07/24/2006

And the Great Wall of China Comes a Tumbling Down?

Hello:

Despite all the troubling events globally, and despite all the short term market volatility, the markets are behaving rather as expected this year. We believe there is a high probability of a market peak in the summer, followed the traditional buying opportunity this autumn. Long-term prospects appear to be just fine, with generally positive second quarter earnings reports.

Now for the stuff that might give you a headache, with our apologies in advance:

We notice China taking the same position as Russia on some global issues. We believe this might be in part due to the perceived oil and gas reserves in Russia, that are so desperately needed by China to continue its economic expansion. Our concern is that Russia has a history of window dressing. Historically, in the days of Catherine the Great, prime minister Grigory Potemkin was known to have phony villages populated with happy peasants in order to please the empress. More recently, when the Cold War ended, the USSR was shown to have Superpower Weapons guarding a dwindling third world economy.

Perhaps Russia is window dressing its oil reserves in order to support the recent Rosneft IPO? Rumors flew in the oil industry during the late eighties that Russia had damaged its oil reservoirs from pumping out the oil too fast. Now, the melting of the permafrost may threaten to slowly uncap the Siberian gas reserves. Our recommendation? China, maintain their Great Wall, and be very watchful of the potentially toothless bear of Russia.

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Terri G. Millson, CIMA, CIMC President

Ray Dicius, CSA, GEPC LPL Branch Manager