Stock Market Analysis Video 12/9/2011

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Brought to you by Cabot China & Emerging Markets Report

In this week’s Stock Market Analysis Video, Cabot China & Emerging Markets Report Editor Paul Goodwin sees the market's range of motion tightening up—with swings much narrower than they had been. This is a good sign, says Paul, as continuing tightening could lead to a new rally. But right now, there's still lots of resistance, so Paul's advice is to remain heavily in cash until the market direction becomes clearer. He names four stocks that he's keeping a close eye on: (SOHU), Colfax Corp. (CFX), FMC Technologies (FTI) and Fortinet (FTNT).


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Dear Investor,

I've seen the future, and its name is China.

Hello. My name is Paul Goodwin. I’m editor of Cabot China & Emerging Markets Report. While the rest of the global economy fell off a cliff during the Great Recession of 2008-2009, China's economy continued to grow by roughly 9% a year.

Now that the brutal global recession is finally behind us, China is ready to surge anew. With an unemployment rate of only 4% (compared to nearly 9% in the U.S.), its factories are humming and its increasingly affluent consumers are itching to buy.

As an investor, it's crucial that you have at least some exposure to China, which represents more than 10% of the world's Gross Domestic Product (GDP), but you have to know how to invest there.

Only about 32% of the huge Chinese population has access to the Internet, compared to 77% of Americans.

But it's not just technology. Name virtually any business sector and China plays a crucial role. Sure, China has been on a tear the last few years. But does it have the wherewithal to sustain the same breakneck pace? You bet it does.

According to the International Monetary Fund, over 95 countries are richer than China. Japan’s per capita income is $10,085. China’s per capita income is about $1,000. Impoverished nations like Libya, Lebanon, Romania, Gabon, Botswana, Azerbaijan, Namibia, Tunisia and Albania have higher per capita incomes than China. China's GDP per capita is only one-eighth that of the United States.

And here's the kicker: China has almost no debt per GDP compared to the West.

The upshot? China still has plenty of room for growth. What's more, the world economy is finally recovering. For investors, that means the biggest profits in China still lie ahead.

Does China face problems? Sure—problems that other countries would envy. China's savings rate is over 35%, while in America it's 2%. The goal of China's leaders right now is to reduce excess savings, by getting their people to spend more. And that says loud and clear that China will rack up sustained, rapid growth this year—and for decades to come.

According to the World Bank, about 20 million people in China (roughly the population of Australia) turn 18 every year.

Millions of Chinese workers are earning higher wages, joining the middle class and flexing their new consumer spending power by buying homes, automobiles, computers, and cell phones.

And they're traveling more, which explains why China now has more than 40 new airports on the drawing board.

China’s continuing rural-to-urban shift is one of the largest human migrations in history. City populations and boundaries will expand by 20 million in 2011.

It should come as no surprise, then, that China's infrastructure development is expanding like gangbusters—and it will continue to do so, for the next few decades. China is building new highways at a pace unseen since America's infrastructure binge in the 1950s and '60s.

In the next 20 years, China plans to build about 50,000 miles of major new road, roughly the equivalent of the U.S. interstate system. The World Bank projects that China's fixed assets—ports, bridges, and roads—will double every two and a half years for the next two decades.

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Best wishes with all of your investments,

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Paul Goodwin
Editor, Cabot China & Emerging Markets Report

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--- TRANSCRIPT Stock Market Video 12/09/2011 ---

[ Music ]

>> Hi, I'm Paul Goodwin the editor of the Cabot China and Emerging Markets Report and this is your Cabot weekly video review. It hasn't--it hasn't been a lot of great news this week.

We take a look at the halter USX China index here which is what we use to do the market timing for the report. You can see that probably the best news is that the range of motion indexes has tightened up a little bit. I find this kind of a calming sort of thing, not getting quite as big swings as we've had before. I think probably there's a little bit of news fatigue here going on. And what I would look for is continued tightening in this index which often eventually lead to--to some pretty good rallies.

If it works, the SNP 500, you can see that a wonderful heartening last week, little rally that we got which is now just, you know, top gathered about twelve sixteen and had another bad day today. There's a lot of resistance here and it's just not--it's just not doing as much good right now.

So, although we don't think things are dire and we also think that it's still a good time to be in cash and probably a good time to keep all of your growth stocks on a short leash.

If you look at--if we look at Wanda [phonetic] for a few of the stocks that we're kinda keeping an eye on, here's one of (SOHU) which is a computer--an online portal in China and, you know, looking at the data on Sohu and you think why is this company that's been showing, you know, steady revenue growth and earnings growth trading it just a PE of just 12 and why has it been going through this kind of negative time that it's going through right now. And the answer is probably that people are a little distrustful of China and they distrust the market in general.

Also like Colfax Corp. (CFX). This is a great looking chart Colfax does pumps including the pumps that are used in the Chinese three gorgeous dam. It's kind of an infrastructure play but look at this, you know, wonderful decline and then, you know, jumps up and then takes off of what looks like a more sustainable thing with sustainable up trend with some excellent volume clues here.

Also we're looking at FMC Technologies (FTI) an offshore oil infrastructure company, builds a nice quiet descending base here and then takes off again with a couple of good weeks of volume clues here.

And finally this is a story that we've liked for years Fortinet (FTNT) and this is a kind of story where you wanna watch the chart very closely because after this breakdown then the stock decline at a more orderly way has, has come back but now looks like it's finding a little resistance right in this area. We really like this computer security story but probably also a good idea to wait until it breaks out above that resistance.

So, I'm--I'm optimistic in a modified sort of way but it's certainly not time to start putting too much money to work. So, that's about it for this week and we'll see you again next week.

If you need any other information about Cabot newsletters, you can always find us at, thanks.

[ Music ]

Paul Goodwin Paul Goodwin
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report

A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the #1-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a  74.1% return. Cabot China & Emerging Markets Report was also named 2007 Investment Letter of the Year by Peter Brimelow of MarketWatch







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