Read Between the Lines

The Daily Reckoning – Weekend Edition
July 8-9, 2006
Baltimore, Maryland
by Kate "Short Fuse" Incontrera


Remember when you were a kid and you would ask your mom to do something – say, go to a party where the parents were most likely not at home? And her answer would inevitably be something along the lines of "We’ll see," or "Let me think about it, or the dreaded "Ask your father."

How long did it take you to realize that all of the above meant "no"? Probably not that long. Because somewhere along the line, you learned to speak your parents’ language – or at least became able to decipher it.

That was an important skill to learn, and one you use throughout many aspects of your life: what your boss really means, what they are really saying on the nightly news, and of course, the all important "central bank parlance."

For example, if you go back through all the ECB meeting minutes, you’ll see that in each meeting prior to a rate hike, ECB President Trichet uses the word "vigilant." Well, at Thursday’s meeting, he said "strong vigilance" is needed.

"Strong," huh. What could he mean by that? Our good friend, EverBank’s Chuck Butler, has read between the lines (and gone back and read all those action-packed past ECB minutes) and thinks that Trichet is hinting at a bigger rate hike for August’s meeting – perhaps raising 50 BPS instead of 25.

Let’s see what else Chuck has to say:

"So, let’s look at some of the other sound bites Trichet laid on us: ‘the ECB never precommits on pace, size of rate moves,’ and, ‘There was overwhelming sentiment for August 3rd meeting.’ He thinks we’ll ‘see some correction in markets.’

"OK. He’s being quite vague there. And one could take out of it what they want, so here’s my take out of it! I think he’s referring to the bond market where a 50-BPS hike would really correct that bugger! In addition, he could be referring to the currency markets, which would really correct with that kind of rate hike. So, that’s my story and I’m sticking to it! I’m calling right here, right now, there’s no better place to be. The ECB ups the ante at the August 3, 2006, meeting to 50 BPS!"

I guess we’ll just have to wait and see…in the meantime, brush up on your "central bank parlance" and decode what Big Ben’s been saying – although, we’re not sure if even he knows what he means!

Short Fuse
The Daily Reckoning

P.S. You can go back and read FOMC and ECB meeting minutes to try to get a handle on the what’s in store for our economy – or you can log-in to a virtual online seminar. We’ve gathered ten of our most gifted investment analysts for an emergency session, and they are ready to share their brand-new strategies – all of which could help you make more profits in the second half of the year than you did in the first!

— Daily Reckoning Book Of The Week —

The Bull Hunter: Tracking Today’s Hottest Investments
by Dan Denning

Investors who limit themselves to U.S.-based stocks and bonds routinely miss out on global opportunities – because right now, somewhere on earth, a bull market in a little-publicized region is providing savvy insiders with double- and triple-digit returns.

In The Bull Hunter, global investing authority Dan Denning shows ground-floor investors how to zero in on such regions so they can snag safe, outsized profit opportunities in countries, industries, and sectors where huge bull markets are just taking off.

THIS WEEK in THE DAILY RECKONING: Out drinking some beers, grilling and watching fireworks this Independence Day and missed an issue of the DR? No worries – we have them all catalogued for you, below…

Exiles Eternal 07/07/06
by Bill Bonner

"There are a lot of exiles in this world. Each one has his own reason; we have ours. Long before we left America, the America we knew left us. We travel not to get away from it, but to find it."

Get Rich on the Generation Switch 07/06/06
by Steve Sjuggerud

"The simple idea here is that we’re into a new investment generation now. If the last investment generation ended around 1999 – and the pattern holds, then we could see stocks do poorly for about 17 years…or until 2016."

Uniting Three Parties in Maryland 07/05/06
by Kevin Zeese

"Our economy is at risk from massive trade deficits, record federal deficits, a rising U.S. debt ceiling and very high personal debt. The growing divide between rich and poor is shrinking the middle class."

The Land of the Free 07/04/06
by Bill Bonner

"In this DR Classique, Bill Bonner can’t help but notice that America has changed quite a bit since the Declaration of Independence was signed.

The Bread War 07/03/06
by The Mogambo Guru

"Pull up a chair and let me tell you about Zimbabwe, the most grossly, insanely mismanaged economy in the history of the world; they confiscated the assets of the only profitable businesses in the country."

FLOTSAM AND JETSAM: "Last time I was in New York, I had dinner at Sushi Samba, which bills itself as a blend of Brazilian and Japanese cuisine" writes Chris Mayer. "Seems like an odd connection. Japan and Brazil are on opposite sides of the globe. But as it turns out, Brazil is home to the largest population of Japanese people outside of Japan…."

The Brazil-Japan Connection
by Chris Mayer

A unique swirl of cultural, economic and legal forces created this interesting mix. In the early 20th century, exclusion acts all but ended legal immigration from Asia to the U.S. Brazil, on the other hand, needed labor for its booming coffee plantations. So Japanese workers facing poor prospects in Japan headed there.

Then, in the 1980s, the story shifted. The Brazilian economy stalled and the migration wave shifted back to Japan. The tide was so large the Japanese government issued special visas for those who could prove they were of Japanese descent.

These people of Japanese descent brought much of the Brazilian culture they had absorbed with them. This created little Brazils in Japanese cities, like Chinatowns in the U.S. And this, in turn, attracted even more of the Brazilian element. There are now over 250,000 Brazilians working in Japan.

I don’t know what the investment implications of this are. There may be none. But these odd connections always fascinate me. Successful long-term investing is about more than just finding cheap stocks. It’s about finding those little connections that the market doesn’t yet see or appreciate. It’s about understanding why something may be cheap and seeing how the market could be wrong.

Sometimes these connections involve unique cultural and social evolutions or small twists of fate at the intersections of history and economics. Little eddies and ripples in some overlooked pool of the market. There in the shade of the mangrove trees, you might just find the next great investment idea.

The Economist describes it as a "strip of industrial sprawl and barren semi-wasteland that stretches for 90 miles along the northern coast." It’s called the Binhai New Area, a development zone far bigger than both Shanghai’s in the lower reaches of Yangtze and Shenzhen’s on the Pearl River Delta.

The Binhai New Area is located in northern China, just east of Tianjin and Beijing. It looks out over the Bohai Bay, the innermost gulf of the Yellow Sea and one of the busiest waterways in the world. Binhai’s port is already the largest in China and will double its container capacity by 2010.

The government is offering a number of tax incentives and other goodies to companies in an effort to entice them to move here. They want to make the region a manufacturing powerhouse. Its location near the Bohai Sea and its proximity to Beijing and Tianjin bode well for this effort.

The Binhai zone is really not so new. It established in 1994, but only recently became a hot project and top priority of the national government. Prime Minister Wen Jiabao is a native of Tianjin.

Growth in the area is sizzling. According to The Economist: "Binhai is aiming for annual GDP growth of 17% for the next five years." Over this period, the government will spend $15 billion on infrastructure. These are incredible numbers, and the Binhai region must rank among the fastest growing regions in the world.

The Daily Reckoning