Headquartered in Beaverton, Oregon, Nike Inc. (NKE) is one of the largest athletic footwear and apparel makers in the world. The company recently reported mixed financial results for the fourth quarter and full year ended May 31. Both top-and bottom-lines were hurt in the quarter on account of foreign exchange volatility and the global slowdown that led to lower consumer spending.

NKE's net income dropped to $341.4 million (EPS $0.70, basic and diluted) in the reported quarter, down from the year-ago figure of $490.5 million (EPS $0.98 diluted, $1.00 basic). Similarly, revenues fell 7.4% year-over-year to $4.71 billion from $5.09 billion. However, the comparison is clouded since the year-ago numbers were boosted by the run-up to the European Football Championships and Olympics. Excluding changes in currency exchange rates, net revenue was flat over the year-ago period.

Overall, gross margin contracted 240 basis points to 43.4% in the reported quarter, from 45.8% in the year-ago period. Margins fell due to higher product input costs and greater product markdowns for managing inventories. However, NKE demonstrated prudent inventory management (inventory is down 3% year-over-year) and raised its market share. The company also slashed its workforce by 5%, incurring a $195 million pretax restructuring charge. Although the apparel downslide was affected by lower consumer spending, the company also shifted its focus from value products to premium ones.

NKE witnessed a synchronized contraction of its markets worldwide in the quarter ended May 31, 2009. US sales shrunk 2% in the fourth quarter from the year-ago period. This is significant as NKE faced reversals in the domestic market for the first time since 2004. Footwear and equipment revenues rose marginally, but were offset by a 15% fall in apparel revenues year-over-year.

Similarly, European sales fell 19% year-over-year due to a strong dollar. Excluding currency impacts, revenues were down only 3%. The Asia Pacific region reported flat sales year-over-year. Before currency changes, revenue grew 3% even though the year-ago period was helped by the Beijing Olympics. The 3% fall in the Americas was solely due to currency impact. Sales in the region actually spiked 20% year-over-year before currency effects. Revenue for NKE's other businesses like Converse, Cole Haan, Hurley, and Nike Golf contracted 5% year-over-year.

In fiscal 2009, the company's top line rose 3% to $19.2 billion (a 4% increase excluding currency impact). However, net income fell by 21% to $1.5 billion (EPS $3.03 diluted, $3.07 basic) from $1.9 billion in fiscal 2008 (EPS $3.74 diluted, $3.80 basic).

NKE maintained a strong balance sheet at the end of fiscal 2009. With a low to debt-to-capital ratio of approximately 5%, ROE around 17% and more than $2.2 billion in liquid assets, the company will be able to resume its $3 billion share repurchase program.

However, its near-term performance will be affected by a currency translation headwind, lower orders, and realignment of product portfolio in U.S.A. The stock spike of more than 10.5% over the past three months and a stable dividend yield of 1.95% make it fairly attractive. We will keep a cautious eye on the company, but for now the consensus recommendation remains a BUY.

Underlying revenue growth for 2008 is expected to be even better than 2007, which was up 5%. The company is experiencing rapid growth in Asia, the Middle East, and Latin America, with revenues revenue in these regions growing close to 20% on a constant-currency basis in the first half of the year. This year's results should benefit from the buildup to the U.S. presidential election, the Olympics in Beijing, along with the European Football Championships.

While looking ahead to 2010, there are several sporting and political events that could help drive growth, including the soccer World Cup in South Africa, the Winter Olympics in Vancouver and the mid-term congressional elections in the U.S.

As a sign of confidence, the company has increased the dividend by 20%. The stock is trading at a discount its peers. Our six-month target price is $40.00.

Read the full analyst report on WPPGY.

Key Points:

• Despite the resignation of Jerry Yang, forecasts are trending downward for Yahoo
• Other Internet companies are doing well, however, such as Sohu.com and United Online

Without Merger, Few Positive Catalysts For Yahoo Over The Short-Term

Yesterday, Yahoo (YHOO) announced the resignation of Jerry Yang from the CEO post. The announcement was met with cheer as shares rose by nearly a buck to $11.55.

Playing a role in the upward move were speculators hoping for renewed merger talks with Microsoft (MSFT). The problem is that there is no guarantee that a merger will occur.

Without a merger, there are few catalysts for the stock. Naming a well-respected outsider as a CEO might help, but the company is struggling with both tough competition and a weak economy. During the past 30 days, 17 brokerage analysts have lowered their 2009 profit projections.

There Are Attractive Internet Stocks

Despite the problems with Yahoo, Internet Services is among the top 50 industry groups. This group contains 1 Zacks #1 Rank ("strong buy") stock, United Online (UNTD), and 7 Zacks #2 Rank ("buy") stocks, including Sohu.com (SOHU).

Overall, stocks within the better-ranked groups tend to outperform the markets. And while investors might be inclined to look at the top 10 or 20 groups, stocks within the top 80 groups can be viable investment candidates.

Games Score High For Sohu.com

Sohu.com operates a leading web portal in China, while also providing various other Internet and wireless services, such as online gaming.

SOHU's third-quarter earnings of $1.02 per share were 11 cents above expectations. (The company has now topped expectations for 6 consecutive quarters.) Revenues more than doubled to $120.7 million, thanks to an 18% rise in advertising revenues (the Olympics helped) and a 330% increase in gaming revenues.

The company projected fourth-quarter profits to total $1.20 per share, which was 10 cents above the then consensus earnings estimate. Analysts have not only raised their forecasts for the current quarter, but also upped their predictions for 2009 earnings. The consensus estimate now calls for profits to total $4.75 next year, a 12-cent increase over the average forecast of a month ago.

United Online Blossoms

United Online may be best known in the U.S. for its social networking web site Classmates.com and low cost ISP NetZero. Thanks to last August's acquisition of FTD Group, Inc., the company also operates the largest network of florists.

UNTD matched third-quarter expectations with profits of 22 cents per share. Revenues rose 33% to $169.2 million, thanks to the inclusion of FTD. Classmates generated growth of 18%, though the company's communication segment struggled.

Following the earnings report, the 2 covering brokerage analysts raised their 2008 and 2009 profit forecasts. The 2008 consensus earnings estimate of $1.02 per share is 14 cents higher than the average forecast of a month ago. The 2009 consensus earnings estimate of $1.26 per share is 42 cents above the average forecast of a month ago.

Short-Term Outlook Changes for Baidu.com.

The third-quarter numbers from Chinese language search engine Baidu.com (BIDU) also looked good. The company earned $1.46 per share, 22 cents better than analysts had forecast. Revenues rose 85% to $135.4 million. More advertisers signed with the company and revenues per customer rose. Again, the Olympics helped.

The majority of the covering brokerage analysts raised their 2008 and 2009 projections in response.

Given this backdrop, BIDU would seem to be another Internet-related candidate. However, a press release from the company removed some of the luster from the stock, at least over the short-term.

Following a news report, Baidu.com admitted to accepting paid listings for certain popular medical terms from medical companies that did not hold the proper licenses. BIDU has removed the paid listings in question until the advertisers can show proof of the proper licenses.

Baidu estimates that the customers in question accounted for 10% to 15% of total revenues. It is unclear how much of the revenues will be recovered in the future, though 1 analyst has already reversed course and cut his profit forecasts for the remainder of 2008 and all of 2009. It is possible that more analysts will cut their forecasts going forward.

Related

There are various ETFs that have exposure to Internet companies, but many also include network equipment companies. Possibly the "purest" ETF is the Internet HOLDRS (HHH). This fund's largest holdings include portals, ecommerce and online brokerage firms.

There are no specific funds that target generic drug makers.

Zacks Premium and Zacks Elite subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Sector Rank as of Nov 19
Sector	This Week's Zacks Rank	Last Week's Zacks Rank	FY08 Revisions Ratio	FY08 Estimates Revised Up	FY08 Estimates Revised Down	FY09 Revisions Ratio
Medical	2.57	2.56	1.02	945	929	0.69
Computer and Technology	2.91	2.90	0.43	820	1922	0.20
Aerospace	2.98	2.83	1.20	101	84	0.35
Transportation	2.98	2.99	1.24	282	227	0.46
Consumer Discretionary	2.98	3.01	0.46	246	532	0.20
Business Services	3.00	3.01	0.31	92	297	0.13
Utilities	3.01	2.98	0.40	136	336	0.19
Consumer Staples	3.10	3.04	0.36	144	405	0.19
Retail-Wholesale	3.18	3.11	0.25	218	861	0.16
Finance	3.19	3.19	0.32	656	2033	0.12
Construction	3.21	3.24	0.27	62	226	0.08
Industrial Products	3.22	3.19	0.36	155	429	0.07
Oils-Energy	3.24	3.26	0.42	409	975	0.21
Basic Materials	3.30	3.33	0.26	123	472	0.09
Conglomerates	3.41	3.37	0.18	13	74	0.04
Auto-Tires-Trucks	3.49	3.62	0.07	12	175	0.07

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

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"We didn’t see a very significant impact by the economy, global economy or the slow-down of the Chinese economy…For the first months of the fourth quarter, we are still seeing the same trend the third quarter."

"Four to five star hotels occupancy and revenue have gone down since August. I think mainly it’s caused by a global economy… and also the very strict Olympics visa issue… I think in 2009 the high-end; like four, five-star hotels will be impacted by the high-end customer reductions. But budget hotels… still haven’t seen any… significant change in the market." 

In the U.S., we might refer to this as the Wal-Mart trade but what it means is that the high end is suffering while budget brands are thriving.

"We didn’t see a very significant impact by the economy, global economy or the slow-down of the Chinese economy…For the first months of the fourth quarter, we are still seeing the same trend the third quarter."

"Four to five star hotels occupancy and revenue have gone down since August. I think mainly it’s caused by a global economy… and also the very strict Olympics visa issue… I think in 2009 the high-end; like four, five-star hotels will be impacted by the high-end customer reductions. But budget hotels… still haven’t seen any… significant change in the market." 

In the U.S., we might refer to this as the Wal-Mart trade but what it means is that the high end is suffering while budget brands are thriving.

"We didn’t see a very significant impact by the economy, global economy or the slow-down of the Chinese economy…For the first months of the fourth quarter, we are still seeing the same trend the third quarter."

"Four to five star hotels occupancy and revenue have gone down since August. I think mainly it’s caused by a global economy… and also the very strict Olympics visa issue… I think in 2009 the high-end; like four, five-star hotels will be impacted by the high-end customer reductions. But budget hotels… still haven’t seen any… significant change in the market." 

In the U.S., we might refer to this as the Wal-Mart trade but what it means is that the high end is suffering while budget brands are thriving.

"We didn’t see a very significant impact by the economy, global economy or the slow-down of the Chinese economy…For the first months of the fourth quarter, we are still seeing the same trend the third quarter."

"Four to five star hotels occupancy and revenue have gone down since August. I think mainly it’s caused by a global economy… and also the very strict Olympics visa issue… I think in 2009 the high-end; like four, five-star hotels will be impacted by the high-end customer reductions. But budget hotels… still haven’t seen any… significant change in the market." 

In the U.S., we might refer to this as the Wal-Mart trade but what it means is that the high end is suffering while budget brands are thriving.

If you read the Wall Street Journal or The Economist dire warnings are now being issued about China’s economic growth.

While China is experiencing “negative growth” you get the feeling that somehow the slowdown is taken out of context - giving investors a somewhat distorted view of the current opportunity.

The bad news started when China’s National Bureau of Statistics announced that economic growth Q3 was 9% year-on-year, down from 10.1% in the previous…

Quotable
“Paper money is faith-based, says Grant’s.  Then how much more so is credit, which is the promise to pay paper money?”

Jim Grant

FX Trading – Can you say Asian Financial Crisis Redo?

Interesting!  It seems the chances for another Asian-style financial crisis lingers and is rising (we are already seeing it in S. Korea; chart below).  This is surprising since it appeared the entire region was well position to whether a downturn in the major economies—at least the view before the downturn morphed into an all out assault on all the ties that seem to bind the global financial system together.   

Oct 20 IHT/Reuters: Economic growth in China slowed to 9 percent in the third quarter of this year, the slowest pace in more than five years, as industrial production and construction slackened because of weak exports, a slumping real estate market and temporary restrictions imposed during the Olympics.

Our view—liquidity is draining out of China faster than expected:

• Pre-Olympics planning by Chinese factories before the global financial crisis, in a world where demand was still existent, now means front-end loading of inventory was much too big and will represent and additional drag on corporate profitability and cash flow.

• The real estate bubble is popping, which represents another major liquidity drag now that the stock bubble has popped.

And, as China goes, so goes the Aussie, and maybe the rest of the region.  This an excerpt from the current issue of The Economist:

“China’s growth is increasingly important for the region [Asia].  This month Australia’s Mr. Rudd rang the Chinese prime minister, Wen Jiabao, to ask about projections for China’s growth, and whether its strong demand for Australia’s minerals was likely to continue.  On getting and upbeat answer, Mr. Rudd concluded that China was now ‘critical for Australia’s continued economic performance.’  It is also the biggest trading partner for Japan and India.  But, according to the Asian Development Bank, 60% of Asia’s exports (not including Japan’s) still go to America, the European Union and Japan.  A decline of one percentage point In America’s growth rate, the bank calculates knocks 0.3 percentage points off Asia’s.  That may be optimistic.”

Questions:

1) Why Australia is about to slash rates again if Chinese demand remains firm?
2) How can Asia avoid a beg slump if dependence on the big three (US, Europe, and Japan) remains strong?
3) Does China message its growth rate numbers?

Guess:

1) China demand is fading fast.
2) Rising current account deficits (falling export numbers) across the region say Asia won’t avoid a big slump.
3) Chine lies consistently about its economic statistics, but the rest of the region will tell the story.

…and near-term, Asian currencies could surprise on the downside against the dollar and the Aussie has more to go…

What if all that hot money sitting in Chinese real estate, waiting for that one-off Chinese currency revaluation opportunity the economist’s told us is inevitable, finds the Chinese currency backing up instead of appreciating?  Just maybe that becomes another liquidity hit, at least near-term, for China.

US$ - Chinese yuan Daily:
 

AUDUSD Daily:
 
US$ - S. Korean won:  A crisis is already playing out there…
 

Jack&JR

"However, it was also asked to stop one of its production lines the day before the Games' opening ceremony to ensure good air quality."

That same pattern happened to thousands of businesses in Beijing and those temporary shutdowns are why Chinese GDP will be down in Q3,

Chinese trade surplus at new high

Wednesday, 10 September 2008

China's trade surplus hit a monthly record of $28.7bn (£16.28bn) in August as the gap with the US and Europe widened, despite weaker world demand.

China's global trade gap for the month was 14.9% wider than the same month in 2007, official state data showed.

Exports rose 21.1% to $134.9bn, while imports were up 23.1% to $106.18bn in August, the customs agency said.

Meanwhile other official figures showed consumer inflation hit a 14-month low of 4.9% in August, from 6.3% in July.

...

Exchange rate issues

August's trade gap trumped the last record high of $27bn in October 2007.

China's trade surplus with the US rose 16.6% to $17.5bn during the month, and the gap with the 27-member European Union, China's biggest trading partner, increased by 25% to $16bn.

The data is likely to add fresh pressure on China to revalue its currency, as its trade partners have claimed that an artificially low yuan is giving its exporters an unfair advantage.

Stephen Green, a Shanghai-based economist with Standard Chartered, said that adjusting for inflation and changes in the exchange rate between the yuan and the US dollar, it was still clear China's exports were growing fast.

"China's export sector is still pumping out more than 10% more stuff this summer than it was last summer - something you would hardly realise from news reports of tens of thousands of factories closing," he said in a research note.

He said it was likely thousands of "small, inefficient producers are going out of business" - while large exporters were still expanding production.

My surprise came from two sources.

• First, the trade weighted real value of the Chinese yuan has been rising. In August, it was about 17.6% stronger than it was in June 2005, just before the revaluation.
• Second, the US trade balance with China seemed to have stabilized, when expressed as a share of US GDP.

To the first point, consider the trade weighted real value of the Chinese yuan, measured against a broad basket of currencies.

Now, what is true is that these exchange rate effects will only be passed on to trade flows with a lag. So it may be that the stabilization in trade balance will arrive eventually. An additional complication is that CPI's are an imperfect approximation to the appropriate price index for evaluating competitiveness, i.e., the gate price of the goods that are exported. (I'll sidestep the issue of what the value added component is in Chinese exports, which is relevant to the question of the Chinese trade elasticity: [1], [2])

To the second point, consider the following graph of the US-China goods trade balance, and the US overall trade balance.

What is true is that as a share of GDP (as estimated by Macroeconomic Advisers), the trade deficit has stabilized. Of course, the BBC report was citing (i) August trade figures (ii) derived from the Chinese statistical sources, and (iii) converted into USD from CNY -- while I am showing US import figures for July, normalized by US nominal GDP. So the differences could be easily explained.

In my view, the trend should be for some shrinkage in the US-China trade deficit exactly because the relative price of Chinese imports into the US is rising, as the CNY has appreciated against the USD.

That being said, import prices are only about 5% higher (in log terms) relative to 2005M06; that works out to (in a simple minded way) a 25% pass through of exchange rates into import prices. The true pass through coefficent might be greater. But of course, we'd only know if we had a good idea of what was happening to unit labor costs in China.

Now, given the long swing in the USD down in value against the EUR, there's no guarantee that the Euro Area - China trade deficit will shrink. And indeed, the expansion in this trade deficit is exactly what Brad Setser has been stressing in several of his posts. My guess, though, is that the precipitous slowdown in Euro area growth recorded in 08Q2 -- and likely to persist into 08H2 -- will put a substantial dent in Chinese exports to that region. The question is then what will sustain Chinese growth.

On this question, Arthur Kroeber presents a fairly sanguine view in the latest issue of the China Economic Quarterly (not online):

China's economy is headed for a soft landing. Headline GDP growth decelerated to 10.4% in H1 from 11.9% in 2007 due to a decline in the trade surplus contribution to growth and a modest decline in industrial investment. These have been partially offset by acceleration in construction investment and slightly stronger consumption growth.

Relevant to the issue of exactly how fast exports are growing, he observes:

The weak US dollar has made China's dollar-denominated trade growth seem larger than it really is. Trade values in renminbi terms are a more accurate representation of the impact of trade flows on GDP growth; both renminbi and newly-available volume data show a continued slowdown in export growth. In renminbi terms, in the first seven months of 2008 export growth fell by three percentage points to 12% year on year due to weaker demand in the United States. Meanwhile import growth accelerated by five percentage points to 19%, largely as a result of higher commodity prices. As a result China's trade surplus fell 17% year on year (see "Weaker in yuan").

This was written before the release of the August Chinese trade figures, but I think these are nonetheless important points to keep in mind when considering the more recent Chinese and US data on Chinese trade flows. And to that you can add Michael Pettis's observations about the potential for data distortions due to the Olympics.

Sina has released its estimate of the impact of the Beijing Olympics. The company reported that on-line advertising (70% of total revenue) growth was enhanced by about fifteen percentage points from the rate experienced in 2007, for an annual growth of 55% year over year.

Chinese Internet penetration has reached 20%, and it has accelerated over the past six months. We are maintaining our Buy rating for SINA with a target price of $45 a share.

Read the full analyst report on SINA

Nike Inc (NKE) reported first-quarter results that beat the consensus estimate as the sports shoemaker saw sales grow around the globe. Quarterly profit was $510.5 million, or $1.03 per share. Revenue rose 17% to $5.4 billion. Analysts believe the growing demand for Nike products will enable the company to raise prices even in the cash-strapped U.S. markets.

The weak dollar helped Nike score gains in the international markets, with Chinese futures orders growing by nearly 50% after the Beijing Olympics, which boosted the near-term outlook for the company. During the quarter, revenue from the Asia-Pacific region soared 36%. The superior quarterly performance supports the premium P/E of 16.3X enjoyed by Nike. Analysts expect the company to post a profit of $3.86 per share in fiscal 2009. Nike’s shares were up 10% at $65.07 in afternoon trade.

John Ketteley is trying to get into prisons. He thinks there’s money in it. And what he told me made me think about a possible opportunity in the future.

OK, let me explain. Ketteley is not some arch villain on a crime spree. He is in fact the Executive Chairman and 13% shareholder of the building products group, Eleco (LON:ELCO). He reckons that the government’s increasing requirement to lock people up - which I somehow doubt will be reduced by the recession - will provide some work for his group.

The prison building programme, along with the planned construction of schools, nursing homes and ‘key worker accommodation’ is a natural target for the type of products in which Eleco specialises, products that make it easy to construct modular buildings using elements produced off-site. Principal amongst these are pre-cast concrete panels used for walls, rooms, barriers and sports stadium terracing produced by subsidiary Bell & Webster, which has just opened a new facility at Haveringham.

Work for the public sector should provide some defence against the slowdown of house building that affects 14% of Eleco’s turnover. Eleco has various subsidiaries including one called Gang-Nail systems that I seem to remember from my distant days as a building analyst used to be owned by Redland. The building products industry does not go in for fancy names and another Eleco subsidiary is called International Truss Systems - nothing surgical, just roof trusses supplied to the South African market.

The roof, as Ketteley pointed out, is the last part of the building to be completed. In other words it is the last part to be paid for, and Eleco has had a couple of ‘run-ins’ with its customers. But while the financial crisis is inevitably causing a few difficulties, Eleco is far better placed than most, partly because of its products, partly because it has read the cycle cleverly, but also because it has that one thing that we would all like right now - cash.

A recession-proof profit-stream

Aside from pre-cast concrete, roofing and cladding, timber frame and timber engineering systems, Eleco also owns companies involved in software for the building industry. There are different types of software. There is software used in architectural design, software used in cost estimating, software that maps and monitors the execution of a project, and software that essentially keeps a daily diary of the work on-site, something that can come in useful in the event of a dispute involving the client and contractors. Software contributes just over 10% of operating profits. But it should prove reasonably recession proof, especially as much of the turnover is outside the UK.

An interesting new service (that can be seen on the www.e-sign.com web-site) is made possible by visualisation software. This is used by building designers, as well as by Birmingham Council which used it to visualise the impact of shadows caused by new buildings. A new web-site, called Grand Designs, will be launched in October and this will enable the self-builder to design and visualise his own house.

Another interesting service allows you to download a photo of a room of your house and then edit in a choice of floors, thus allowing you to see what they would look like in your own home. This is already is use in Germany, where 80% of those that use the service go on to buy the flooring product.

So Eleco’s products appeal to modern designers and modern building techniques, and allow builders to meet the ever more stringent building regulations.

With a balance sheet like this, here’s one to watch

This is one of Eleco’s strengths, but perhaps the greatest at this point is the balance sheet. A former banker, Ketteley rescued Eleco in 1997 when it had a market capitalisation of £3m but borrowings of £7m. As he told me, ‘we don’t want to be in that position again.’

Today Eleco has a market cap of £46m and net cash of £6m as well as a £14m facility from Lloyds, arranged last year. This puts it in a great position to make acquisitions, but it also means that at a time when, for instance, the Olympics site is reviewing the credit worthiness of its suppliers, it can take business from others.

Broker Collins Stewart has raised its profit forecast for the year to June 2009 by £0.3m to and now forecasts earnings per share of 11.7p. The P/E ratio is little over six and the yield is over 4%.

Eleco is much better placed than most building products suppliers at this difficult stage of the cycle. That puts it on my list of shares that I’m not quite ready to buy yet… but which is certainly on my radar.

Source: The Attraction of Prisons

Pharos Financial Group - Hedge Funds

___________________________________

• Pharos fund portfolio.
• Whitepaper on Pharos Fund. The White paper explains how the pharos fund manager makes decisions.
• Every letter to all investors for 2008, from the Pharos Fund and Gas Fund.
• Excel spreadsheet of every Pharos funds performance. So far, 2008 has a negative return on every fund.
• Excel spreadsheet breakdown of Sector allocations for the pharos fund.
• Excel spreadsheet breakdown of Sector allocations for the Gas fund. Pretty self-explanatory, the fund invests in options and futures in oil and natural gas.
• Article about how there will be an increasing demand for natural gas.
• Excel spreadsheet of Pharos small cap fund. The small cap fund uses Russia’s building economy and uses illiquid shares to make a profit.
• Daily market comment and performance of all three funds. The Political Environment is fragile, which will create volatility in the market overall, which is good for each hedge fund.
• Article about how all Pharos funds are down. The MSCI Russia Index is down 32.4% due to “a reversal of fortune from the market's earlier outperformance.”
• The Georgia conflict severely hurt the Russian economy because investors pulled out more than $7 billion. Russian may not be allowed to host the next Olympics and the U.S. is restricting Visas for Russians.
• Pharos said that the Russian economy is stable, but foreign investors insecurity will create short term-volatility.
• Name of this article pretty much sums it up- “Pharos, TPG to acquire American Beacon Advisors for $480m.”
• Interview with Peter Halloran. Eastern European (Russian affiliated) countries are rapidly growing faster than other developing nations.
• Article about the government planning to increase domestic gas prices by 25-40 per cent, over the next three years.
• A blog post that has a about positive outlook for every Pharos fund, for the month of June.
• Article about how hurricane Gustav may increase gas to $5 a gallon. This may effect pharos gas fund.

Related to Pharos Fund:

• Andor Capital Management & Daniel Benton
• Investment Book
• Citadel Investment Group LLC
• SageCrest LLC
• Financial Certification
• Hedge Fund Forum
• Hedge Fund Tracker Tool
• Martin Asset Management
• Fortress Investment Group LLC
• Children's Investment Fund Management TCI

Hammon was vilified by many people in the sports world, including Anne Donovan, the U.S. women's basketball coach, who said that she was "not a patriotic person." Hammon's decision to play with the Russians contains a moral message. Individual sovereignty, it tells us, is a space that no collective force should violate. Invoking nationalist notions to condemn a woman's pursuit of a dream that does no harm to anyone is to put national sovereignty above individual sovereignty -- the seed of totalitarian ideology. Hammon does not love her ancestors, her family, her Silver Stars teammates or her friends on the U.S. national team any less because she took a cherished opportunity to play in Beijing. "This is a game of basketball," she said in defending her decision, "this is not life or death." A traitor? No, an heir to America's grandest tradition: the right to the pursuit of happiness. (...) Despite the best intentions of the Baron de Coubertin, the French aristocrat credited with reviving the Olympic Games in the 19th century, the international competition has as much to do with collectivist nationalism as it does with universal fraternity. Any individual act, however small, that tears down a nationalist barrier during the Olympics should be applauded as restoring the games' true meaning.

Were there many surprises in quarterly earnings for Chinese companies under coverage?

By far most Chinese companies in my coverage performed as expected. Some Internet companies even announced results which exceeded the market consensus.

The slowing economy in the U.S. and now elsewhere has created a drag on many industries. Is China feeling the impact of this?

The slowing economy in the U.S. has resulted in a slowdown of the Chinese economy. In addition to the slowdown of the Chinese economy, high inflation rates have led to high pressure on earnings of Chinese companies. Among those, Internet companies should be in better position than other Chinese companies to grow their earnings.

What is your near- to mid-term outlook on companies you cover?

I am not quite optimistic on the near-term outlook on Chinese companies due to the slowdown of the Chinese economy and high inflation rate. However, I am optimistic on the mid-term outlook on Chinese companies because China’s economy will resume strong growth and keep inflation rate under control in the future.

If you have two or three top Buy recommendations at this time, which stocks would they be?

Baidu.com (BIDU)

Sohu.com (SOHU) is the Internet content sponsor of Beijing Olympic Games, which helps improve the company’s brand recognition and leverage the online advising opportunity in China. In addition, its popular online game continues to show strong growth momentum.

What should investors be mindful of before jumping into your industry?

Before investing into Chinese companies, investors should be careful of China’s economy growth rate and CPI level because these factors will affect the valuation and earnings of Chinese companies significantly.

Paul Cheung, CFA is a senior analyst covering the Chinese markets for Zacks Equity Research.
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News of Interest

ECONOMY

U.S. and Global Economies Slipping in Unison

Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed. Foreign investment was expected to keep replenishing American banks still bleeding from their disastrous bets on real estate and to provide money for companies looking to expand. Overseas demand for American goods and services was supposed to continue compensating for waning demand in the States. Now, high energy prices, financial systems crippled by fear, and the decline of trading partners have combined to choke growth in many major economies. The International Monetary Fund expects global growth to slow significantly through the end of this year, dipping to 4.1 percent from 5 percent in 2007.

How to stop the next bubble

"The financial crisis has shown that markets are bubble-prone and that laissez-faire regulation doesn’t work. The authorities need to get a grip if we are to avoid a mega-bubble. But we may need an even deeper crisis for that to happen."

BANKS

From Calculated Risk: even with the failure of almost 3,000 banks and thrifts during the S&L crisis, the overall economy stayed fairly healthy with only a mild-to-moderate recession starting in July 1990.

Libor Signals Credit Seizing Up as Banks Balk at Lending in Money Markets Most of the bond strategists and salesmen that Resolution Investment Management Ltd.'s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there's no end in sight, and it may even worsen.

CURRENCIES

The weakened US dollar has fallen out of favor with organized crime groups to pay for drug shipments or to settle scores, a Canadian government report said Friday.

PAKISTAN -- THE NEXT CRISIS?

Pakistan's ruling coalition was at risk of collapsing Monday if its junior partner carries out a threat to quit unless judges ousted by ex-President Pervez Musharraf are restored immediately.

Taleban winning war (in Pakistan), says Zardari

The Pakistani Taleban have "the upper hand" and should be put on the list of banned organisations in Pakistan, Benazir Bhutto's widower has said.

CHINA

Olympics disappoint China business owners

Many owners of small restaurants, hotels and shops in Beijing are wearing long faces this summer, especially those who poured their life savings into buying businesses or sprucing up their shops ahead of the Games. About half a million foreign visitors were expected in Beijing this month. But many businesspeople think that because of stricter visa rules and other hassles, there are no more here now than there were last August, when 420,000 visitors from abroad came to the capital. In July, Air China, the nation's flagship carrier, saw its international passenger traffic fall by 19% from a year earlier.

China's Economic Gains Give Way to Hazy Future

In the next few years, China will cross the threshold to a majority-urban society. China's urbanization rate is about 40% to 45% now, well below levels of about 75% in most of Western Europe and Latin America, but statistics show that growth in China's urban population is already slowing.

China's 1.3 billion people each consumed the equivalent of 1.4 tons of oil in energy last year, a relatively low figure. If each Chinese was to consume the same amount of energy as each person in the U.S. does -- the equivalent of 7.82 tons of oil -- then China alone would consume nearly as much energy as the entire world does now.

So far, China's government is falling behind in its drive to cut the amount of energy required to produce each yuan of economic output. It managed a reduction of just 2.9% in the first half, less than last year's 3.7%

MINING & RESOURCES

Mining Industry Shifts on Bad News

Weaker commodity prices and higher costs are starting to take a toll on the global mining industry as the billions of dollars being spent on new projects could take years to recoup.

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Demand for resources by China and other emerging markets still is expected to soar in the years ahead.

Some analysts view the recent mine closures as bullish for commodity prices in the long run, because the moves suggest companies are imposing more financial discipline than in past booms. As miners curb output, it could help prop up prices.

Still, the economics of mining have shifted drastically in recent years. The cost of energy to run mining trucks and other equipment has skyrocketed, while steel and other building materials also are more expensive.

Commodities Hint of Bottom as Mines Close, Crop Supplies at Five-Year Lows Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.

Corn, Soybeans Jump as Midwest Crop Tour Forecasts Smaller U.S. Harvests Corn and soybeans gained after Professional Farmers of America said harvests in the U.S. will be smaller than forecast by the government as dry weather in August hurt Midwest crops already stunted by flooding in June.

China’s Oil Thirst Hits New High

China's oil demand growth hit a two-year high in July but the pre-Olympic spurt will likely fall off in the autumn, undermined by high prices, global economic woes and the end of official pressure to stockpile for the games.

XX Sean’s note – funny, but I’d think that after the Olympics (or at least, after the Para-lympics), China’s oil demand will ramp up again. We’ll have to see.

China Warns on Winter Energy Supply

China warned on Thursday that its energy supply problems were likely to last into winter as it struggles to ensure stable sources of coal, oil and power, the People's Daily reported, citing a senior official.

Some markets are too illiquid to trade. Here is a cautionary tale about rhodium (with charts).

On the other hand, money is pouring into the SLV (silver ETF).

So much for a surplus of gold. You can’t buy American Gold Eagles now if you want to.

You know how things were going pretty well in Iraq lately because a bunch of Sunnis switched sides and became our friends (because we were paying them)? Well, now, the Shi’ite-led government of Iraq has decided to arrest and/or kill those Sunnis. It makes you wonder whose side the Iraqi government is on, anyway.

Want to know more about Obama’s economic plan? The New York Times breaks it down for you.

And here's some dance music to get your weekend off to a good start.

Happy weekend!

Geopolitical events are driving oil prices. Russia blocked the entrance to Georgia’s main oil port, and Russia is showing that it can control Europe’s natural gas supply. The neocons in Washington seem to be hoping for a new cold war with Russia, and they just might get it. Unfortunately, fear of such a cold war add to the price of oil.

Supply and demand is also in play.

Drawdown of gasoline stockpiles in US was more than twice expectations -- 6.3 million barrels. Demand destruction may have been short-term. Since prices have pulled back, people may be driving again.

Chinese demand dipped during the Olympics as they shut down factories and took cars off the road. It will probably increase again after the Olympics.

On the supply side, Mexico, Nigeria, Norway, Britain and Russia are all seeing production go down year over year. Nigeria’s shortfall is due to civil war, everyone else may be hitting production peaks.

[End notes]

In other developments, I am so glad I sent out an issue yesterday to Red-Hot Commodity ETFs subscribers telling them to buy the DGP (double-gold ETF) and DIG (Double oil index ETF). Oil is up more than $4 this morning before the open and gold is up $20 an ounce as I write this.

Does this mean we're out of the woods on commodities? Not by a long shot! However, this is a playable bounce. What will determine how high the bounce will go? Probably action in the US dollar. Let's look at a weekly chart of the dollar ...

And now let's close up on that next support on a daily chart.

That test of support for the greenback will be very interesting.

In other news ...

The Neo-Cons are getting the war they always wanted -- a renewed cold war with Russia. This has sent oil prices soaring this morning which, again, is exactly what the powers that be in Washington (I'm looking at you, ExxonMobil) have wanted, despite their "drill-drill-drill" mantra.

This ugly turn of geopolitical events prompted former Soviet Union President Mikhail Gorbachev to write the following op-ed in the New York Times ...

In recent days, Secretary of State Condoleezza Rice and President Bush have been promising to isolate Russia. Some American politicians have threatened to expel it from the Group of 8 industrialized nations, to abolish the NATO-Russia Council and to keep Russia out of the World Trade Organization.

These are empty threats. For some time now, Russians have been wondering: If our opinion counts for nothing in those institutions, do we really need them? Just to sit at the nicely set dinner table and listen to lectures?

Read Gorbachev's whole piece.  He doesn't have a monopoly on the truth.  But we have to know where the Russians are coming from if we want to reach a compromise everyone can live with.

Honda Motor Co. and Komatsu Ltd. are turning to China, the world's fastest-growing major economy, as the U.S. slowdown intensifies and rising fuel and food costs weaken demand at home. Higher oil prices caused the import bill to climb to a record last month, triggering an 87 percent drop in the trade surplus.

Were there many surprises in quarterly earnings for Chinese companies under coverage?

By far most Chinese companies in my coverage performed as expected. Some Internet companies even announced results which exceeded the market consensus.

The slowing economy in the U.S. and now elsewhere has created a drag on many industries. Is China feeling the impact of this?

The slowing economy in the U.S. has resulted in a slowdown of the Chinese economy. In addition to the slowdown of the Chinese economy, high inflation rates have led to high pressure on earnings of Chinese companies. Among those, Internet companies should be in better position than other Chinese companies to grow their earnings.

What is your near- to mid-term outlook on companies you cover?

I am not quite optimistic on the near-term outlook on Chinese companies due to the slowdown of the Chinese economy and high inflation rate. However, I am optimistic on the mid-term outlook on Chinese companies because China’s economy will resume strong growth and keep inflation rate under control in the future.

If you have two or three top Buy recommendations at this time, which stocks would they be?

Baidu.com (BIDU)

Sohu.com (SOHU) is the Internet content sponsor of Beijing Olympic Games, which helps improve the company’s brand recognition and leverage the online advising opportunity in China. In addition, its popular online game continues to show strong growth momentum.

What should investors be mindful of before jumping into your industry?

Before investing into Chinese companies, investors should be careful of China’s economy growth rate and CPI level because these factors will affect the valuation and earnings of Chinese companies significantly.

Paul Cheung, CFA is a senior analyst covering the Chinese markets for Zacks Equity Research.
"BIDU" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Beijing 2008 Olympic Games & Hedge Fund Events

Articles related to Beijing 2008 Olympic Games:

I remember my colleague Clive Granger telling me over a year ago about the conversations he had with people when traveling China. Everyone he spoke with seemed to believe that (1) the Chinese stock market was at that time experiencing a bubble that was going to burst, and (2) the crash would not come until after the 2008 Olympics. Clive expressed amusement that no one seemed to have worked backwards from this presumed equilibrium-- if you know the market is going to crash in August 2008, anybody with any sense would sell in July. And if there's heavy selling volume in July, the market's heading down, not up at that point, so the logical thing to do is to get out in June. But if the crash is going to begin in June, then what you should really do is....

I was reminded of Clive's remarks when I saw CR's graph of the 50% plunge in the Shanghai Composite since late last year.

Source: Yahoo.

So why didn't you tell us this story a year ago, you ask? Sorry-- it slipped my mind until just now.

Calculated Risk went on to connect a few more dots, asking what might happen to China's economy if higher transportation costs indeed start to reverse the recent growth in world trade.

Not to worry, though. Yesterday the CSI 300 surged back up over 5%. And besides, the Olympic Games are still a couple of months away.

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