For all the talk about “green shoots” in the financial media these days, one might mistake CNBC for HGTV. However, what many see as the first promising sprouts of economic recovery are, in reality, the artificially generated, short-term gains from the most massive dose of fertilizer (government stimulus) that the country has ever seen. Few talking heads on Wall Street or in Washington understand the damage that such a flood of chemicals will inflict on the long-term health of our economic soil.

The “green shoot” discussion centers on the less-than-horrific data that began to emerge a few months after the economic free fall of Q4:08. The statistics regarding unemployment, business spending, consumer confidence, and credit availability have all recovered somewhat. Many of these numbers are labeled “positive” merely because they're not declining as rapidly as they had before. In response to these perceived stirrings of health, the U.S .stock market has put in a strong rally.

But now, as the statistical trends are appearing to falter, many are questioning the significance of these “green shoots.” Since one of the greenest of shoots happens to be rising stock prices, a minor reversal in the current rally in itself could cause the rest of the garden to wilt in concert.

The observation that no one seems to be making is that the modest statistical improvement comes as a result of trillions of dollars of government stimulus spending. It would be impossible for such a program to not have such an effect. But artificial government stimuli are no more capable of creating lasting economic growth than green paint is capable of making a healthy lawn.

The question Euro Pacific investors should now be asking is whether our foreign stocks, many of which have rallied strongly off their 2008 lows, will decline when the rally in U.S. stocks reverses. Many of you may be tempted to lighten up on your positions now and look to reposition later at lower prices. As always, my preference is to stay the course.

First, the “green shoots” may take awhile to wither, i.e. recent stock market strength may continue for many more months. Even if another meaningful decline is already under way, my gut feeling is that foreign stocks will not fall as much as domestic stocks. In 2008, the decline in foreign stocks was far steeper than domestic stocks. Most investors now assume that this dynamic will repeat, should the downturn resume. I do not concur. I believe that the panic has already occurred, and the fever it sparked has passed. Going forward, fundamentals will be a bigger driver of stock price; and overseas, the fundamentals are still better.

More importantly, I do not expect another big rally in the dollar to accompany a selloff in stocks. That was last year’s head fake, and I do not think investors will fall for it a second time. More likely, I think the dollar will fall in conjunction with stocks, particularly if accompanied by confirmation that the U.S recession is worsening. In fact, this time it might be dollar weakness that actually precipitates a decline in stocks, which will mitigate any share price declines for U.S. holders of non-dollar stocks.

Also, given how quickly stocks can turn around, as evidenced by the strength of the March to May rally, short-term market timing is a difficult game to win. My feeling is that the long-term risks of mistiming the markets outweigh the short-term risks of holding through a correction. In other words: we should concentrate on winning the war, not every battle. For that reason, I will be much more interested in buying into any weakness in foreign stocks and selling into any dollar strength, rather than looking to guard against those potential outcomes.

Far and away, investors' biggest concern should be the likelihood of further deterioration in the U.S. economy, and the probability of a sharp decline in the value of the dollar. Also, I believe foreign economies will not be affected in the way many now believe. As I have said many times before, a sharp decline in the value of the dollar and a significant reduction of foreign purchases of U.S. treasuries will spur, not inhibit, global growth. So while the waters may remain choppy for some time, the current is definitely still drifting in our direction.

We continue to like the fundamentals of Australia and New Zealand. While the global economic downturn has left its mark on every nation, we believe Australia and New Zealand retain better positioning than most developed nations of the West. First, GDP growth estimates, government balances and corporate valuations look to be better than peers. Second, higher interest rates and reasonable inflation expectations should continue to attract investors seeking a higher yield. Finally, both nations have significant exposure to natural resources and Asia Pacific nations, likely fostering growth in trade as the region experiences continued growth in export and consumer activities.

The Fiscal Outlook for Australia and New Zealand Remains Positive. 2009 GDP growth estimates for Australia and New Zealand, at -1.4% and -1.9% respectively, are certainly favorable in light of a global slowdown and when compared to other developed nations such and the US and United Kingdom at -2.8% and -4.1%, respectively. Further, Australia and New Zealand have maintained a positive government balance for the majority of the past five years and although they are expected to run a deficit in 2009 of -2.3 percent and -2.8 percent respectively, this is low compared to the US and United Kingdom at -13.6 percent and -9.8 percent, respectively. Finally, from a valuation standpoint Australia and New Zealand appear to remain attractive compared to other developed nations, particularly if a rebound in commodities happens before economists expect.

INVESTMENT RECOMMENDATIONS

Company #1

Company Description

This Company is a major global gold producer with operations in Papua New Guinea (PNG), West Africa and Australia. The Company operates one of the world’s largest gold mines and processing facilities on Lihir Island in the New Ireland province of PNG. It is also developing an underground mine and processing plant at the historic gold mining center of Ballarat, north-west of Melbourne in Victoria. The company presently has 2.2 billion shares on issue and a market capitalization of approximately A$7.5 billion.

Investment Highlights

Growth through acquisition to build a diversified and global portfolio. In June 2008, the Company finalized a merger with another Perth-based gold producer. Through the merger, the Company now has operations at Mount Rawdon in Queensland and in Côte d’Ivoire in West Africa, as well. With four operations in three continents combined, the Company has approximately 25 million ounces in reserves.

Strong production results of around 1 million oz gold annually. In 2008, the Company produced close to 0.9 million ounces of gold, with production in 2009 expected to exceed one million ounces. The main flagship mining operation produces about 0.8 million ounces of gold. The next largest operation produces around 0.15 million ounces. Mount Rawdon and Ballarat should each produce slightly less than 0.1 million ounces, respectively.

Potential resource growth with low operating cash cost and a strong balance sheet. The flagship project is a high grade and low cost operation partially reaping full benefit from the flotation circuit, with cash costs of US$303/oz last quarter. More importantly, Bonikro and surrounding area offer great potential for resource growth through exploration. Overall, we expect the Company to produce gold around $350/oz with all operations combined this year. In addition, the Company has a strong balance sheet with a cash position of A$550 million and no debt.

Exceptional leverage to gold price. Since the Company is able to produce gold at a cash cost of around $350, it offers investors a call option to the gold price. Any increase in gold price will increase the cash flow of the Company more than gold’s proportion. For example, a 12% increase in the gold price from $850 to $950 will increase the Company’s operating cash-flow, on a per oz basis, from around $500/oz to $600/oz, or a 20% increase. More importantly, the increase in gold price will also lift the value of their 25 million oz in reserves. As such, we view this Company as a promising investment in the Australian gold market.

Company #2

Company Description

The Company is one of the world’s leading crop protection firms. It produces products to help farmers protect their crops against damage caused by weeds, pests and disease. The Company has manufacturing and marketing operations throughout Australia, New Zealand, Asia, North and South America, as well as Europe, and sells products in more than 100 countries around the world.

Investment Highlights

FY09 headwinds are most likely a one-off, non-structural, seasonal disruption. The company recently lowered its FY09 net earnings guidance on account of weaker-than-expected sales, as well as increased price competition in the second half of the fiscal year, following a stellar first-half financial performance. A combination of distributors destocking, Australia switching to a post-plant weed control regime, delayed crop planting in the US, and lower application rates had created some short-term headwinds in the global glyphosate business, which in turn hurt the Company’s revenues in the second half of FY09. Huge foreign currency translation losses in its Brazil business occurred in the first half of FY09, likely a one-off phenomenon. Weaker demand for its products, due to the late-start seasonal planting, should return to a normal demand level in FY10.

Leaving room for material earnings improvement in FY10. With agricultural markets expected to rebound in 2010, we should see a return to more normal demand and purchasing patterns. Especially with the delayed orders rolling over into FY10, as well as strategically reduced glyphosate inventory, the Company is well-positioned to reverse the downtrend experienced in the recent quarters and achieve solid growth across regions and product lines. Without the one-off distracting factors specific to FY09, we should see sales volume recover in FY10. Substantial growth opportunity remains for the Company in North America and Europe, given its current very low market share. Recovering sales on top of lower interest expenses after the capital-raising in May should translate into materially improved earnings in FY10.

Short term negatives bring about potential for long term value creation. Shares have been penalized after the lowered guidance, making the company even more appealing. It is now trading at a significant discount to the major global peers across various valuation metrics. We are seeing great upside from the current levels. Offering 4% dividend yield, we view this Company as a promising investment in the Australian agriculture market.

Investing in foreign securities involves risks specific to international investing, such as currency and political risks. There can be no guarantees of success in pursuing any of the strategies we recommend, or that any of the specific companies will gain in value. Risks include an economic slowdown, or worse, which would adversely impact economic growth, profits, and investment flows; a financial accident resulting from the veritable explosion of global liquidity, increasingly risk-taking and its attendant volatility; a terrorist attack; any developments impeding globalization (protectionism); and currency volatility/weakness. While every effort has been made to assure that the accuracy of the material contained in this report is correct, Euro Pacific cannot be held liable for errors, omissions or inaccuracies. Euro Pacific has not independently verified the information supplied by the company, and cannot make any representations as to its accuracy. This material is for private use of the subscriber; it may not be reprinted without permission.

© Euro Pacific Capital Inc. All rights reserved. 1-800-727-7922
10 Corbin Drive, Darien, CT 06840

It doesn't take Buffett-esque insight to see the writing on the wall. Clean technology is absolutely everywhere.

Over $100 billion went its way via the stimulus, and the Obama administration can't go a week without visiting a solar factory or a geothermal power plant.

Congress is currently debating what could be the most sweeping energy and climate bill ever, which, if passed in its current form, would not only initiate a cap and trade system, but would also require the growth of renewable energy by law--to the tune of about 15% of our electricity mix, from 2%.

The European Union has been onboard since Kyoto was signed in 1997. The bloc has emission reduction targets and renewable generation targets to meet the protocol's goals.

China, too, passed its own version of a green stimulus, allocating $30 billion to the cause. Along with India, China has also set minimum renewable requirements.

Add to all that growing societal concerns about emissions, the rising cost of fossil fuels, and the inevitability of Peak Oil, and the table has been set for a worldwide energy transition.

Investing in Clean Technology

There are many ways to go about leveraging this energy transition to benefit your portfolio.

For the long-term strategist, a diverse clean energy exchange-traded fund (ETF) is certainly a nice place to be. With the sector growing so rapidly, there are now many to choose from. Funds range from holding a mix of solar, wind, geothermal and efficiency plays to investments that track specific sectors.

There's also the option of seeking out the already established companies in the sector or finding other stalwarts that are pursuing cleantech outreach. I think the best place to start would be the Alpha stock in any given sector..

For those interested in short-term strategies, the cleantech field can also provide many options for profit. Solar, wind and geothermal companies with smaller market caps can provide nice runs, provided you have the appetite for risk and are armed with the right knowledge.

Playing awarded contracts and energy legislation can also provide quick, hard-hitting returns. It's even possible to play related or enabling technologies, like advanced batteries for energy storage or software or hardware providers that are essential for the smart grid.

The growth estimates are simply amazing across nearly all cleantech sectors.

• Global geothermal energy capacity is estimated to grow 89% between now and 2015, from 11,007 MW at the end of 2008 to over 20,800 MW.
• The wind industry is forecast to grow 157% between 2009 and 2012, from 104,034 MW to 267,837 MW.
• And by 2015, installed solar capacity is modeled to increase 347% to over 72 gigawatts.

This is a sea change in the way we create, deliver, and use energy. It can be very profitable for the investors that catch the trend early.