Monday, May 23, 2011

Monday News Reel for 05/23/11

Here's news that is real, on the news reel.

China inexorably draws its neighboring trade partners into its orbit.  Two generations after the first Greater East Asia Co-Prosperity Sphere, a new hegemon arises to forge a bloc.  The next step is the displacement of value-added manufacturing from Japan to China.  In return, Japan's flooded out workers get to be migrant labor in China that will keep down the cost of native Chinese labor.  Farfetched, you say?  Stranger things have happened in that neighborhood.

A South Korean company is going to earn billions by building power plants in Iraq.  There's another big contract award shutting out American companies.  I hope Fluor (FLR) and Halliburton (HAL) weren't counting on post-war development contracts as a fall back plan after the occupations end. 

Remember how the Swensen model took institutional investing by storm a few years ago?  Its emphasis on illiquid assets was cute until it blew up the endowments at Yale University and other schools.  Like many innovations, it peaked too early.  Illiquid assets will have their day again and forests are as good as any place to start.  Prices for forest products are way up.  Yale and its Ivy League sisters just had to hang on for a few more years to see their commitments to forest investing pay off. 

The hits just keep on coming - to Greece's sovereign credit rating.  I hope Athens has a few dozen warehouses full of freshly printed drachmas ready to hit the streets, because they'll need them if Germany puts the breaks on further lending.  The IMF would rather focus on bailing out Portugal than on bailing out its disgraced leader.  The venerable fund has its priorities straight. 

Full disclosure:  No positions in FLR or HAL.  Long FXI with covered calls.