Investing In Infrastructure Companies

The U.S. has been lagging in infrastructure spending for decades. At present, America spends less than 2.4% of its GDP on infrastructure, compared to 5% in Europe and 9% in China. At the same time, the U.S. population is expected to grow 50% by 2050.

According to an estimate from the American Society of Civil Engineers, its suggested that the U.S. government will need to spend $1.6 trillion over the next five years just to bring existing infrastructure into solid working condition.

The flooding in the Midwest has pushed this issue even closer to center stage. Pictures like these are popping up in every paper:



Even though the housing and construction industry may be tanking, companies that deal in infrastructure development should do very well for the next several years.

According to one newsletter editor,

The next president, whoever it is, will feel a lot of heat next year -- the Highway Trust Fund runs out of money in 2009, for example -- and a big spending package on infrastructure seems likely.

The Cheapest In 25 Years

According to Steve Sjuggerud, Japanese stocks are cheaper than they've been at any time in the last quarter-century. I started buying Japanese small cap stocks via the ETF last year, but I was early to the party.

You have to go back to the beginning of 1983 to find price-to-earnings ratios and price-to-book values this low... and dividend yields this high.

If you were bold enough to buy Japanese stocks at the beginning of 1983, and hold them for seven years, you'd have made five times your money... The Nikkei – Japan's main stock index – started 1983 at 8,000 and closed 1989 near 39,000.

Just to give you an idea of what that means, consider the Dow Jones Average in the States... Today it's around 12,000. Can you imagine it rising to just under 60,000 in seven years? That's how much Japanese stocks moved starting in 1983, the last time they were this cheap.

Of course, Japan was undergoing an extraordinary transformation at the time. And it had to pay for that spectacular move higher... It's now nearly 20 years after the peak. And the market is still down more than 50%! The Nikkei bottomed most recently at around 12,000 in mid-March. Today it's closer to 14,000. So we might just be seeing the start of an uptrend here...



When you size it up under our True Wealth lens, Japan is:

1) The cheapest it's been in over a quarter-century.
2) Ignored, because it's performed so darn badly for so darn long.
3) Quite possibly in the beginning of an uptrend.

Bold speculators could step in today. A broad-market index fund for Japan (like EWJ) is the simplest way to go. Smaller stocks are even cheaper than the ones in the broad index. But speculators could get burned now...
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Someone Will Make a Lot of Money on This Market Anomaly
The Last Time Around, This Asian Stock Market Gained 990%

Look, if this is truly the beginning of a major bull market in Japan, like 1983 to 1989, then we don't have to be the first ones in. We're conservative. We'll give it just a little more time to develop... to prove itself. Right now, we have no particular catalyst... and no uptrend. So we're in no hurry.

It's not often you get to say something is the cheapest it's been in a quarter-century. But you can say that about Japanese stocks today.

Someday soon, we'll be buying Japanese stocks.

Good investing,

Steve.

Pork Prices Are Increasing

According to the Des Moines Register, it seems that Pork prices are next on the list of inflationary increases. Even though there's still no inflation, isn't it funny how everything is increasing in price!

For consumers feeling the pinch of higher food prices, the flooding of prime Midwest farmland will bring more bad news in supermarkets through next year.

By wiping out corn and soybean crops across Iowa, Illinois and other states, the flood is driving up prices that were already at historic highs and increasing the cost of feed for cattle, hogs and poultry.

"I have no choice: going broke or increase prices," said Heinz Kramer, who expects to have to charge more for the pork and beef that he processes at a family-owned company in La Porte City.

Pork prices could be up as much as 30 percent next year because of production cutbacks, said John Lawrence, an economist at Iowa State University. Prices of beef and poultry products are likely to be at least 10 percent higher by the end of this year, he said.

Even the Wall Street Journal has an article on soaring meat prices:

Livestock farmers and meat producers across the country have been dealing with soaring feed costs for nearly two years. Now, heavy flooding in Iowa is sending corn prices even higher. Thursday, the corn futures contract for July delivery closed at $7.27 a bushel on the Chicago Board of Trade, up about 13% from two weeks ago.

The floodwaters, grain prices, worried Wall Street debt raters and sticker-shocked consumers have combined in recent days to slice millions of dollars in value from shares of protein giants such as Smithfield Foods Inc., Tyson Foods Inc. and Pilgrim's Pride Corp.

Tyson shares perked up Thursday after BMO Capital, noting the recent slide, called the company "our favorite ag/protein idea." Tyson shares were up 5.8% at $14.47 in 4 p.m. New York Stock Exchange composite trading.

Although meat prices have been climbing of late, the meatpackers and the farmers who supply them haven't been able to offset the huge increase in grain expenses. That is being exacerbated by expected crop losses from flooding and harsh weather.

Time To Buy Airlines!

One of my favorite investors and long-time commodities bull, Jim Rogers, gave an interview to Bloomberg this week, and his story's largely unchanged... Jim is still short all investment banks through an ETF. He's specifically short Citibank and Fannie Mae.

Rogers also announced he purchased airlines. His reason... "Everybody's very bearish." He said flights are full, fares are increasing, and if you ordered a new plane today, you couldn't get it for several years due to problems at manufacturers. Also, 24 airlines have declared bankruptcy and "bankruptcies are signs of bottoms, not signs of tops."

There you have it - it's time to short Fannie Mae and buy airline stocks

US Exports Explode

According to the International Herald Tribune:

As U.S. exporters scramble to meet the increased demand for their products created by the weak dollar, they are running into an unexpected snag: Space on ships leaving American ports has suddenly become scarce.

So the country's farmers, chemical companies, machinery makers and other exporters are facing delays at the docks that erode the currency advantage they enjoy over their foreign rivals. Or they end up paying a premium for space that, until recently, shippers were almost giving away, producers and shippers say.

Timothy Powers, chief executive of Hubbell, an electronics maker based in Orange, Connecticut, told investors this week that in March, his company saw East Coast waiting times for cargo space jump from two days to three weeks.

I guess its time to look at shipping company stocks.

Dow Chemical To Raise Prices 20%

Global chemical producer Dow Chemical Co. (DOW) announced Wednesday that it would raise prices on all 3,200 of its products – some by as much as 20% – beginning at the start of the third quarter.

Bloomberg News said it's the single-biggest price increase in the Michigan-based company's 111-year history. But Dow Chief Executive Officer Andrew Liveris said the price hike was made necessary by "unparalleled" increases in the costs of energy, transportation and raw materials, which together boosted Dow's expenses 42% in the first quarter.

Does anyone actually believe the US Governments 3% inflation numbers?

Food Inflation At Record Levels

According to USA Today, Food inflation is the highest in almost two decades, driven by record prices for oil, gas and mounting global demand for staples such as wheat and corn, and for proteins such as chicken. And that's reaching into Americans' backyards.

Basic economics account for most of the increase: Bad weather has hurt crops, economic prosperity has driven up demand in developing countries, and surging fuel prices have raised transportation costs.

Economists and food scientists have argued that biofuel production is also a major factor in rising food costs, particularly corn, and that it should be scaled back. Meat and poultry executives have come out against federal ethanol mandates, which they say is driving the cost of corn higher.

Carol Tucker-Foreman, food policy expert at Consumer Federation of America, said high-fructose corn syrup can be found in just about anything you'd find at a cookout or picnic.

"The backyard barbecue is where you'll see the most impact from the government's decision to subsidize the use of food to put fuel in our cars," she said."
This year, the price for a pack of hot dogs has climbed almost 7% to $4.29. A 2-liter bottle of soda and a 16-ounce bag of potato chips both jumped more than 10% to $1.33 and $3.89, respectively, while a package of eight hamburger buns costs $1.61, 17% more.

Attractive Brazilian Stocks To Consider

According to Martin Hutchinson, there are more than 30 Brazilian companies with full American Depository Receipt (ADR) listings on the New York Stock Exchange, plus 40-50 more that are traded in the over-the-counter market. Here are a few attractive examples to consider:

* Banco Itau Holding Financeira SA, referred to usually as Banco Itau (ADR: ITU), has a Price/Earnings ratio of 14 and dividend yield of 2.4%. Brazilian banks earn very high returns, primarily from domestic market lending in reals. Including Banco Itau, there are three large ones listed on the Big Board in New York; the other two are Banco Bradesco SA (ADR: BBD) and Uniao Bancos Brasile SA (Unibanco) (ADR: UBB). However, Itau is the cheapest of the three, though only slightly.

* Companhia Vale do Rio Doce, now referred to only as Vale (ADR: RIO), is one of the true global blue chips, with a market capitalization of almost $200 billion. An iron-ore company with ancillary operations in gold, nickel, copper and other metals, its shares trade at a reasonably valued 13 times earnings, though its dividend yield is only 1.2%.

* Petrobras (ADR: PBR) is one of the few emerging market oil companies with access to modern technology - and the willingness to work with the oil majors. Its shares are up 168% in the past year, but the stock’s P/E still is only 16. It has a 1.3% yield. The possible upside: It finds another gigantic offshore oilfield. The possible downside: Oil drops back to $50 a barrel. If the world’s monetary authorities get serious about imposing higher interest rates to fight inflation, PBR and RIO would probably suffer as commodities prices fall back to earth.

* Companhia de Saneamento Basico (Sabesp) (ADR: SBS) is the water and sewage system provider for Sao Paulo. Now that’s a growth business, and not dependent on commodity prices. With a P/E of only 9.2 and a yield of 2.7%, this is one stock I have to say I love.

* TNE (ADR: TNE) There are a bunch of Brazilian cell phone companies, but TNE appears to be the cheapest. It’s concentrated in the populous southeast and northeast regions of Brazil, with a P/E ratio of only 7 and yield of 4.25%.

* Telecomunicacoes de Sao Paulo SA, or Telesp (ADR: TSP) provides the fixed line telephone system for Sao Paulo. Before you sneer, consider this: the company has a dividend yield of 9.8% and a P/E ratio of 10 (which means the dividend is only just covered). And it’s majority owned by Spain’s Telefonica.

* Voturantim Cellulose (ADR: VCP) is a pulp and paper company, with a P/E ratio of 14 and a dividend yield of 2.8%. Trees grow fast in the tropics and VCP definitely benefits from that!

Investing In Japanese REITs

Here' a few good reasons why Japanese real estate is a great place for our money:

• Japanese real estate investment trusts (REITs) are a great bargain, down 29% since June 1.

• Dividend yields are the highest income plays in Japan, in the 4% range.

• There's a huge incentive to borrow and buy real estate, as "cap rates" (essentially the rent minus the costs of upkeep) are 4%-6%, while the cost of borrowing money is only 1.5%.

• Rents in Tokyo are up 30% in the past two years.

• The city is crawling with investment bankers looking to buy properties... companies like Goldman Sachs, which has already spent billions investing in Tokyo real estate.

• There is no supply... vacancy rates in Tokyo real estate are tight at 2.6% and there isn't much new building taking place.

The opportunity is enormous. Japanese real estate is literally selling at 1980s prices which leads many people to belive that its a really safe investment.

Brazil Still Booming

Petroleo Brasileiro SA, Brazil's state- controlled oil company, plans to add 14,000 engineers, geologists and drillers within three years as it develops the biggest crude discovery in the Western Hemisphere since 1976.

Petrobras, as the company is known, plans to expand its workforce 23 percent to about 74,000, surpassing Chevron Corp., the second-largest U.S. oil producer. The hiring binge is part of a $112.7 billion expansion that may allow Brazil to overtake the output of all OPEC members except Saudi Arabia.
Petrobras lacks the roughnecks, or rig workers, and other staff needed to tap billions of barrels that lie in the offshore oil finds. The company is trying to hire more than a dozen people a day amid intensifying competition for skilled oil workers after crude prices surged to a record.

– Bloomberg

TransOcean's First Quarter Profit Doubles

Transocean Inc., the world's largest offshore oil driller, said first-quarter profit more than doubled as record crude prices increased exploration for new reserves.

Net income rose to $1.19 billion, or $3.71 a share, from $553 million, or $2.62, a year earlier, the Houston-based company said today in a statement.

Oil producers are expanding the search for untouched oil reserves from India to the Canadian Arctic as record prices make previously uneconomic fields worth drilling. Companies will spend $380 billion boring 20,000 offshore wells during the next five years, according to analysts at Douglas-Westwood Ltd.

Sales more than doubled to $3.11 billion from $1.33 billion. The average first-quarter rent for Transocean's ultra-deepwater floating rigs was $380,800 a day, up 26 percent from a year earlier.

The company tripled its cash and cash equivalents to $1.57 billion.
– Bloomberg

Charlie Munger On Cash Generating Businesses

“We like businesses that drown in cash,” Charlie Munger said at the Berkshire Hathaway shareholder meeting over the weekend, uttering the Munger-Buffett Mantra. When asked what kind of business they would buy during this “credit crisis,” Munger said businesses with tangible assets that “sweat” cash.

“We like ideas where you don’t have to carry to three decimal places,” Buffett chimed in, “simple ideas in which the bargains are apparent.”

Berkshire bought PetroChina back in 2002, for example, when it was a $35 billion company that Buffett thought was worth $100 billion. Buffett bought the stock having done nothing more than read the annual report. With that big a gap, it doesn’t matter whether the company was worth $80 billion or $120 billion. There was a wide margin of safety. The best ideas are obvious, and great precision is not required.

“If someone walked in here and weighed 350 pounds,” Buffett suggested, “I might not know he weighed 350 pounds, but I would know he was fat.”

Time To Buy Taiwan Real Estate?

According the Wall Street Journal,

Anticipation that a wave of cash from mainland China will eventually reach Taiwan is helping to turn its real estate into a hot property.

Markets in Taiwan, one of Asia's worst laggards as an investment destination in recent years, were livened up by the Nationalist Party's victory in the March 22 presidential election. On May 20, winner Ma Ying-jeou will be inaugurated, succeeding Chen Shui-bian of the Democratic Progressive Party.

Billy Yen, general manager for property brokerage DTZ Taiwan, estimates that home prices have risen as much as 30% since the voting. And he thinks that by the end of 2008, prices could be 60% higher than they were March 22.

The sharp change in sentiment is rooted in Mr. Ma's pledge to open Taiwan's property market to Chinese investors as part of a broader effort to more closely tie the economies of the mainland and Taiwan.

I guess Morgan Stanley missed it, else they would've jumped up with a newly created Taiwan Property ETF. Looks like it worth looking into.

Job Losses Mount on Wall Street

According to Bloomberg:

Wall Street banks hit by mortgage losses and writedowns have cut more than 34,000 jobs in the past nine months, the most since the dot-com boom fizzled in 2001.

Citigroup Inc., Lehman Brothers Holdings Inc. and Morgan Stanley are among the firms that have disclosed headcount reductions so far.

After the Internet bubble burst, 39,800 jobs were eliminated during the same period; the number climbed to 90,000 in the next two years, according to the Securities Industry and Financial Markets Association.

Lehman's home-loan unit, BNC Mortgage LLC, employed 1,600 people before the firm closed it down in August. Mortgage lender First Franklin Financial had 2,300 employees when it was acquired by Merrill Lynch & Co. in January 2007. Merrill shuttered the business this month. All told, at least 100 mortgage companies have suspended operations, closed or been sold since the start of 2007.

It's been widely speculated that when the dust finally settles, Banks will end up losing $700 Billion dollars in this subprime mortgage fiasco. If that happens, wall street will lose over 100,000 jobs!

Bear Stearns Biggest Loser

Joseph Lewis, the billionaire investor who bought 9.4 percent of Bear Stearns Cos. last year, lost $1.16 billion on his stake after the firm agreed to sell itself to JPMorgan Chase & Co. yesterday for $2 a share.

Lewis, the New York-based firm's second-largest holder, paid an average of about $107 apiece for 11 million shares, according to a filing submitted last year to the U.S. Securities and Exchange Commission. Bear's biggest investor at year-end was money manager Barrow Hanley Mewhinney & Strauss Inc., whose 9.7 percent holding has fallen by $991 million.

Mutual funds run by investment bank Morgan Stanley were the third-largest Bear Stearns holder with a 5.4 percent stake and may have lost about $546 million since Dec. 31. James Cayne, Bear's former chief executive officer and fourth-largest holder with a 4.9 percent stake, saw the value of his holding drop by $504 million.
Bear's fifth-largest shareholder, Baltimore-based Legg Mason Capital Management, a unit of Legg Mason Inc. run by Bill Miller, may be down $493 million.

Still No Inflation?

NYT reports that government figures, released Friday, showed that grocery costs had jumped 5.1 percent in 12 months, the latest in a string of increases. In fact, the nation is undergoing its worst grocery inflation since the early 1990s.

With a few exceptions, nearly every grocery category measured by the Labor Department, which compiles the official inflation numbers, has increased in the last year. Milk is up 17 percent, as are dried beans, peas and lentils. Cheese is up 15 percent, rice and pasta 13 percent, and bread 12 percent.

No food product has gone up as much as eggs, jumping 25 percent since February 2007 and 62 percent in the last two years.

"It's a great time to be an egg farmer," said Paul Sauder, a third-generation farmer in Lititz, Pa. His farm ships eggs to food service customers and grocery stores, including Stop & Shop. "We've never encountered this kind of run like we've had right now."

Lead Prices At Historically High Levels

Concerns about the U.S. economy couldn't keep many commodities down in the second quarter.

Lead jumped 37% to $2,645 a ton on the London Metal Exchange. One factor is continued strong demand in Asia for lead-acid batteries for cars and industrial equipment. Prices also jumped in the wake of shipment delays from a major Australian port and a change in China's tax policy that could decrease its lead exports.

With historically low metal inventories, when a supply shock comes, "prices don't know much of a limit," said Catherine Virga, a CPM senior research analyst.

Lead consumption slowed in the 1980s and 1990s amid links to health risks and substitution of other ingredients for it in paints and pipes. "Lead consumers that are left, especially the battery producers, which account for 80% of all lead consumption, have very few alternatives," according to a report by the Barclays Capital unit of Barclays PLC.

-Wall Street Journal

Copper Rises While the US Dollar Falls

According to Bloomberg, Copper rose in New York to the highest in six weeks on speculation a decline in the value of the dollar will boost demand for the metal used in wiring and plumbing as inventories dwindle.

Copper stockpiles monitored by the London Metal Exchange fell 1.8 percent to an eight-month low of 112,600 metric tons. Copper has risen 22 percent this year as inventories fell 38 percent and the U.S. currency fell 2.6 percent against a basket of six major world currencies. Meanwhile, the dollar today touched the lowest level in more than a month against the euro.

Investors in FCX and PCU have done very well in the past year. Too bad I sold my FCX early and missed out on a 50% runnup less than 2 months later!

Anyone Know A Good Saudi Construction Company

All trends point to massive investments in Saudi Arabia's construction sector, with billions of dollars of investment still to come in real estate, industry and the hydrocarbons sector.

Oil revenue surpluses are boosting the government budget and overall spending. In 2007, the Saudi government allocated more than $42 billion for various projects and programs in its 2007 budget.

In the private sector, investments in the industrial sector, especially in petrochemicals, will require construction investments reaching more than $500 billion over the next 10 years depending on the project and construction time frame. Like the rest of the Gulf, the kingdom's construction boom has reached unprecedented levels in 2006 and expected to gain more momentum in 2007 and beyond.

-Export.gov

Anyone know a Saudi construction company that trades on the US stock exchage?

How To Save Half A Million Dollars?

According to the U.S. Commerce Department, 40% of American households believe they could accumulate $500,000 more easily through the lottery than by savings.

If only you could save $12,000 per year and invested it at 12% in a tax-defferred account, you'd get there about 14 years! Sounds like a more fool-proof way than playing the lottery!