Saturday, October 29, 2011

4 Safe International Stocks with High Yields: RDS, NSRGY, FTE, BHP

There are several tenants to dividend-investing that income seekers should remember when stock-picking.

First and foremost, does the stock in question have any red flags that could mean a dividend reduction or suspension is on the horizon? In other words, how safe is the dividend?

Next, what's the company's dividend track record? Does it raise its dividend like clockwork every year or does it boost the payout one year and leave it alone for two or three years?

Those are just two questions income investors need to ask. Another is ''Am I better off looking overseas for dividend stocks?'' In many instances, the answer is a resounding ''Yes.''

Investors that examine American Depositary Receipts (ADRs), which represent shares of foreign companies and trade on major U.S. exchanges, across any number of sectors are in for a pleasant surprise. There's an excellent chance of finding at least one foreign stock that offers a better payout in dollar terms and perhaps a higher yield than a U.S. company in the same industry.

A primary component of dividend investing is safety. And with the right international dividend payers, U.S. investors are not sacrificing dependability and safety at all. Let's take a look at four safe global dividend stocks...

1. Royal Dutch Shell (NYSE: RDS-A, RDS-B)
Royal Dutch Shell is Europe's largest oil company.

Here are the vitals on Shell: The ADRs currently yield 4.8%, and the annual payout in dollar terms is $3.36 a share. Shell's current yield is double that of Exxon Mobil's (NYSE: XOM), and far superior to Chevron's (NYSE: CVX) 3% yield. Shell's payout bests the U.S. oil giants on a dollar basis as well.

Shell has the cash on hand ($6.24 a share) to at least maintain its current dividend level, and the dividend has doubled twice since 1988. One quibble: Shell hasn't raised its dividend since 2009.

2. Nestle (NSRGY.PK)

Don't be alarmed by the fact that Nestle, the world's largest food company, trades on the Pink Sheets. It's not unusual for foreign companies, even large ones, to do this in order to avoid the costs associated with listing on a major U.S. exchange.

With that housekeeping item out of the way, compare Nestle to the most logical U.S.-based equivalent, which would be Dow component Kraft (NYSE: KFT). Nestle's current payout ratio is just north of 55% while Kraft's is 67%. The Swiss company has also dramatically slashed its debt to about $16.6 billion at the end of June from almost $34 billion a year earlier. Kraft has $23.4 billion in long-term debt.

In the past five years, while Kraft shares are basically flat, Nestle is up almost 70%. Given that both stocks yield roughly the same at just under 3.5%, Nestle could be the better investment, if history is any guide.

3. France Telecom (NYSE: FTE)
Telecom stocks are prized for both good dividends and being defensive plays. U.S. telecom behemoths AT&T (NYSE: T) and Verizon (NYSE: VZ) have an average yield of 5.65%. That's pretty good. It's also 2% less than what France Telecom offers. That's part of the good news, but there are some issues to consider before jumping straight into France's largest telecom company.

First, the French government owns almost 27% of France Telecom. Second, the company pays its dividend semi-annually, exposing it to fluctuations in the euro. On the other hand, France Telecom has an emerging markets story that isn't recognized all that much by Wall Street. The company has a foothold in emerging European markets such as Poland and other Eastern European countries. The company also has a presence in 13 African nations, according to the Financial Times. And with a dividend payout ratio in the mid-40s, the company is generating ample cash flow to cover its dividend obligations.

4. BHP Billiton (NYSE: BHP)
BHP Billiton is the world's largest mining company, becoming so by acquiring companies in the industry left and right. Many U.S. investors have probably heard of the Anglo-Australian mining giant, however, they might not think of this as a good dividend stock because many U.S.-based materials and mining stocks don't offer great payout.

While BHP's yield of 2.9% isn't jaw-dropping, the stock meets important dividend qualifications. In terms of growth, BHP's twice-yearly dividend was $0.31 a share in 2002. This year it was $2.02. The company had $16.6 billion in cash and short-term investments as of July 2011, and a payout ratio of 21% shows there's room for dividend growth without hampering BHP's cash hoard.

Risks to Consider: All dividend investors looking at foreign stocks must remember currency fluctuations can impact the dividends paid, either positively or negatively. Plus, a weaker U.S. dollar means stronger currencies in the homes of foreign companies, and that hurts export dependent businesses. In the case of Shell and BHP Billiton, these stocks reside in high-beta sectors that are dependent on a thriving global economy to drive returns.

Action to Take--> This quartet is a diverse portfolio in its own right, but conservative investors should definitely lean in favor of Nestle, then France Telecom. The most adventurous souls can cozy up to BHP, while those with some tolerance for risk will find Shell is somewhere in the middle in terms of risk profile for this group of stocks.

Peter Schiff: Where Gold, Silver & the Dollar are Headed Next

from King World News:

With gold, silver and stocks all having big up-moves this week, today King World News interviewed Peter Schiff, CEO of Europacific Capital. Schiff made some great calls recently including the move higher in the euro. When asked about the huge move in gold and silver, Schiff stated, “I think there’s more to come. Look at the technical action in everything, in stocks around the world, in commodities. Look at the price of crude oil and look at the dollar, the dollar is breaking down. I mean we had a huge decline against the Australian dollar, but look at that surge back into the 1.40s on the euro.”

Peter Schiff continues: Read More @

China Housing Market Crash, Shanghai Homeowners Smash Showroom in Protest of Falling Prices

The property bubble in China has finally burst. Denial has turned to anger as Shanghai Homeowners Smash Showroom in Protest Over Falling Prices

A group of around 400 homeowners in Shanghai demonstrated publicly and damaged a showroom operated by their property developer after the company said it cut prices. Home buyers had wanted to speak with the developer to refund or cancel their contracts but were unsuccessful, according to local media. One report said the price cuts exceeded 25% per square meter.

The local media reports said an unspecified number of people were injured.

Chinese media separately reported that another group of Shanghai homeowners gathered on Saturday to speak with Longfor Properties Co., after it dropped asking prices to 14,000 yuan per square meter from 18,000 yuan per square meter at a residential development in the city’s Jiading district.

The Shanghai property-owner demonstration found little support on China’s Internet, where most still expressed worries that housing prices are too high.

22% Drop Overnight

The drop from 18,000 to 14,000 yuan is a 22% overnight drop and that is just a down payment on the carnage that is coming.

Housing Math in China

  • 18,000 Yuan per square meter is about $2,835 per square meter
  • One square meter = 10.7639104 square feet
  • Cost per square foot = $2,835 ÷ 10.7639104 = $263.38 per square foot

In downtown Shanghai, the price is 48,000 yuan per square meter or roughly $696.77 per square foot.

I am told these are for roughly finished units (no carpeting, appliances, etc), just stark bare units.

For more on absurd Downtown Shanghai property prices, please see Property Developers Hurting in China; New Homes Sales Down 50% in Shanghai; Preposterous Prices Won't Last; Commodities to be Hit in Building Slump

Protests Hit China as Property Prices Fall

Yahoo! Finance has additional protest details in Protests hit China as property prices fall

Hundreds of angry home buyers launched a series of protests in China's commercial hub of Shanghai this week, as owners decried falling prices for their properties, state media said Thursday.

In the latest incident, some 200 home owners on Wednesday besieged the sales office for a project of leading developer Greenland Group, demanding refunds.

"We require a refund because the loss we are suffering now is too great for us to afford," the Shanghai Daily quoted a protestor as saying.

He paid 17,000 yuan ($2,678) per square metre last year and claimed the developer had cut the price by around 30 percent to boost sales.

In a another incident, 30 home owners stormed the sales office of a project of Hong Kong-listed China Overseas Land & Investment Ltd. on Wednesday, the Global Times said, repeating a similar protest from over the weekend.

Demand for apartments has been falling after authorities, fearing a property bubble, banned the purchase of second homes, increased minimum downpayments and trialled property taxes in some cities -- including Shanghai.

At the same time, property developers have been hit by a lack of funds, as the government hiked interest rates and restricted bank lending to rein in surging inflation and bring real estate prices into line.

Ratings agency Standard & Poor's expects China's property prices to fall by 10 percent nationwide over the next year as the measures take effect.

S&P 10% Decline Prediction is Hugely Understated

Prices in many places are already down 20 to 30 percent and things will get to the 50 t0 70 percent decline mark before this is over.

"Twilight Zone" of Phony Accounting and Shadow Money

MarketWatch says Watch out for China’s ‘freak’ economy

Ten years ago, homes in Shanghai sold for about six times an average family’s income. Today that’s 13 times. Shenzhen has gone from five times to 14 times. These are off-the-charts absurd ratios. This is a bona fide mania.

And it works fine until the music stops. Where are we now?

Prices have started falling. Now, fewer than 46 of 70 major cities saw prices stall or decline in September, reports the National Statistical Bureau. As recently as January the number was just 10.

In the past two and a half years, China has witnessed a staggering credit bubble. Total lending has come to about $7.8 trillion.

To put this in context, that is twice the entire net government debts of the European so-called “PIIGS” — the troubled countries of Portugal, Ireland, Italy, Greece and Spain — put together.

An alarming report from Schroders said Chinese banking operates in a “twilight zone” of phony accounting and shadow money and it’s all coming apart. “Almost half of all credit creation in China is off balance sheet,” wrote the team at Schroders.

They think this situation could unravel “over the next three to six months,” producing a huge crisis with international implications. Most Chinese banks, they predict, will end up as “zombie banks.”

Hard Landing Coming

The Financial Times reports China property developer warns on price falls

China's largest real estate developer believes the country's property market, a key driver for the economy, has turned and expects conditions to worsen in the coming months as sales prices volumes decline further.

China Vanke, the country's biggest developer by market share, said government efforts over the past year to rein in soaring prices were having a severe impact on the market and developers were being squeezed after sales volume in 14 of the country's largest cities halved in September from a year earlier.

A 30 per cent drop in property prices would precipitate a collapse in fixed investment in China and the country's investment-driven economy would experience a so-called hard landing after years of annual growth above 9 per cent, according to UBS economist Wang Tao.

Property investment accounts for more than 20 per cent of total fixed investment in China and UBS estimates almost 30 per cent of final products in the economy are absorbed by the property sector.

"A property-led hard landing scenario is quite likely in the next few years, even though we do not think the property market is about to collapse now," Ms Wang said.

Debt-laden provincial governments in China rely heavily on land sales for revenue and have poured investment into commercial housing projects in recent years.

These local authorities also account for up to 30 per cent of all outstanding bank loans, many of which are collateralised by land and housing developments, so a collapse in the property market could have a devastating knock-on effect on the financial system.

The property bust is underway in China and will spread from city to city just as it did in the US. No city will be immune and commodity prices will be smashed in the downturn.

By Mike "Mish" Shedlock

Rare Coins Serve as Stellar Inflation Hedges!

If you’re an investor who believes high inflation is just around the corner and who sees rare coins as a terrific inflation hedge, as they’ve been in the past, now’s a great time to get into the coin market. After a block buster World’s Fair of Money trade show, produced by the American Numismatic Association in Chicago in August, the rare coin market has simmered down a little. Gold has backed way off its $1900 per ounce high seen at that time, softening outside investor psychology for gold and rare coins. However, there’s still a huge pent up demand from those in the know for high end premium quality rare coins. But while trading has been tempered a little, it is still very active and a good time to buy.

Back during the 1970s, when we went through our last high inflationary period, during the Jimmy Carter years, investors were throwing money at coin dealers saying, “Buy me some rare coins.” The market exploded, sending some coins that could be bought for less than $300 dollars in 1977 to nearly $3,000 in 1980 – really! And this was not the exception – it was typical! Market values became distorted as the investor-driven coin market veered away from the fundamentals that make the market what it is – a collector-based market.

Huge overall dealer profits were also reinvested into rare coins at that time, further fueling the coin market, because after all, that’s what we know and do with our money as coin dealers – invest in inventory. After those heady days, the coin market did experience a bubble, but only after fortunes were made in the coin market. Those who lost got in late or took a flyer, not knowing what they were doing. Learning about the coin market is the key to success.

Will a runaway coin market happen again? It very well could, and we have much more positive fundamentals going for the coin market this time around. During the mid-1980s, PCGS, the Professional Coin Grading Service, and NGC, Numismatic Guaranty Corporation, were formed. Today they are the backbones of this industry in terms of coin grading, which is one of the fundamental basics for valuing rare coins. This has led to much strengthened consumer protection and confidence in owning rare coins, unlike the days prior to this era when individual coin dealers would grade their own coins they had for sale. It’s easy to see the abuses and legitimate differences of opinion dealers and collectors had during those days of self-grading, which were based on individual interpretations of standards outlined in coin grading guides.

PCGS and NGC have also given collectors, investors, and even dealers, more confidence in owning expensive rare coins, and because of those services it’s much easier for everyone, these days, to buy and sell coins. However, third-party certified coin grading has also allowed inexperienced coin dealers to quickly enter the market and set up shop. So, choose your dealer wisely. Additionally, on the wholesale or dealer-to-dealer side of the coin market, there are dealers who are market makers for certain coins. This was true before the advent of certified coin grading, but, unlike those days, today some of these market makers will buy many rare coins on a “sight-unseen” basis, without even looking at them, just by relying on the certified grades assigned by the grading services. This isn’t true of all certified rare coins, but this factor is present in the market for certain select rare coins.

Another huge factor in the coin market, that’s become a great backbone of the industry, that wasn’t around for the public during the 1970s, is the Internet. This tool has given collectors and investors a great information resource for learning about rare coins that the market didn’t have during the last inflation-investment surge. It’s also facilitated much greater coin trading online via auctions and inventory offerings for dealers and even collectors who have been enabled to sell their coins themselves online. But there’s a learning curve for new collectors and investors, and even experienced collectors who want to venture into new areas of collecting. What greater resource could there be for this information besides the Internet? Again, the coin market didn’t have this beneficial tool during the inflationary investor market of the 1970s.

Coin price guides have also improved since that time, and the Internet has also given collectors, investors, and dealers another great tool for research – an easy way to access auction records of rare coins. However, sometimes researching auction records is an easy task and sometimes it takes much sophistication in knowing what’s going on in the coin market. As the market analyst who established values for all rare coins for the largest price guide in the industry during the bull market in coins in the 2000s, I believe rare coin pricing is the next frontier to be perfected, as best as it can be, during the coming years, much in the same as coin grading has been perfected since the mid-1980s. Again, for the best help, know your dealer and his or her experience level.

So, while not absolutely perfect, the rare coin market is probably the most structured and efficient of all the collectible, inflation-hedge markets in existence. People can trade rare coins within a fairly narrow trading range, compared to other collectibles, and there has always been a ready market for coins at some price level, even in a down market. Rare coins have always been very liquid at the right price points.

Of course, as a life-long dealer in rare coins, who’s also had a couple of career digressions, into coin grading for PCGS and coin pricing for Coin Values magazine, I’m biased toward the rare coin market. But take a look at stock brokers and real estate brokers, for example. They’re biased toward their own areas of endeavor and often talk down other markets, like rare coins and precious metals. What are we hearing today? “The gold bubble has burst!” But haven’t we been hearing this from traditional investment advisors during the last ten years as the gold price has continued to climb, outperforming most traditional investments?

Yes, the gold bubble probably will burst at some time in the future, and maybe it will again for rare coins, but only after the economy goes through the coming inflationary years and fundamental changes are made to reduce the world-wide debt bubble. But until those days are upon us, rare coins will likely prove to be a great inflation hedge during the coming years. Government spending cutbacks are what are needed, but we haven’t seen Congress develop the backbone and cohesiveness to pull this off. Reduced living standards and protests will result with the needed cutbacks, and even banking and housing crises and social protests might occur before the needed austerity measures are taken. Sound familiar? We’re already seeing the beginning of all that.

The federal debt is continuing to grow. Deficit spending is occurring every year, adding to this debt, and the temporary way out of this problem, to contain social unrest and financial crises, has been to print more money. Clearly this can’t continue indefinitely, but it likely will for years to come, creating progressively higher future inflation. It’s already starting. As I’m writing this, today’s Wall Street Journal, for example, contained several reports of higher inflation in this country and around the world. Gold and rare coins have served as stellar inflation hedges during inflationary spiral, like the one we’re entering now.

3 Must-Own ETFs For the Next 5 Years: BRAQ, EMIF, NLR

Last week, Jeff Reeves wrote about five exchange-traded funds that have held up well during the rocky market environment of the past few months. Now, let’s take that one step further: Of the roughly 1,300 ETFs currently available for investors, which are among the best bets to buy now and hold for the next three years?

The three ETFs are similar in that the strength in their underlying, long-term themes should enable them to overcome the various near-term concerns that drive market performance on a day-to-day basis. At the same time, their soft one-year returns provide investors with the opportunity to take advantage of these themes while prices are somewhat depressed.

Global X Brazil Consumer ETF (NYSE:BRAQ)

One-year return through last Friday: -27.14%


The emerging markets consumer story is no secret. Rising disposable income, low credit penetration, young populations, and solid economic growth makes the “rising domestic consumption” story one of the most compelling long-term themes in the market today. Emerging markets already have a larger share of consumption than the developed world, and this gap is set to explode higher in the years ahead.

Brazil is at the forefront of this trend. Over 60% of its economy, which is now the 10th-largest in the world, is driven by domestic consumption. Like most emerging market countries, Brazil features a rising population, robust wage growth, and increasing personal wealth. However, Brazil also has two other important attributes. First, it has a relatively low exposure to the problems in Europe, and second, its stable economic and political management limits the potential for negative surprises. As a result, the country stands apart from its peers in both the developed and emerging markets.

More important in the case of this ETF, Brazil is still seen as a commodity play. Its market therefore sells off when commodity prices weaken, as we witnessed in the middle of this year. This creates an opportunity benefit from discounted shares of companies that operate in the huge segment of the Brazilian economy that isn’t directly commodity-related.

There’s no doubt that BRAQ is small and volatile, but it offers investors a way to take advantage of one of the most important trends in the BRIC asset class and the global economy as a whole – and to do it at a price well off its high for the year. Having said that, BRAQ has rallied sharply from its early October low, indicating that a measure of patience is advisable here.

iShares S&P Emerging Markets Infrastructure ETF (NYSE:EMIF)

One-year return: -17.78%


EMIF is another way to take advantage of a situation where the long-term theme remains intact but the related ETF has fallen sharply due to broader macro concerns. Emerging markets countries continue to build out their infrastructure to accommodate enormous societal shifts. In China, for instance, the urban population is projected to grow by 530 million people in the next 20 years. Compare that to the U.S., where the total population is about 307 million.

Emerging markets also have vastly better government finances than the developed world. Unlike the U.S. and other major world powers, the emerging markets actually have the cash to put to work. And thanks to the ultra-low rate environment put into place by the world’s largest central banks, corporations have a lower hurdle rate in order to invest in new projects. Notably, emerging market governments have already committed well over $3 trillion to future projects, creating a large backlog of potential revenue for companies that build roads, electricity networks, and water-related infrastructure.

Stocks of these companies have much to gain in the coming years, and EMIF provides a way to capitalize on the trend and still maintain diversification on the geographic and individual company level. In addition, it offers a nice yield of about 3.5%. As with BRAQ, the stock has staged an impressive relief rally in recent weeks, so it may pay to wait for a pullback.

Market Vectors Uranium & Nuclear Energy ETF (NYSE:NLR)

One-year return: -15.95%


The largest reason for the underperformance of nuclear and uranium-related shares is the Japanese earthquake and lingering fears that countries are going to abandon their commitment to nuclear power in favor of safer options. Germany made headlines when it abandoned its nuclear program, obscuring the fact that China, India, and Russia have made no such shift. The rising power demands of the growing emerging market population is a longer-term trend that remains firmly in place, and NLR – which holds uranium miners, utilities, and stocks of companies that build nuclear plants – is uniquely positioned to benefit. As a kicker, the ETF offers a yield north of 5.5%.

It’s also notable what didn’t make this list. Some of the worst ETF performers of the past year are inverse funds and those tied to the performance of and the alternative energy industry. While their price performance may indicate an opportunity, both segments remain dangerous propositions. Inverse products are unsuitable for a long-term holding period due to the compounding of tracking error, while the combination of fragile finances of developed-market governments to provide political support makes alternative energy stocks little more than a crapshoot at this point.

Conversely, the three ETFs mentioned here offer the ability to take advantage of some of the most important trends in the global economy. Investors who can hold on through the inevitable bumpy ride should be well-rewarded in the coming years.

The Economist Canada - 29th October-04th November 2011

The Economist Canada - 29th October-04th November 2011
English | 112 pages | HQ PDF | 100.00 Mb

download it here

Sprott on Oil

Sprott on Oil

When Will The Grain Market Get Nervous About The Fact That The Drought In The S. Plains Is Moving Into The Western Corn Belt?

A peak at the drought monitor shows a startling development; the severe drought in the S. Great Plains is moving into the western Corn Belt. Extreme dry conditions are evident in key growing areas of the Corn Belt stretching from Northern Missouri to S. Minnesota. The dry pocket includes nearly all of Iowa, a portion of central Illinois, the eastern fringes of Nebraska and S. Dakota and a major portion of southern Minnesota. Without good rains this winter, producers will be planting corn in soil largely depleted of subsoil moisture. While it’s still possible to raise good corn in this environment, the lack of subsoil moisture makes good yields a much more risky venture.

The national average corn yield has come in below trend line for two consecutive years. This has not happened going back as far as 1989. Producers have expanded acreage devoted to corn production during the last two years. However, due to disappointing yield, each of the last two years we’ve raised less corn than we’ve used. The result has been a depletion of corn stocks to extremely low levels. Many in the grain trade are choosing to ignore this because of the fact that corn prices broke over $2.00 during September. In fact, many in the grain trade are now bearish toward corn prices moving forward. The two primary factors cited for being bearish are the sovereign debt situation in Europe and adequate world corn ending stocks.
The debt situation in Europe, while far from being solved, is in the process of being moved "to the back burner" by the trade. This story, moving forward, likely will not dominate the grain trade. The perception of adequate world corn ending stocks is, frankly, inaccurate. World corn stocks have never been tighter. World corn ending stocks have declined for three consecutive years. In addition, because total corn use continues to rise, world corn stocks-to-use, just below 15%, has not been this low going back to 1981. On the world level, corn usage has surpassed world production for the last three years. Beginning in 2007, total corn usage began to accelerate and continues to reach new record highs each year. Thus, the perception that world corn ending stocks are adequate is simply incorrect.
World Corn - Ending Stocks vs Stocks/Usage Ratio
One major change in the corn market that is leading to the perception that world corn stocks are adequate is the fact that the U.S. is losing market share in the world corn export arena. This is a direct response to record high corn prices, which has encouraged other countries to expand production. This is quite necessary because the U.S. is having real trouble expanding production fast enough to meet the accelerating world demand for corn. Thus, when we see our traditional corn import customers purchasing large amounts from S. America, S. Africa, Russia and the Ukraine, the perception develops that world corn stocks are fully adequate. Again, the data indicates just the opposite.

Given the potential major problem in regards to drought in the western corn belt, I must ask what happens if the U.S. economy gains traction in the months ahead? What happens if the U.S. dollar continues to edge downward and what happens if the Chinese continue to come to the U.S. for large amounts of corn? Any one of these or any combination of the three fundamental developments has the potential to drive corn prices back upward toward their record highs.

Look for the December corn contract to find increasing levels of support as it trades down toward $6.30. A close above $6.65, if and when it occurs, will target prices to a test of the highs. My current upside target in the December corn contract is $7.70.

Ben Davies: One Chart Says it All, Extremely Bullish for Gold

from King World News:

With gold trading around $1,730 and silver near $35, today King World News interviewed Ben Davies, CEO of Hinde Capital, to get his take on where the gold & silver markets are headed. Ben sent KWN the above chart on gold and commented, “You really don’t need to say much when you look at the chart, it’s extremely bullish. We took the current year and pushed it forward four weeks to adjust the seasonality. We realized that the market was working on a four week basis ahead of time and if we adjusted the seasonality by bringing it forward four weeks, readers can see that come October we were going to actually have a rally into the year end. Historically you would tend to see a dip in October, but we already had that dip in September.”

Ben Davies continues: Read More @

All Ten Sectors Overbought

The dark red shading in the table below represents between two and three standard deviations above the sector’s 50-day moving average, and moves into this range are considered extremely overbought. As shown, not only are all ten S&P 500 sectors overbought (at least one standard deviation above the 50-day), but 8 out of 10 are in extreme territory. The Financial sector is the most overbought of them all at three standard deviations above its 50-day. The Materials sector is the least overbought at just under two standard deviations above its 50-day.

10 Most Indebted Nations

There are many different ways to measure debt as a factor in a nation's economic health. In fact, there are so many that we can sometimes lose the meaning of any one measure. In this article, we'll look at two different measures of debt and how they change the landscape of the most indebted nations.

Debt Compared to Cash Coming In
One of the most popular, measures is debt as a percentage of GDP. This tells you how likely it is that a nation is going to be able to pay its bills. In this sense, GDP is income, so the more GDP you have, the more debt you can service.

As far as measuring which nations are struggling, the debt to GDP is an excellent measure. The public debt to GDP listing, compiled in the CIA World Factbook, is reassuring in this sense. It's top 10, based on 2009-2010 data includes:

1. Zimbabwe 234.10%
2. Japan 197.50%
3. Saint Kitts and Nevis 185.00%
4. Greece 142.80%
5. Lebanon 133.80%
6. Jamaica 126.50%
7. Iceland 126.10%
8. Italy 119.10%
9. Singapore 105.80%
10. Barbados 102.10%

The United States is far down the list at number 32. The U.S. has the highest GDP for a single nation, in other words, excluding the E.U.. The U.S. GDP hasn't come in under $1,400 billion since it broke that level in 2007, so the debt situation of the U.S. isn't as bad in this context, when compared to Japan. Japan has a GDP of around $4,300 billion and public debt over $10,000 billion.

The reason that Japan hasn't folded, is that over half of all Japanese debt is held domestically. This gives Japan the advantage of relatively friendly hands holding its IOUs. There is also another economic advantage that economists see in the Japanese situation: most of the interest payments on the debt, make citizens wealthier and more likely to buy things domestically. This makes some sense, but the theoretical domestic buying boom either hasn't yet hit its stride in Japan, or the debt situation has grown beyond the point where this beneficial side-effect is noticeable.

Japan's woes aside, the debt picture shifts quite noticeably when, instead of looking at debt-to-GDP, we focus on external debt.

Measuring External Debt
External debt is a measure of the public and private debt, that is owed to non-residents. This list, also compiled by the CIA, gives a different top 10.

1. United States $13,980 billion
2. European Union $13,720 billion
3. United Kingdom $8,981 billion
4. Germany $4,713 billion
5. France $4,698 billion
6. Japan $2,441 billion
7. Ireland $2,253 billion
8. Norway $2,232 billion
9. Italy $2,223 billion
10. Spain $2,166 billion

Now, there is no reason to panic, despite the U.S. taking over the top spot. The foreign holdings of treasuries total about $4,500 billion, so this is not all public debt, by any stretch. Unlike domestically held treasuries, however, the external ones are making interest for non-citizens, making it less likely that the money will be put back into the economy in any way. In the end, external debt just means interest and principle payments that are going abroad and adding to another country's GDP.

How Did We Get Here?
The U.S. has a lot of external debt, true. There are two ways of looking at it, one is the debtor nation view, where the more external debt a nation has, the more likely it is giving away its future, in the form of interest payments to foreigners. The second way is the investment destination view, where so many foreigners are looking to lend and invest in the debts of U.S. citizens, companies and the government, that the low interest loans can be used to build more economic capacity, to produce more capital to pay off these cheap loans.

The truth is that the U.S. is a bit in between the two scenarios. It's strong GDP numbers make it one of the most attractive investments compared to other struggling nations, but this huge foreign debt load has passed the healthy level and is edging up to dangerous levels. Just because other nations are willing to lend cheap, and the U.S. is willing to spend, doesn't mean there aren't long term consequences.

The Bottom Line
Debt is a matter of perspective. The health of a nation is not so different from the health of a business. If a nation is borrowing to build infrastructure that will pay off in the future, then having a lot isn't necessarily bad. If, however, the money is being poured into areas with little or no return, then the burden on the economy to pay those debts will eventually lead to more economic hardship in the future. A fair assessment would involve tracking what each dollar of private and public debt, goes towards purchasing. Some studies exist on this subject, but it is best left for another day, perhaps Halloween.