I have been receiving a significant amount of email regarding an old entry I wrote back in March 2008 regarding the Baltic Dry Index ((BDI)). Back in March the BDI was recovering for an interim low it experienced in January on fears of a global economic slowdown. However, since then the situation has become far worse. The BDI is now trading at levels not seen since 2001.

To help put this into perspective, a recent article by The Independent noted that in the beginning of June the total cost of a shipment of coal from Brazil to China would have totaled USD15mn per voyage compared to USD1.5mn currently. At the same time, the article noted that the daily cost of chartering a capsize bulk carrier during this cycle's peak amounted to USD234.0K vs. USD5.6K presently. This is a drop of around 98%!

Back in January, I wrote a piece discussing the predictive power of the Senior Loan Officer Survey and found that there was some significance to the data. For the survey, banks’ senior loan officers are asked to answer multiple questions based on their lending standards and demand for commercial/residential loans as well as consumer loans. The survey is conducted during the first month of the applicable quarter (i.e. Q108 data is collected during Jan. 2008). This more or less implies the data has a forward looking aspect, since the applicable quarter has only begun when the data is collected. This data is reviewed by the Federal Reserve for conducting monetary policy.

Unfortunately, the October 2008 survey doesn’t look much better than it did back in January. Lending standards have continued to tighten and demand has diminished. Currently, the survey concurs with the view that the US economy is in a recession, which shows no immediate signs of abating. Here is a quick outline on where the survey can be important in analyzing future trends:

One could argue we have moved from an age of exuberance to an age of despondency. Not long ago our major concern was skyrocketing commodity prices, and its effect on global inflation; enter the credit crisis. We are currently witnessing an unprecedented global sell-off with no regards to asset classes or quality, or as I like to call it, "the age of despondency." We have achieved capitulation.

One positive out of this is this action was likely necessary to bring us out of these uncertain times. In the end we should establish a clear bottom, and eventually stage a sustained comeback. What is important to note is that in this age of despondency many assets, regardless of quality, have been pulled down to interim lows. For example right now, you can purchase the 30 stocks that make-up the Dow and receive a 3.8% dividend, plus of course any appreciation or depreciation of the assets. I won’t even begin to get into the credit market…

As an additional follow-up to my ADR series (see previous articles on energy sector ADRs and financial sector ADRS), I am going to take a look at the Chinese and Hong Kong healthcare sector.

There are 6 key Chinese and Hong Kong ADRs within the GICS healthcare sector: Mindray Medical International (MR), Chine Medical Technologies (CMED), Wuxi PharmaTech (WX), Simcere Pharmaceutical (SCR), 3SBio (SSRX), and Tongjitang Chinese Medicines (TCM)

As a follow-up to my energy sector ADR piece, I am going to take a look at the Chinese and Hong Kong Financial sector ADRs.

There are 3 Chinese and Hong Kong ADRs within the GICS financial sector: China Life Insurance (LFC), E-House (EJ), and Xinyuan Real Estate.

The first sector I am going to break-out is the Chinese energy sector, primarily because this sector has the highest market cap of all the sectors I outlined in my last piece. There are 5 Chinese and HK ADRs within the energy sector: PetroChina (PTR), Sinopec (SNP), CNOOC (CEO), Yanzhou Coal Mining (YZC), and Gushan Environmental Energy (GU).

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In this piece, I will highlight 66 Chinese and Hong Kong ADRs by sector, broken out by market cap, average 30 day volume, and a series of performance metrics. This piece will eventually be followed-up with specific analysis on Chinese sectors and companies. Before getting to the nitty gritty, let's formulate a quick outlook on the global and Chinese economies.

As everyone by now has realized decoupling of the financial markets holds less credibility than the Loch Ness monster. This notwithstanding, I anticipate growth in developing emerging market economies, especially China, will continue to outpace their industrialized counter parts in the years to come, albeit it not at the pace we have grown accustomed to seeing. It is also very likely we will see domestic demand take over as the new engines of growth in these economies.

Sitting here in Hong Kong, I know few people who aren’t transferring money into China to take advantage of the appreciating RMB and attractive domestic rates. In fact, a study conducted by the Chinese Academy of Social Sciences estimates there is around USD1.75trn of such money within China, with USD150bn coming during the first five months of 2008.

The good news for these investors is that the RMB is still expected to appreciate over the next 1 to 2 years as the Chinese government continues to correct economic imbalances. However, there is bad news. Eventually, the RMB appreciation will peak, and those investors solely within the country to take advantage of the appreciating currency will begin to pull back. This will likely cause liquidity problems within the Chinese economy, and will lead to further depreciation as more investors attempt to withdraw their funds. This potential crisis has not gone unnoticed. The branch head of the Jiangsu province China Banking Regulatory Commission released in a paper this week the following comments:

As oil prices continue soaring and consumers’ preference shifts to smaller and more fuel efficient vehicles, we are likely to see a proliferation of hybrid technology. Looking at the most recent car sales data in the US, Honda (HMC) and Hyundai out-sold both GM (GM) and Ford (F), mostly due to their wide selection of smaller more fuel efficient vehicles.

So what does this have to do with batteries? I believe quite a lot... It would appear the next natural progression in the auto industry will be the development and sale of plug-in hybrids [PHEV]. Thus far, production of PHEVs has been extremely limited, mostly due to battery related issues. However, given the current record oil prices and recent advancements in battery technology it is likely this market will show significant growth over the next several years.

Looking back to last week, as we expected the market was unable to maintain the upward momentum it experienced the week prior. This was due to weaker than expected data from the consumer sector and financial related news. The Dow and S&P500 ended the week down 1.17% and 1.08%, respectively, and we could have more bad news this week.

Policy makers in China have not only continued their anti-inflationary rhetoric, but have started acting on it. We have seen the RMB reach several new highs verse the USD in recent days (7.01). Additionally, Chinese authorities have increased reserve requirements for the second time this year by 50bp to 15.50%.

It does not appear this news has settled too well with Chinese equities markets, which have experienced a significant sell-off from the combined fears of tighter monetary policy, a stronger RMB, and possible global slowdown. As a result, local investors seeking more attractive yields have started moving away from EQ and into the domestic fixed income market; yields have rallied accordingly. We expect this trend to continue.

We are continuously being barraged with mixed news concerning the housing crisis. One day we hear signs are pointing towards a bottom; the next, housing numbers came in much lower than expectations. So we raise this question: What indicators should we be looking at to truly signal a recovery in housing?

With this question in mind our analysis focused on creating the stages we believe would be necessary to facilitate a recovery. We were able to define 7 chronological stages which need to occur in order for the crisis to end. Additionally, the progress for each of the stages can be measured by several key indicators. The stages we outline below are meant to help to average investor better understand how a recovery will most likely unfold, and includes indicator that anyone with a basic internet connection will be able to easily access.

Consumers around the world are being indirectly taxed through record high gas prices. This, of course, hurts consumers’ pockets and can raise inflation fears. We wanted to take a look at the crack spread between WTI crude prices and US petroleum prices as measured by the Energy Information Agency. We outline the results below.

The February reading of the U.S. all grades all formulations retail gasoline prices per gallon was $3.078 verses a WTI price of $95.35/barrel for the month. Why is this important? First off, gasoline is produced by applying a refining process to crude oil, so factoring out crude previously purchased at a lower price and hedging activities, gasoline has to be more expensive than crude. For comparative reasons we broke the WTI/barrel price into a WTI/gallon price, so we could compared it to gas prices. The results were not surprising, that is, until recently.

US Ethanol Production has been increasing drastically