EEM: Where the Hard Assets Are
October 8th, 2008
By Max Rottersman

HANOVER, NH (ETFguide.com) - With much of the American markets closed for nationalization it seems many people may look for investments in capitalist markets like China. 

Our big boys are ready. For the past couple of weeks, while you've been focused on Bailout Indecision 2008, they've been quietly creating about $400 million worth of the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) every day. There is now $3.7 billion more of the product, in net creations, more than 100 million additional shares, than there was back on Septebmer 18th. 

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On September 29th, Leslie P. Norton, of Barrons, wrote "It's Time to Revisit Emerging Markets.'' Inside, we learned that Pimco Ivy-league genius Mohamed El-Erian is bullish. If the market had gone up smoothly we'd pay that snooty-fellow no mind but EMM declined 12% that following Monday.  

When a market falls that much you're either right or wrong. If they were wrong they were wrong on Monday. But what about Tuesday? Tuesday it was up 8 percent. Maybe they were right? Wednesday was the tie-breaker. EEM went up by one percent. Thank God in America a win is still a win. The kicker is that EEM seems to always go up more than the US market goes up, and down more than the US market goes down. There's a statistical word for that, but what it means to you is this--you'll smoke your neighbor's 401k account next time it goes up.

Then there's the fact that EEM has grown by 32% in 10 business days. Someone must know something; these are real billions. So I'm buying (my story). If they're wrong on Monday, they'll be right on Tuesday.

The iShares FTSE/Xinhau China 25 Index Fund (NYSEArca: FXI) has also added about $1 billion in new ETF inventory for Americans longing for capital market exposure. The Treasury has been very smart to buy up all that bad, worthless debt. It's the government's version of a poison pill. If China wants to cash in its Treasuries all it will get back is abandoned tract-homes in Nevada. Paulson is only doing for the government what Goldman did for Goldman. Unload the crap before everyone else.

America is safe.

In the meantime, we've become a submerged market. Submerged markets suffer from inflationary pressures, deflated economies and massive debt problems. However, in a submerged market there is no actual inflation of destructive debt. There is only a lot of hysteria over what constitutes an asset; that is, if no one wants to buy it. But America is no nation of philosophers. As much fun as it is, I can't see it lasting.  

Many emerging markets are no longer places where people used to live in straw huts, but last month took up work in billion-dollar chip factories. Emerging markets now sport a different truth. They're countries where the government gives money to business and asks only that its people not waste time finding the scariest politician every 4 years. Emerging markets don't have time for banks, regulators and the legal definition of free markets. They're too busy making things.  

And those things may be stocks with real assets.

Max Rottersman is a partner of Hanover Technology Group, LLC. His opinions don’t necessarily represent the views of ETFguide.com or Yahoo Finance.