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Sunday Reads

|Includes: PowerShares DB Agriculture ETF (DBA)

From Investment Postcards from Cape Town:

A special report by Comstock Partners, the highly regarded investment manager run by Charles Minter, argues that US economic growth may be just as lethargic over the next 20 years as that of Japan during the last 20. Click here for the full report.
================================================================== All Eyes on Chines Equities according to Prieur du Plessis:

After almost doubling since the beginning of the year and notching up seven straight weeks of gains, the Chinese Shanghai Composite Index (3,046) has now declined by 12.2% since its peak of August 4. This morning the Index dropped to below its 50-day moving average (3,097), but is still comfortably trading above its 200-day line (2,413). The Rate-of-Change Indicator (black line in the bottom section of the chart) is also about to break below the zero line, thereby flashing a sell signal.



David Fuller (Fullermoney) said: “Some commentators think China has already entered a climactic third upward stage characterised by mania. Yes, last month’s gains were a bit frothy, causing the uptrend to steepen. However, this has boiled over … Some of the speculative froth is now being blown away, but I suspect we are seeing no more than the first reversion to the mean within this bull market. China should have world-leading increases in corporate profits next year.”

Technically, it looks if more downside is in store for the Shanghai Composite Index and it would not come as a surprise if lower Chinese equities serve as the catalyst for a well-deserved pullback in global stock markets. I will be watching this space closely to ascertain whether we are dealing with a normal short-term correction or a more significant move threatening the primary trend.

=================================================================== Nouriel Roubini sees a sluggish recovery ahead, in this excerpt from a Forbes article:


Sluggish Recovery Ahead It is very difficult to argue that the U.S. economy is not still in a recession while the labor market is still weak. But the interesting question is not whether the U.S. economy is still technically in a recession, or whether the recession will end in Q3 2009 or Q4 2009--or later. What is interesting is understanding the implications of this severe downturn and financial crisis for the recovery.

Any sustained and strong improvement in growth has to come from a revival in private demand, and not from temporary factors like inventory adjustment and policy measures. The U.S. consumer, who, as we've noted, still accounts for close to 70% of GDP, is pulling back. Investment, which still trails consumer spending at home, will be weak. Exports will be a source of growth only in the medium term. In the short term, the rest of the world will remain dependent on the U.S. to drive demand while consumption abroad will be unable to offset the decline in U.S. consumption.

These factors suggest a sluggish economic recovery for the U.S. in the coming years until new sources of growth emerge (such as exports to emerging markets, investment, new energy and technology). Factors such as unsustainable public debt, higher structural unemployment, lower credit growth and higher taxes in the future will also constrain growth.


================================================================= Andrew Horowitz gives us an ETF for playing agriculture, DBA. For free trend analysis on DBA, Click Here:

We are using the Powershares Agriculture ETF (NYSEARCA:DBA) to play the growing explosion of prices on many food commodities . Recently, sugar moved higher on the prospect that India will have a tough time with their crops this year after record droughts. That is one component of the 4 in this ETF. Brazil is also having trouble with too much rainfall that is creating problems for sugar crops as well. Otherwise, we beleive that there will continue to be strong demand for food as the populations in the emerging markets continue to grow.

Aug. 10 (Bloomberg) — Damaged crops from India to Brazil mean the world won’t have enough sugar for a second straight year.

Global demand will exceed output by as much as 5 million metric tons in the year through September 2010, leading to a record two-year shortfall, according to the International Sugar Organization in London. Parts of Brazil, the largest grower, are drenched by rainfall four times more than normal and too wet to harvest. India, the biggest consumer, had its driest June in 83 years and may double imports.

The number of options to buy sugar for delivery in March at 30 cents a pound, 44 percent higher than the Aug. 7 price in New York, has jumped more than 18-fold in four months. The rally is boosting expenses for food makers from Kellogg Co. to Kraft Foods Inc. and increasing profits for Cosan SA Industria e Comercio, the largest cane processor.

“I haven’t seen sugar fundamentals being so severely unbalanced in my time,” said Adam Leetham, the Gurgaon, India- based director of Czarnikow Group who has been tracking the domestic industry since 1994. “It’s not just India. You see fundamental deficits in a number of large markets. It certainly looks like we will enter uncharted territory.”

Hedge funds and other large speculators more than doubled net-long positions, or bets prices will rise, to 206,330 contracts this year, the most since a record 240,792 in January 2008, U.S. Commodity Futures Trading Commission data show.

Below is a chart that shows the massive move of sugar over the last few months. At this time prices are approaching a 25 year high.


The four food commodities that are part of DBA are Sugar, Wheat, Soybeans and Corn. Aside from corn, each have ticked up higher over the last few weeks.


Performance of DBA. Stochastics are turning up as the price seems to be holding up well, even in the face of a global deflationary environment. Even as the dollar strengthens over the past week or so, DBA has been relatively strong as sugar has been giving it a boost.


Disclosure: Horowitz & Company clients may hold positions of securities mentioned as of the date published.