China and Greenspan upset markets:

The sell off in China over night has put North American combined with Allan Greenspan’s caution that the US economy could be in recession by the end of the year put investors in a selling mood. The Dow Jones Index at one point was down over 550 points. The S&P/TSX was down over 400 points the China sell off triggered investors to crystallize their profits.

The main theory seems to be that the economy in China may not be as robust as last year and that led to a sell off in the commodity stocks even though the commodities themselves were stable. The uranium sector got hit hard on the assumption that China will not follow through on the expansion of their nuclear power plants.

All of this is giving investors an opportunity to buy base metal stocks at much better prices than they were. The basic fundamentals have not changed in Asia only the stock market levels have changed. The market in China has been seeing an excessive amount of speculation over the past few months being fueled by the huge run up in prices over the past year. The speculators are generally unsophisticated and have been using leverage to increase their exposure, this always ends in tears and it will be no different this time.

North American investors have to keep the fundamentals in mind and realize that the markets have been going up steadily all year and have been due for a set back. The current sell off may extend for a week or two but over that time frame there are going to some very good buying opportunities. Investors have to ignore the shouts by the media that the end is near, they have never been able to call the top or the bottom of a market move before and I doubt they will be able to do it this time either.

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GM rumored to be looking at buying Chrysler:

The rumor mill is just humming with talk of GM buying Chrysler. This would be a huge deal and would change the dynamics in the global auto sector. The notion that the largest car maker in the world would buy the third largest is quite intriguing.

If this deal does go together it will create a flurry of auto mergers just so that the other car makers don’t get buried. The deal would likely be the final nail in the Ford coffin and force the company out of business. Ford has not been nearly as aggressive in making changes as it should have and I believe that none of the other auto makers would be willing to take on the risks of merging with Ford at this point.

The potential for a massive change in the auto sector is very high if this first deal gets finalized. The rush to achieve similar economies of scale will be dramatic. The rationalization of plant and personal will be massive as well. The layoff numbers we have seen recently will be nothing compared to the potential layoffs that will be planned due to the consolidation of the entire global industry.

The only way this deal makes any sense is if the newly merged company reduces duplication and cuts the number of models down to only a couple of dozen not the 100 or more currently available. I wouldn’t want to be in the auto parts business if that happens.

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Institutional Investors looking at Europe:

Merrill Lynch has released an updated survey of institutional investors and the current survey reports a very bullish sentiment by these professional investors. The survey also indicates that the bullishness is not reserved just for American markets but surprisingly there is a renewed interest in European shares.

It seems to me that the increased interest in Europe is not consistent with the deteriorating fundamentals in the region. The European Central Bank (ECB) has been focused on fighting inflation for so long they don’t see anything else. This stance has forced the ECB to increase interest rates over the past year to the point where they are now higher than US rates even as the economy in Europe has only seen small increases in GDP growth over that time frame.

The potential for continued economic growth diminishes with each interest rate hike. The impact of interest rate hikes on economic growth often takes 6-9 months to show up. The previous interest rate increases by the ECB are only just starting to have an impact on growth and the full impact is still likely months away.

The focus by the ECB on inflation and only inflation will reduce economic growth over the next year or so and slower growth will lead to lower earnings growth which will cause the equity markets in Europe to decline. Those getting in to European equities now have missed the easy money and are now taking on increased risk and reduced potential profits, not a recipe for successful investing.

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Winning with Finning International (FTT):

Finning announced the highest ever earnings for the company in the third quarter coming in at $52.7 million or 59 cents per share verse $36.2 million or 40 cents per share for the same quarter of 2005.

The company reported revenue of $1.41 billion a 25% increase from the $1.12 billion for the third quarter of 2005. The dramatic improvement is largely due to the increased activity in the commodity sectors in both Canada and South America.

The demand for basic material in China and India has driven the prices of base metals to historically high levels and Finning is the largest Caterpillar dealer with operations in Western Canada and Chile, Argentina, Bolivia and Uruguay.

The company has been in the right markets and offering the right equipment and services for an expanding mining industry in these regions which appear to have only just started to upgrade equipment and technology in order to increase production to take advantage of the higher demand

Finning is one of the companies held in the Growth portfolio and it was included due to exposure to the commodity sector and for exposure to the global growth being driven by increased demand form Asia. First purchased in January 2005 the shares are up over 41% and appear to have the momentum to go higher.

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SXR Uranium One:

SXR Uranium one announced a take over deal for UrAsia which sees SRX buying all of UrAsia in a share exchange where each share of UrAsia will be exchanged for 0.45 shares of Uranium One. This deal values UrAsia shares at $7.05 a 21% premium to the average trading price in over the past three weeks.

The deal vaults Uranium One up in the tier of senior producer with capacity of 7 million pounds of uranium annually. The combined company will have proven and probable reserves of 49 million pounds and total proven, probable, indicated and inferred reserves of approximately 389 million pounds of uranium.

The price of uranium has moved dramatically higher over the past three years from around $10.00 a pound to $75.00 a pound currently. The increase in demand due to new nuclear facilities coming on stream will maintain upward pressure on the price of uranium, while the addition of new supply has been slow to come to the market. The time frame to bring a new mine into production tends to be about 10 years, companies that are on the verge of bringing in a new mine or expanding production from an existing operation have an excellent opportunity for earning growth.

This merger positions SXR Uranium One as one of the larger uranium producers in the world and creates a opportunity for growth in a uranium market that is the best in decades.

For more information go to www.campbellreport.com