Big Money Global Casino Is Heading to China

MSN Money March 6, 2012

MARKET NEWS: Euro fears sink Dow 200+ in year's steepest drop | Read more

3/5/2012 8:01 PM ET

By Jim Jubak

Today's investing game is about figuring out which central bank will be the next to open the stimulus floodgates. Europe is done, and the Fed is quiet, so . . . .

The global casino is moving on.

Now that the European Central Bank has flooded the European banking system with 1 trillion euros, and now that Federal Reserve Chairman Ben Bernanke has said that the U.S. central bank isn't thinking of a new program of quantitative easing, the best candidate for a big injection of central bank cash into global asset markets is the People's Bank of China.

So the big money is moving on to China, following that cash flow. In the new "paranormal" market (see my column "5 rules for an 'X-Files' market"), global cash flows count more than economic or company fundamentals. At least in the short term.

Italian banks such as the country's biggest, UniCredit SpA (UNCFF, news), and BP (BP, news)closed March 2 up 80.2% and 107.3%, respectively, from Jan. 9 lows. Weak banks did better than the soundest institutions in the wake of the European Central Bank's lending spree, but even a solid bank such as Spain's Banco Bilbao Vizcaya Argentaria (BBVA, news)is up 18.5% from Jan. 9 through March 2. The run-up in European banking stocks probably isn't over, but the biggest money has been made and the odds of a retreat in the sector are rising.

Getting in early on the next spin of the central bank wheel in China looks like a more attractive gamble than sticking it out in Europe in the hope that the Greek rescue deal and the eurozone fiscal discipline pact will produce economic facts to back up the current optimism.

What's ahead for China's economy?

Predicting where global cash will slosh next -- and then betting on the markets it's sloshing into and against those markets it's sloshing out of -- is the current name of the investment game for big-money players. You may not like this game, but there's nothing stopping individual investors from making money off these relatively short-term trends.

On the other hand, you don't need to play in this casino. I think investors who measure time horizons in more than a quarter or two can make money by picking up bargains in solid stocks in markets that the big money has deserted, then holding them until the wheel spins in their direction again.

Jim Jubak

But play or not, you need to understand the game, if only so that the short-term volatility doesn't scare you out of good long-term positions and so you understand why the markets might sell down an absolutely fundamentally sound stock.

So, let's look at why I think the wheel is spinning away from Europe and toward China, and at some specific stocks to use if you choose to play this turn of the wheel.

A river of denial flows through Europe as leaders bask in the afterglow of an almost-complete Greek rescue deal and the approval of the new budget discipline pact by 25 countries. French President Nicolas Sarkozy was among the more measured celebrators, saying, "We have not exited the economic crisis, but we are turning the page. The strategy we put in place is bearing fruit."

Oh, yeah? What fruit did you have in mind, exactly?

He said this on the same day that Spain announced, apparently without consultation with its eurozone partners, that it was resetting its budget deficit target for 2012 to 5.8% of gross domestic product. That's well below Spain's budget deficit of 8.5% of GDP in 2011, but well above the 4.4% that Spain promised for 2012 and even further above the 3% that would represent compliance with the eurozone rules.

I don't think there's much of a chance that Spain will hit that 5.8% target for 2012, either. The country's economy is forecast to contract by 1.7% this year.

As I understand the European Commission rules, the Spanish issue will hang until May. By that time, Spain will have either presented a budget that meets the agreed-upon target or procured a waiver of the rules (extremely unlikely), or will face fines from the European Union.

The other troubled economies of the eurozone face pretty much the same problem over the next half-year. The austerity budget plans that have inflicted so much pain on the people of Greece, Portugal, Ireland, Italy, Spain, France and (soon) the Netherlands have helped stabilize the financial markets for the debt of most of these countries. But they will have to become even harsher in 2012 as shrinking economies produce falling tax revenues, opening up new budget gaps. The Greek economy is now projected to shrink by 4.4% in 2012 and the Portuguese economy by 3.3%. And right now it looks as if any potential economic shocks -- from such things as the high price of oil -- would slow growth even further.

Look at European financial markets from the perspective of a player in the global casino. It's hard to see why the euro should climb substantially from the $1.3196 rate on March 2. Sure, $1.35 is possible, but beyond that you're betting against longer and longer odds. If you wanted to make money on a strengthening euro, the time to do so was back in January, when the euro traded at $1.2657.

Same with European equities and Italian and Spanish bonds. Interest rates on bonds have dropped, and prices have rallied. The rally in Europe may not be at an end, but it's in sight.

When? March, if the New Democracy party wins in Greece and repudiates part of the austerity budget deal. April, if Sarkozy loses to François Hollande in the French presidential election and Hollande seeks to reopen the fiscal discipline pact. May, if Spain decides to defy the budget rules of the European Union. June, if the inspectors from the International Monetary Fund and the European Commission give Greece a failing grade, as expected, on its austerity efforts. Whenever, if the spat between European Central Bank head Mario Draghi and Germany's Bundesbank can't be smoothed over by German Chancellor Angela Merkel.

It's not that any of these events is guaranteed to push Europe back into crisis; it's just that the odds favor a renewed crisis not too far down the road. I certainly can't come up with a comparable list of events that would improve the current situation.

Right now, I think the situation is too fluid to make shorting Europe -- betting on a renewed crisis -- an attractive play for global big money. But if the euro keeps climbing and the lineup of events stays the same, I can see a time when the players in the casino would decide to bet against European assets.

When those negative bets go on, I think individual investors will have a good opportunity to add fundamentally attractive European stocks to their portfolios. Not yet, mind you. But this is the time to begin putting together a list of European stocks that you would like to pick up, say, six months down the road, if the price gets to be right. I'll give you some suggestions for beginning such a list sometime in the next week or two.

Continued on the next page. Stocks and funds mentioned include: iShares FTSE China 25 Index (FXI), Guggenheim China Real Estate (TAO, news)and Las Vegas Sands (LVS, news).

Continued: China is the smart bet for stimulus Single page12Next >RELATED ARTICLESJim Jubak Picks - Investing - MSN MoneyJim Jubak investment advice and stock picks on MSN MoneyThe 10 best stocks for 2012 - 1 - - MSN MoneyGet ready for the next crash - 1 - European debt crisis - MSN MoneyWhy China is all that matters - 1 - how to invest - MSN MoneyJim Jubak Dividend Income Portfolio - Investing - MSN MoneyVIDEO ON MSN MONEY/*$.dap("&PG=INVPEB&AP=1402",600,250,"ConAd-1");Feedback Share10814Share with Friends108Share/*').append($('#scplatformSocialToolBarMain').contents().clone()));$('.stb-boxstyle-l, .stb-boxstyle-r').append($('#scplatformSocialToolbarBox').contents().clone()).addClass('stb-boxstyle');jQuery.async('scp', function(){$.scp.async('\x2f\x2fus-social.s-msn.com\x2fs\x2fjs\x2f18.5\x2fue.min.js', function(){$('\x23ahead').not('.stb-boxstyle-l, .stb-boxstyle-r').not($('\x23ahead').next('div.stb-minitb').prev()).after($('').append($('#scplatformSocialToolBarMain').contents().clone()));$('.stb-boxstyle-l, .stb-boxstyle-r').not('.stb-boxstyle').append($('#scplatformSocialToolbarBox').contents().clone()).addClass('stb-boxstyle');});jQuery.scp.socialToolbar({"jsUrl":"//us-social.s-msn.com/s/js/18.5/ue.min.js","shareCountUrlBase":"http://social.msn.com/boards","ajaxStubBaseUri":"http://socialcf.co1.msn.com/","responseBridgeUrl":"http://money.msn.com/responsebridge.min.htm","locale":"en-us","strings":{"lc_shrbtntooltipformatsingular":"Shared {0} time","lc_shrbtntooltipformatplurar":"Shared {0} times","lc_shrintro":"I thought you would be interested in this: {0}","lc_defml":"Email program","lc_hotml":"Hotmail","lc_gml":"Gmail","lc_yml":"Yahoo! Mail","lc_prt":"Print","lc_rdcmnts":"Read comments","lc_eml":"Email","lc_shr":"Share","lc_numfmt":"{0}","lc_numfmt_thousands":"{0}k","lc_numfmt_millions":"{0}M","lc_numfmt_billions_plus":"{0}B+","lc_share_with_friends":"Share with Friends"},"sharingSites":[{"id":"2","name":"Facebook","icon":"http://media.social.s-msn.com/images/blogs/Facebook.png","smallIcon":"http://media.social.s-msn.com/images/blogs/Facebook-s.png","urlTemplate":"https://www.facebook.com/sharer.php?u=%7Burl%7D&t=%7Btitle%7D"},{"id":"3","name":"Twitter","icon":"http://media.social.s-msn.com/images/blogs/Twitter2.png","smallIcon":"http://media.social.s-msn.com/images/blogs/Twitter2-s.png","urlTemplate":"http://twitter.com/home?status=%7Btitle%7D+%7Bs-url%7D"},{"id":"1","name":"Messenger","icon":"http://media.social.s-msn.com/images/blogs/Messenger.png","smallIcon":"http://media.social.s-msn.com/images/blogs/Messenger-s.png","urlTemplate":"http://profile.live.com/badge?url=%7Bs-url%7D"},{"id":"6","name":"LinkedIn","icon":"http://media.social.s-msn.com/images/blogs/linkedin.png","smallIcon":"http://media.social.s-msn.com/images/blogs/linkedin-s.png","urlTemplate":"http://www.linkedin.com/shareArticle?mini=true&url=%7Burl%7D&title=%7Btitle%7D"},{"id":"9","name":"Stumbleupon","icon":"http://media.social.s-msn.com/images/blogs/stumbleupon.png","smallIcon":"http://media.social.s-msn.com/images/blogs/stumbleupon-s.png","urlTemplate":"http://www.stumbleupon.com/submit?url=%7Burl%7D&title=%7Btitle%7D"},{"id":"12","name":"Reddit","icon":"http://media.social.s-msn.com/images/blogs/reddit.png","smallIcon":"http://media.social.s-msn.com/images/blogs/reddit-s.png","urlTemplate":"http://reddit.com/submit?url=%7Bs-url%7D&title=%7Btitle%7D"},{"id":"19","name":"Newsvine","icon":"http://media.social.s-msn.com/images/blogs/newsvine.png","smallIcon":"http://media.social.s-msn.com/images/blogs/newsvine-s.png","urlTemplate":"http://www.newsvine.com/_tools/seed&save?popoff=0&u=%7Bs-url%7D&h=%7Btitle%7D"},{"id":"10","name":"Delicious","icon":"http://media.social.s-msn.com/images/blogs/delicious.png","smallIcon":"http://media.social.s-msn.com/images/blogs/delicious-s.png","urlTemplate":"http://del.icio.us/post?partner=addthis&url=%7Bs-url%7D&title=%7Btitle%7D"},{"id":"22","name":"Orkut","icon":"http://media.social.s-msn.com/images/blogs/orkut.png","smallIcon":"http://media.social.s-msn.com/images/blogs/orkut-s.png","urlTemplate":"http://promote.orkut.com/preview?nt=orkut.com&tt=%7Btitle%7D&du=%7Bs-url%7D&cn=%7Bdesc%7D&tn=%7Bimage%7D"},{"id":"27","name":"Blogger","icon":"http://media.social.s-msn.com/images/blogs/blogger.png","smallIcon":"http://media.social.s-msn.com/images/blogs/blogger-s.png","urlTemplate":"http://www.blogger.com/blog_this.pyra?n=%7Btitle%7D&u=%7Bs-url%7D"},{"id":"42","name":"Tumblr","icon":"http://media.social.s-msn.com/images/blogs/tumblr.png","smallIcon":"http://media.social.s-msn.com/images/blogs/tumblr-s.png","urlTemplate":"http://www.tumblr.com/share/link?url=%7Bs-url%7D&name=%7Btitle%7D&description=%7Bdesc%7D"}],"fbLocale":"en_US","fbLocaleWidthLike":90,"fbLocaleWidthRecommend":130,"fbBoxStyleLocaleWidthLike":55,"fbBoxStyleLocaleWidthRecommend":95,"twLocale":"en","twLocaleWidth":110,"twLocaleWidthNoBubble":55,"gLocale":"en-US","msnShareLocaleWidth":53,"fblkAppId":"132970837947","ver":"18.5","style":"higgreen","gmt":"-5"});});window.async('FB',null,document.location.protocol+'//connect.facebook.net/en_US/all.js#appId=132970837947&xfbml=1');scp_fbCustomChannel='http\x3a\x2f\x2fmoney.msn.com\x2fresponsebridge.min.htm';scp_fblkAppId='132970837947';$(document).ready(function () {if($.scpTrack){if($('\x23ahead').not('.stb-boxstyle-l, .stb-boxstyle-r').length > 0){$.scpTrack.add('scpToolbarMini_V18.5');}if($('.stb-boxstyle-l, .stb-boxstyle-r').length > 0){$.scpTrack.add('scpToolbarBoxstyle_V18.5');}if($('div.stb2-ext').length > 0){$.scpTrack.add('scpToolbarExternal_V18.5');}if($('#scplatformSocialToolBarMain').not(':hidden').length > 0){$.scpTrack.add('scpToolbarMain_V18.5');}}});//]]> /**/Sign inAdd a comment

14CommentsNewestOldestBestWorstControversial psdude48 minutes agoIt's the stock market for God sakes. It needs to be in Vegas, not Wall Street. It is 99% speculation. 1% fact. 2 0ReportSpamJeremy123411 hour agoIt is beginning to look like China is the only game in the world casino. Money like water will flow the direction of least resistance. There is only so much money out there. Thus, China will probably succumb to the same fate as Europe. Cheap money or liquidity will only go so far.

It's already building up like a big fat bubble. I know several people who are displaced either due to development or because factories are being put off and several buildings are remaining empty. Either way, many are living off of loan money. Even to pay for doctor expenses-- and that one was weird to me, I thought they had a communist health care system. I guess not. All I can say, is China is a powder keg for economic and social collapse. Kind of like many of the mid-east. Europe's problems. And US who decided it was a wonderful thing to see large amounts of business sent to other countries-- some how they thought demand in the US would just continue, you know free everyone up for the mystical job of something else... turned out that something else was working a coffee shop for 7.00 or some domestic outsource call center for 9.00 hour or working walmart for 8.00 hour. Yeah, we have money to buy nothing now. Not even gas. So China's stuck with a bunch of junk they're own people can't afford. Transfer of wealth. It was more less a throw away of sustainable economics. The entire sovereign bond bull doesn't work. Currencies should be printed by the people of that nation-- backed by decree. No bonds. No interest rates. Otherwise it causes a self-defeating need to inflate. And eventually becomes unstable and quickly has to end. So lets float some more bonds and money!

And the circus continues. Like Penny-Wise the clown, remember his motto, "Wanna Float? Everything Down Here Floats!!"

0 0ReportSpamraymond covit1 hour ago

China as a government invested in factories and technology since the 70s , to make them able to use cash for growth. europe and US are under the illusion that austerity is paramount. so they cut service and the work force for decades , in corresponding waves, allowing ,for example China ,Thailand and similar to provide our goods. Now we make nothing in large numbers and we are limited as to our ability to use capital towards growth. Mortgages cannot be paid , by and large, by underemployed peoples, and people with limited hope for a future do not contribute in attitude towards growth and success.

If we rebuild our manufacturing base, we would have the mechanism to use capital , and , with a chance for profits,maybe then the lords of capital would invest in our nation. Although the power of numbers dictates that 1.5 billion is 5x The US population and the ROI per capita can be lower in China and still attain larger returns than investing here.

3 2ReportSpamjlum2 hours agoIt is beginning to look like China is the only game in the world casino. Money like water will flow the direction of least resistance. There is only so much money out there. Thus, China will probably succumb to the same fate as Europe. Cheap money or liquidity will only go so far. 2 0ReportSpamruminator7212 hours agoWhy do so many analysts assume that China's leadership will behave just as we have in the US and Europe? Perhaps, I'm dead wrong, happens often enough, but I just don't think that China makes their "long" term decisions based on quarterly reports. 2 0ReportSpamjojokeeper2223 hours ago

@starsailing: Only if China elects Bill Clinton if you know anything about the market you know Clinton caused the bubble in order to make his numbers look good so he could have a second term. Bush did little to combat the problem nothing some would say but be assured Clinton caused the bubble and resulting burst. Obama has added the death nail to the equation. Post Obama (definitely if he gets a second term) America will be a country with the rich and the poor, the rich being only part time citizens for reasons of profit and the poor at the mercy of a gov. that will be crippled and merciless. Obamas divisive policies to punish the rich (in the eye of the poor) and divide this nation in order to win is just disgusting to those who love this nation....thus the outrage we have seen since his election.

Try thinking long term instead of with for the moment emotion.

10 8ReportSpamsprues23 hours agoIf you have your money in anything but gold right now, you are about to get another beating.The quasi socialists/socialist won't stop until the economy lays down..April, 2008, when I saw Obama or Clinton was going to be elected., I cashed out everything and bought gold.The inpt quasi socialist in the white house can't tax it until it's sold and it will stay in gold till the megalomaniac, is long gone. 2 8ReportSpamjojokeeper2223 hours ago

@Someone: Yes The "Big Money" is smart; i myself however have been in China since dec, 2011 and am now flirting with moving on as I know China generally fall short of what need be done and this time i know they will be no different.

Flirting I say because where to go next is really a wild guess as I (& many others) fully expect that shortly after the US elections, if not sooner, the world markets all will tank.

Oil looks good but I was there 12 months ago and have as of yesterday exited.

If war breaks out in the "middle east" (most likely will not) oil will surge again.

All things considered I think I will invest in commodities, food, lumber.

Good Luck.

1 1ReportSpamThe Fosz3 hours agoShort-term volatility is created by investors/people with short term memories. People/investors with that kind of memories should be avoided and not given the time of day. Their intention is only to scare you out of good long-term positions and to take your money as fast as you will give it to them. This is why you must understand why the markets might sell down an absolutely fundamentally sound stock. 4 0ReportSpamSomeone5 hours agoThe big money is smart, because Europe and the U.S. is soon to be sucking wind with trillions upon trillions of dollars in debt. Republican or Democrat there is no difference the politicians serve themselves and their Wall Street and Corporate donor buddies. We the People do not even fit into the picture. 26 1ReportSpamusual suspects6 hours agothe tea baggers are expecting the hoards from China to invade anyday. Should we we investing our money there? I'm thinking it would take a big ship. 5 13ReportSpamonebondedout9 hours ago 3 2ReportSpamStarsailing13 hours agoMaybe the rich can do a housing mortgage bubble scenario in China and crash their economy......just thinking...! 15 7ReportSpamcacique16 hours agoEurope was seduced by the white man's curse, China is next...I wish to live long enough to see it. 12 19ReportSpamAdd a commentReportPlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.CategoriesSpamChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatThreats of suicideOtherAdditional comments(optional) 100 character limitAre you sure you want to delete this comment?/**/ DATA PROVIDERS

Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.

Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by SIX Telekurs.

Japanese stock price data provided by Nomura Research Institute Ltd.; quotes delayed 20 minutes. Canadian fund data provided by CANNEX Financial Exchanges Ltd.

$.dap("&PG=INVIHP&AP=1089",300,250,"dapAd2");FeedbackRECENT QUOTES/*WATCHLIST/*Learn MoreView full page SymbolLastChangeSharesWhere's my list|Update quotes|Clear this listQuotes delayed at least 15 minSponsored by:$.dap("&PG=INVSRQ&AP=1025",120,30,"quotead");MARKET UPDATEUSINTERNATIONALNAMELASTCHANGE% CHANGEThere's a problem getting this information right now. Please try again later.NAMELASTCHANGE% CHANGEThere's a problem getting this information right now. Please try again later.

[BRIEFING.COM] Extending their losses by a narrow margin, both the Dow and the S&P 500 now sit at new session lows. The Nasdaq is only narrowly above the depths that it set earlier in the day. ... More

More Market NewsStock TickerStory StocksIn PlayShort StoriesCurrenciesNAMELASTCHANGE% CHANGEThere's a problem getting this information right now. Please try again later.See more currenciesSponsored by:$.dap("&PG=INVSMS&AP=1025",120,30,"AdSponsor-summary");RECENT ARTICLESWhy big money is turning to ChinaBuffett vs. the profiteers of doom More good news in store for Gap Can we trust the central bankers?5 rules for an 'X-Files' marketJIM JUBAKWhy big money is turning to China5 rules for an 'X-Files' marketHang on for Mr. Dollar's wild rideHow high can Apple go?Big questions for the rest of 2012MORE FROM BINGHow much should you save each year?Tips for handling workplace conflictThe lifetime cost of raising a childDo you have too many credit cards?How to invest like Warren BuffettBuying vs. leasing a car: Pros and consMUST-SEE ON MSNBING TRAVEL

Spring break hot spots

All-time sports super fans10 college towns grown-ups will lovemsnNOW: Site tracks the wealth of billionaires$.stratosphereConfig={cdnurl:'http://az29590.vo.msecnd.net/prod/money/en-us/enusfooter',featurename:'msn_enusfooter'}/* ({0})",msgr:"a.msgr",maxcount:9999,axob:"MSNMessenger.Hotmail2Control"});jQuery(".stratosphereheader1").async("stratosphereheader");a(b).channelheaderflyout({delay:{open:500,close:50}});a("div.websearch2").togglesearchtext({searchInputBoxId:"q4"});a("div.websearch2 form").bindSearch2();a(".myhp").setHomepage({url:"http://www.msn.com",txt:"Make MSN your homepage"})},a.jsUrl)})})(jQuery);jQuery(".stratosphere1").async("stratosphere");jQuery("a.openpopup").async("openPopup");(function(a){a(function(){a.async("asyncCanary",function(){a(".ptnrcnt1").partnerhostedcontentfeature()},a.jsUrl)})})(jQuery);(function(a){a(function(){a.async("asyncCanary",function(){a.lazyLoad.timeout=6e4;a.cookie+=";MUID=";a(".cogr.coss").slideshow({delay:7e3});a(".cogr.cotb").tabGroup({hover:{delay:300}});a("div.ivideo").async("inlinevideo",[{param:{windowless:"true"},asyncp:1}])},a.jsUrl)})})(jQuery);jQuery("a.opennew").async("openNew");jQuery(".pageoptions1").async("pageOptions");jQuery(".pageoptions1 #ausug").async("autoSuggest",[{helpLinkText:"What is this popup",helpLink:"http://help.live.com/help.aspx?project=wl_searchv1&querytype=keyword&query=sihggus&mkt=en-US",formCode:"MSMONY",openNew:"0",market:"en-us",cookieDomain:null,cookiePath:null,inputId:"q4"}]);jQuery(".quotesearchbar0").async("quoteSearchBar");jQuery(".quotesearchbar1").async("quoteSearchBar");jQuery(".quotewatchlist0").async("quoteWatchList0");jQuery(".recentquotes0").async("recentQuotes0");jQuery(".stkscoutrating2").async("financefundamentals");(function(b){var a=b("#nav .breaknews1");if(a.text().length==0)a.css("display","none")})(jQuery)//]]>/*/*