Food inflation is gaining strength:

A combination of factors is driving the price of basic foods up and this trend is not a reaction to seasonal factors or changes in crop yields due to drought as has been the case in the past. In the past food prices tended to move up due to crop failures from droughts and other weather related factors. The current trend is partially a reaction to lower crop yields in Australia and Brazil, with a considerable influence from the ridiculous push to produce ethanol as an alternative to gasoline in the US. But these factors can only account for a portion of the increase in prices, the main force behind the increase in basic foods such as wheat, corn, soybeans, sugar, coffee etc. is the added demand for these commodities from an expanding middle class in Asia.

In Asia millions of middle class families are being created annually as the average income increases so does the ability to diversify their diet from the previous subsistence diet of rice, fish and poultry to start to include beef, pork and additional meals over poultry. All of this additional meat is creating a huge demand for feed grains such as corn and soybeans. One thing is certain once the diet is diversified it is highly unlikely that those consumers will go back to the old subsistence diet regardless of the additional cost, it has been proven that a diversified well rounded diet can increase the size, strength and mental ability of children it also adds to the longevity of a population so going back is not going to happen.

As Asia continues to create new middle class families by the millions the upward pressure on the price of food will continue, likely for decades. This new trend will create opportunities for companies supplying to this sector such as fertilizer companies, seed suppliers, transportation and equipment suppliers.

PetroChina now the world’s largest:

If you needed confirmation that the Chinese stock market is over valued look no further. PetroChina tripled in value on its first day of trading in Shanghai. The company now has a market value of over $1 Trillion, the first company in history to do so making it the largest company in the world when ranked by market capitalization, larger than the market value of Exxon and GE combined.

The risk in the Chinese equity markets has gone through the roof and this latest example of extreme valuation is just another indication of the excesses in the market. As I have been saying for months, stay away for direct Chinese investments but continue to invest in companies that supply the materials required to build the industrial infrastructure and complete the modernization of the Country.

For more information go to www.campbellreport.com

Citibank cleans house:

The largest bank in United States has just accepted the resignation from CEO, Charles (Chuck) Prince, after announcing that the firm will be taking a write down of approximately $11 billion (that’s billion) due to exposure to the subprime mortgage sector. Investors are getting out in a big way as indicated by the share price decline of $2.20 or 5.85% today.

The question for all investors is have the financial companies such as Citibank and Merrill Lynch come clean on their exposure to the subprime slime they helped create? I would suggest that is not likely and that we will be seeing additional substantial write downs going forward as well. When the new CEO is appointed at Citi and Merrill you can bet there will be another write down, that has just come to light, just like a new President or Prime Minister does when taking over power, blame the last guy with as much as you can get away with.

I would stay away from financial shares until the real final number is out and that won’t happen for months.

For more information go to www.campbellreport.com

Copper new uptrend?

The price of copper has been on a tear over the past few weeks as inventory levels worldwide fall. China which consumes about 20% of global production remains on a very robust growth trend and continues to be the main force in the copper market. The global inventory levels have fallen for eight weeks in a row and there appears to be the potential for further declines as the building season in many parts of the world is just starting to pick up momentum.

Over the past few years there has not been a dramatic increase in copper production and the opening of new mines has been a slow process. The current producers have been unable to expand production sufficiently to meet the increase in demand. New mines are going to come on stream but the time frame to get approvals and complete the permitting process can extend out to ten years in some regions. Do not be surprised when the price of copper rallies back to last years high of just over $4.00 a pound from the current level of $3.32 per pound.

I continue to be bullish on copper and would continue to hold Northern Orion Resources (NNO-T, $4.85) which is held in the Aggressive Model Portfolio originally purchased in January 2007 @ $4.33 (12% return to date or 56% annualized) initial 18 month target $8.00 and Aur Resources (AUR-T, $25.00) which has been held in the Growth Model Portfolio since March 15 2005, original cost was $8.45. (total return to date 195% or 135% annualized) 18 month target price increased to $32.00.

For more information go to www.campbellreport.com

BCE being taken private?

The rumor mill is going wild on the news that BCE may be taken private by Kohlberg, Kravis Roberts (KKR). The US private equity firm has been involved in many of the most spectacular deals over the past decade or so. The firm has access to the capital required to complete this $24 billion deal.

The main hurdle will be the foreign ownership limits in place on Canadian telecom and media companies. KKR would need to find a wiling Canadian partner or partners to complete the deal. The Ontario Teacher Pension Plan already has an ownership position in BCE and would be a likely partner along with other pension plans.

If this deal goes through it seems that this will potentially be one of the unintended consequences of the Governments decision to stop the creation of income trusts. If BCE had been allowed to convert to a trust structure I doubt that any of the unit holders would be willing to tender to an offer taking the company private and give up the high income distributions. The common shareholders will be much more receptive to an offer for this lackluster performer. BCE shares have basically gone sideways for nearly 5 years as management tries to refocus the company back to its core businesses.

If you currently own BCE shares be prepared to accept an offer from a group led by KKR and say good bye to another Canadian icon stock as global investors continue to see value in the Canadian market.

For more information go to www.campbellreport.com

Canadian Budget 2007:

The Conservative Government has just tabled their newest budget; the budget has a lot of new spending initiatives mainly aimed at the provincial governments for infrastructure, education and health care.

The Federal Government has tried to meet the requests of many special interest groups which appears to be a strategy by the Conservatives to divide and conquer the opposition in the next election. If the opposition parties defeat the Government on this budget they will be penalized by Canadians who do not want to go to the polls again so soon.

The Conservatives have made some headway on the so called fiscal imbalance by offering a substantial increase in the transfer payment system which will potentially become more flexible and can be tailored to the individual provinces requirements.

The budget does have one interesting change that is the ability of a family to file jointly which will eliminate the marriage penalty. Now Canadian families will be treated equally regardless of whether they are a one income or two income families, reducing the penalty forced on a family where one spouse stays home to care for the children.

I am a bit surprised that the budget did not deal with any changes to the capital gains taxes as many had expected and the government had hinted at, also that the Government decided to reduce the investment incentive for the development of the oil sands projects.

The Government is going to apply $9.2 billion to debt reduction but has increased spending by a considerable amount. The Government did not change the current structure of the tax brackets which will hurt the average taxpayer over time.

Generally the budget meets a lot of the concerns expressed by Canadians recently, it does not dramatically change the average Canadians tax bill and it will not add any impetus for increased investment but that being said it does not hinder the economy either so that economic growth should continue to be robust going forward.

For more information go to www.campbellreport.com

Sub prime will be the dot com of 2007:

The sub prime mortgage market is sending shock waves through out the equity and bond markets. Many investors will ask what is all the fuss about. The answer is that the sub prime segment of the mortgage market has ballooned over the past four years as lenders scrambled to expand market share.

Sub prime mortgages are those that are issued to borrowers with less than attractive credit histories or mortgages that have extremely lax terms such as zero down payments. The explosion in sub prime mortgages generally happened in areas with substantial increases in home prices. The assumption being that the lender could justify the mortgage due to an anticipated increase in real estate prices which would protect their position.

Over half of all the mortgages currently out standing were issued in the last three years, and a large percentage of those would be considered sub prime. As real estate prices continue to soften over the next few months the number of defaults in sub prime mortgages will increase dramatically.

Investors have to be very careful going forward as it is not going to be easy to see which lenders will be most affected by the increase in default rates. Many of the major financial institutions have been funding the expansion in mortgages and will have substantial indirect exposure to this segment of the market.

The fall out from this huge increase in lending risk will hit a number of sectors of the stock market. Avoid any and all sub prime mortgage lenders, small regional banks and trusts and be very vigilant in looking at the details of loan loss provisions for any of the major lenders as well. The home builders and building supply companies are going to be hit hard as the number of homes for sale jumps due to foreclosure action. The retail sector will be hit as many borrowers cut down on consumption in an effort to hold on to their homes.

This is only the beginning of the slide in the financial services sector and the process will take months to complete and there will be a lot of tears shed before this is finished.

For more information go to www.campbellreport.com

Look to the land of the rising sun:

The economy in Japan over the past year or so has been showing consistent signs of improving. The previous cycle of deflation appears to have ended and prices of most goods and services have stopped going down. Consumer confidence is starting to improve and corporate profitability has turned the corner as well. The Japanese economy has benefited from increased trade with China as well.

The Japanese economy has been hampered by a decade long fight with deflation which started in real estate and quickly spread to the rest of the economy. The extreme valuations that occurred in real estate took years to correct and over that time frame the Japanese consumer drastically reduced consumption.

Real estate prices appear to have stabilized and that has helped to embolden the consumer, this increase in consumer activity has helped to push up corporate profitability which has helped to reduce the jobless rate in the country.

All of these factors are starting to have a positive impact on the over all Japanese economy and once the psychology of deflation has turned around to one of optimism and growth the trend will last a considerable length of time.

An efficient way to get access to Japan is by utilizing Exchange Traded Funds (ETF’s) the ishares MSCI Japan Index Fund (EWJ-N) tracks a broadly based index of Japanese stocks. The top five holdings in the fund are Toyota, Mitsubishi Financial, Mizuho Financial, Sumitomo Financial and Canon Inc. The fund is quite large approximately $14 billion and very liquid with 1 billion units out standing. This is an inexpensive fund with a management expense ratio of only 0.59%.

For investors looking to diversify into a strengthening international market Japan appears to have the potential to out perform many other regions over the next 18 to 24 months.

For more information go to www.campbellreport.com