Will the Real Grinch Please Stand Up?

12/16/2010 3:45 pm EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

Someone had to play Scrooge.

Beijing plainly proved not up to the task, refusing to hike interest rates in response to quickening inflation. Commodity prices immediately perked up, because if China’s rulers can’t even agree on a token gesture, they’re certainly not ready to enforce a meaningful slowdown. Raising the inflation target for 2011 didn’t exactly signal a steely determination to cap prices.

The US Senate spent its miserly impulses to block health benefits for Sept. 11 first responders. But most senators snapped out of their humbug trance in time to approve $858 billion for the extension of the Bush tax cuts, among other goodies.

True, Moody’s acted seasonably grumpy, threatening another downgrade of Spain and even intimating that tax-cutting zeal could cost the U.S. its Aaa rating as well. Standard and Poor’s bullied Belgium. But it’s been some time since anyone put much stock in credit agencies’ speculations about the future.

Bah Humbug from Berlin
Fortunately, German Chancellor Angela Merkel really got into the spirit of things, smashing allies in the mouth with her purse whenever they asked her to open it. Increase Europe’s decidedly skimpy-looking bailout fund? Nein. Issue pan-European bonds to take the heat off Spain and Portugal? Nein. Don’t wait for vultures to peck stragglers half to death before providing aid? Nein, and take, that you dummkopf freeloaders.

The European summit being held this week to set permanent bailout rules beyond 2013 will prove as helpful as Merkel lets it be, which probably has Spain and the other ne’er-do-wells bracing for another hazing in the markets come Monday.

Or maybe not. Madrid shares are up 8% since the beginning of the month, handily outperforming Germany as well as most emerging markets. True, Frankfurt’s up 18% year-to-date, while Madrid has shed 17% on the Merkel diet. Perhaps the fortunes will reverse next year. Perhaps the PIIGS’ bonds will learn to fly.

Then again, investors willing to take on that much risk might prefer to look to Argentina, which escaped a similar predicament a decade ago by stiffing creditors, and is now thriving as a result. Carla Pasternak chronicles the transformation, and points out some of the most attractive opportunities going in Latin America’s latest go-go market.

Don’t Like Ghosts? Avoid Their Haunts
Argentina may well have a much bigger inflation problem than its government claims, but everyone already knows as much. But there’s no doubting the salutary effect of a global grains boom in the one economy most dependent on exports of foodstuffs. The bank Carla recommends pays the 5.6% annual dividend on its American Depositary Receipts in dollars. And for a currency burdened with a high inflation rate, the Argentine peso has held up remarkably well, losing just 4% against the greenback this year. The bank stock, meanwhile, has risen 84% this year, though it’s down 15% from November’s high.

The agricultural boom lifting Argentine soybeans has had a similar effect on the prices of palm oil, a common ingredient in processed food.  Peter Shearlock recommends a London-listed supplier of this under-the-radar commodity that is the most efficient producer in the world from its plantations in Papua New Guinea. Peter further suggests that the share price undervalues the company’s land. This, despite the fact that the stock has more than doubled this year. It’s up nearly 20% since the end of November.

The Russian wireless carrier that Yiannis Mostrous favors above all other emerging-markets plays hasn’t been nearly as hot of late, its New York-traded shares dropping 12% since Nov. 5. But with a forward price:earnings ratio of ten, annual sales growth above 25%, and the Russian economy luxuriating in high oil prices, this seems like an easy call.

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