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Purple Popsicle Race

By David Galland
Saturday, September 29, 2007

This week we learned that a state investment fund owned by Dubai will pick some billions of dollars out of its over-stuffed wallet to buy a 20% stake in the Nasdaq Stock Market and 28% of the London Stock Exchange.

Not to be outdone, neighbor Qatar then announced that it had bought 20% of the London Stock Exchange... and dropped a cool $21 billion for the J Sainsbury Plc, the U.K.'s third-biggest supermarket chain.

Now, I know that you are far smarter than the average bear, so you understand exactly what’s going on. These, and other state investment entities, are engaged in a foot race to turn their wasting dollars into tangible assets.

Hardly a day goes by now that we don’t learn that some state fund or agency has unlimbered great wads of the green stuff in exchange for items with more persistent value.

In fact, this week, it was also announced that a Chinese state agency had bought the Democratic Republic of Congo. Just kidding, but the $8.5 billion package of loans and investment announced earlier this week will certainly gain them privileges in that resource-rich corner of the globe. (Including, perhaps, having a say in which competitive U.S. companies should experience some good old-fashioned Congolese bureaucratic foot-dragging when the time comes to hand out new concessions or reward permits on existing ones.)

The weekly tally also includes news that the infamous Carlyle Group has agreed to sell 7.5 percent of its shares to the government of Abu Dhabi for $1.35 billion, following the lead of the Blackstone Group which this past May sold $3 billion worth of its stock to a Chinese state-owned investment company.

I am reminded of a bunch of kids standing outside of a house on a hot summer day who simultaneously bring to mind a certain goal, say, the last grape popsicle in the freezer. One takes a step, another follows suit, a third joins the movement... at which point the first picks up the tempo a tad, quickly matched by the second, followed shortly thereafter by a mad scramble, ending with a wrestling match punctuated with flying elbows.

That the dollar will now be sacrificed is no longer up for debate. Thanks to the unprecedented $6 trillion dollars in foreign hands, this is no little thing.

As has happened in every currency crisis since that term was printed, holders of the bedeviled currency will now either dump it, or demand ever-higher interest rates to continue holding it.

I am serious as the heart attack I will eventually have from a life spent on high revs, too little exercise and triggered, no doubt, by one cup of coffee too many when I say that I simply cannot see a way out of a monetary crisis at this point.

And I am equally serious when I say that, however you got here, you are fortunate to be here. Not because Casey Research is so wonderful, or because our advice to you is so shiny and golden, but because it shows you are paying attention to what really counts, and doing so while it will still do you the maximum good.

As I am sure you are aware from the cocktail chatter you hopefully enjoy on a balmy Friday evening, you are in the minority. Most investors are still buying the Wall Street line, and listening to their brokers that the "worst is over" or otherwise being engaged in the fantasy that the Fed actually has any power at this point.

They are in for a rude awakening. You, on the other hand, should be setting up for the profits of a lifetime.

Oh, on that heart attack thing, for the record, I don’t plan on having said "big one" until well into my nineties.

Regards,

David Galland





Market Notes


NOT ALL HOMEBUILDERS ARE GETTING CRUSHED


Rising mortgage rates and a recent credit crunch have scared even the wealthiest buyers from getting into new homes... and homebuilders are seeing the disastrous effects. Real estate values across the country are falling – Miami condos are now selling for half of list value in auctions – and unsold homes are at a record high.

But take a short trip south, and you'll see our amigos in Mexico are experiencing something completely different. The country's fastest-growing developer, HOMEX, is having trouble keeping up with the local demand. The company sells low- to middle-income housing, and its sales office is open 24 hours a day... and the office stays full. We haven't seen this stock break out yet, but give it time. Legendary real estate investor Sam Zell owns part of the company, and he rarely makes a wrong bet.

– Sean Goldsmith



Stat of the week



5.1 million

Number of homes currently for sale in the U.S. – a 77% increase from 2004.

 

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