Featured Trades: (CHINESE SOLAR INDUSTRY), (STP), (YGE), (FSLR)

3) Darwinian Downsizing in the Solar Industry. The solar industry is suffering some 19th century Darwinian style competition, with Chinese manufacturers Suntech (STP) and Yingli Green Energy Holding (YGE) clearly dumping panels in the US and Europe below cost to gain market share.

You may laugh, but I watched the Japanese pursue the same strategy in the seventies and eighties with a vast array of products, from cars to memory chips, to devastating success. They now control half the US automobile market, and the most profitable half at that.

As a solar consumer I shouldn't care, as the 50% price drop has, with Obama's generous tax subsidies, made new installations cheaper than obtaining electricity from my local power company (PGE) at 12 cents a kilowatt. It's just a matter of booking the profit in China instead of Phoenix.

But the predatory pricing has also kicked my beloved First Solar (FSLR) in the shins. Use the weakness to pick up (FSLR) on the cheap. The company is using advanced cadmium telluride based thin film semiconductor technology, which has enabled it to match the Chinese price cuts dollar for dollar, and the engineering will allow them to continue to do so. The Chinese, wedded to an older polysilicon product, can't keep playing this game, unless they want to hemorrhage cash, or face US anti-dumping enforcement. To see more on the current fundamentals of solar, please click here.

Featured Trades: (AFRICA), (EZW), (AFK), (GAF)

2) Some Feedback on South Africa. The great thing about the Internet is that sometimes it gives you back more than you put into it. In response to my piece on South Africa (EZW) a few days ago and my other work on Africa generally (AFK), (GAF) (click here for 'Feel Like Investing in a State Sponsor of Terrorism' ), a flood of data poured in bolstering my arguments in favor of the dark continent.

Africa has a population that approaches India and China's, possibly making it the next cheap labor market. Some 60% of the planet's remaining uncultivated land is there, which is why China, Libya, and Saudi Arabia have been pouring billions into agriculture there. Africa has 40% of the world's gold reserves and 10% of its oil reserves, with massive deposits of coal and other key resources.

If you have any doubts about Africa, take a look at the direct investment that has been pouring into the banking sector in South Africa in recent years, the most stable and best capitalized industry on the continent. HSBC has gobbled up Ned Bank, Barclays has gobbled up ABSA Bank, and China has taken a 20% stake in Standard Bank, probably the best run institution is the sector. Having been a four decade observer of the global financial system, I can tell you from experience that the changing of the guard in the banking system often presages major long term bull markets. You want to follow the smart money here.

Despite all this, only 3% of global direct investment finds there way there. Prices? are so low and earnings leverage so great that any dire political risks you can come up with, and there are definitely some out there, have got to already be priced in. It's just a matter of time before the markets address this imbalance.

Is Africa a Sleeping Giant?

Featured Trades: (ZHOU XIAOCHUAN), (FXI), ($SSEC),
(TUR), (EPOL), (EWY)
iShares FTSE/Xhinhua China 25 ETF
iShares MSCI Turkey Investable Market Index ETF
iShares MSCI Poland Investable Market Index ETF
South Korea iShares ETF

1) China's Central Bank Governor Defects to the US. The fiber optic cable that makes up the Chinese Internet is absolutely burning up today with rumors that the governor of the People's Bank of China, Zhou Xiaochuan, the Middle Kingdom's equivalent to Federal Reserve governor Ben Bernanke, has defected to the US. The Chinese authorities' efforts to censor the story has only succeeded in pouring fuel on the flames. Even if the rumors turn out to be untrue, this could mark the end of three decades of political stability in China.

The report was relayed to the US by Asia Pacific analyst Matt Gertken at STRATFOR, a Texas based boutique private intelligence and geopolitical forecasting firm. It is believed that Chuan was forced to leave the country because of an anti corruption scandal, or worse, a dramatic shakeup of China's macroeconomic and monetary policies. Chuan has not been seen in public since August 26.

China is facing a generational change in leadership in 2012, and the maneuvering has already begun over whether the country's breakneck economic reform policies will continue to move ahead, stagnate, or reverse. Many in the 2.25 million People's Liberation Army, where an underpaid rural underclass is well represented, have not been happy with the overemphasis on development of the coastal population centers. Even prime minister Web Jiabao has felt the heat. The brouhaha may explain why the main Shanghai index has sold off 5% in the past week, and the ETF (FXI) has clocked even bigger losses.

The story was just one of a daily outpouring of intelligence nuggets which I have been able to glean from STRATFOR's premium subscription service. The combined output of an impressive 70 man research team steeped in credentials and fluent in local languages has a global reach stretching from Vietnam to the Sudan and Latin America. They include coverage of several emerging markets now moving into prime time, which I have written on extensively, like Turkey (TUR), Poland (EPOL), and South Korea (EWY).

STRATFOR is one of a handful of private intelligence firms that hedge funds increasingly rely on, especially when considering a position in frontier markets where hard data is scarce. Readers of the Diary of the Mad Hedge Fund Trader can claim a $50 discount off STRATFOR's $349 annual fee by clicking here.

China's Central Bank Governor Zhou Xiaochuen:
Soon to Open a Liquor Store in Los Angeles?

Featured Trades: (SPX)
S&P 500 Large Cap Index ETF

3) My Equity Scenario for the Rest of 2010. Not a day goes by when I don't fall down on my knees and thank the heavens that I avoided equities for much of this year (click here for 'I'd Rather Get a Poke in the Eye With a Sharp Stick Than Buy Equities' in January). Trading in American stocks this week is a sloppy, low volume, conviction free affair as everyone waits for an August non-farm payroll figure they know will be terrible. Good thing I focused on the grains, the Canadian and Australian dollars, emerging market equities and debt, junk bonds, precious metals, rare earths, and a few special situations like BIDU, POT, AGU, and MOS.

That report could be the stick that breaks the 1038 support which has held for 3 ? months and takes us down to my long standing 950 target for the S&P 500 (click here for 'Why There is No Place to Hide in This Sell Off'). Gold's positively virile action today, where it touched $1,250, just shy of an all time high, tells you that September is not going to be a pretty picture.

Historically, stock markets are weak for the six months going into midterm elections. The April 25 top on the SPX neatly fits that time table. In every election since 1950, markets then rallied for six months after the midterms, setting up for a nice year end rally.

The catalyst for the move will be the removal of the elections themselves as an unknown. With the two political parties at contemptible, diametrical, even hateful? extremes, elections these days have a much larger impact on financial markets than they have in the past.

End September will also bring the next round of earnings reports, which should be pretty good. After all, firing people to boost productivity and profitability is the winning business model of 2010. A 950 SPX gives you a PE multiple of 10, the lowest it has been for years. For you technicians out there, 950 also happens to be a key Fibonacci level.

I have often said that markets will do whatever they have to do to screw the most people. Getting as many as possible maximum short in September, then running the markets for the rest of the year, fits the bill nicely.

Thanks Goodness I Avoided Equities This Year