Craig Atkinson

Planning a trip to the beach, rainforest and volcano.

Some lovely flickr pictures of all three.

It will be lovely to see the country again.

Derek Wallace and I were presented with an opportunity to write about new internet business opportunities for China Information Week. We decided to write about PodCasting and the business opportunities unfolding.

They was never any guarantee they would accept it but we heard through the grapevine that they hadn’t rejected it outright. So what we wrote almost two months ago has finally been translated and published on December 12.

Thanks go out to ChinaValue.NET supporting the concept.

Gold and Japan have come down from the speculative rallies. Gold has been bouncing off support in the $500 and $497/$494 areas. The Nikkei is dropping into the year’s end.

I see the fundamentals holding and the long-term trend is in place. This is a good chance to buy the dips and build a position. Remember to enter small and let the market prove you correct.

I promised a friend I would write up something for him about what I would invest in right now if I had the funds. I thought since hardly anyone reads this anyways (Hi Mom!) that I’ll share it with everyone else instead of sending an e-mail. It’s a bit of a duplication on my previous post.

1. iShares MSCI Japan Index Fund (Ticker: EWJ)

3 Month EWJ chart

Basically you are buying a exchange traded fund that tracks a broad index of top Japanese companies. This is the best and cheapest way to buy into the Japanese economy that I know. The Management expense ratio is 0.59% in this fund.

Current Top Holdings:
5.75% Toyota Motor Corp
3.71% Mitsubishi Tokyo Financial Group Inc
2.83% Mizuho Financial Group Inc
1.98% Takeda Pharmaceutical Co Ltd
1.88% Honda Motor Co Ltd
1.77% Sumitomo Mitsui Financial Group Inc
1.72% Canon Inc
1.62% Matsushita Electric Industrial Co Ltd
1.54% Sony Corp
1.28% Nomura Holdings Inc

Current Top Sectors:
11.75% Banks
11.25% Automobiles & Components
10.75% Capital Goods
9.38% Technology Hardware & Equipment
8.88% Materials
7.31% Consumer Durables & Apparel
4.72% Diversified Financials
4.65% Pharmaceuticals & Biotechnology
4.49% Transportation
4.14% Utilities

2. GoldCorp (Ticker: G in Toronto)

Check out this chart which compares GoldCorp to a Gold Index Tracker. Gold has really taken off in the past few days and left gold stocks like GoldCorp behind. Now imagine if the price of gold goes to $600, $700 or $800 over the next year… GoldCorp won’t be far behind.

The GoldCorp Chart

Alternate 2. iShares COMEX Gold Trust (Ticker: IAU)

This is an exchange trade fund that tracks the price of gold. One unit of this trust is 1/10 of the price of one oz of gold in US dollars. Management expenses at 0.4%. If you want direct exposure to the price of gold. This is cheapest way. However I’d stick with Goldcorp probably.

When to buy:

Japan:
- If you see the EWJ chart at yahoo (EWJ 3 Months) You can see we are in a bit of a dip at the moment. These are buying opportunities if you believe the market is on its way up as it helps average down
your total cost of buying. I’d suggest doing it before the end of the year if possible. The Japanese Yen has been depreciating against USDollar and other major currencies recently and is recently entered into a holding pattern. So it’s a good cheap time to buy something in Japan.

Gold:
- Ideally I would wait until the price of Gold came down a bit to re-test support at $500. However the recent price action has suggested that it could just take off and not come back for a while. It basically broke right through $500 without much resistance and just powered away when people realized it wasn’t going to have trouble staying above $500. That’s a clear sign to a lot of people that this thing is really going to go higher. I wouldn’t hestitate to get in immediately and remember to be patient for the investment to perform if it hits some temporary weakness.

When to sell:

Japan:

I would watch carefully what the Bank of Japan is doing. If they start talking more about raising interest rates in the middle of 2006 that’s a good sign. Especially if the Nikkei index continues to climb. It means Japan is officially declared out of deflation after 10 years and that means that prices are climbing and people are working. Keep holding this for a few years if it performs well and watch for something drastic to happens in Japan, the United States (biggest market for exported Japanese goods) or the rest of Asia especially with regards to China and their economy or currency (major influence in Asia and world markets).

Gold:

If everyone starts talking about gold. It’s time to sell. If the Bank of Japan raises interest rates and gold starts to fall a bit. That’s a good time to think really carefully about selling it. If other Central Banks continue to talk about wanting to buy gold, keep holding it! Don’t get greedy
with this one. It might perform amazing for a year or two and then might take it all back if you hold too long. I would view the monthly gold chart and take a look at what happened with the spike over $800 in the 1980s. It came down faster than it went up! I would sell as soon as it gets really popular with average investors and you have earned a good amount on your position. It’s hard to say when that is (or if it has even already occured!).

Two of the most interesting market trends to watch right now are what is happening in Japan and with gold. Both are climbing steadily and making multi-year highs. Many market observers are betting on these trends to continue.

Here’s a 3 month chart of the iShares Japan (EWJ) vs. a gold price tracker ETF (GLD).

Here’s a 1 year chart of the same thing.

It’s pretty interesting to me to see gold really take off through $500/oz in the past few days. On the three month chart, gold has just recently outperformed Japan. I have been hearing people talk about it since a Vancouver Technical Analyst Meeting in July when it started to break out of its long-term resistance.

Just looking at these two charts also suggests something interesting about the correlation between gold and Japan. I was listening to an MP3 yesterday that I downloaded from some gold website. A financial analyst has previously claimed that “Our grandchildren will never see gold at $500″ and the interviewer had fun bringing him back and talking about what is now happening. He pointed at what he called the x-factor in the gold story and said that the x-factor was Japan. After 10 years of deflation in Japan, they are finally emerging due to reforms completed over the past few years. Gold priced in yen has doubled (100% increase) in past five years. These things point to the fact that Japan is finally emerging from deflation and back into an inflationary economy. He claims that the movement in gold is a Japanese story as nervous investors are protecting themselves against this very real inflation. He says to observe carefully what the Bank of Japan (BOJ) is doing and when they finally start to raise interest rates from near-zero, we can expect to see the price of gold bullion fall.

I expect there is an element of truth in his analysis although I think the new gold rush is only partially driven by Japan. I do like his idea to reduce gold positions when the BOJ raises rates and expect that will not be likely until the middle of 2006 at the earliest. The governor of the BOJ has been speaking recently about when is the best time to raise rates and it appears they are in no hurry after spending 10 years in deflation.

These are interesting ideas about Japan and gold and I’m watching these two markets very carefully.

My friend Tien says there is a Ba Le in Toronto too. It’s means “Fast Ms. Third” and is named after a lady very famous in Vietnam for her sandwiches. Vietnamese subs are made with special cold cut meat, french baguette bread, cilantro, assorted juileened vegetables and some sauce.

You should visit this restaurant shop if you are in Vancouver! Google has it at Keefer and Main St in Chinatown. It’s only $2 for their regular subs! Whole familes are eating there for only 10 bucks! The line up goes out the door at an especially busy time but usually they have a few people waiting on their very quick service.

I read every morning a free currency market analysis from Jack Crooks at Black Swan Trading. Today he reported on an interesting relationship between the Nikkei Index and the US Dollar. His idea actually solves a major conundrum that had been puzzling me lately because it is counter-intuitive until it hits you.

Basically it comes down to this:

1. The biggest 225 public companies in Japan that are actively traded are export dependent with their biggest market in the United States.

2. When the US Dollar gets stronger, the Japanese Yen gets weaker.

3. The US Dollar is getting stronger right now primarily because the Federal Reserve has been very hawkish on raising interest rates and they have been following a sustained and widely expected path of moderate tightening.

4. The Bank of Japan has had the lowest interest rates in the entire world for an extended period of time and are not widely expected to change that going forward 6 months to a year.

5. Thus you can make easy money by going long USD against JPY as you earn the carry. It’s the interest differential between what you borrow the money for and what you lend it back.

6. So the market is buying US Dollars and selling Yen. Thus the US Dollar is getting strong and the Yen is getting weak.

7. This helps the biggest exporting companies in Japan because their market for products is getting a currency ‘discount’ on Japanese produc ts. So they can lower their prices a bit and stimulate demand, or they can just leave their prices the same and earn more money when converted to Yen.

I was puzzled in recent weeks as the Nikkei Index broke through 15,000 to 3+ year highs and the JPY hit a 2+ year low.

Nikkei 225 Index

USDJPY

But it all makes perfect sense now!

Well the government has fallen. I tend to agree with Jason Carvalho; I’m generally vote Liberal but I see this as a good thing. It shakes up the status quo and helps the parties to revitalize themselves into new directions.

I also found this graph, from a recent Economist article about the state of politics in Canada, very interesting. Our openness to immigration from other parts of the world is just another reason why I’m proud to be Canadian.

I can’t wait for the election so I can do my part in deciding the future of this country.