and my clothes are totally wrinkled again. So it’s off to the hotel laundry for another quick press.

As such, business travel means big business for dry cleaners everywhere.  But the downside to dry cleaning is the amount of environmentally unfriendly chemicals used in the process. Today however, the dry cleaning industry is going green!

Most friendly neighborhood dry-cleaners use the chemical perchlorethylene (or Perc) to perk up the appearance of your garments. But Perc is environmentally unfriendly. In California, legislation will phase-out the use of this chemical over the next few years.

The green revolution’s impact on dry cleaners is making it more expensive to do business. Some cleaners will need to upgrade to new machinery in addition to making the switch to cleaner chemicals.

The only alternative to new machinery and chemicals is to make a switch in the fundamental method of cleaning – the so called “wet cleaning” process, which is more labor intensive than traditional dry cleaning. And it’s not just California; the Washington DC is likewise tightened regulations on the use of Perc.

So either way, it looks like our dry cleaning bills will be heading higher – another sign of creeping inflation – that hasn’t made it’s way into the “official” stats yet. And I guess I’ll be doing a lot more late-night hotel room ironing!

Turkey Trouble... or Profit Opportunity?

One of Europe’s most intriguing emerging markets was rocked by turmoil this week amid election uncertainty. Turkey’s stock market was taken on a rollercoaster ride as a result of an impasse in the election of a new President.

The ruling AKP party’s preferred candidate – current Foreign Minister Abdullah Gul has a political past that appears just a bit too Islamic for Turkey’s secularists. Many in Turkey believe the country should be thinking and acting more European in hopes of gaining accession to the European Union. But Turkey – which straddles the gateway between Europe and the Middle East – has a population that’s overwhelmingly Islamic.

The modern Turkish state was formed decades ago with a secular constitution that clearly spells out separation between "mosque and state" as a key principle. As such, Turkey is seen in the west as the model of a modern, well-functioning democratic nation – a state that other nations in the region can emulate.

That image was called into question this week, when Turkey’s military rattled its saber regarding the aforementioned election. Many of Turkey’s secular citizens – in addition to the military – feared Mr. Gul as President might have hidden plans to influence the political direction of Turkey in a more religiously fundamental direction.

But the key point in this is that protests in Turkey, as well as quick action by opposition politicians in Parliament succeeded in bringing about a call for general elections by late July. Before this apparent political “crisis” elections were scheduled to take place before November in any event. So this simply moves up the political process by several months.

The point here is that Turkey’s constitutionally elected democratic system is working perfectly well – it’s functioning as it should – with free elections just around the corner.

Turkey is one of my favorite emerging markets in which to invest today. Its economy has expanded at an average growth rate of 7% over the past several years, spurred by robust profit growth and important free-market reforms put in place by the current government. Booming global trade and a wealth of global investment is helping transform Turkey into a dynamic, fast growing market. Last year, Turkey attracted a record $20 billion in foreign direct investment – that’s a great vote of confidence in the future of its economy.

The government’s smooth handling of this so-called “crisis” only reinforces my desire to invest in Turkey. Election Day is set for July 22 – it’s possible we could witness more volatility in Turkish stocks between now and then – but I would view this as a great buying opportunity.

Global investors apparently agree with this line of reasoning too. After falling about 7% Monday – Turkish stocks rebounded strongly both Wednesday and Thursday as Prime Minister Erdogan called for and the Parliament scheduled new elections. The Turkish lira – one of the strongest emerging market currencies – also gained against the dollar in foreign exchange trading.

Within every “crisis” – can also be found opportunity. And this may be a perfect opportunity for you to invest in Turkey for big potential long-term gains.

Greetings from Panama -- Where You Still Get Service with a Smile

I'm writing this blog article from the 7th floor of the Sheraton Panama Hotel & Convention Center, where my colleagues and I are on location for the Sovereign Society's Total Wealth Symposium. I look forward to meeting many of our members tomorrow and getting the chance to chat with them up close and personal.

A full week of events, conferences and presentations lies ahead -- and I can't wait to get started. At least it's got to be all downhill for me from here, after a tough first day getting here.

I flew in from Miami on a non-stop flight which was relatively uneventful, save for the tortuous process of getting through TSA's (Transportation Safety Administration) latest gauntlet of pre-flight check-in procedures. The people that I was traveling with and I were subjected to the latest and greatest stat-of-the-art scanning technology from GE -- we were basically singled out as guinea pigs.

The process of getting through the security screening using this new technology took -- by my calculation -- about twice as long as the old pat-down method using trusty metal detectors. And that's including the extra time required to get a private strip-search!

Then upon arriving in Panama City I found than my luggage didn't arrive with me. So with nothing but the shirt on my back -- literally -- I endeavored to contact American Airlines to ascertain the likelihood of recovering my suits, and ties. Now, I realize that American, like many US airlines, has struggled through bankruptcy, but even so I was shocked at the lack of response to my plight.

I made three separate phone calls trying to track down my errant bag. The first to American's Miami desk... where I received a recording that prompted me to leave a message -- and maybe they would call back.

My second call was to American's baggage claim headquarters in Dallas -- where I was sure I would get answers. But all I got was the run-around. It seems that American's computer systems aren't state-of-the-art after all... because they couldn't find any record of my properly checked baggage.

Finally, in desperation I called an American official at the airport in Panama... where I actually obtained the most satisfaction -- service with a smile in fact.

The pleasant person on duty ... actually a live person, not a recording, was happy to give me the unvarnished truth. She had no idea where my luggage was, but suggested that this sort of thing happens frequently with flights from Miami -- and suggested it should arrive on a later flight ... no worries.

The moral of this story: Don't let anyone tell you that the great American service-sector economy is state of the art... I got better, more genuinely truthful answers from the people in Panama than I received from either Miami or Dallas.

And when it comes to traveling to emerging markets… one of the biggest problems you may face is dealing with good old American bureaucracy. Several American flights later... I'm still waiting with nothing but the original shirt on my back.