The larger-than-life portrait of Mao Zedong was clearly fodder for the millions of Chinese peasants and workers watching last week’s grand parade on television. Because those occupying the podium at the Gate of Heavenly Peace knew full well that the ideals and agendas of the 1949 revolution had long been abandoned. And despite President Hu Jintao renewing his commitment to socialism, China is in no danger of turning into a proletarian state at any point in the next few decades.

On the contrary, there is every reason to believe that Mao Zedong is turning in his grave. Foreign and domestic equity has flourished in China’s special economic zones since the early-1990s and, of late, land ownership laws have been amended to encourage private holdings.

'As far as I am concerned, this is ... the most complex crisis we've ever seen due to the number of factors in play'
Spanish Economy Minister Pedro Solbes speaking to the Spanish radio station Punto Radio September 2008

“‘The global imbalances have to add up to zero and so, if the US is going to be less the consumer importer of last resort, then other countries are going to need to be in different positions as well."
Director of the US president’s National Economic Council Larry Summers, speaking over lunch with the FT’s Chrystia Freeland.

The 13 closed end fund (CEF) types on average were up 3.1% for the week ending 7/17/09. The S&P 500, as measured by the SPDR S&P 500 ETF (SPY), registered a surge of 7.0%.

On an aggregate, unweighted basis, the weekly price increase for 640 CEFs was 2.8%. The weighted 51 CEFs comprising the Claymore CEF Index registered an advance of 6.2% for the week. The 640 CEFs’ aggregate, unweighted current distribution yield is 8.2% and is trading at a 5.7% discount. (Click here for YTD CEF Performance.)

Year-to-date (YTD), the 13 closed end fund (CEF) types are up on average 20.5% based on share price changes. The CEF market segment has experienced a nice rebound YTD from the two previous calendar year back-to-back losses. (Historically, the CEF market segment has not experienced three consecutive years of share price declines.)

The 13 closed end fund (CEF) types on average were down 1.7% for the week ending 6/19/09. The S&P 500, as measured by the SPDR S&P 500 ETF (SPY), registered a decline of 3.2%.

On an aggregate, unweighted basis, the weekly price decline for 641 CEFs was -1.4%. The weighted Claymore CEF Index registered a 2.0% decline for the week. CEFs’ aggregate, unweighted current distribution yield is 8.5% and is trading at a 6.5% discount.

Looking at country and region funds in terms of fundamental portfolio attributes, there are significant valuation differences which should be appreciated when making selections.

This chart presents key data from Morningstar for 45 country and region funds, and color codes the data in comparison to the total US stock market as represented by VTI.

For the week ending of May 8th, average share price performance for CEF fund types was up 4.0% (the aggregate, unweighted average of 643 CEFs was up 3.8%) trailing a 5.8% advance for the S&P 500, as measured by SPDRs S&P 500 ETF (SPY). (YTD, 643 CEFs on an aggregate, unweighted basis had a Distribution Yield of 8.8%, a Discount to NAV of 7.0% and an 18.0% share price appreciation)

We've had a watchful eye on Russia all year as it plays into one of our main macro themes: owning countries that will benefit from commodity reflation and can supply THE client (China) with the resources it needs for domestic growth.

As we've noted in previous posts, despite the risk premium associated with owning the Kremlin's leadership and negative fundamentals, you can't argue with the Russian stock market's (RTS) +27% YTD performance, despite Friday's pullback.

Below are negative and positive fundamentals and data points to consider when owning Russia:

Closed end fund (CEF) fund type performance YTD (4/24/09) reflects a tale of two markets. As measured by the SPDR S&P 500 ETF (SPY), the stock market YTD represents two legs: a -24.5% “down-leg” from the beginning of the year to the March 9^th and a subsequent 27.2% “up-leg” forming an imperfect “V”.

Everyone wants to know.. how long can the rally last. It’s the same question that was being asked on the other side just one month ago. How low can we go and for how long? The market always seems to remain irrational longer than you think it will and that has certainly played out over the first quarter here in 2009.

To help answer these questions, I always turn to the charts to gauge areas of support/resistance as well institutional demand. Admittedly, technical analysis has been considerably difficult in an environment of rumors, manipulation, intervention and extreme levels of fear and greed, but what it does and will always do well is provide an x-ray into the health or weakness of the market. In general, slices through support and weakness at resistance indicates a deteriorating market while surges above resistance and at support indicate good market strength.

All closed end (CEF) fund types advanced the week ending 4/9/09 in an undulating, holiday-shortened week. Average price appreciation of 13 CEF fund types was 1.6%, while the unweighted average for all 646 CEFs was up 1.4%. (On an unweighted aggregate basis, CEFs are up 7.4% YTD; Distribution Yield is 10.6%; Discount to NAV narrowed to 8.6%). Riskier fund types continued to be favored. This is consistent with an 8.0% drop in the CBOE Volatility Index (VIX) and CEF muni fund types moving to the back of the bus. Preferred fund type, up 3.4%, benefited from the surge in bank stocks as a preponderance of preferred stocks are bank related. Special equity funds were up 2.9% and benefited from the surge in the real estate sector and Russian funds.

click to enlarge

Summary: All closed end (CEF) fund types advanced the week ending 4/9/09 in an undulating, holiday-shortened week. Average price appreciation of 13 CEF fund types was 1.6%, while the unweighted average for all 646 CEFs was up 1.4%. (On an unweighted aggregate basis, CEFs are up 7.4% YTD; Distribution Yield is 10.6%; Discount to NAV narrowed to 8.6%). Riskier fund types continued to be favored. This is consistent with an 8.0% drop in the CBOE Volatility Index (VIX) and CEF muni fund types moving to the back of the bus. Preferred fund type, up 3.4%, benefited from the surge in bank stocks as a preponderance of preferred stocks are bank related. Special equity funds were up 2.9% and benefited from the surge in the real estate sector and Russian funds.

click to enlarge

WSJ is reporting China and Russia have signed a $25bn 20 year pact. Russia will supply 300,000 barrels per day in exchange for this $25bn. This is similar to what I wrote yesterday, when I suggested Kazakhstan should go to China and sell stakes in some oil field. Now that big bro Russia has shown the way, other Eastern European countries will follow suit.

Two weeks ago, we got the Roundtablers' overall outlook, along with the picks of Meryl Witmer and Fred Hickey.

This very short piece of news in Bloomberg Wednesday morning is straight to the point, how the hell are you going to export to countries (when you now need to live from exports) if those countries are having massive devaluations while you mark time. Oh, I know that Ukraine and Russia represent only a small fraction of Baltica exports, but they aren't the only ones falling, the Romanian Leu, the Polish Zloty, the Hungarian Forint, the Czech Koruna are all falling, and all these countries are direct rivals for market share in the rest of the EU.

AB Snaige, the only refrigerator maker in the Baltic states, will cut about 300 jobs in its Lithuanian factory, citing lower demand in Russia and Ukraine as both the ruble and hryvnia lose value against Lithuanian litas. Sales in Russia and Ukraine have “stopped” and “there is no evidence these markets will revive” during the first quarter, the Alytus, Lithuania-based company said in a statement to the Vilnius Stock Exchange today. The company employs “more than” 2,300 workers in its two factories in Lithuania and Kaliningrad, Russia, according to its Web page.

Poland now looks set to become the latest shoe to drop in the ongoing crisis which is steadily extending its reach from one country to another, right across the whole of Central and Eastern Europe - the latest and possibly the last in the sense that if Poland does roll belly side up this will probably be the one which finally does turn the apple cart well and truly over.

Italy's UniCredit, the biggest lender in emerging Europe, said on Wednesday there was a clear risk of the global credit crunch gripping the region and it was up to international banks to help to avert it. UniCredit board member Erich Hampel said in a presentation at the Euromoney conference in Vienna that the bank was committed to fund its subsidiaries in those countries and would continue to lend to consumers and companies. It called on other banks active in the region, the European Union, the International Monetary Fund, other institutions and the countries concerned to launch a joint plan to stem the threat that funds could stop flowing and choke economic growth. "The international financial crisis is questioning future developments and the risk of a credit crunch is clear," said Hampel, who steers most of UniCredit's emerging European units as head of its Bank Austria arm. "A number of interested parties are involved and the support to the region should come from all of them together," Hampel said. "Coordination is essential and a 'Plan for CEE' should be designed."

As illustrated below, 2008 was a difficult year for closed end fund (CEF) investors. Nonetheless, 2009 should be a year in which CEFs return to generating positive returns. This assessment is based upon the historical fact that since 1980 the CEF industry hasn’t experienced three consecutive years of negative returns. (See previous article: “Closed-End Funds: Due for Positive Returns in 2009.")

2008: An Ugly Year for CEFs: CEFs posted an average share price decline of 37.7% for 2008. CEFs paced the 38.5% decline for the S&P 500. Among the fund types, the allocation of losses (red) reflected investors’ avoidance of risk. The least loss was recorded in the investment grade bond (“InvGrdBndFnds”) sector and greatest loss in the special equity (“SpecEqFnds”) sector. The average distribution yield (blue) was 12.3% and reflects distribution from all sources: investment income, short and long term capital gains as well as return of capital. The current distribution rate is not a good reflection of distribution levels going forward. In fact, many CEFs are currently in the process of distribution reductions as their respective net asset values (NAV) have declined and their ability to distribute capital gains has been curtailed.

'Oxen know they will succeed through hard work and sustained effort and find no truth or benefit in concocting get-rich-quick schemes...' (Chinese Calendar describing the forthcoming Year of the Ox)

Markets are limping exhausted to the end of a tumultuous year but before I look at the likely shape of markets in 2009 and beyond in forthcoming posts, it's crucial to take stock of where we currently are and how we got here. The narrative of the recent market crash and global recession is not as simple as it is often presented. The bad guy in this horror story isn't simply a greedy US consumer splurging on stuff he doesn't need with money he doesn't have. China and the US have been locked in the economic equivalent of a drunken embrace for years, and it was only a matter of time before huge global imbalances in trade and savings were going to revert to a sustainable mean.