Barclays Capital came out predicting a quick end to the shallow Israeli recession, and a return to decent growth of 2.9% by next year. Keep in mind that the Israeli economy was late to the ‘recession game’ and looks to be an early ‘exiter’ from economic turmoil as well.

With all this great news Barclays said that they expect an Israeli Shekel/USD exchange rate of 3.65 buy the end of the year. That’s a big move from the 3.93 area that the currency is trading at now.

Okay, so let me get this straight. Not only were certain banks forced by the powers that be to take TARP money; now that they want to pay it back, they have to ‘prove’ to those same powers that be that they can raise money in the public market. So at first the taxpayers got screwed and now the shareholders of these certain banks get diluted and lose 4% overnight as these banks hold multi-billion dollar stock offerings.

When will all of this nonsense stop? After all, why should these banks have to prove that they can raise money? I thought that the results of the ’stress test’ was proof in the pudding as to the financial situation of individual banks?

It was only a few weeks ago that market pundits were predicting the US Dollar to reach 4.5 against the Israeli Shekel. Well, what sayeth you pundits now?

Can you say 3.89? Giddy up. The Shekel, like most other currencies continue to soar as President Obama continues to print money. We have seen a 7% fall in the USD/NIS rate in less than a month. Didn’t Obama say that he wanted a strong greenback?

With Israeli interest rates near zero, it appears that local consumers are moving money out of deposit accounts into non-interest bearing checking accounts, thus creating the beginnings of a liquidity trap.

According to a Globes report: “Bank of Israel officials now note that a liquidity trap has developed. The minutes state, “Despite the fact that the Bank of Israel’s interest rate is still positive, the interest the banks pay depositors is close to zero, and they have little room to reduce it further. In this situation, in order to preserve the interest rate spread (also known as banking spread), the transmission mechanism from a reduction in the Bank of Israel interest rate and the rate charged to borrowers is weakened.

With most Israeli M&A involving hi-tech, it was interesting to note that an old brick and mortar retailer, Sears Holdings (SHLD), decided to ante up for an Israeli company. Sears basically saved the Israeli start-up Delver Ltd. by purchasing the company. Delver has had trouble raising new money and was on the verge of collapse.

According to Globes:

With most of the world trying to cope with a banking sector that is teetering on the brink of disaster, it’s refreshing to see that someone thinks Israeli banks are safe. Barclays came out with a call on the Israeli banking sector, and while they give an ‘underweight’ weighting, at least they don’t forecast anything close to what has befallen U.S. banks. According to Globes:

“[Barclays analyst Joseph] Wolf says that Israeli banks are well capitalized compared with U.S. banks. He notes that “in Israel, the overwhelming majority of the Tier 1 capital is common equity. Hybrid Tier 1 is a relative latecomer to Israel.” He adds, “Given the dearth of opportunities, the Israeli banks have not grown via acquisition and as such have limited to no goodwill being counted as Tier 1 capital.

Following a global trend to try and cut costs and not lay anyone off, Israeli cutting tool maker Iscar has announced that it too will switch to a 4 day work week. The move comes as orders have slowed down, especially from the US auto industry.

According to Globes: “Iscar, which manufactures cutting tools for the vehicle and aviation industries, is taking a range of cost-cutting measures to cope with the plunge in orders from customers, especially US carmakers. Iscar chairman Eitan Wertheimer told “Globes”, “If we have no alternative, we’ll lay off people, but our goal is to avoid this and to adjust sales to the long term. This crisis is going to be tough.”

With the whole world moving quickly towards socialism, and with government printing presses working 24/7 in order to help print enough money to keep up with all the spending, in Israel the opposite is about to take place. The victory of Benjamin Netanyahu will usher in an era of tax cuts, and less government intervention in the daily lives of citizens, allowing the free market to work as it should.

We will actually have a real life ‘Battle of economic philosophies.’ Keep in mind that the US entered economic Armageddon a full year and a half before Israel did, so first in first out may apply here, but we may get a real feel on which economic system works better.

What would you say if I told you that there was a company that developed GPS-like technology for the human body? You’d probably say that's really cool. Well, leave it to Israeli ingenuity and creativity to create such a cutting-edge technology. In fact it’s such an interesting technology that St. Jude Medical (STJ) has bought the Israeli company for $300m.

In a market with very little M&A, this makes two acquisitions of Israeli companies in as many months. Johnson & Johnson (JNJ) bought Omrix Biopharmaceuticals (OMRI) as well. This shows that multi-nationals would rather outsource their R&D than develop it in-house. If this trend continues, it could get very interesting for Israeli hi-tech.

MediGuide was founded in 2000 by Gera Strommer, president and CEO, and Uzi Eichler, vice president technology, as a spin-off from Elbit Systems (Nasdaq: ESLT), which owns 41.3% of the company, and with backing from Israeli venture capital fund Vitalife.

This interview with Jamia Jasper of  The American Israeli Shared Values Capital Appreciation Fund was featured as part of our new subscription newsletter, Israel Opportunity Investor

• • •

You turn on the faucet, and-voila-you have a drink of water! Those of us who come from western nations tend to take water for granted. However, after a few years in Israel, we appreciate the fact that whatever water we receive is a gift. The media is filled with reports about how the world is running low on crude oil, but not too much attention is paid to the growing water crisis.

Water as an Investment

So today the Manufacturers Association of Israel is out calling on the government to implement some kind of emergency rescue program to save the fledgling textile industry. They say that due to the Shekel strength over the last year or so, exports have fallen and about 5% of workers in the industry have lost their jobs in ‘08.

According to a report in Globes: “While textile exports fell 3.3% to $520 million in the first half in real terms, compared with the corresponding period, textile imports (especially from Asia), rose 18.6% to $656 million.”

It’s no secret that the airline industry has issues. Soaring fuel costs, have left airlines scrambling for ways to increase revenues. Instead of just raising fares and cutting capacity, airlines have decided to nickel and dime travelers to death. Just yesterday the Israeli El Al airlines decided to start charging travelers more for seats in an emergency row. This follows other airlines charging for pillows, food, luggage…etc.

Customers are getting fed up with an ever expanding list of fees. In an age where most industries have made their fee structures much more simple, the airlines have decide to drive us crazy. ” Sir, you’d like ice with your beverage? That’ll be 3 bucks.” Or “Miss, I am sorry but since your shoes have high heels, that’ll be $2.”

Investors in the Israeli company Nice Systems (NICE) can breathe a sigh of relief, as their earnings came in as expected. Some traders that we had spoken to were worried about how Nice’s exposure to the financial sector, and the slowdown in spending would impact the numbers. Well, it turns out that its security business is doing nicely.

The company came in with revenues of $155.3 million (a record) an increase of over 20% YOY. The company also showed an increase in margins and raised revenue numbers for the rest of '08.

For many years, the poster child for Israeli ingenuity was clearly Given Imaging (GIVN). The company which produces a disposable, miniature video camera contained in a capsule, which is used for gastrointestinal diagnosis, is well-known for this ground-breaking technology, but has disappointed investors with trouble growing sales aggressively. The hype of the technology has been way ahead of the company’s actual execution of its business model. But, after its recent earnings report, that may have changed.

The company reported Q2 revenue off $33.1 million, an increase of 19% of last years Q2 and a 22% increase over Q1 ‘08. Gross margins remained strong coming in at 75.5%, and net profit came in at $0.09 a share, and the company raised guidance for the rest of ‘08.

One of Israel’s largest asset management firms, Prisma Investment House, is out with a report on global fertilizer leader, Israel Chemicals (see below). Speaking about the the future of potash pricing, Prisma takes a contrarian view. While analysts are busy raising estimates for stocks like Potash (POT) and Mosaic (MOS), on the heels of continuing strong demand and rising Potash prices, Prisma encourages investors to take a step back, and re-evaluate what the future holds.

Whilst we estimate that the near future will provide positive headlines for the potash sector, the increase in supply (predicted for 2012 and beyond) presents a completely different long term perspective. In our opinion the increase in the global output will lead to a sharp decrease in the price, while the entry of new participants into the club of potash producers will only accelerate the process. We remind you that in recent weeks the arrival of two companies (EuroChem, Rio Tinto (RTP)) into the potash industry has been announced.

Geothermal developer Ormat Technologies is on the hunt for strategic acquisitions and is working with Lehman Brothers to do so. The company has reportedly looked at a few targets but nothing has yet come to fruition.

Targets on the geothermal side are scant, but one Ormat is said to have chased is Salton Sea, an inland saline lake in Imperial Valley, Calif., with some 500-600 MW of geothermal potential.

Shares in the Israeli RRSat Global Communications (RRST) are having its best day in a long time, as the company surpassed earnings estimates and guided higher for the rest of the year. The company reported that gross margins increased to 32.4%, a 30% year-over-year revenue increase and a strong backlog of orders.

The company provides global, comprehensive, content management and distribution services to the rapidly expanding television and radio broadcasting industries, via  “RRsat Global Network,” composed of satellite and terrestrial fiber optic transmission capacity and the public Internet.

Israeli CRM and billing systems company Amdocs (DOX) has bested analyst estimates and come through with a record quarter. The company reported record revenue of $820 million in Q2, up 15% over Q2 ‘07, solidly beating the consensus estimate of $811.06 million. Non-GAAP net profit grew 9.9% to $132.5 million, or $0.61 per share, above the analysts’ consensus of $0.60. In addition, Amdocs also raised its Q3 guidance.

Globes quoted from a Merrill Lynch report on the earnings:

Rumors are swirling in the Israeli press, that the world’s largest generic drug maker is about to become much larger. Reports are that the Israeli based Teva Pharmaceuticals (TEVA) is in talks to buy U.S. Generic maker Barr Pharmaceuticals (BRL) for as much as $7.5 billion, a 40% premium to their closing price yesterday. While Barr comes with a fat price tag, the deal would make sense for Teva, as Barr is very active in Central and Eastern Europe, geographies that Teva has been targeting at for future growth.

Teva has around $3 billion in the bank so it appears it is going to have to go out and issue debt to fund the deal. The debt plus the big premium, may pressure the stock price in the short term, but over the long haul, this may prove to be another in a long line of very wise acquisitions.