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

Featured Trades: (SOUTH AFRICA), (EZA)
South Africa iShares ETF

2) On Safari in South Africa. When I first visited South Africa (EZA) as a journalist in 1979, I was stuffed into the trunk of a car and smuggled into Soweto, a fenced off? 'township' , so I could write about the appalling living conditions there. Six ANC bodyguards accompanied my every move, as to venture out alone amidst 100,000 oppressed blacks would have been suicidal. Bringing along my Japanese wife to the land of apartheid didn't exactly go down well with the white locals either, as there was only one hotel in the country that would accommodate us.

The bottom line: everyone hated us. We were lucky to get out alive. Is those days, when long lines of Afrikaners snaked out of coin dealers selling their krugerrands for $900/ounce, everyone was convinced the country would soon blow up in a gigantic, bloody racial war.

It never happened. The Afrikaners made peace with the ANC, an incredible reconciliation process ensued, and by 2010 the country had healed enough to host the World Cup. It's all proof that if you live long enough, you see everything.

Now, South Africa is popping up on the radars of several big hedge funds as one of a handful of frontier emerging markets ready to make the move to prime time. Of course we already know about world class companies like De Beers, Standard Bank, and Sasol, which give it enough muscle in services and industry to stand out from the rest of the Dark Continent.

But did you know about alternative energy and venture capital? Local entrepreneurs report that South Africa is among the best countries to start a new company these days, with top rate universities, a plentiful, well educated professional class, a trained work force, generous government subsidies for key industries, and a healthy local market. Despite its well earned reputation as the premier source for the world's gold and diamonds, 50% of the country's exports were manufactured goods.

This dynamic mix enabled South Africa's GDP to hold up well during the financial crisis. Analysts are expecting a 3.3% growth rate this year and acceleration to 5% or more next year.

But this all misses the really big play in EWZ, whose ticket to prosperity will get punched by selling into fast growing markets? and a rapidly rising standards of living in the rest of Africa. The entire region has enjoyed accelerating GDP growth rates since 2002. This has been partly fueled by soaring commodity prices where Africa has a lock on the market, such as for cobalt and iridium, crucial elements for advanced electronics and cell phones.

There have been a number of new oil discoveries in Nigeria and Sudan. The Chinese are pouring tens of billions of dollars there into gigantic farms in Africa to feed its own hungry masses. Mass distribution of free anti retrovirals and malaria drugs by the likes of billionaire Bill Gates and the US government has also stopped the AIDS epidemic in its tracks.

Mind you, this is not a country without challenges. The unemployment rate is stuck at a daunting 24.5%, crime is rampant, income disparities are vast, and inter racial strife still percolates under the surface. However, when the world's investors flip back to risk accumulation mode, this is a new country you should consider.

Are You a Bull or a Bear?

Featured Trades: (GOLD), (GLD), (GDX)
SPDR Gold Shares ETF
Market Vectors Gold Miners ETF

1) The San Francisco Money Show. I attended the Woodstock of investment conferences last week, the San Francisco Money Show, which offered an entertaining three ring circus of traders, foreign exchange models, options platforms, newsletters, cruises, video broadcasts, and more.

The cavernous Marriott Marquis hotel and convention center South of Market on 4^th Street was absolutely bubbling with new ideas. You couldn't walk five feet without tripping over a great investment theme, and information overload was the problem of the day. There was a plethora of celebrity speakers, including Elaine Garzarelli, John Mauldin, and Think or Swim founder, Tom Sosnoff.

There really is no corner of the financial markets that was not well represented by market makers, analysts, technology providers, and investors-- thousands of them. With the soaring level of US government debt scaring the daylights out of everyone, the precious metals dealers were there in force.

Of course, the hard asset crowd was everywhere, and you could not swing a dead cat without hitting a miner looking for new funding. Never mind that the barbaric relic went up for all the wrong reasons. The dollars they're making are still just as good at the bar. The only thing missing from the show was the long predicted hyper inflation. Want to prospect in the Ivory Coast? No problem.

I was pleasantly surprised by the diversity of major corporate sponsors there to promote their own shares, like Darden Restaurants, Proctor and Gamble, Roche, Sanofi Aventis, Vale, and Nidec, several of which are great investments. A variety of oil service companies were also well represented. A 'green' section offered a look at wind, solar, and geothermal energy providers.

I took the opportunity to talk with companies about everything from the latest drilling costs, long term food prices, and the true cost of geothermal, to the clever play in gold coins (go for those struck at the San Francisco Mint). I was constantly amused every few minutes by attendees who, seeing my nametag, asked to have a photo taken with the one and only Mad Hedge Fund Trader, and to sign their program.

After I make my fortune, there was even a booth extolling the virtues of retiring on the beach in Costa Rica or Belize. It was a great opportunity to chat with the end investors who ultimately drive all these markets. All in all, it was a weekend well invested. For a calendar of future events, go to www.MoneyShow.com.