It’s a point I’ve made here repeatedly: The checks and balances of the system didn’t work because greed was the primary force and structural finance operated as the magic wand. Unfortunately, most would-be swans have turned into pigs.

It’s becoming more evident that the financial system can’t be pieced back together without government intervention. The relevant authorities will step in because it’s politically impossible to let people pay the price for their financial irresponsibility.

However, steps such as the US federal government’s fiscal stimulus package, though helpful for many, won’t make a lasting impact. More action is necessary because US economic weakness–although not a deep recession–is forecast to extend late into 2008.

In the meantime, activity in the broader global economy is expected to limit the turmoil; in other words, global economic growth will allow for a shallower downturn than what could occur otherwise.

This is why it’s important to note the great improvement in the US trade balance, which has helped the industrial sector avoid an extremely deep downturn while contributing 2.4 percentage points to growth, according to the most recent GDP growth numbers.

The only change on the investment front this week is to increase our recommended allocation in China and South Korea. I’m doing so by raising their positions in the Fresh Money Buys. Russia, Hong Kong, India, China and South Korea are now Silk’s top five markets.

Earnings are also starting to roll in, and I’ll report the details starting next week. One thing to note is that earnings (ex-technology) have held up in Asia much better than the majority of investors anticipated.

Portfolio holding Shinhan Financial Group’s (NYSE: SHG) results prompted me to raise South Korean to No. 5 in the Fresh Money Buys.  

The Hong Kong market was closed today because a typhoon hit the area, which is why the Hong Kong-listed stocks didn’t move today while the rest of Asia rallied.

Finally, oil prices keep coming down, a positive catalyst for the Asian markets in the coming months because their economies are extremely oil dependant. See Silk, 11 June 2008, The Oil Factor.

The investment process is constant. If you’d like to add to your positions in portfolio recommendations or allocate new funds in a diversified way, focus on the following markets, in order (for both countries and sectors). Consult the Portfolio tables for details.

• Russia (energy, telecommunications)
• Hong Kong (banking, real estate, infrastructure)
• India (banking, pharmaceuticals)
• China (consumer, telecommunications, port, machinery, oil, e-commerce, coal)
• South Korea (banking)
• Japan (banking, insurance)
• Taiwan (ETF)
• Philippines (telecommunications, real estate)
• Singapore (banking, telecommunications, industrial)
• Vietnam (ETF)
• Cambodia (casino/hotels)
• Macau (casino/hotels)

Speaking Engagements

We invite you to tune in as KCI’s LIVE Webcast events air from the 30th annual Money Show San Francisco. The editors will be presenting their latest insights and recommendations surrounding this year’s central theme “Tech and Biotech Investing.”

Registration is FREE and can be completed at MoneyShow.com, so please check out the events and tune in Aug. 7-10, 2008.

We also have a special invitation for our readers. KCI Communications, Inc., publisher of The Silk Road Investor, is organizing an exciting 11-day investment cruise Dec. 1-12 through the Caribbean and Panama Canal. Participants will have the opportunity to meet and chat with my colleagues Roger Conrad, Gregg Early, Neil George and Elliott Gue.

This will be a unique opportunity to step away from your daily routines, relax in one of the most beautiful parts of the world and share analysts’ knowledge and passion for the markets. During the sail, you’ll not only explore the cerulean splendor of the Caribbean, but you’ll also delve deep into current markets in search of the most profitable opportunities for your portfolios. You’ll also have the rare chance to sail through one of the world’s engineering marvels, the Panama Canal.

It’s always a special treat to meet and talk with subscribers in person, and we couldn’t have picked a better setting than aboard the six-star Crystal Serenity. This is sure to be an especially memorable experience. We hope you’ll join us.

For more information, please click here or call 877-238-1270.