Tuesday, December 20, 2011

5 Best Emerging Market Plays for 2012 : CHL, TKC, ABV, KOF, LAN

It’s been a rotten year for emerging market investors. While the S&P 500 is flat, the iShares MSCI Emerging Market ETF (NYSE:EEM) — the most popular way for investors to access emerging markets — is down over 15%.

For individual countries, it gets even worse. Brazilian stocks are down 22%, and Turkish stocks are a whopping 30% lower year-to-date. The best thing that most emerging market investors can say about 2011 is that it’ll soon be over.

But as we say goodbye to 2011, I recommend that investors give emerging markets a second look in the New Year. In a world in which the U.S., Europe and Japan are all buried under the weight of accumulated debts, emerging markets will be the only real source of growth in the years ahead. And most emerging market stock indexes trade at very modest valuations.

Indeed, 2012 is shaping up to be a year in which an investor can get both growth and value in an emerging market stock portfolio. Today I’m going to offer five solid candidates.

I’ll start with Chinese mobile telecom giant China Mobile (NYSE:CHL), which should be every investor’s dream stock. It has a dominant position providing an essential service — mobile phone service — to the largest population in the world. The company has over 600 million current subscribers, and in any given year its growth in new subscribers alone can be the size of the U.K.’s entire population. Stop and reread that last sentence a few times. It’s almost unfathomable. Now consider this: The combined populations of the U.S., Canada and Mexico would be 150 million people short of China Mobile’s existing subscriber base.

And yet it still has plenty of room for growth. In addition to reaching new subscribers who have never used a mobile phone, China Mobile will benefit for years from existing customers “trading up” to more lucrative contracts and data plans.

China Mobile trades for just 10 times earnings and pays nearly 4% in dividends. This is a company you can buy and hold for the next decade.

My next recommendation is also a major mobile telecom competitor: Turkcell Iletisim Hizmetleri AS (NYSE:TKC).

Turkcell is the dominant wireless carrier in Turkey with a 54% market share. And while mobile phones are ubiquitous in Turkey, the overall market is far from saturated. Penetration is at about two-thirds of the European average. And smartphones — with their lucrative data plans — represent only 10% of Turkish cell phone users. Plenty of room for growth here.

However, it’s been a rough year for Turkcell shareholders. Actually, it’s been a rough several years. The company’s share price is barely a third of its pre-crisis level, and earlier this year it came close to falling below its 2008 meltdown lows. The European debt fiasco and unrest in the Middle East, combined with unexpectedly high inflation, caused investors to flee the Turkish market, and Turkcell had a few issues of its own. The company skipped its dividend because of a distracting power struggle on the board of directors.

The board situation will get fixed soon. Still, life goes on, and Turkcell continues to grow and prosper. When the dividend payment is resumed, I expect it to be in the ballpark of 5%. In the meantime, investors can buy a piece of one of the finest emerging market telecom companies in existence trading for just 9 times expected 2012 earnings.

Let’s leave the telecom sector for the time being and move to something a little more appropriate for a raunchy New Year’s party: beer. The Brazilian brewer Ambev (NYSE:ABV) is the maker of many of South America’s most popular beer and soda brands: Brahma, Antarctica and Guarana Antarctica, among many, many others. Ambev is controlled by Anheuser-Busch InBev (NYSE:BUD), but it trades as a stand-alone company in both Brazil and in New York as an ADR.

There’s a lot to like about Ambev. It’s one of South America’s most successful companies, and it sells products that do well in both good times and bad. It’s also far less susceptible to the ups and downs of commodity prices than most of Brazil’s market. Not too surprisingly, Ambev is up over 10% year-to-date, versus a 20% decline for the Brazilian market as a whole.

I expect Brazilian stocks to do well in 2011. But whether they do or do not, I view Ambev as an attractive holding and a great way to get access to South America’s burgeoning middle class. Pick up shares of Ambev in 2012 and enjoy the 4.3% dividend.

While on the subject of all things fizzy, investors should also take a look at Mexico’s Coca-Cola Femsa (NYSE:KOF). Femsa produces, markets and distributes Coca-Cola products and other brands in Mexico and much of Latin America. (Mexico, by the way, drinks more Coke per capita than any country in the world, even the U.S. As a frequent visitor to Mexico, I understand. Coke goes phenomenally well with steak tacos.)

The investment case for Femsa is pretty straightforward. It sells a product with stable and growing demand to an emerging middle class in some of the fastest-expanding countries in the world. Though not exceptionally cheap at 16 times expected 2012 earnings, this is another company you can buy and spend very little time worrying about. And as an added sweetener, it pays a respectable (and growing) 2.2% dividend.

Finally, investors wanting to bet on the intersection of two macro trends — the continued march of globalization and rising living standards in Latin America — may want to consider shares of Chilean LAN Airlines (NYSE:LAN).

LAN is another South American success story. While U.S. airlines can’t seem to turn a profit — as the recent bankruptcy of American Airlines parent AMR vividly illustrates (NYSE:AMR) — many emerging market airlines don’t carry the burden of legacy costs that make their American rivals so uncompetitive. They tend to have young workforces without the bloated pension and benefit liabilities that sank AMR, and they have newer, more fuel-efficient jets. In 20 or 30 more years, LAN and its emerging market contemporaries may find themselves in a similar bind, but not in 2012. For the next several years, emerging market airlines like LAN should have very favorable tailwinds.

LAN trades at 16 times earnings and yields 2%. This isn’t “dirt cheap” by any stretch, but I do consider it an attractive price for a company with LAN’s promise.


Saxo Bank's 10 "Outrageous Predictions" For "2012: The Perfect Storm"

As we wind down 2011, the time for predictions for what is to come as nigh. Having posted what UBS believes their biggest list of surprises for 2012 will be earlier, we next proceed with out long-term favorite - Saxobank's list of "Outrageous Predictions" for what the bank has dubbed "2012: the Perfect Storm." Mostly proposed tongue in cheek (unlike predictions by other pundits who actually believe their own delusions), the list of 10 suggestions represents nothing less than an attempt to force people "out of the box" and look at the world with a set of "what if" eyes. Because if there is anything 2011 taught is, it is not to discount any one event from happening. As Saxo says: "Should one, two or three of our Outrageous Predictions come to pass, it would make 2012 a year of tremendous change. This may not necessarily be a negative thing either - and given the structure and uncertainties in the marketplace here at the end of 2011, we would suggest that even if none of our predictions come to pass, equally important and totally unanticipated events will. Sometimes we need to get to a new starting point before we can gain the right perspective. We hope 2012 will be the year where we start on the long march towards re-establishing jobs, growth and confidence." Naturally, the best outcome for 2012 would be the end of the broken status quo model, and a global fresh reset... but not even we are that deluded to believe that the quadrillions in credit money (real or synthetic) will allow such a revolutionary event to occur in such a brief period of time. At least not before everything is thrown at the intractable problem unfortunately has just one possible long-term outcome. In the meantime, here, to help readers expand their minds, is Saxo Bank's list of "Outrageous Predictions" for 2012.

From Saxo's Chief Economist Steen Jakobsen


Generating this year’s Outrageous Predictions has been even more of a pleasure than usual, as it seems that never before have there been so many path uncertainties for the future, so we have had an infinite variety of scenarios to draw on. As usual, we try to keep at least a measure of consistency across the predictions by using a unifying theme. For this year, we settled on the theme for 2012: The Perfect Storm.

Saxo Bank’s yearly Outrageous Predictions report has always been one of our more popular publications, and understandably so, as it frees us and our readers from the constraints of the high probability events in the middle of the supposed bell curve of possibilities. But there are a few key points I need to underline about this publication:

The first is that we always focus on “fat tail” predictions, i.e. events that are unlikely to happen, but are perhaps far more likely than the market appreciates. Saxo Bank first launched this publication 10 years ago as an exercise in looking at events which, should they happen, would change the outlook and performance of markets. This was before the concept of Black Swans was popularised. Our publication was rather inspired by option theory and looking at the tail-risk – an event which based on odds or logic has a very small chance of happening, but somehow still happens far more often than any model is able to predict. (more)

Why Silver Could Take-Off From Current Levels

Last week, I told you about the scramble among investors for American Silver Eagles. These coins, minted by the U.S. government, contain exactly one troy ounce of 99.9% pure silver.

Twice between 2008 and 2009 the U.S. mint had to suspend sales... and demand has almost doubled since then. All-in-all, in the past five years, demand for Silver Eagles has grown 31% annually. Roughly 40 million of these coins will be snapped up this year alone.

Meanwhile, silver has been in one of the biggest bull markets of the decade. During a roller coaster period for the broader market, silver has seen gains in eight of the past 10 calendar years.

So how high will silver go?

To be honest, trying to nail down a specific target number is tough to do. In this case, I think it's best to simply look at what could happen... and why.

That's where things get interesting. In 1980, silver spiked to about $143 per ounce in today's dollars -- roughly $110 dollars, or 393% higher, than today's price.

But things were different then. Back when silver peaked in 1980, it was primarily due to a few investors snapping up as much silver as they could.

Thirty years later, the silver story has changed. That's because silver is needed in just about every electronic device modern society runs on -- from TVs to computers to cameras to MP3 players to iPads... and that's on top of millions of investors snapping up silver as a hedge against uncertainty.

Meanwhile, silver consumption keeps climbing. About 70% of the world's annual silver output is gobbled up by industry. This percentage is rising every year, and once that silver is used, it's rarely recovered.

Since 1999, consumption in electronics has increased 120%. And many new products contain such small amounts of silver that they're not worth recapturing. More than half of all silver in TVs and computers ends up in landfills.

And it's not just U.S. consumers that need more silver. Developing countries such as China and India are using it by the truckload. After all, it takes a lot of silver to equip 2.5 billion people with cell phones.

That's why China's silver imports increased four-fold last year. In fact, in 2005, the Chinese exported 100 million ounces of silver. But by 2010, they were importing 120 million ounces.

The basic problem is that we simply use more silver than we mine.

Every day, the world takes roughly 1.75 million ounces of silver from the earth. But we consume more than 2 million ounces. This kind of consumption is quickly drying up our dwindling silver reserves.

In 1900, there were 12 billion ounces of above-ground silver on the planet. By 1990, we were down to 2.2 billion ounces. Today, we're down to about a billion ounces.

That's a drop of 92%. A vital material, prized by man since the time of the Pharaohs, is literally disappearing before our eyes... used up in industrial products. It has taken 65 years to obliterate the silver inventory that it took the world 5,000 years to accumulate.

It's a different story for gold though. Since 1950, the amount of gold above ground has surged from 1 billion to 7 billion ounces.

Action to Take -->Yet despite these dynamics, silver remains dirt cheap relative to gold. Assuming you use recent prices ($29 per ounce for silver and $1,575 per ounce for gold), you can buy 54 ounces of silver for every one ounce of gold. Seeing as silver is only 17 times more abundant on Earth than gold, these numbers seem highly disproportional.

No wonder investors seem to be snapping up all the silver coins the government can mint.

Bloomberg Markets Magazine - January 2012

Bloomberg Markets Magazine - January 2012
PDF | English | 138 pages | 31.1 Mb

click here

Chart of the Day - Verisk Analytics (VRSK)

The "Chart of the Day" is Verisk Analytics (VRSK), which showed up on Friday's Barchart "All Time High" list. Verisk Analytics on Friday posted a new all-time high of $39.84 and closed up 2.39%. TrendSpotter has been Long since Oct 12 at $35.08. In recent news on the stock, Susquehanna on Dec 2 reiterated its Positive rating and raised its target to $45 from $40 on successful cross-selling, the improved insurance environment, and the stock's possible inclusion into the S&P index. The company on Nov 1 reported Q3 EPS of 45 cents versus the consensus of 41 cents. Verisk Analytics, with a market cap of $6.2 billion, provides risk assessment solutions to professionals in insurance, healthcare, mortgage lending, government, risk management, and human resources.


Richard Bernstein’s Top Picks for 2012

In the following video clip, Richard Bernstein, CEO and Chief Investment Officer of Richard Bernstein Advisors, discusses his top equity picks and investment stories for 2012.

How The Bankers Drive Up Bullion Prices, Part I

Regular readers are excused for being confused by this title, or perhaps even suspecting a misprint. After all, having written numerous commentaries documenting the activities of the bullion banks in suppressing bullion prices, at first glance the title appears nothing less than perverse.

At the same time, I have previously observed that what the banksters are able to accomplish in depressing prices over the short-term must lead to a boomerang higher in prices over the longer term. In our markets we see yet another example of the principles of economics mirroring the laws of physics: for every action, there is an equal and opposite reaction.

There is a particular reason for me to raise this issue at this particular time. While the predatory actions of the bankers in the bullion market are frequently highlighted by precious metals commentators, much less often discussed is the even more rabid suppression of the gold and silver miners.

To understand why the bankers are terrified of seeing gold and silver miners valued at fair multiples, we must first understand what those rational valuations imply. First of all as I have explained in previous commentaries, commodity producers provide natural leverage on the price of the commodity they produce (for better or worse). A rising price makes these companies more profitable in multiples of the increase in the price of the commodity, and similarly decreasing prices exert a greater than 1:1 impact on the way down as well.

Thus with gold prices having risen by roughly a factor of six from their absolute bottom, and silver prices having risen by roughly a factor of ten; we should see these miners sporting fantastic valuations to reflect their record (and rising) profitability. In reality, at current valuations many of these miners have not even matched the rate of increase in bullion prices – and in fact there are plenty of actual laggards.

Because of the fact that commodity-producers provide natural leverage on the price of the commodity they produce, rising prices for the producers are seen as a bullish indicator for the sector. Immediately we see the primary basis for the bankers’ hatred of the miners: allowing them to rise to their fair market value would be like a neon sign for investors, highlighting the stellar returns from investing in gold and/or silver.

Instead, despite the fact that precious metals has been the #1 sector over the past decade, it represents approximately 1% of the holdings of the average investors’ portfolio. Arguably, there has never been such perverse under-ownership of an asset class in market history. Readers should note that this is also an absolute rebuttal to all the nonsensical babble of “gold bubbles” and “silver bubbles”. Obviously a sector cannot be in a “bubble” (which by definition is a market mania) when the asset class remains a secret and/or mystery to the vast majority of the investment community.

As the predatory/parasitic conduct of the banking crime syndicate nears the point of completely destroying our economies, however; a second and even more imperative motive has arisen for the banksters to focus all of their power and malice on sabotaging this sector: their fear of the inevitable decoupling between gold and silver miners and all other equity classes.

As I have detailed in dozens of commentaries focusing on the larger macroeconomic picture; there can be no argument that Western economies are on the verge of a catastrophic meltdown. Thanks to the Ponzi-scheme financing in which all of these governments have been ensnared by the banksters, there will be a “domino effect” as these economies crumble – with the inevitable result being an economic depression unprecedented in modern history.

Unfortunately that is literally only half the nightmare. The bankers’ predatory conduct in all commodity markets is simultaneously pushing us toward numerous supply crises. Shorting and all price-suppression have an inevitable effect on all commodity markets. Artificially low prices simultaneously stimulate over-consumption and discourage production. As a matter of arithmetic, the only possible long-term result is the total collapse of inventories. Empirical evidence shows this is precisely where we are headed.

What this means is that at the same moment that Western economies are plunging into horrific economic depressions, we are about to see a massive spike in prices for basic necessities, above and beyond the large increases already experienced. One by one, each of these commodities will experience massive price spikes as (finally) the fundamentals of exhausted inventories overwhelm the price suppression of the bankers.

This “hyperinflationary depression” in the West (as it was first dubbed by John Williams) will be exacerbated by the relative economic health of the East. While Asian (and other emerging) economies may not be able to sustain growth, their dynamics are strong enough that they should at least be able to hold onto gains in their standard of living to date. That (along with even modest population growth) ensures that demand will remain strong for these natural resources, irrespective of what ‘Chicken Littles’ in the Western media are incessantly clucking.

Conversely, while resource producers will continue to enjoy relatively healthy economic fundamentals (with the exception being base metals production); most other Western commerce is destined to be hammered by the depression. The notable exception to that would be those high-tech sectors where Asian economies cannot (yet) match/replace Western production. Such niches are two few and too small to sustain our economies.

This means the decimation of our “consumer economies”. People with no money and no jobs can’t consume. Similarly, every/all business which is in some way associated with residential real estate will be crushed. The combination of bubble-markets (the product of near-0% interest rates) and near-zero buyers ensures that the worst days are yet ahead for all Western real estate markets. This in turn will mean depression for the construction industry – and every niche of the economy dependent on that economic activity.

This brings us to decoupling. Not only are gold and silver commodities with massive supply-gaps between total demand and mine supply, but they are also the world’s only “good money” – and ultimately the world’s only true, safe havens. So while precious metals will benefit from the same fundamentals favoring all commodities; it is their second identity as prime, monetary assets which will set the precious metals sector apart from all others.

As Depression overwhelms our economies, “record profits” will continue to be the mantra of the gold and silver miners. At that point of course, any market lemming whose wealth has not yet been exhausted through heeding the investment advice of bankers will flood into this sector. Thus, the “moment” which the banksters seek to delay as long as possible is when lemming-awareness finally identifies gold and silver as the “go to” class of equities.

At that point, we will actually have the mania and “bubble” which mainstream propagandists have been “predicting” for nearly ten years. However, with the sector so grossly undervalued at the present time, those “bubble prices” will be at valuations which make the NASDAQ bubble look like nothing more than a tiny, market hiccup.

The NADAQ bubble was driven by greed. The (eventual) bubble which will hit the precious metals sector will be driven as much by fear as by greed. Never before have the two most potent emotional drivers of markets been simultaneously focused – and at maximum intensity.

Because the babble of the mainstream media is certain to confuse/misinform the ordinary investor, let me provide those beleaguered individuals with a “signpost” they can use to actually measure if/when the precious metals sector reaches the stage of an asset bubble. Let me reiterate a point which is beyond the reasoning capacity of media drones: gold and/or silver cannot be in “bubbles” until people actually own them.

When I refer to precious metals representing 1% of the average investment portfolio, by no means am I implying that everyone has a 1% holding in gold and silver. Indeed, the reality is the exact opposite. The tiny segment of the investment community which has discovered this sector tends to be heavily invested in it. Canadian investment icon Eric Sprott has gone on record on many occasions in saying that he is completely comfortable having the vast majority of his personal holdings in precious metals.

Thus, it is much closer to the truth to say that 1% of investors are holding 100% precious metals – and 99% are holding none at all. We don’t need some clueless stooge in the media to tell us when precious metals becomes a “bubble”. We can observe it for ourselves.

Simply ask yourself as a matter of human nature if you were infected with “gold fever”; how much of your investment portfolio would be focused on precious metals? Would it be 10%? Highly unlikely.

Indeed, human nature tells us that when gold (or silver) mania hits that people could be expected to channel 25% of their holdings, 50% of their holdings – or even more. Since this “mania” totally equates to gambling, we can merely observe how gamblers not only funnel all of their “investment” dollars into their betting, but sell/mortgage assets to plough even more of their wealth into their addictive behavior.

However, as prudent investors we should never envisage such extremes. Suffice it to say that when precious metals reaches a level of 10% in the average investor portfolio (which is little more than an historic average), then we can begin to suspect that the sector might be headed toward a bubble.

Put another way, our “bubble alarm” will not even begin to sound until total investment in the sector has increased by 1000% from current levels. Until that moment arrives, we can simply equate any/every headline shrieking “gold bubble” with “idiot writer”.

This brings us back to the miners. Let me reassemble the facts. We have a sector of companies generating record profits, huddled within entire economies which will soon be in a state of total collapse. This is to be followed by what we can conservatively expect to be a 1000% increase in total investment, by a throng of investors being simultaneously driven by extreme fear and extreme greed.

At the moment, however, these miners are mired in a valuation-depression of their own. In Part II, I will take a closer look at the extremely depressed prices of the miners, and explain how (inevitably) the lower the prices of the miners go over the short term, the higher that bullion prices will go over the medium and long terms.

6 Online Financial Calculators You Should Know About

The math teachers of the world may not want to hear it, but having to manually compute anything is a thing of the past, especially when it involves money and finance. Thanks to the internet, there is a financial calculator for nearly every financial decision you have to make. Here are a few that fall outside of the normal loan calculators.

Should My Spouse Work?
If both you and your spouse are working, more money is coming in. That's the wisdom behind the decision to join the workforce, but once you factor in expenses like child care, transportation and work clothing, how much net income is really finding its way to your bank account? Bankrate has a calculator that helps you decide if having a working spouse is substantially increasing your income.

Pay Your Debt or Invest?
Never live in debt! That's what the financial experts believe to be the best advice for consumers, but do the numbers add up? It may not always be in your best interest to pay down debt especially if you can make more money by investing the funds. Yahoo! Finance wants to help you figure that out with its calculator.

What's Your Risk Tolerance?
Investing in products that allow you to sleep soundly at night is a definite plus, but too little risk may leave you short of your financial goals. Kiplinger wants to help you gauge your risk tolerance.

How Should You Fund Your IRA?
Individual Retirement Accounts (IRAs) are confusing for those without a lot of financial knowledge. Not only do you have to make the right decisions or listen to the right people in order to make it work in your favor, you also have to make sure that when it comes time to receive money from the account, that it has grown enough to sustain you once you retire. Wells Fargo Advisors has an IRA calculator that helps you make some of those decisions.

Which Online Broker?
You want to start an investing account so you can be in charge of the how your money grows. Much like going to the grocery store to purchase a bag of potato chips, there are plenty of choices and all of them look good. If you're confused about which online broker to pick, Kiplinger can help you figure out what is most important to you.

How Much Did That TV Cost?
Last year's Super Bowl just wasn't going to cut it on that tiny 42" TV in your living room. Armed with your credit card, you headed out and bought the TV that made you the envy of all of your guy friends. It's one of many purchases making up your credit card balance but once you pay it off, how much will that TV end up costing you? BankRate has a calculator to help you figure it out … that is, if you really want to know.

The Bottom Line
Gone are the days when calculating loan payments, dividends and inflation took the skilled hand of a financial professional. This is the 21st century and thanks to the internet, financial calculators for nearly every situation you encounter are only a click away.

Alcoa: Limited Downside, Big Upside in ’12

When Alcoa (NYSE:AA) reported earnings in October, CEO Klaus Kleinfeld told investors, “Alcoa is a confident company in a nervous world. We are well prepared for whatever lies ahead, with more cash on hand, lower debt and continued focus on profitable growth.”

It would be natural to write off those comments as mere platitudes for Wall Street’s grumpy traders. But taking a closer look at Alcoa across the past several weeks has made me agree with Klaus — and consider AA stock as a bargain buy to hang on to across 2012.

Shares of Alcoa were trading as high as $18 this spring before sovereign debt fears, stagnant job numbers and other issues sent the stock back into a tailspin. AA stock was under $9 as recently as mid-December.

Yes, big problems persist in the global economy, and aluminum demand and prices remain weak as a result. However, Alcoa hasn’t seen the $9 level since spring 2009. Are the macroeconomic fears really worse now than in 2009?

Alcoa AA
Click to Enlarge
Oh, and by the way — massive restructuring plans have not just returned Alcoa soundly to profitability, but resulted in steady growth for several quarters running. Is AA stock really a worse investment now that it is streamlined, in the black and paying down debt?

Obviously no stock is risk-free. But in my opinion, Alcoa has limited downside and lots of upside in 2012. Here’s why:

Improving earnings: Alcoa has seen year-over-year profit increases in each of the last eight quarters. It has also seen revenue go up year-over-year for seven straight quarters. The result is that fiscal 2011 revenue is going to be up about 35% over last years’ numbers if estimates for Q4 hold. Profits will be up even more dramatically, to 81 cents a share for the full year 2011 compared to just 25 cents in 2010 — more than triple last year’s numbers. Forecasts for 2012 include even more improvement in both sales and profit numbers.

Bargain stock: Alcoa has a forward P/E of about 9.4 right now, based on a stock price of $9 per share and 2012 earnings estimated at 96 cents. If AA stays right on schedule and simply moves up to a P/E valuation of around 12, we get to $12.50 per share — a whopping 38% upside! Imagine what will happen if Alcoa keeps beating earnings estimates in 2012.

Dividend potential: Alcoa has a fairly meager yield of about 1.3%, based on a quarterly payout of three cents. That payment has been stagnant since March 2009, too, after it was cut from 17 cents quarterly. However, there’s good reason to expect a dividend increase in 2012. Alcoa has returned to profitability and surely will be feeling pressure to hand back some of that cash to shareholders. Not only will a dividend increase give you a great yield on cost if you buy at $9, it will attract buying pressure to AA stock as other investors continue to seek out safe-haven dividend stocks[3] amid the market turmoil.

Aluminum prices can’t move much lower: The CEO of one of Alcoa’s competitors, Norway’s Norsk Hydro (PINK:NHYDY[4]), recently said[5] aluminum prices are about as low as the industry will allow them to go because many producers risk operating at a loss if aluminum gets any lower than $2,000 per metric ton, or roughly 91 cents per pound. Chief Executive Svein Richard Brandtzaeg said, “If there is a lengthy (low price) situation, the chances for shutdowns are increasing.”

Reports indicate that Chinese aluminum producers already have cut back annual production by about 1.5 million metric tons — showing that even if demand remains weak, producers are going to get aggressive with supplies to boost prices that way. I won’t say prices have nowhere to go but up, since weak demand could persist. But it is clear that aluminum producers are going to act together to ensure they don’t go significantly lower.

Right-sized for hard times, ready for recovery: So why aren’t investors flocking to Alcoa stock if it has all these things going for it? Well, because the primary factor affecting demand for aluminum is economic growth — specifically, production of durable goods like cars and construction projects. But there are reasons to expect baseline aluminum demand won’t drift much lower because car sales and construction already have taken big hits. There’s also Brandtzaeg’s point that the aluminum industry will continue to curtail supplies to ensure prices don’t drift lower, either.

As for Alcoa’s operations, big cost cuts over the past few years, including some 13,500 layoffs handed down in 2009 (a staggering 13% of its work force), have streamlined the company for hard times. Alcoa is is lean and on the defensive — which means if things stay challenging, AA stock should hang tough.

I know what you’re saying. This is all nice — in theory. The reality, of course, is that things can certainly get worse — much worse — for Alcoa and for many stocks on Wall Street.

Auto sales should be up almost 10% in 2011 from 2010 numbers and easily could retreat to those earlier levels in the coming year. Housing starts and other construction statistics indicate marked improvement over 2010 as well, and it’s not unrealistic to think that housing could backslide too. Demand could plummet, aluminum prices could crash and AA stock could take a beating.

That’s a risk I’m willing to take. I think Alcoa has limited downside after its tumble across the past few years and recent return to profitability, and will at worst move sideways in 2012.

As for upside, I think $12 is reasonable. According to Thomson/First Call, 16 Wall Street analysts have an average target of $12.73 and a mean target of $12.25. Most recently, Barclays put a $13 target on a AA stock in November with an equal weight rating.

That’s a 33% upside from here. Maybe not enough to win the Best Stocks for 2012 contest, but certainly returns any investor would be happy with.

Marc Faber: Money Printing Dictates Market Movements

The following is a partial transcript of Jim Puplava‘s great interview on Financial Sense with Marc Faber, author of the Gloom Boom & Doom Report. In a wide-ranging interview, they discuss inflation, China, gold, war, resource scarcity, democracy, education, market volatility and the importance of diversification. Click here to listen to the audio interview.

Jim Puplava: Marc, I want to begin our discussion with a topic you have addressed in several recent newsletters, which is the decline in morality and ethics within the financial system and within society. In your opinion, is this the result or consequence of cheap money and currency debasement.

Dr. Marc Faber: Well I think to some extent yes, because it’s created a tremendous wealth inequality and at the same time, it created tremendous power in the financial sector. So the combination of the two was certainly a contributing factor. And if you read about the history of hyperinflation in the world, in each case there was a tremendous decline in morality.

Jim Puplava: Marc, I have known you for several years now since we first met at the San Francisco Gold Show. And since I have known you, you have been very consistent on your views on inflation. Given the severity of the financial crisis, and the deflating asset prices that we have seen—for example, real estate in the United States, and now we have seen even the pull back and decline in a merging markets—have you altered your views or changed them in any way, given the recent downturn in many of the emerging markets.

Dr. Marc Faber: Well if we understand inflation as a monetary cause, in other words, you increase the quantity of money and of debt, then obviously, we have inflation in the system. Now Mr. Bernanke, he was under the impression that he could just drop dollar bills onto the United States and revise the housing bubble. But the problem with this view is that if you drop the dollar bills, in other words if you increase the quantity of money, it does not necessarily have to revive all asset prices, and all prices at the same time. So housing did not respond, but as you know since March 2009 equities have rebounded on the S&P from 666 to now 1200, and at the same time we have significant price increases in the system in insurance costs and in educational costs. There was a statistic recently published that the turkey this year for Thanksgiving would cost 13.4% more than a year ago. Nobody can tell me that they think there is deflation in the system. And I see that myself, because I travel a lot that there are leakages—when you print money in the U.S. it does not have to generate inflation in the U.S., it can generate inflation in India or China, or in Vietnam or in Hong Kong, or in Singapore. In that sense, there was a lot of inflation.

Jim Puplava: You know, as a believer in devaluation and currencies, I was recently reminded of this last Wednesday. Tuesday evening Marc, I read several well-known respected technicians like John Rokes, Stan Winestein, and Paul Desmond. And they were talking about the breakdown of the markets. And before I went to bed Tuesday night, the futures were down. Lo and behold, I wake up the next morning to the news of China lowering its bank reserve requirements, and then we got a love-fest to Central Bankers and new money printing. I thought of something I heard you say, that whenever markets fall, 20% or more, Central Bankers will immediately engage in a new round of money printing. And that’s exactly what happened.

Dr. Marc Faber: Yes, I mean the market keeps going up at the present time because of easing measures and today because of the rumors or the statements that the ECB is one way or the other, in one form or the other would essentially bailout Europe. So this has not really to do with economic fundamentals, which are not particularly good, but it has to do with money printing.

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