By Shah Gilani
Contributing Editor
Money Morning

Two years ago, an associate of mine lost $100,000 because he didn’t listen to me. A year ago, I saved a manufacturing company from the same scam. And just last week I saved a friend of mine $300,000.

For several years now, a far-fetched but seemingly plausible investment opportunity has been wreaking havoc across the globe. In the United States alone, an estimated $10 billion has been lost in this particular gambit. The scheme is typically hidden behind such legitimate-sounding names as “Prime Bank Trading Programs,” “High-Yield Investment Programs,” or “Roll Programs.”

These are not legitimate investment opportunities. The reality is, they are outright scams. And my role as a professional investor has provided me with an up-close-and-personal vantage point from which to observe some of these con games.

Everything I am relating in this story is true. This story – along with real names, contact information and associated documents – has been forwarded to the Federal Bureau of Investigation and the U.S. Securities and Exchange Commission in an effort to catch these brazen conmen and to save unsuspecting investors from further losses.

While there are variations of this scam, once you read this article you should be able to see the set-up and con game from a thousand miles away.

And that’s as close as you ever want to get to any of this.

Raymond’s story

When the real estate market collapsed, my friend “Raymond” had several million dollars invested in the development of a couple of tracts of land in Florida. With the bank threatening foreclosure, he turned to a mortgage broker he knew. The broker, in turn, put Raymond in contact with someone she had not met. But, as the broker subsequently told me, this contact – a man we’ll call “Moss” – had been approved by her company as a source of funds for borrowers that the mortgage company wasn’t able to accommodate.

Raymond called “Moss” to discuss his predicament. Moss identified himself as an Atlanta attorney and offered to put Raymond into an “investment opportunity” that would generate huge gains. But it was only available to a select few big-time investors, Moss said.

The “No Collateral” Come-On

The first oddity about this “investment opportunity” is that it doesn’t require any collateral. Even though Raymond had a multi-million dollar piece of land that was serving as collateral for the bank loan he needed to pay off, Moss wasn’t interested in the property. What made his deal so enticing to Raymond was that Moss was offering to make Raymond twice what he owed on the bank loan – without requiring him to put up any collateral.

A variation on the “no-collateral-required” theme was evident when I steered the manufacturing company away from this same scam. In that variation, conmen offer to raise money for a worthy cause, such as a humanitarian program, or for the construction of a facility that would provide employment for a certain number of people.

But the organizers of these scams never request that part, or all, of the project being “financed” be put up as collateral. They make it sound like all they need to know is what the money is being used for. If it “fits” into one of their “programs,” you don’t need to put up any collateral.

That’s your first red flag: They don’t want collateral, only cash.

“Secret Trading Platforms”

Secret trading platforms are where giant banks and the super rich make tons of money.

In explaining the “investment opportunity” to Raymond, Moss said that it’s really pretty simple. Apparently, there are “trading platforms” out in the market, where “traders” trade “debentures,” which are described as “bonds” or “MTNs” (medium-term notes) that are issued by the big “prime” banks around the world.

Other banks and rich investors trade these instruments. You haven’t heard about these “platforms” because they’re secret, and that’s why the rich get richer and banks make so much money.

There are different programs that get traded on these platforms. But your contact will tell you that he can get you into one of these programs, so that you’ll soon be earning the same returns as the super rich.

But wait. You haven’t yet heard the best part: It’s risk-free!

I was so excited for Raymond that I decided to call Moss and hear the pitch for myself.

A Personal Pitch

What the traders do, Moss explained to me, is match buyers and sellers. The traders are the only ones who can do this. They find a seller – maybe a bank or a rich person – who wants to sell their debentures, their MTNs, or some other high-yield investments. Or maybe the seller is executing a “roll program,” where an investor or institution rolls over an investment, and must then find a buyer to take the other side of the “trade.”

But since all the trader is doing is matching buyers and sellers, there is no risk. It’s really profitable because the “spread” – the difference between what the buyer pays and what the seller sells for – are far apart. The trader keeps the difference and would share that with Raymond. How profitable are these trading platforms, I asked?

Very, very profitable, came the reply.

Said Moss: “You’ve heard of the Rockefellers – haven’t you?”

If it Sounds Too Good To be True …

We’ve all heard the old investing adage: “If it sounds too good to be true, it probably is.”

Well Moss was essentially promising Raymond a 100% return on his money – every month.

And to get started down this golden pathway, all Raymond had to do was put $300,000 into an escrow account.

On its face, that seemed to promise safety. For the funds to be released, both Raymond and Moss had to sign. So Raymond didn’t have to worry, because if he never signed a release, Moss could never get the money.

In the meantime, the escrow account would be “blocked,” so that it would be guaranteed to stay there for a year. Moss would let his “traders” use the money in the escrow account as “show money.” The traders could claim that they were “attached” to the account, meaning they could then borrow up to 10 times that amount to trade prime debentures on their platforms.

With 10-1 leverage, the traders would find “one of the smaller programs” to trade (according to the pitch, there apparently are only two or three small programs … all the other programs are for the rich guys who trade in really big blocks). And since it’s all risk-free, Raymond was told that he could expect to make back his initial investment – about $300,000 – every month.

And he might even be able to make more if the traders could find more of these pesky “small” programs to trade, Moss told Raymond.

On a Scammer’s “Do Not Call” List

I asked Moss what would happen if there weren’t any of the small programs available for Raymond to trade.

His answer was priceless.

Moss said he would have suggested this earlier, but said he’d rather see Raymond make $300,000 a month and pay off his loan than to get involved with the alternative investment. The “alternative” was for Raymond to use his $300,000 to actually “buy” a “leased instrument.”

Under this scenario, Raymond would be buying into a leased instrument that would make him part owner of a giant pool of rich investor money. And because most of the trades are big block trades, he could then participate in the big trades and make enough money in one trade to pay off the bank and make a lot more, and it would probably take about a week.

I’d heard enough. It was now my turn to ask “Moss” some questions.

Needless to say, his answers were so unbelievable, impossible, or just plain ignorant that I found myself switching between wanting to laugh and wanting to explode in anger – and struggling to control both urges.

The bottom line: He apparently didn’t like the questions I asked, and he now won’t take any more calls from me or from Raymond.

Spotting a Scammer’s “Tell”

Here’s what you need to know to avoid becoming a victim of this gambit.

First, there’s no such thing as “buying” a “leased instrument.” In fact, if you just consider it for a moment, it doesn’t even make logical sense.

Second, there’s no such thing as putting money into an escrow account so someone else can leverage it to trade against. Here’s the hint: If the trader loses money, how are they supposed to get at the “blocked” money to settle up?

Third, there’s no such thing as “risk-free” trading – period.

There’s no such thing as special programs where you can get high returns on investments because you’re going to use the money you make to build a factory to employ people or to fulfill some other philanthropic void.

There’s no such thing as a secret trading platform where prime bank debentures or any other instrument is secretly traded by global banks or the super rich.

There’s no such thing as unlicensed traders trading in some “European” or cyberspace market where they are not registered. And to imply that they are governed by the International Monetary Fund (IMF), the World Bank, or some other international body such as the International Chamber of Commerce (ICC) is just plain stupid.

Don’t be stupid.

And don’t be greedy.

There’s no such thing as making 100% per a month, or a week.

They were going to get Raymond’s money by forging his signature on the escrow agreement, by talking him into writing a check for some non-existent leased instrument, or through any one of several other pathways they could lead him down – before parting him from his money.

Don’t just take my word for it. Do an Internet search on “bank debentures trading scam” (to see the results of that search, please click here). As you’ll see, there are literally pages upon pages of information on these ugly and expensive scams. A lot of sophisticated people have been drawn in and duped. These scammers are pretty sophisticated themselves.

Epilogue: It turns out that “Moss” was once a member of the Florida bar, but is not licensed to practice law in Georgia. I followed up on his e-mail contact information, which included an address at an Atlanta law firm. I contacted the firm and found that he actually had been hired there to do some research work, but then was fired for lack of performance. The partners of the firm were obviously not happy to hear that their good name was being employed as part of a scam. But they were obviously grateful that I alerted them to the problem.

[Editor's Note: As today's investigative story demonstrates, successful investors have to know when to act, and when to hold back.
But they also have to know where to look.

Like under the Eiffel Tower.

The French Oil Ministry has confirmed there is a 40-billion-barrel reserve under that historic landmark - enough to fuel total U.S. oil demand for 5.2 years, according to the Energy Information Administration.

And a tiny U.S. company is poised to profit from this $2.8 trillion cache of crude. Opportunities such as this are the kind of potential profit plays that we focus on in our monthly affiliate newsletter, The Money Map Report. This publication tracks global money flows, and helps subscribers identify precisely where those capital flows intersect with some of the most powerful economic and financial trends at play today.

For more information on The Money Map Report, as well as on the oil cache beneath the Eiffel Tower, please click here.]

News and Related Story Links:

• Investopedia:
  Debentures.
• The Investment Machine:
  Roll Program.
• Investopedia:
  Medium-Term Notes.
• Quatloos.com:
  Bank Debenture Trading Scam.

Renowned Oil Expert Dr. Kent Moors Details Shortages of Oil, the Impact of Higher Prices, the Promise of New Technologies and the Opportunities For Investors

Dr. Kent Moors is one of the world’s foremost experts on oil, energy policy, finance, risk management and new technologies. Moors advises the leaders of six oil-producing countries, including the United States, as well as global corporations and banks operating in 25 countries.

Moors is the founder and director of the Energy Policy Research Group, which conducts analyses and makes recommendations on a range of energy-related issues. He is also the president of ASIDA Inc., a worldwide advisor on the oil-and-natural-gas markets.

In an interview with Money Morning Executive Editor William Patalon III this week, Dr. Moors detailed the top current energy challenges in the global economy, and also provided investors with a look at some of the looming new technologies, as well as a future in which China is a dominant global energy player.

Some of these issues are already at work. Although oil prices remain well below the all-time record of $147 a barrel set in July 2008, crude prices have been on the march of late. Just yesterday (Wednesday), in fact, supply concerns pushed oil futures up above $81 a barrel, their highest level in more than a year.

“If you think the run up to July 2008 was a wild ride, you haven’t seen anything yet,” Dr. Moors told Money Morning. “In the next five years, investors who focus on medium- to small-sized producers and oil-field-service companies having a well-developed specialty niche will outperform the overall energy sector.”

Money Morning (Q): In an earlier discussion, you said that the successful energy investor of the future wouldn’t be a person who just goes out and invests in ExxonMobil Corp. (NYSE: XOM). Can you explain?

Dr. Kent Moors: We are entering a period of rising prices. There is still some play left in the large verticals (vertically integrated oil companies, or VIOCs) such as ExxonMobil, but the primary profits will be made with smaller, leaner exploration-and-production (E&P) outfits, field-service companies and specialized producers (unconventional gas producers – shale gas, coal bed methane, tight gas, hydrates – heavy oil and biodiesel).

(MM): How will investors have to play this future? What types of companies should they be looking for, and where should they look?

Moors: The market rapidly approaching will be more volatile with valuation often more difficult to determine than in the past, even with prices increasing. How much of the increases result from actual product margins and how much results from oil becoming a financial asset rather than just a commodity is a major concern. It requires some careful homework. The types of categories mentioned above – smaller producers, new developments in field services and technology (especially those providing ways to decrease wellhead and operational costs, increase productivity, use associated gas, treat and utilize produced water, increase efficiency per barrel … there is a long list here) as well as the specialized producers and providers of their technical needs are the main targets.

Sign up below…and we’ll send you a new investment report for free: “Credit Crisis Report.”

(MM): When we look at the U.S. economy, you said that investors would be stunned to discover how much of our oil is produced by small players. In that discussion, in fact, you even described the type of firm that could be the “savior” of the U.S. energy sector, and perhaps even the economy. Could you take a moment to describe that situation and explain what that means for the economy?

Moors: The United States remains one of the top five producers of crude and will shortly ramp up production of natural gas (once the current glut has moved through the system). Sixty percent of crude produced in the U.S. market is at stripper wells providing less than 10 barrels of crude a day, but more than 20 barrels of water, a major byproduct. As America enters an accelerating field maturity curve (and an intensifying decline in well debit – well production), the efficiency of production declines. Therein lies a significant area for innovation and leaner companies. And that spells greater profitability at lower entry prices. Some offshore and Alaskan National Wildlife Refuge (ANWR) production will be done at scale, but that is not where the future of U.S. production will be. It will be the result of greater profitability at existing depleting wells with the new technology rolled out (on the oil side) and unconventional gas production.

(MM): Let’s take a look at the global markets, too. China’s global shopping spree has been well chronicled. As China locks up suppliers and supplies of oil and natural gas, what are the chances there could end up being what’s almost a two-tiered market, where China has access to oil and natural gas at lower prices levels, creating a shortage of non-captive supplies and leading to Western countries having to pay much higher prices?

Moors: Price rises for Westerners will occur anyway, and not just because of China (where a rising energy bubble resulting from the recent acquisitions is a concern). The competition for available energy sources will usually result in those regions prepared to pay more, increasing the overall aggregate price for most others. China, India, a resurgent East Asia, Japan and even regions such as West Africa will occupy important positions moving forward in this regard. Also, rising demand will center in places other than OECD countries. The new oil market emerging can hardly discount the developed countries, but the primary demand spikes are going to come from elsewhere.

(MM): After some significant turmoil in recent years, you said that Russia is finally opening up to foreign investment. Will that last, and what effect will that have on global energy prices?

Moors: To offset a more rapidly declining traditional production base (primarily Western Siberia), Russia must move north of the Arctic Circle, into Eastern Siberia and out on the continental shelf. These moves are technologically sensitive and very expensive. Moscow needs the outside investment and that will remain. However, projects must be carefully structured. Foreigners cannot own 50% of “strategic fields” under new laws or anything on the shelf. This means watch out for the smaller, focused operators and oilfield service companies. They will include companies currently trading on the Alternative Investment Market (AIM) in London: The AIM and London Stock Exchange (LSE) are the sources of the new external investment phase in Russia.

(MM): From a global perspective, which markets show promise? And which ones – either because of overly restrictive investment policies, or because of the risk of nationalization – are markets to be avoided?

Moors: Many markets show promise or telegraph restraint. Let’s look at some of the more noticeably promising markets, organized by energy category:

• Conventional Oil: Sub-Saharan Africa, Brazil, Kazakhstan, Russian Eastern Siberian and Far East smaller fields.

• Conventional Natural Gas: Turkmenistan (if recent government overtures to outside investment remain genuine), Uzbekistan, Northwestern Australia (region of the Gorgon project) and New Guinea.

• Unconventional Oil: Tatarstan (Russia) for bitumen and heavy oil, Alberta for oil sands (assuming an average and multi-year sustainable crude price of $72 [USD] a barrel or above).

• Unconventional Gas: The United States for shale (especially Marcellus Shale) and coal bed methane (Powder River Basin, Wyoming, also basin into Montana – if that state reduces regulations), Poland, Turkey and Germany for shale, south central Russia and Ukraine for coal bed methane. If Baghdad and Erbil can finalize central Iraqi and regional Kurdish oil legislation – and if security is maintained – Iraq will become a major play in both oil and gas.

• TO BE AVOIDED: Iran (sanctions and buyback contract frustrations), Mexico (collapsing infrastructure and nationalization), Venezuela (significant technical shortcomings, concerns over productivity assessments, and absence of Western operators).

(MM): If an investor were to divide the energy market into short/intermediate/and long-term segments, what will be the dominant energy plays (oil, natural gas, solar, coal-bed methane, for example) in each of those three time segments? What time periods would you tack onto the short-term, intermediate-term, and long-term segments? And which energy plays will be the real winners?

Moors: To make this easier to see, let’s divide this into short-term, intermediate and long-term segments and look at the key players, issues and technologies in each category.

• Short-Term (five years out): Here we’ll see an increasing efficiency at existing oil wells; Marcellus Shale natural gas; an extension of large fields into known deeper production layers – for example, BP-led (NYSE ADR: BP) multinational plays such as the Azeri-Chyrag-Guneshli and Shah Deniz deposits offshore Azerbaijan. Other developments to watch are the huge Chevron-led (NYSE: CVX) Tengiz field in Western Kazakhstan, initiatives in the central Gulf of Mexico and all satellite fields operated by other companies.

• Intermediate-Term (five to 15 years out): All U.S. and Canadian shale plays, Wyoming, Montana, New Mexico and Russian coal bed methane, selected wind power Western U.S. and Baltic Sea region (Denmark, Germany, Poland).

• Long-Term (20 years or more): All alternative and renewable energy (by this point, crude oil will be too volatile with supply problems and natural gas from whatever source will be the main power source both for conventional applications and for new technologies – fuel cells will obtain most of their price-sensitive hydrogen from natural gas).

Moors: Here’s the bottom line. Looking forward, successful energy investors will be those who: (1) weigh volatility as well as opportunities; (2) understand the rapidly changing supply/demand balance; (3) hedge within a focused time-frame; (4) watch the development of new technology to improve production, processing or transport; and (5) have a flexible approach to the market.

(MM): Spotlighting and providing detail and in-depth analysis of the specific winners would require a much-more-detailed category breakdown than we have here. But stay tuned: Dr. Moors will delve into these topics in future issues of Money Morning.

[Editor's Note: As today's investigative story demonstrates, successful investors have to know when to act, and when to hold back.

But they also have to know where to look.

Like under the Eiffel Tower.

The French Oil Ministry has confirmed there is a 40-billion-barrel reserve under that historic landmark - enough to fuel total U.S. oil demand for 5.2 years, according to the Energy Information Administration.

And a tiny U.S. company is poised to profit from this $2.8 trillion cache of crude. Opportunities such as this are the kind of potential profit plays that we focus on in our monthly affiliate newsletter, The Money Map Report. This publication tracks global money flows, and helps subscribers identify precisely where those capital flows intersect with some of the most powerful economic and financial trends at play today.

For more information on The Money Map Report, as well as on the oil cache beneath the Eiffel Tower, please click here.]

News and Related Story Links:

• Money Morning News Analysis:
  Three Reasons China is Positioned to be the Oil Sector’s Next Big Profit Play.
• Montana State University:
  Frequently Asked Questions About Coal Bed Methane.
• Biodiesel.org:
  Biodiesel 101.
• Money Morning Commentary:
  Venezuela Says “Adios” to Most Foreign Investment, Making it a Stay-Away Play for Investors.
• Wikipedia:
  Vertically Integrated Oil Company.
• Schlumberger:
  Shale Gas.
• Wikipedia:
  Stripper Well.
• Policy Almanac:
  Arctic National Wildlife Refuge Policy History.
• Organisation for Economic Co-operation and Development: Official Web Site.
• WiseGeek.com:
  What is a Continental Shelf?
• Wikipedia:
  Alternative Investment Market.
• Google.com:
  Russia’s Medvedev Signs Law on Arctic Resources.
• Wikipedia:
  London Stock Exchange.
• Lloydminister OTS:
  What is Heavy Oil?
• Wikipedia:
  Powder River Basin.
• Energy Tomorrow:
  Canadian Oil Sands.
• About.com (Archaeology):
  Bitumen.
• Oil Shale Gas:
  Marcellus Shale.
• HowStuffWorks:
  How Fuel Cells Work.
• Tatarstan:
  Official Web Site.
• Forbes.com:
  Australia’s $37 Billion Gorgon Project Gets the Go-Ahead.
• MarketWatch.com:
  Oil hits new one-year high above $80 after report

By Martin Hutchinson
Contributing Editor
Money Morning

Asia is poised to become the “new” Detroit.

Here in the United States, at a cost of a mere $3 billion, the “Cash-for-Clunkers” program appears to have given new hope to the U.S. auto industry.

But that new hope is destined to be short-lived.

It’s true that – in terms of value delivered for the money invested – “Cash for Clunkers” has eclipsed every other stimulus program that has been tried. But the program has a projected lifespan of only three months, meaning it can’t reverse the powerful global forces that are destined to turn the U.S. auto market from leader to laggard on the global stage.

Financial Crisis Fallout Reshapes Sector

Thanks to the financial crisis whose impact continues to be felt, worldwide automobile demand had dropped on an overall basis since 2008.

But regional differences are already emerging.

In the United States, for instance, the benchmark seasonally adjusted annual sales rate (SAAR) finally jumped up past the 11-million mark in July after failing to eclipse the “breakeven point” of 10 million vehicles in any prior month this year. But the actual year-to-date sales of 5.81 million vehicles through July was still 33% below the 8.55 million that had been sold by that point in 2008, and is 67% below the all-time annual record of 17.4 million achieved in 2000 and 65% below the decade average of 16.4 million.

(Prior to the global financial crisis and accompanying recession – which prompted the U.S. auto industry to restructure and shift its breakeven point down to 10 million vehicles – the breakeven point was actually 16 million vehicle sales in a year. Below that point, several or all of the U.S. “Big Three” would be spinning their wheels in red ink.)

It’s a much different story abroad, however, where several markets are in a long-term growth mode. In India, for example, sales were up 31% on a year-over-year basis, while auto sales in China were an astonishing 70% above those of a year ago. Even if U.S. auto sales continue to improve, China’s automobile market may outsell its U.S. counterpart for a full year for the first time ever.

Granted, India’s auto market – around 2.5 million cars and light trucks a year – is still much smaller than either China or the United States. However, its growth makes it comparable to the Japanese or German markets, the next largest automobile markets after its U.S. and China counterparts.

Thus, global automobile sales are undergoing a major reorientation towards Asia and away from the United States and Europe. This will inevitably have a huge effect on the structure of the sector.

That’s why Asia will become the new Detroit – the future center of the automaking world.

Gone For Good?

In the United States, General Motors Corp. and Chrysler Group LLC have lost market share because of the government takeover. They are unlikely to get it back in spite of the debt costs they have relinquished through bankruptcy.

For Chrysler, the partnership with Fiat SpA (OTC ADR: FIATY) is unlikely to help much. Fiat is among the weakest of the European companies, and has not been competitive in the United States since the 1980s. The U.S. market is undoubtedly moving toward smaller automobiles. That trend is being “fueled” by the new Corporate Average Fuel Economy (CAFE) standards for 2015 and probably by higher fuel taxes for environmental and budget reasons. Nevertheless, it seems unlikely that the Chrysler/Fiat partnership will have the models to compete.

General Motors has the model range to compete in the United States. However, GM is doing much better in China, thanks largely to its joint venture with Shanghai Automotive Industry Corp., which expects to sell 1.4 million vehicles in 2009. Since GM is also selling Opel, its European operation, GM will find itself driven primarily by the demands of the Chinese market. Given the growth of that market, it will probably make the most economic sense for GM to become Chinese-owned. Politics may delay this, but probably only for a few years.

The United States’ One “Better Idea”

Ford Motor Co. (NYSE: F) has picked up market share in the United States from GM and Chrysler’s problems. It should benefit both from "Cash for Clunkers," and from the early stages of the U.S. market recovery. If GM and Chrysler continue to have difficulties, Ford may be in a good position here in the large U.S. market – as the most-effective manufacturer of the large automobiles that Americans continue to prefer – no matter what the government tells Ford to do.

Nor is that Ford’s only competitive advantage going forward. Ford Europe is big and viable enough to allow Ford to remain credible as a producer of smaller cars, primarily in the higher price brackets.

Outside the United States, European manufacturers will find themselves increasingly confined to the luxury end of the market. However, as global incomes rise and the newly wealthy become brand-conscious – particularly in the emerging economies of Asia – that upscale portion of the auto market should continue to be strong.

Japanese and Korean manufacturers will continue to dominate their domestic markets. And such companies as Honda Motor Co. Ltd. (NYSE ADR: HMC), Toyota Motor Corp. (NYSE ADR: TM) and Kia Motors Corp., will also do well in the United States and Europe, and in countries where they have been able to establish viable local manufacturing operations, and lower labor costs.

But it will be the players from China and India who are destined to be the big market-share gainers on a global basis.

The New Leaders

For U.S. investors, India’s Tata Motors Ltd. (NYSE ADR: TTM) is the best known of the newly emerging global auto elite. Tata’s $2,500 for-the-masses “Nano" car has been well received. Over the long term, the Nano may expand the entry-level portion of the worldwide auto market, forcing other manufacturers to produce equivalent low-price models.

Indeed, the introduction of $2,500 cars may greatly expand the market’s size in India and other emerging markets, much as Ford’s Model T did after its introduction in 1908, or the Volkswagen AG (OTC ADR: VLKAY) VW Beetle did in the 1950s and 1960s.

Tata looked to be in financial difficulty after it bought the loss-making Jaguar and Land Rover brands in 2008 at the top of the market. However, the $300 million loan for its Jaguar Land Rover Unit announced on Aug. 10 gives Tata the room it needed to maneuver. Market growth in India, combined with the strength of its Tata Group parent now suggest that Tata Motors has the strength to survive without dismemberment.

The bottom line: Tata and its India-based competitors – Maruti Suzuki India Ltd. (Mumbai: MSIL) and Mahindra and Mahindra Ltd. (London: MHID) – as well as such top China carmakers as Chery Automobile Co. Ltd. (still publicly owned), Geely Automobile Holdings Ltd. (OTC: GELYF) and Great Wall Motor Co. (OTC: GWLLF), are thus the companies that will see most growth in the automotive market of the decade to come.

By 2020, the global auto sector will look nothing like it does today. Given that most of the muscle will be in Asia, investors shouldn’t be surprised.

[Editor's Note: When it comes to global investing, longtime market guru Martin Hutchinson is one of the very best - because he knows the markets firsthand. After years of advising government finance ministers, crafting deals with global investment banks, and analyzing the world's financial markets, Hutchinson has used his creative insights to create a trading service for savvy investors.

The Permanent Wealth Investor assembles high-yielding dividend stocks, profit plays on gold and specially designated "Alpha-Bulldog" stocks into high-income/high-return portfolios for subscribers. Hutchinson's strategy is tailor-made for periods of market uncertainty, during which investors all too often go completely to cash - only to miss some of the biggest market returns in history when market sentiment turns positive. But it can work in virtually every market environment.

To find out about this strategy - or Hutchinson's new service, The Permanent Wealth Investor - please just click here.]

By Martin Hutchinson
Contributing Editor
Money Morning

Asia is poised to become the “new” Detroit.

Here in the United States, at a cost of a mere $3 billion, the “Cash-for-Clunkers” program appears to have given new hope to the U.S. auto industry.

But that new hope is destined to be short-lived.

It’s true that – in terms of value delivered for the money invested – “Cash for Clunkers” has eclipsed every other stimulus program that has been tried. But the program has a projected lifespan of only three months, meaning it can’t reverse the powerful global forces that are destined to turn the U.S. auto market from leader to laggard on the global stage.

Financial Crisis Fallout Reshapes Sector

Thanks to the financial crisis whose impact continues to be felt, worldwide automobile demand had dropped on an overall basis since 2008.

But regional differences are already emerging.

In the United States, for instance, the benchmark seasonally adjusted annual sales rate (SAAR) finally jumped up past the 11-million mark in July after failing to eclipse the “breakeven point” of 10 million vehicles in any prior month this year. But the actual year-to-date sales of 5.81 million vehicles through July was still 33% below the 8.55 million that had been sold by that point in 2008, and is 67% below the all-time annual record of 17.4 million achieved in 2000 and 65% below the decade average of 16.4 million.

(Prior to the global financial crisis and accompanying recession – which prompted the U.S. auto industry to restructure and shift its breakeven point down to 10 million vehicles – the breakeven point was actually 16 million vehicle sales in a year. Below that point, several or all of the U.S. “Big Three” would be spinning their wheels in red ink.)

It’s a much different story abroad, however, where several markets are in a long-term growth mode. In India, for example, sales were up 31% on a year-over-year basis, while auto sales in China were an astonishing 70% above those of a year ago. Even if U.S. auto sales continue to improve, China’s automobile market may outsell its U.S. counterpart for a full year for the first time ever.

Granted, India’s auto market – around 2.5 million cars and light trucks a year – is still much smaller than either China or the United States. However, its growth makes it comparable to the Japanese or German markets, the next largest automobile markets after its U.S. and China counterparts.

Thus, global automobile sales are undergoing a major reorientation towards Asia and away from the United States and Europe. This will inevitably have a huge effect on the structure of the sector.

That’s why Asia will become the new Detroit – the future center of the automaking world.

Gone For Good?

In the United States, General Motors Corp. and Chrysler Group LLC have lost market share because of the government takeover. They are unlikely to get it back in spite of the debt costs they have relinquished through bankruptcy.

For Chrysler, the partnership with Fiat SpA (OTC ADR: FIATY) is unlikely to help much. Fiat is among the weakest of the European companies, and has not been competitive in the United States since the 1980s. The U.S. market is undoubtedly moving toward smaller automobiles. That trend is being “fueled” by the new Corporate Average Fuel Economy (CAFE) standards for 2015 and probably by higher fuel taxes for environmental and budget reasons. Nevertheless, it seems unlikely that the Chrysler/Fiat partnership will have the models to compete.

General Motors has the model range to compete in the United States. However, GM is doing much better in China, thanks largely to its joint venture with Shanghai Automotive Industry Corp., which expects to sell 1.4 million vehicles in 2009. Since GM is also selling Opel, its European operation, GM will find itself driven primarily by the demands of the Chinese market. Given the growth of that market, it will probably make the most economic sense for GM to become Chinese-owned. Politics may delay this, but probably only for a few years.

The United States’ One “Better Idea”

Ford Motor Co. (NYSE: F) has picked up market share in the United States from GM and Chrysler’s problems. It should benefit both from "Cash for Clunkers," and from the early stages of the U.S. market recovery. If GM and Chrysler continue to have difficulties, Ford may be in a good position here in the large U.S. market – as the most-effective manufacturer of the large automobiles that Americans continue to prefer – no matter what the government tells Ford to do.

Nor is that Ford’s only competitive advantage going forward. Ford Europe is big and viable enough to allow Ford to remain credible as a producer of smaller cars, primarily in the higher price brackets.

Outside the United States, European manufacturers will find themselves increasingly confined to the luxury end of the market. However, as global incomes rise and the newly wealthy become brand-conscious – particularly in the emerging economies of Asia – that upscale portion of the auto market should continue to be strong.

Japanese and Korean manufacturers will continue to dominate their domestic markets. And such companies as Honda Motor Co. Ltd. (NYSE ADR: HMC), Toyota Motor Corp. (NYSE ADR: TM) and Kia Motors Corp., will also do well in the United States and Europe, and in countries where they have been able to establish viable local manufacturing operations, and lower labor costs.

But it will be the players from China and India who are destined to be the big market-share gainers on a global basis.

The New Leaders

For U.S. investors, India’s Tata Motors Ltd. (NYSE ADR: TTM) is the best known of the newly emerging global auto elite. Tata’s $2,500 for-the-masses “Nano" car has been well received. Over the long term, the Nano may expand the entry-level portion of the worldwide auto market, forcing other manufacturers to produce equivalent low-price models.

Indeed, the introduction of $2,500 cars may greatly expand the market’s size in India and other emerging markets, much as Ford’s Model T did after its introduction in 1908, or the Volkswagen AG (OTC ADR: VLKAY) VW Beetle did in the 1950s and 1960s.

Tata looked to be in financial difficulty after it bought the loss-making Jaguar and Land Rover brands in 2008 at the top of the market. However, the $300 million loan for its Jaguar Land Rover Unit announced on Aug. 10 gives Tata the room it needed to maneuver. Market growth in India, combined with the strength of its Tata Group parent now suggest that Tata Motors has the strength to survive without dismemberment.

The bottom line: Tata and its India-based competitors – Maruti Suzuki India Ltd. (Mumbai: MSIL) and Mahindra and Mahindra Ltd. (London: MHID) – as well as such top China carmakers as Chery Automobile Co. Ltd. (still publicly owned), Geely Automobile Holdings Ltd. (OTC: GELYF) and Great Wall Motor Co. (OTC: GWLLF), are thus the companies that will see most growth in the automotive market of the decade to come.

By 2020, the global auto sector will look nothing like it does today. Given that most of the muscle will be in Asia, investors shouldn’t be surprised.

[Editor's Note: When it comes to global investing, longtime market guru Martin Hutchinson is one of the very best - because he knows the markets firsthand. After years of advising government finance ministers, crafting deals with global investment banks, and analyzing the world's financial markets, Hutchinson has used his creative insights to create a trading service for savvy investors.

The Permanent Wealth Investor assembles high-yielding dividend stocks, profit plays on gold and specially designated "Alpha-Bulldog" stocks into high-income/high-return portfolios for subscribers. Hutchinson's strategy is tailor-made for periods of market uncertainty, during which investors all too often go completely to cash - only to miss some of the biggest market returns in history when market sentiment turns positive. But it can work in virtually every market environment.

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China made headlines around the world this week when it revealed that its foreign reserves had eclipsed the $2 trillion market for the first time, rising by a record $178 billion in the second quarter – thanks to a flood of “hot money” that flowed into the world’s most promising economy.

But the “hottest” investment money may soon be flowing from China back into the United States – thanks to an accompanying development that didn’t even make the news (let alone headlines) here in this country. This will translate into windfall profits for U.S. investors with holdings in the “right” kinds of companies, and in the long run should bolster the U.S. dollar.

This other, below-the-radar development was China’s decision to relax the rules that guide its company’s overseas investments. In a clear attempt to boost investments beyond its borders, China has changed some of its rules to make it easier for its companies to make foreign investments, and to use foreign financing for those deals.

Why China’s “Hot Money” is Headed Our Way

The new rules – which take effect Aug. 1 – will make it lots simpler for China-based firms to make major investments here in the United States – no small deal at a time when credit and other forms of capital remain scarce. This development is especially bullish for U.S. investors holding stocks in U.S. companies involved in such industries as oil, gold, natural resources and high technology, as well as companies that possess strong global brands, since these are precisely the kinds of companies China-based firms will be on the prowl for.

Once the rules take effect, Chinese companies will no longer have to report foreign currency transactions, or go through China’s central bank. Instead, these firms will be able to buy foreign currencies in whatever market they happen to be operating in, and will even be able to borrow from the banks in those markets as a way of fueling direct overseas expansion. Lastly, China-based firms doing business abroad will no longer have to repatriate assets, meaning they will be able to take their foreign profits and directly reinvest them overseas.

China is making this bold move for a number of reasons. Obviously, Chinese leaders want their country’s economic expansion to continue unabated, and these investments will provide China and its companies with access to leading products, cutting-edge technologies and badly needed natural resources – much of it at bargain prices, since many of the top target markets are mired in recession.

But a key incentive for these liberalized rules has to do with China’s aforementioned foreign currency reserves, an estimated 70% of which are held in dollars or dollar-denominated assets. By allowing its companies to make direct investments, and by no longer forcing them to repatriate foreign currencies, China believes its dollar-based holdings won’t keep rising at an accelerating rate.

At first blush, that sounds like it would be bad for the greenback. Surprisingly, the reality will be quite the opposite.

Defusing the “Nuclear Option”

For many investors concerned about the outlook for the U.S. dollar, the threat that China will stop buying U.S. Treasuries – or even worse, might “dump” the U.S. government debt – has provided fodder for something known as the “Chinese Nuclear Option.” The basic premise is this: China, fed up with the United States’ spendthrift ways, and overly liberal uses of debt, finally gets fed up with the losses it’s been taking on its U.S. investments and opts to dump both U.S. dollars and U.S. debt – a move that crashes the U.S. economy.

This scenario is a popular one within the conspiracy crowd. The doom-and-boom merchants also seem to like it.

But what these folks don’t understand is this: China can’t stop buying U.S. Treasuries, and can’t cease to accumulate U.S. greenbacks – even if its leaders wanted to.

In fact, based on my 20 years of experience in the region, I expect China to accelerate its Treasury purchases throughout the rest of this year and into 2010, which will come as a shock to all those expecting U.S. Treasury sales to crater. But I also expect the Red Dragon to take a few other steps that also will catch most western observers by surprise.

Before I get to that though, let’s talk about why China’s not going to start dumping dollars anytime soon and why the so-called “nuclear option” is actually a benign threat:

• China needs our trade and the money that comes with it – so you can expect reserves to continue to climb. In fact, my guess is that we may see Chinese currency reserves rise to as much as $3 trillion less than 36 months from now – and that’s even after China’s economic leaders take steps to slow down the pace of growth it the country’s foreign reserves!
• China finds itself the unanticipated position of needing America. And America of needing China. Many people may not like it, but that’s a different story. Even if the Chinese wanted to stop buying our bonds and trading in our dollars, there is not another currency on the planet with enough liquidity at present to absorb the overflow. The euro came close a few years ago, before it ultimately failed. And that means that China is stuck with Uncle Sam – and Uncle Sam with China.
• Thanks to the record inflows in the second quarter, China now has $2.13 trillion in currency reserves, some 70% of which is dollar-denominated. That means that China can no longer afford to see the U.S. dollar dumped. If that happened, China’s economic future would be put at risk – something that Beijing is not about to let happen. Indeed, China must continue to support the greenback, or risk a complete meltdown. So it will find a way to “deal” with the growing U.S. debt load. At the very least, we may well see China at least maintain its current pace of Treasury-debt purchases; and it may well step up its Treasury purchases for the rest of this year and throughout 2010.

China: The Planet’s Most Promising Profit Play?

Just this week, China reported that its economy expanded at a faster-than-expected 7.9% for the second quarter – even spawning talk of a “V-shaped” economic rebound. After China’s growth rate was reported to have slowed to 6.1% in the first quarter – the worst showing in a decade – economists said the best investors could hope for for was a “U-shaped” recovery, and perhaps not even that.

Sign up below… and we’ll send you a new investment report for free: “Credit Crisis Report.”

Past statistics will now probably be revised higher, a fact that led HSBC Holdings PLC (NYSE ADR: HBC) China economist China economist Qu Hongbin to boost his forecast: He’s now forecasting growth of 8.1% this year, and is forecasting growth of 9.5% in 2010 – up from prior estimates of 7.8% and 8.1%, respectively. China’s recovery will be broad and deep, and will be due to inherent health, and not just because of the $586 billion economic stimululs package the country announced last November – a stimulus we said at the time was designed as much to benefit the West as it was to boost China’s domestic health.

It now appears that assessment was completely correct.

For folks who think China’s all about control, these loosened foreign-investment rules and faster-than-anticipated growth should serve as a real eye-opener. China is a communist country in name only. Driven by an intense need to maintain its growth and the desire to become a respected member of the global Tier One fraternity, China is rapidly becoming one of the world’s most effective and efficient capitalists.

The new financing rules will help China build on its recent successes in at least three key ways, by:

• Enabling China-based firms diversify abroad, making them more globally competitive, and much more flexible in terms of the opportunities available to them. I see this as an extension of something I said way back in 2007, when I mentioned that Chinese companies – in the truest Confucian tradition – would view the credit crisis as an opportunity to be capitalized upon rather than a burden to be endured. Investors can China-led and funded mergers and acquisitions to jump significantly in the next 24 months. Investors who take the correct positions ahead of time can expect to profit handsomely – in both the near-term and over the long haul.
• Helping Beijing balance the needs for constant internal growth against the ever-growing international reserves requirements it now sees developing around an increasingly fragile U.S. dollar. Expect Beijing to be especially active in the use of the multi-country-swap agreements it recently put in place as a means to this end.
• Creating ways to help China offset the economic risks associated with its concentrated dollar holdings. Investors can expect to see escalating pressure on the World Bank to create special drawing rights and/or China-led currency equivalents as this situation develops further.

There is no doubt that some people will view what I have told you today with fear. Others will greet this news with hostility. Both reactions are to be expected in an era of increasingly protective legislation emanating from one of the worst financial crises on record. But I also think these are both the wrong viewpoints to embrace.

You see, I smell opportunity.

As noted above, the relaxation or outright removal of these foreign-investment curbs by China is simply another strategy designed to slow the accumulation of dollar-denominated reserves and to reduce the risks associated with the shaky greenback.

But China-based companies will go on a shopping spree, seeking out the world’s biggest bargains. And right now, some of the biggest markdowns can be found in the U.S. market. The bottom line is this: In making these moves, China has essentially installed a big neon arrow that tells us where the hot money is headed – specifically, right into companies involved with oil, commodities and currencies. Companies with high-tech know-how will be prime takeover targets.

And, given the growing affinity China’s emerging consumer class has with top global brands, companies that control the world’s most-popular brands will be the recipients of capital infusions – if not outright buyout offers.

Oil and commodities are a literal no-brainer. If China wants to slow down the accumulation of reserves in U.S. dollars, and there isn’t another currency that’s widely held enough and liquid enough to take the greenback’s place, natural resources and hard assets are the most logical place to be.  We’ve been on this trend for some time, now.

The same holds true for currencies. History demonstrates time and again that strong economies produce strong currencies. From the Romans to the Babylonians in ancient times, to the English, French and Spanish in the Age of Exploration, and even to the dollar and yen in more-recent decades past, the strongest currencies always belonged to the countries with the strongest economies, and with the strongest assets, to boot.

Right now, that all describes China.

To position yourself for profit, consider starting with one of EverBank’s WorldCurrency Access Deposit Accounts – for Chinese renminbi. Not only is it the only deposit account of its kind in the United States, it’s also insured by the Federal Deposit Insurance Corp. (FDIC). As another possible profit play, consider establishing a small position in the WisdomTree Dreyfus Chinese Yuan Fund ETF (NYSE: CYB). As an exchange-traded fund, or ETF, that tracks the Chinese yuan, it’s easy to trade and even easier to own if you don’t want to hassle with direct currency ownership.

Investments such as this one benefit from strong growth backdropped by a system of stability.
Expect both.

Zhou Xiaochuan, governor of the People’s Bank of China – that country’s version of the U.S. Federal Reserve – recently ruled out any sudden shifts in China’s foreign-currency-reserves-management programs, telling Bloomberg News that his country’s central bank will continue to be invested to “ensure liquidity, safety and returns.”

China will be a big beneficiary from such a stable strategy – as will investors who understand these new rules and apportion their capital accordingly.

[Editor's Note: Fifteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 15 for 15, meaning he's closed every single one of his trades at a profit. And he did this during one of the most volatile periods for the U.S. stock market since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.]

News and Related Story Links:

• Bloomberg News:
  China’s Foreign-Exchange Reserves Surge, Exceeding $2 Trillion.
• ChinaBriefing.com:
  Beijing Eases Foreign Investment Rules for Chinese Companies.
• ChinaDaily:
  China simplifies forex rules to boost outbound investment.
• Money Morning Special Report:
  The Three Ways China May Deal With Growing U.S. Debt.
• Wikipedia:
  Social Capitalism.
• BusinessWeek.com:
  China GDP Growth 7.9%: Surpising Strength.
• Wikipedia:
• Confucianism.
• Money Morning News Analysis:
  Massive China Stimulus is Viewed as an Attempt to Help the West.
• Wikipedia:
  Communism.
• Money Morning Market Analysis:
  China Seeks to Dethrone the Dollar, Transforming the Yuan into the Dominant Global Currency.
• Wikipedia:
  Age of Exploration.
• Wikipedia:
  Zhou Xiaochuan.
• Money Morning Special Report:
  China Flexes its Muscles and Finds Support in a Bid to Dump the Dollar as the World’s Main Reserve Currency.
• Money Morning Market Analysis:
  Here’s Why MGM is a High-Profit Play on China.
• EverBank:
  EverBank’s WorldCurrency Access Deposit Accounts.

Do you want to understand how the U.S. financial crisis really got started? To see how and when such potentially dangerous situations as deflation and, then, inflation will start? To anticipate where the “next” financial bubble will be? To know just what the future holds for interest rates?

Investors who want the answers to these and other questions, and who want to understand just what the next phase of the financial crisis will look like, and where the “real” profit opportunities will be, should tune in on the Money Morning Web summit: “The Regime Change in Washington Triggers War on Wall Street.”

The Webinar was held last night (Thursday). However, due to the huge response, and for investors who may have missed the session, Money Morning has posted the link to program, which is free of charge for investors who wish to watch it. The video will only be available for a limited time.

The session featured Shah Gilani, a retired hedge fund manager and Wall Street insider who is now the editor of the “Trigger Event Strategist.”
“Wall Street doubletalk got us into this crisis; I hear more excuses than straight talk. Most of the dialogue is noise,” said Gilani, a respected expert on the credit crisis, and a commentator who is known for his deep connections inside the investment-banking world of Wall Street. “The truth may be difficult to swallow, but without hearing it, there’s not much hope for finding the right way out of the maze.”

During the half-hour Web summit, Gilani and host Mike Ward, the publisher of Money Morning and The Money Map Report, addressed such issues as:

• Why investors must still be in the stock market right now.
• Why banks aren’t lending.
• What low-priced stocks are worth looking at right now.
• Where the U.S. dollar is headed.
• If U.S. government bonds are a safe investment.
• And what markets around the world hold the most promise.

During the Webinar, Gilani shows investors how to interpret recent moves that U.S. lawmakers and their cronies have made to unlock the credit markets, and what’s really behind the recent machinations taking place in the power alleys of Wall Street and in the halls of government on Capitol Hill. He also details some of the challenges ahead for new U.S. President Barack Obama.

With these added insights, investors should be able to proactively strengthen their investing portfolios in the face of an escalating credit crisis and deteriorating financial markets – whose ripple effects are only now manifesting themselves in Europe, India and other markets abroad.

“The webinar [echoes] Obama’s message of ‘Change’ – what has changed, what will change and what the changes will mean for investors,” said Gilani, adding that “we will also examine how investors can tell whether changes will be good for them or not, and how to profit from change, whether the market goes up or down.”

Gilani’s distinguished investing career began immediately after college graduation, when he leveraged $10 million into $100 million while trading from his own seat on the Chicago Board Options Exchange. He followed up with an enormously successful stint on the trading desk at Lloyd’s Bank (LYG), where he designed hedging strategies for the bank’s capital investments. 

His experience includes trading billions of dollars in the bond and credit markets for old line Boston and New York investment banks and trading houses. He subsequently started his own hedge fund and retired at the young age of 52.

His investment analysis now provides the basis for the “Trigger Event Strategist,” an investment service focusing on how to profit from the “aftershocks” of the current financial crisis.  The same firm that publishes Money Morning, the global investing news service, and that publishes the monthly investment newsletter, The Money Map Report, operates the “Trigger Event Strategist”.

Investors should sign up early; those who do will be able to also submit questions in advance for Gilani’s consideration. Click here for more information on how to view the Webinar video.

Gilani on Monday published an open letter to President-elect Obama in which the credit-crisis expert gave the president-to-be a plan for overhauling the U.S. regulatory structure that governs the U.S. financial system. President Obama was inaugurated on Tuesday.

News and Related Story Links:

• Money Morning Deregulation Series:
  An Open Letter to President-Elect Barack Obama: How a Regulatory Makeover Can Fix the Financial Crisis.

• The iShares MSCI Brazil Index (EWZ), an exchange-traded fund (ETF) that was the topic of the popular “Buy, Sell or Hold” feature a week ago Monday (Oct. 27), surged another 9.82% yesterday (Tuesday) and is now up 42% in the six days since Contributing Editor Horacio Marquez rated the ETF as a “Buy” in his column. The shares, which were recommended at $29.94, zoomed $3.81 each, or 9.82%, to close at $42.60, and have now gained $12.66 a share, or 42% since they were recommended by Marquez. They traded as high as $43.35 yesterday – an increase of 45% from their recommendation price.

• Magna International Inc. (MGA), the largest auto-parts maker in North America, reported a $215 million third-quarter loss and cut its quarterly dividend 50% to 18 cents. The dividend cut reflects the “reduction in profitability and uncertainty about the timing of an industry recovery in our traditional markets,” Magna said in a statement.

• U.S. factory orders in September fell three times more than forecast, Bloomberg reported, slumping 2.5% after a 4.3% drop in August. “There’s not a lot of hope on future orders and production,” Guy Lebas, chief economist at Janney Montgomery Scott LLC, told Bloomberg. “The economy was on the edge of a precipice, and the credit crisis gave it a shove. Manufacturing will weaken because of slowing exports.”

• October same-store sales at Walgreen Co. (WAG) rose 2% and pharmacy same-store sales rose 2.8%. As of Oct. 31, the company operated 6,544 drugstores, 600 more than it did a year ago, Reuters reported.

• Shares of Yahoo Inc. (YHOO) got an unexpected lift when brokerage firm Collins Stewart raised Yahoo’s shares from “hold to “buy.” Collins Stewart cited a possible search deal with Google Inc. (GOOG) or Microsoft Corp. (MSFT), and set a target for $18 share, Reuters reported.
• Oil prices jumped nearly 12% yesterday (Tuesday) as Saudi Arabia cut its crude exports.  Light, sweet crude rose $7.59, or 11.88%, to settle at $71.50 a barrel. Oil had previously fallen more than 55% since hitting a record high $147.27 a barrel in July.

• Archer Daniels Midland Co. (ADM) said yesterday (Tuesday) that its fiscal first-quarter earnings more than doubled. A food processor and ethanol producer, Archer Daniels Midland reported quarterly profit of $1.05 billion, or $1.63 per share, up from $441 million, or 68 cents per share, last year. Sales jumped 65% to $21.16 billion.

• After four consecutive quarters of declining profit, UBS AG (UBS) posted a net profit of $252 million (296 million Swiss francs) during the third quarter. The Swiss bank benefited from a tax credit of $776 million (913 million francs) and a revaluation of credit positions that resulted in a $1.88 billion (2.21 billion francs) gain on its books, The Associated Press reported.

• The Federal Communications Commission yesterday (Tuesday) approved Verizon Wireless’ (VZ) planned $28 billion purchase of Alltel Corp., The Associated Press reported. Verizon is paying $5.9 billion and assuming $22.2 billion of Alltel’s debt. Verizon also agreed to sell assets in 22 states.

• South Korea’s government announced plans for a 14 trillion won ($10.8 billion) economic stimulus aimed to create an extra 200,000 jobs, extend tax breaks for factory investments and increase infrastructure spending and development. Relief measures announced this year now total 33 trillion won, according to the finance ministry, Bloomberg reported.

• Initial public offering plans for buyout firm Kohlberg Kravis Roberts & Co. have again been delayed, this time because its Amsterdam-listed affiliate suffered big investment losses. With KKR’s delay, there hasn’t been a U.S. IPO in nearly three months, Reuters reported.

• DryShips Inc. (DRYS), Greece-based dry bulk ships carrier, posted a 71% gain in quarterly profits. The company dodged the cash drought by employing its vessels for long-term contracts, securing revenue as most companies are losing it, Reuters reported.

• Oil prices fell nearly 6% yesterday (Monday) as weak demand continued to drive investors from the market.  Light, sweet crude fell $3.90, or 5.75%, yesterday to settle at $63.91 a barrel. Black gold has plummeted nearly 57% from its record high of $147.27 a barrel reached in July.

• The Institute for Supply Management said yesterday (Monday) that its manufacturing index fell to 38.9 in October – the lowest reading since September 1982. Manufacturers have been crushed by mounting job losses and weak consumer demand.

• Viacom Inc. (VIA) announced yesterday (Monday) that third-quarter profit fell 37% from a year ago even though revenue rose 4% to $3.4 billion. Net earnings fell to $401 million, or 65 cents per share, down from $641 million, or 96 cents per share last year. The loss was largely the result of a $19 million operating loss in "filmed entertainment." Viacom is parent to Paramount Pictures.

• October sales for General Motors Corp. (GM), Ford Motor Co. (F), Toyota Motor Corp. (TM), Honda Motor Co. (HMC) and Nissan Motor Co. (NSANY) all fell in the midst of tighter credit and a weaker global economy. GM sales of cars and light trucks fell 45% from last year. Ford down 30%. Toyota slipped 23%. Honda skidded 25%. And Nissan sales dropped 33%. 

• Visa Inc. (V) and MasterCard Inc. (MA) have settled an antitrust suit with Discover Financial Services Inc. (DFS) rather than go to trial, sending Discover shares up almost 13% yesterday (Tuesday). Discover had filed a lawsuit against the two credit card processors seeking $6 billion in damages. The suit alleged that MasterCard and Visa prevented member banks from issuing Discover cards, Reuters reported.

• Daimler AG (DAI) yesterday (Tuesday) announced it would cut 3,500 jobs and close two North American plants in response to declining sales growth. The German automaker also plans to discontinue its Sterling-brand truck line, MarketWatch reported. The plant closures will affect Daimler’s St. Thomas, Ontario and Portland, Oregon plants.

• Apple Inc. (AAPL) will for the first time sell a MacBook for less than $1,000 during the coming holiday season, Chief Executive Officer Steve Jobs announced yesterday (Tuesday). “Demand is going to be good,” Jobs said of the MacBooks, Bloomberg News reported. “We’re making a lot of them.”

• Johnson Controls Inc. (JCI) yesterday (Tuesday) projected a 16% decline in earnings over the next fiscal year. The Milwaukee-based company manufactures car batteries and seats and has suffered as auto sales declined in the United States and abroad. “While we believe recent economic weakness was clearly partly priced in, our sense from management is that automotive on both sides of the Atlantic is proving much tougher than expected,” JPMorgan Chase & Co. (JPM)  analyst Himanshu Patel said in a research note Tuesday, The Wall Street Journal reported.

• Light, sweet crude for November delivery yesterday (Tuesday) fell $2.56 to settle at $78.63 on the New York Mercantile Exchange, amid signs of dwindling world energy demand. Gasoline prices have followed oil’s precipitous decline, falling 23% from the record average of $4.14 a gallon reached July 17 to $3.163, according to auto club AAA.

• The Bush administration said yesterday (Tuesday) that the deficit for the budget year ended Sept. 30 was $454.8 billion – more than double the $161.5 billion recorded in 2007. It surpassed the previous record of $413 billion set in 2004. Some analysts believe that next year’s deficit could easily top $700 billion, according to The Associated Press.

• PepsiCo Inc. (PEP) said yesterday (Tuesday) that it would eliminate 3,300 jobs and close down six plants in an effort to save $1.2 billion over the next three years, The Associated Press reported. The announcement came as the company reported a 9.5% drop in third-quarter profit. The job cuts equate to roughly 1.8% of Pepsi’s global work force of about 185,000 employees.

• The Organization of Petroleum Exporting Countries, which produces 40% of the world’s oil, is “very likely” to cut its crude production at its next meeting on Nov. 18, according to the group’s President Chakib Khelil. “The Organization is concerned about the deteriorating economic conditions with contagion risks,” OPEC members said today in a statement. The official production quota for 11 of OPEC’s members is 28.8 million barrels a day. The group exceeded that target by 390,000 barrels a day in September, according to Bloomberg estimates.

• Iceland yesterday (Thursday) took control of Kaupthing, the country’s leading bank, and suspended trading on its stock exchange for two days, as it the island country struggled to overcome a financial crisis that could ultimately result in bankruptcy.  Iceland’s Financial Services Authority now has control of all three of the country’s major banks.

• New applications for unemployment benefits dropped from a seven-year high last week, according to the Department of Labor. Initial claims for jobless benefits dropped 20,000 to a seasonally adjusted 478,000. However, the four-week average, a more stable indicator, rose to 482,500 – the highest since October 2001.

• Micron Technology Inc. (MU), the largest domestic producer of memory chips, yesterday (Thursday) announced it would reduce its staff by 15% and scale back production levels. Over-production has flooded the market, pushing memory-chip prices below the cost to produce them, Bloomberg News reported. Micron has racked up $1.9 billion in losses over the past two years.

• National City Corp. (NCC) could be the next bank to get bought out by a larger rival as financial firms look to stabilize their capital positions by buying deposit assets at discount prices. PNC Financial Services (PNC) and Toronto-based Bank of Nova Scotia (BNS) are two of the potential buyers for the regional bank, Forbes reported.

• Abercrombie & Fitch Co. (ANF) and The TJX Cos. Inc. (TJX), parent company of T.J. Maxx and Marshall’s, both lowered their profit outlook as retail sector sales continue to worsen. “Consumers are bracing for recession,” Ken Perkins, president of Retail Metrics, wrote yesterday (Thursday) in a report, Bloomberg News reported. “Credit will continue to be very difficult to come by through the holiday-shopping season, and the jobs market is likely to further deteriorate.”