...Notes from the Vancouver Resource Investment Conference...speaker Frank Holmes, CEO and Chief Investment Officer of asset management company U.S. Global Funds. Here's what he said ...
The Global Infrastructure Boom Will
Continue, Driving Commodity Prices,
Including Many Metals, Much Higher!
First, Frank talked about the forecasts of doom and gloom. He pointed out that the U.S. media is focused on New York and the hedge funds and big lenders that are blowing up.
Frank Holmes was very bullish on commodities and other infrastructure investments.
In contrast, he takes a more global — and historical — view. For example ...
150 years ago, China and India represented 50% of the world's gross domestic product. But by 1970, China was isolationist and India was a basket case. The two countries amounted to less than 2% of the world's GDP. Now, Frank says, they're coming back, and we're seeing a big reversion to the mean.
Case in point: China has earmarked $420 billion for infrastructure in its current five-year plan. India has targeted $500 billion to $600 billion.
Plus, Frank says the effect of this spending on commodities is supercharged because construction workers in India get $3 per day compared to $30 per hour in the U.S. or Canada. So whereas labor is the biggest cost for U.S. construction, materials are the biggest expense in India.
Another great tidbit: In the 1950s, building U.S. highways soaked up 50% of the world's related commodities. Therefore, it wouldn't be surprising to see the huge infrastructure development in India and China have the same kind of effect.
Frank also pointed to India's new $2,500 car — which I talked about last week — as an example of how commodity use in India and China will increase. And he says this will continue to fuel a huge secular bull market in commodities.
Speaking of infrastructure, Frank believes the U.S. is also going to embark on a spending boom of its own for highways and roads. I discussed this with Frank in a private interview after his speech.
Frank noted that when an interstate highway bridge near downtown Minneapolis collapsed into the Mississippi River in August 2007, 13 people died and more than a hundred were injured. He believes this was a wake-up call for the United States, and he expects the U.S. to start spending more and more money on rebuilding infrastructure.
Here's the really juicy part: Frank estimates it would cost $1.6 trillion to update the U.S. infrastructure — about as much as we've spent on the war in Iraq so far!
Other bullish indicators for infrastructure and commodities:
Saudi Arabia wants to build four cities like Dubai!
12% of all the construction cranes in the world are now in Dubai. This has impressed Saudi Arabia so much that it now plans to build four cities like Dubai! And that means a big chunk of the money we send the Saudis through the gas pump will now be recycled into infrastructure spending.
By 2008, half the world's population will live in cities. Every year, 20 million people in China move from the countryside to the city, and they all need homes and utilities. It is this kind of trend, in India and China, that Frank believes will more than make up for a decline in U.S. housing construction.
Plus, by 2009, the total urban population will be larger than the entire world population of 1965!
So what are we to make of the recent swoon in stocks?
Frank says the longer a cycle goes, the more the volatility will increase. And while the market is pulling back now, Frank expects a rally later in the year. He points to the election year cycle, which, if history is any guide, suggests an up year as the government creates jobs to make itself look good. Frank also thinks the double-digit growth in M3 — the broadest measure of money — is another bullish indicator.....
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