The latest news out of Georgia's breakaway region of South Ossetia is mildly encouraging but as politicians make statements and hold news conferences, the only real progress will be up to Russia and, to a lesser extent, their Georgian counterparts. A resolution of the conflict is in the benefit of both combatants and, naturally, to investors in the region. However, look for a continuation of cold-war tensions between the two sides leading to a general cooling of investor sentiment in the region for some time.

On my war radar are a few Russian ADRs (US-traded Russian stocks) which have dropped as war broke out and worsened with war developments, but they may rebound next week with any news of a ceasefire or, even better for investors, a peace pact. I'm especially vigilant of Russian steel issue Mechel (MTL). As you may recall, general investor sentiment toward Russia was already on a decline when Putin started going after MTL. I'm evaluating my position on MTL and other Russian issues in the changing framework of the conflict, and my reco on it and other issues depends on the direction of the war. Another Russian issue, ETF (RSX), has stumbled 6.5%, dipping below $40 early in the conflict against recent highs in the upper $50's. We'll also be looking at rollercoaster commodities, crude oil and uranium.

After a sharp fall earlier in the week, the benchmark RTS stock index - which tracks the performance of the Russian stock market - recovered a little, up 1.2% at 1,742 points by mid-week. Overall, this news isn't so good since the index has declined 24% year to date. Russian market conditions are volatile and threaten to worsen, and until the conflict comes to an end, through diplomacy or a change or strategy at the Kremlin, the market will continue its downward move.

I strongly advise avoiding any new positions (especially any quick-buck maneuvers). Moreover, if you're not in Central Europe equities, stay out for now. If you're in, move quickly as your options are narrowing. The best strategy, for this week at least, is to step aside and wait for a clear view. We'll have more on this Friday as we watch war developments and how it weighs on market conditions in the region.

Best wishes,

Jeff Manera
G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

The steady slide of the US dollar over the last couple years proved an earnings boost for many US companies selling goods overseas in local currencies, while reporting the revenues in dollars.

But recently, as the dollar has reversed course, growing in strength against the Euro and yen, I feel a new look at the implications of a stronger dollar is needed to ensure you're not on the backend of dollar recovery implications to your investments. With the economies of Europe and Japan sinking toward recession, I believe the dollar has more reason to gain momentum, and it's time for a fresh look at what the dollar will do to your investment portfolio.

Any boost to the markets from a weak dollar may be fleeting, but as the dollar gains strength, I'm keeping a watchful eye on the consequences of a stronger dollar to the markets in general and your investments in particular - both here and overseas. On the Silicon Valley front, a flood of Q2 earnings reports would have painted a far worse picture were it not for the weak dollar, especially for tech- stocks. Overbought multinationals - are also due for a correction if the dollar strength continues.

Indeed, the dollar's steady weakening has helped improve revenues for US-based tech companies over the past two years, and even companies with non-US currency sales reported a boost when booking their sales into dollars. In Q1 and Q2 the euro and yen appreciated nearly 16% each against the dollar, sending revenues soaring. But over the past two weeks, as the dollar's long slide reversed, the lift anticipated for Q3 for many of the tech companies will be less than half what it was in Q2.

I'm studying the dollar's reversal of fortune and I expect to have at least one reco later this week based on my insights and intel from my staff. Given the exchange-rate shift, for instance, many previous estimates on revenue outlook are now probably too high. The larger a company's non-US.S. exposure, the more risk that current estimates will need to be revised downward.

As mentioned in a recent Barron's article reflecting on the strengthening US dollar, hardware behemoths Hewlett-Packard Co. (HPQ), IBM (IBM) and Sun Microsystems (JAVA) all generate more than 60% of their revenue outside the US and may be vulnerable to the currencies strengthening. Note that IBM's growth would be negligible without the gain from the currency and share repurchase due to a stronger dollar.

But I have a few other potential trades which may work even better - both to the short and long side - as the dollar strengthens, so stay tuned.

US multinationals aren't looking so good anymore as the dollar sustains its climb on weak oil revenues and stock prices

As well as tech stocks, overbought multinationals are due for a correction so, as I see their pilots calling the tower for descent vectors, I think now is the time to short some of these multinationals before their shares -- once strong as based on the weak dollar (until now as the dollar rises) -- don't belong in your portfolios. Since the dollar's substantial newfound strength, while showing its durability as a world currency, has changed some sectors of the investment landscape over the past few weeks, and how this plays out among potential investment targets is the subject of my recos later in the week.

Remember, the odds are impriving that Q2 earnings reports for many of these companies will disappoint shareholders, institutional fund managers and everyday investors, the latter group who will likely be among the last to move out of US multinationals and gain the least from this short. A bet against those companies could mean profits but as it's no easy task to compile a list of recos, I'll spend the next couple of days studying the landscape and I'll have that list ready by week's end... so stay in touch.

One potentially bullish arena which could benefit from the strong dollar: Multinational Banks without much exposure to the US sub-prime market. Watch for more details on at least one of these soon.

Best wishes,
Jeff Manera

G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

The steady slide of the US dollar over the last couple years proved an earnings boost for many US companies selling goods overseas in local currencies, while reporting the revenues in dollars.

But recently, as the dollar has reversed course, growing in strength against the Euro and yen, I feel a new look at the implications of a stronger dollar is needed to ensure you're not on the backend of dollar recovery implications to your investments. With the economies of Europe and Japan sinking toward recession, I believe the dollar has more reason to gain momentum, and it's time for a fresh look at what the dollar will do to your investment portfolio.

Any boost to the markets from a weak dollar may be fleeting, but as the dollar gains strength, I'm keeping a watchful eye on the consequences of a stronger dollar to the markets in general and your investments in particular - both here and overseas. On the Silicon Valley front, a flood of Q2 earnings reports would have painted a far worse picture were it not for the weak dollar, especially for tech- stocks. Overbought multinationals - are also due for a correction if the dollar strength continues.

Indeed, the dollar's steady weakening has helped improve revenues for US-based tech companies over the past two years, and even companies with non-US currency sales reported a boost when booking their sales into dollars. In Q1 and Q2 the euro and yen appreciated nearly 16% each against the dollar, sending revenues soaring. But over the past two weeks, as the dollar's long slide reversed, the lift anticipated for Q3 for many of the tech companies will be less than half what it was in Q2.

I'm studying the dollar's reversal of fortune and I expect to have at least one reco later this week based on my insights and intel from my staff. Given the exchange-rate shift, for instance, many previous estimates on revenue outlook are now probably too high. The larger a company's non-US.S. exposure, the more risk that current estimates will need to be revised downward.

As mentioned in a recent Barron's article reflecting on the strengthening US dollar, hardware behemoths Hewlett-Packard Co. (HPQ), IBM (IBM) and Sun Microsystems (JAVA) all generate more than 60% of their revenue outside the US and may be vulnerable to the currencies strengthening. Note that IBM's growth would be negligible without the gain from the currency and share repurchase due to a stronger dollar.

But I have a few other potential trades which may work even better - both to the short and long side - as the dollar strengthens, so stay tuned.

US multinationals aren't looking so good anymore as the dollar sustains its climb on weak oil revenues and stock prices

As well as tech stocks, overbought multinationals are due for a correction so, as I see their pilots calling the tower for descent vectors, I think now is the time to short some of these multinationals before their shares -- once strong as based on the weak dollar (until now as the dollar rises) -- don't belong in your portfolios. Since the dollar's substantial newfound strength, while showing its durability as a world currency, has changed some sectors of the investment landscape over the past few weeks, and how this plays out among potential investment targets is the subject of my recos later in the week in G3 Global Options.

Remember, the odds are impriving that Q2 earnings reports for many of these companies will disappoint shareholders, institutional fund managers and everyday investors, the latter group who will likely be among the last to move out of US multinationals and gain the least from this short. A bet against those companies could mean profits but as it's no easy task to compile a list of recos, I'll spend the next couple of days studying the landscape and I'll have that list ready by week's end... so stay in touch.

One potentially bullish arena which could benefit from the strong dollar: Multinational Banks without much exposure to the US sub-prime market. Watch for more details on at least one of these soon in my weekly G3 Global Options report.

Best wishes,
Jeff Manera

G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net

As the Financial Times reported last week, Russia's foreign-reserves decline signaled the market was more nervous about investing in the region since the recent war in Georgia. As tensions with the West grew more strained by Russia's objection to the U.S. placing a missile defense in Poland, I have to add to the list of Russia's objections at Georgia's desire for NATO membership. We now have a situation that may appear to be calming on the surface, but underneath it's anything but calm.

On the subject of the reconstruction for Georgia in the aftermath of war, G7 finance ministers issued a "ready to support" statement while the U.S. Treasury released a statement, speaking in its role as a G7 member, that the U.S. is ready to help Georgia "maintain confidence in Georgia's financial system and support economic reconstruction."

There are clear winners and losers in every battle, and that goes for following the conflicts, too. I'm well aware of how the World Bank, European Bank for Reconstruction and Development, Asian Development Bank and other global-reaching investment concerns will lead the European Commission to the conclusion that Georgia's reconstruction is of vital importance for future economic growth of Central Europe and beyond, but everyone is still at the damage-assessment stage. The battle-torn nation's infrastructure -- from roadways to railways -- is badly bruised. Let's not forget the people of South Ossetia and Georgia displaced by the war.

Do such geopolitical concerns play a factor in oil price increases, when even a 1% drop in the Caspian oil supply causes concern among traders and investors? British Petroleum (BP) exported that 1% of oil until the operation ground came to a stop due to the fighting in Georgia but also because of a fire on the BTC line, caused possibly by Russian troops. As the investments director of Seven Investment Management put it, "Investors are realizing that the bear has put its paw on the pipeline and geopolitical risk is likely to remain a theme for the next month or so."

Russia has also seen foreign investment fall as investors become more nervous following the war. Mutual funds in Russia, Russian investment funds and Russian stocks have all slid (as if oil-greased) on news of a plan to import large volumes of Central Asian oil into Central Europe while Georgia undergoes reconstruction. These and much more are all of the factors that I'm considering as I assess the scope of Georgian reconstruction while keeping my eye on the threat of another war erupting.

Georgian reconstruction isn't just about rebuilding a civilian nation...

What does Georgian reconstruction mean to investors in the future, besides fixing roads and railroad lines? Since Russian marines captured Georgia's main port, Poti, during the first week of the war, they sunk Georgia's entire navy in the Black Sea and in some of its ports, and then demolished what was left of it.

Military infrastructure is one area not always considered by the G7, the World Bank and others. Surely, NATO membership requires a standing army, navy and reserves among the civilian population. Despite the idea of Russian military power being superior to her neighbors, a plan to rebuild Georgia's military will be part of any progress in Georgia. Now that Moscow has withdrawn most of its forces from most parts of Georgia by the end of last week, Russians still remain in Georgia even as U.S. humanitarian aid ships, in defying Russia, also remain there.

I'm investigating what Central European issues benefit from both military and industrial reconstruction, and when I have a strong sense of where the smart money should go, I'll let my subscribers know about it.

The White House said Monday that Russia "continues to defy international calls" to pull its forces out of Georgia. In fact, even as Russian forces continue to carry out patrols in Poti, a U.S. destroyer is reportedly on its way there in a move that might accelerate the region's tension and ignite another conflict. It's doubtful a Naval destroyer is carrying civilian humanitarian aid and whether its a part of a larger battle group. Neither the White House nor the Pentagon has acknowledged this AP story.

If you're not party to this war, or directly supplying or fighting in it, you may wonder what it all means to you, the global investor. Aside from the tedious but important details of what is unfolding in a region where you may or may not commit your money, the smart investor sees where the money will be spent for both areas of reconstruction we've discussed here.

The proper understanding of the context, and the shifting fortunes of war (especially following the hostilities) informs your global investment strategy and, consequently, your own fortunes in the region. I'll get down to specifics once my analysis includes all relevant factors and adds up to the kind of recos you need in a hostile world.

Best wishes,
Jeff Manera

G3 Global Options,
Emerging Markets Insider
Email: Jmanera@EmergingMarketsInsider.net