China’s voracious appetite for commodities drove the second-biggest monthly haul of crude oil and tripled aluminum imports, but very little steel, aluminum and coal went the other way.

“Industrial production is coming online and demand is rising. But sentiment may be tempered by the view that some of the material is being stockpiled and… consumption hasn’t risen as quickly as imports,” Ben Westmore, commodities economist at National Australia Bank, told Reuters.

Copper imports jumped 6.6% from March to April, to 399,833 tons; iron ore imports soared 9.4% to 57 million tons, and crude oil imports hit 3.93 million barrels per day, a 2% rise, customs data showed.

But China’s exports fell more sharply than most analysts had expected in April. The value of goods and services leaving the country was down 22.6% compared to last year, whereas economists had expected an 18% drop.

The drop in exports is leading some experts to speculate that China’s economy is being sustained solely by the $585 billion stimulus package the government is quickly deploying throughout the country. The stimulus program is heavily laden with infrastructure projects, explaining in part China’s huge demand for raw materials.

But some of that spending is spilling over into sales of construction equipment, much of it imported from the United States. Caterpillar Inc. (NYSE: CAT), the world’s largest maker of bulldozers and excavators, is among several companies already pointing an improvement in sales to China.

“March and April were pretty strong months for sales in China,” Caterpillar Chief Executive Officer James Owens said on an April 21 conference call with analysts.  Owens contends China’s stimulus spending for public works projects is working more quickly than in the U.S.

“When they say ’shovel ready,’ they mean nine weeks, not nine months,” he said.

Still, the drop in exports could put a chill on China’s imports of raw materials and construction products if consumption doesn’t pick up in the West.

“Although the downward trend is in line with our expectations the fall in exports is steeper than we anticipated,” Wang Xiaohui, an analyst at Sinolink Securities in Shaghai told Forbes.“Exports are likely to drop further in the near term as economic indicators in the United States and Europe, such as industrial output and retail sales, are not looking up.”

The U.S. trade gap with China increased to $15.6 billion from $14.2 billion from March to April. The gain in imports from China overshadowed an increase in Chinese demand for American-made goods that pushed U.S. exports to the highest level since October.

But the recent stock market surge and other economic data lead Wang to conclude that the lull in U.S. demand for China’s exports will be short-lived.

“In terms of exports, we’re looking at a better second half than first half, with the U.S economy stabilizing, which will provide support to China,” Wang said.

Source: China Imports Record Amounts of Copper and Iron Ore, but Exports Drop on Slack Global Demand

In 1932, the U.S. floundered around in the depths of the Great Depression. What to do about it was a question on most people’s minds. The New York Times edition of August 14, 1932, reported on the solution offered by Henry I. Harriman, then president of the Chamber of Commerce. “H.I. Harriman Gives Recovery Program,” boomed the headline in big bold type: “Urges Beer at Once.” (Thanks to James Grant for sharing this headline.)

Well, this was during Prohibition. And why suffer the ills of a financial calamity stone-cold sober? Harriman also suggested a 25% cut in “all governmental budgets” and an overhaul of the tax system. Times do change, after all. It is hard to imagine such a person of prominence making that kind of proposal today.

In any event, the investor today finds himself in the worst stock market since the early years of the Great Depression. Unlike his forebear, he is free to drink beer. But like his forebear, he is likely wondering what to do. I have no political solutions to offer, but I have a portfolio recovery plan of sorts – some ideas as to what areas may do well in the years ahead, even if the economy continues to struggle.

I would invest in those areas of the economy for which there are real physical bottlenecks and scarcity issues: like ports, roads, pipelines and energy. At this very moment, investors are entering a window of opportunity to profit from global infrastructure construction and renovation.

President Obama plans to spend tens of billions of dollars on infrastructure projects. And he is not the only one. The U.K. recently announced a $30 billion stimulus plan – with huge chunks of money for infrastructure. Argentina quickly followed with its own big plan. The news agency AFP calls it “a massive public spending plan to pump more than $21 billion into Argentina’s infrastructure.” China has its own $586 billion New Deal, too, as we’ll see. Where is all that money headed?

A lot of this cash is targeted for public works projects to repair crumbling infrastructure, or build completely new projects. China’s stimulus plan will also include a fresh infusion of cash to promote alternative energy and green technology. Already, China’s infrastructure spending has grown at a pace of 20% annually for the last 30 years.

(The impact on China’s economy has been transformational. For example, new highways now connect small far-flung rural towns to much larger booming cities. As a result, the economic activity between the two areas is in full bloom. The amazing developmental transformation in China reminds me of the effect canals had on trade in the U.S. during the 1820s and ’30s. The Erie Canal alone cut transportation costs by 90%, according to Tomorrow’s Gold by Marc Faber. It linked the Great Lakes grain markets to New York. Canals more closely knit the interior part of the country with the Eastern seaboard, resulting in explosive growth in trade.)

How to pay for these stimulus plans is a question almost no country seems all that concerned with at the moment. There is this belief that you must stave off economic contraction at any cost. And so it has come to pass…

The U.S. government’s fiscal position is atrocious, with a deficit topping $1 trillion and the federal debt approaching $10 trillion. China is in much better financial condition. But China’s stimulus plan is also a very big bet. It’s about 14% of the Chinese economy. As The Wall Street Journal reports: “The central government likely will have to significantly boost its own debt sales to fund the stimulus.”

Both big expansion plans will probably end badly…from a monetary and fiscal standpoint. Often, these governmental infrastructure programs plans lead to wasteful spending and overinvestment. In government intervention, as in an Argentine steakhouse, everything gets overdone…Nevertheless, there is money to be made before the steaks turn to charcoal.

The infrastructure-spending plans around the globe have become a kind of contagion. Soon every government with a slowing economy from Capetown to Moscow, from Brasilia to Bangkok, could follow suit. All of which spells a possible golden age for those companies that make asphalt, water pipes, wind towers and the like.

This infrastructure idea is right in the wheelhouse of the investment themes we have been pursuing in Mayer’s Special Situations. Astec Industries (ASTE:nasdaq), for one, ought to benefit from the road-building efforts. Northwest Pipe (NWPX:nasdaq) has the U.S. water pipe niche nailed down. And ABB Ltd (ABB:nyse) should grab a share of any money for new power systems, wind or otherwise. It should be a nice ride for investors who get in now, especially as prices for these stocks have become so cheap.

Source: Portfolio Recovery Plan

“The bills were really quite similar, and I’m please to announce that we’ve been able to bridge those differences,” said Reid, the Senate majority leader. “Like any negotiation, this involved give and take, and if you don’t mind my saying so, that’s an understatement.”

The package has been reduced, however, from the $838 billion in spending approved by the Senate Tuesday to $789 billion.

Multiple Democratic sources had offered details on topics that had to be worked out CNN said.

• 35 percent of the bill would be tax cuts; 65 percent would be spending.
• Tax breaks for workers that had been set at $1,000 per family or $500 per individual would be scaled back to $800 per family and $400 per individual.
• $44 billion in aid to states, including money for education and other services.
• More funding to help people buy health insurance through the federal COBRA program.
• $6 billion to $9 billion for modernizing and repairing schools.

“The votes are there for passage, that is clear,” Senate Finance Committee Chairman Max Baucus told Bloomberg. Baucus said, while cautioning that lawmakers are working out details of the agreement. “Everyone is giving in here.”

Source: Senate, House Reach Compromise on Stimulus Bill

I’m not sure about death, but the broader U.S. economy is like a 2:00 A.M. drunk, continuing to stumble towards the end of a mind-altering 2008, with little long-term relief in sight. Will it ever find its way home again?

One of President-elect Barack Obama’s most ambitious and large-scale plans quite literally seeks to dig America out of this mess – and here’s how you can profit, too. But you’d better act fast. Some of Wall Street’s big boys are already placing their bets.

The Eisenhower Model

Obama will take the oath as 44th president of the United States on Jan. 20.

Since his Nov. 4 victory, the more he’s said about “getting to work immediately” and having “no time to waste,” the more I think the inauguration ceremony will be a time-consuming inconvenience, distracting him from fixing America’s problems.

One key area in which he’s pledged to spend his way out of the mire is by tackling the country’s aging and rapidly deteriorating infrastructure. He plans to make the largest investment to repair and upgrade the country’s public works systems since Dwight Eisenhower spearheaded the nationwide interstate highway system in the 1950s.

In short, this means utility industries like electric and water will receive huge cash infusions. Roads and bridges will be repaired and rebuilt. Schools will be modernized, part of which will include improving Internet access to a nation that ranks 15th in the world in broadband adoption. Energy efficiency, particularly in government buildings, will be increased. The healthcare industry will make greater use of technology to streamline and computerize medical records to cut costs.

That’s the plan anyway. And Obama says it will create 2.5 million jobs by 2011.

Obama’s economic brain trust is currently “busy working, crunching the numbers… to determine what the size and scope of the economic recovery plan needs to be. But it’s going to be substantial.”

Kind of vague right now, I know. But just yesterday (Thursday), one of his advisers floated a dollar figure of $850 billion. In terms of infrastructure upgrades, 5,000 road and bridge projects could get under Caterpillar Digs Deep into the Developing World for Profit way immediately after Obama puts his autograph on the bill.

Brick By Brick… Bridge By Bridge

With U.S. infrastructure set to have a sweaty wad of cash lobbed in its direction, construction firms are lining up to grab a share of the spoils, particularly as the need for equipment and raw materials rises.

Appropriately, we start in Obama’s home state of Illinois, which is also home to the world’s largest manufacturers of construction and mining equipment, engines, and industrial turbines. Founded in 1986 and based in Peoria, Caterpillar (CAT) has seen its shares shoot up from $37 to over $45, as the company feeds off the infrastructure buzz.

One of Caterpillar’s fellow Illinois-based construction equipment manufacturers, Deere & Company (DE), could also be set to extend a share price boost that has seen the price surge from the upper $20s on November 20 to over $39 today.

If you want a more diversified way to play the industrial and construction sector, take a look at the Industrial Select Sector SPDR (XLI) exchange traded fund (ETF).

On the engineering front, head west and look no further than California’s Jacobs Engineering Group (JEC), which is the largest publicly traded engineering firm in the U.S. The infrastructure love is spreading across the sector, as the stock shot up on news that it has secured two more contracts…

1. A five-year, $17.5 million contract from the Peninsula Corridor Joint Powers Board that will see Jacobs serve SamTrans and the San Mateo County Transportation Authority agencies to work on three programs. This includes project management, scheduling, budget management, and more.

1. A contract from Pima County, Arizona to provide project management and construction inspection services for the Ina Road water reclamation project. Construction costs here will total about $200 million.

Jacobs pulls in a whopping $11 billion annually and employs more than 57,000 workers – a number that could grow under Obama’s bold plan.

Speaking of water, if you’re looking to cash in on this critical industry amid a surging global population, increasing pollution, and a depleting, finite amount of water resources, check out leading firm Watts Water Technologies Inc. (WTS) or the sector ETF, PowerShares Water Resources (PHO), which tracks the price and yield performance of the Palisades Water index.

Be sure to also pay a visit to our own free Smart Profits Report research section, where you can read much more about the water problems facing the world – and the vast profit potential that the industry holds. We’ve got two in-depth (pun intended) water reports up there.

Get Raw

On the raw materials side, several firms spring to mind as potential winners of the Obama infrastructure initiative. And as Jim Cramer might say, they’re “best of breed” in their industries.

• Cement: South of the border – in Garza Garcia, Mexico, to be exact – you can find Cemex SAB de CV (ADR: CX), a world leader in producing, distributing, and selling cement. And when it comes to infrastructure rebuilding and repairs, you don’t get many more commodities more important than this one. Its market cap of almost $8 billion is evidence of this.

• Steel: Talk about a liftoff. U.S. Steel Corp. (X) shares have surged from the mid $20s on November 20 to a current price around $37 a share.

• Copper: Copper hit a 52-week high of $127.24/ton on May 21, 2008. The price now sits around $20/ton. Quite a slump for what is the largest publicly traded copper producer, Freeport-McMoRan Copper & Gold Inc. (FCX). You can blame the prolonged commodities sector slump for that, in addition to the stock market’s woes. But in an Obama-fueled, infrastructure rebuilding rampage, I’m betting on a resurgence.

• Aluminum: Go large. The leader here is Alcoa Inc. (AA). Like FCX, Alcoa has endured a rocky year. Having traded at a 52-week high of $44.77 in May, the stock market’s tank job has whipped this stock into submission. Shares are currently trading around $10 and with a 0.37 Price/Earnings-to-Growth (PEG) ratio, the market thinks it’s ridiculously undervalued.

The bottom line here is that companies like these could all stand to profit from a huge ramp up in infrastructure spending. What’s more, they’re all solid, well-established, industry-leading firms with strong cash positions, doing business in areas where there are clear, critical needs. If you’re looking for outperformers, infrastructure stocks are set up well for 2009.

From Eisenhower To Obama …The Firms Poised To Cash In On The New U.S. Infrastructure Revolution

“China understands that it’s gaining importance in the world economy and that it’s going to participate in that process,” said Keith Fitz-Gerald, Money Morning’s investment director and a former professional trade advisor who’s spent more than two decades focusing on investment opportunities in China, Japan and the rest of the Asia region.

“Many experts will see this as just a ‘bailout’ that’s directed at Chinese infrastructure projects, Chinese technology companies and at holding the global financial crisis at bay” Fitz-Gerald said. “But the real message here is that Beijing is going to pull out all the stops to ensure that its economy does not falter. And that’s because China realizes that it’s become the super glue that’s holding the rest of the planet together.”

China on Sunday unveiled what it described as a “massive” economic stimulus package – a planned capital infusion of $586 billion that it plans to use to reverse its slowing domestic growth, to loosen domestic credit and to offset factory shutdowns and massive job losses caused by an evisceration of its export sector. Analysts also expect export growth to stall and actually reach zero in the months to come as global demand almost completely dries up.

In making this move, China becomes the latest major country to announce a stimulus package, following such nations as the United States, Germany and Japan. Governments have been injecting billions of dollars into their economies, as central banks around the world slash interest rates, all in the hope of avoiding a whopper global recession. Just last week, researchers at the International Monetary Fund (IMF) said that world growth would slow to a tepid 2.2% next year, down from the 3.7% growth estimated for this year. The IMF forecast for China slashed the growth rate down to 8.5% next year, down from an earlier projection of 9.3%.

But the world’s fourth-largest economy has almost reached the so-called “tipping point” – where increases in domestic demand can almost offset the loss of export revenue. So it wants to offset slowing global growth by stoking domestic demand – both to help itself and to remain enough of an economic oasis to possibly keep the global financial crisis from becoming a total financial rout. With record foreign reserves of nearly $2 trillion, China is in an excellent position to bring such financial firepower to bear on this growing global crisis, Money Morning’s Fitz-Gerald has repeatedly stated.

“To the extent that people are still worried that China will fall apart because of the global credit crisis – well, that remains an unknown,” Fitz-Gerald said. “However, I would point out that China is still on track for 9.6% growth, and that even if they were to get a recession, their growth is still going to be seven or eight times what ours [here in the United States] is projected to be.”
China’s plan calls for boosted spending on roads, airports and other infrastructure projects, tax deductions for exporters, and increased aid to farmers and to the nation’s poor. China’s high-tech sector is expected to be a big recipient, as will its fledgling aerospace sector. Spending on education will increase, and so will outlays for healthcare and environmental-protection programs.
For this stimulus package to work, China will need corporate investment and bank lending for rural projects, smaller companies and consumers. Beijing might supply one-quarter of the announced spending, or $145 billion, with the rest coming from increased investment by Chinese state companies, bank lending or bond sales by local authorities for individual projects, Ting Lu, a Merrill Lynch & Co. Inc. (MER) economist, told The Associated Press.

“Many state companies have a lot of cash,” Lu said. “They just need to use it.”

The Xinhua News Agency – China’s state-run news agency and the operator of China Radio International, the nation’s global shortwave broadcasting service – said late Sunday that the stimulus package represents “a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.”

The decision was announced Sunday by the State Council after Premier Wen Jiabao presided over an executive meeting Wednesday. China reported in late October that its economy grew at a less-than-expected rate of 9% in the third quarter – its lowest level in five years and the fifth straight quarter that growth has slowed, MarketWatch.com reported.

At that meeting, Wen told government leaders that China must increase investment and consumer spending, maintain export growth, enhance corporate competitiveness, reform financial industries and improve the real estate industry so that it is able to grow in a healthy manner, according to a report read out on state television.

“We must implement the measures to ensure a fast and stable economic development,” Wen told those government leaders, the television report stated. “They are not only the needs of the development of ourselves, but also our biggest contribution to the world.”

China unveiled this huge financial package before President Hu Jintao attends a meeting of world leaders in Washington this week. The meeting is supposed to be a forum in which the leaders can discuss responses to the global crisis.

With this huge planned outlay, China has taken yet another giant step back from the anti-inflation measures and lending curbs that the Beijing central government has put in place over the past three years – only to start rolling them back since the middle part of this year because of mounting government alarm over falling exports and slowing economic growth. Those very real worries induced the government to embrace “dual targets” of nurturing continued frenetic economic growth while at the same time working to contain price increases. In that vein, Beijing has lifted limits on how much each China-based bank may lend and also cut interest rates three times in the past several weeks.

“As the global outlook deteriorates, we expect Chinese macro policy to turn increasingly aggressive,” Lu, the Merrill Lynch economist, and colleague T.J. Bond wrote in a research report Friday. “This is a key theme for China and indeed, the entire Asian region.”

This stimulus package will certainly provide a major boost to the Asia region. But its effects will be felt worldwide, says Money Morning’s Fitz-Gerald.

Westerners are “going to look at this stimulus package as a case of China trying to save its own butt,” Fitz-Gerald said. “What they don’t understand is that China views this as a case of them saving ours. That’s the big difference.”

Source: Massive China Stimulus is Viewed as an Attempt to Help the West

After much debate, Rockgate Capital and Delta Exploration have come to terms that would see Rockgate take over Delta. Under the proposal, Delta shareholders will receive 0.50 of a Rockgate share for each Delta share held. Rockgate ended the day unchanged at C$0.37, while Delta closed down C$0.005 at C$0.115.

It was a good day for Silver Bear Resources after the company reported drill results from its Mangazeisky silver project in Russia. Highlights included 1,639 grams silver per tonne over 5.6 metres. Silver Bear ended the day up C$0.05 at C$0.43.

Tarsis Capital tagged some nice holes at its Goz Creek property in the Yukon but no one cared. Highlights included 27.91 metres grading 17.19 per cent zinc and 39.67 grams silver per tonne and 27.50 metres grading 12.83 per cent zinc and 10.91 grams silver per tonne. Tarsis ended the day flat at C$0.05.

Ecuadorean President Rafael Correa stated that the long awaited mining bill for that country will be tabled this week. If approved, the law will lift a government ban on mining activity that started in April. On this news key country players Corriente Resources dropped C$0.04 to close at C$2.90 and Iamgold added C$0.44 at C$4.61.

Despite news of a massive injection of capital into Chinese infrastructure projects, investors remain hesitant to pile back into the resource sector. We will see what Tuesday trading has in store.

Source: Resource Stock Roundup Tuesday, November 11, 2008

Q: Why are oil prices so high? – M.

A: I can tell you the answer, M, but I don’t think everyone is ready to hear it. Let’s just keep this between us, okay? The truth is a lot like finding out the Earth isn’t flat (it’s not) or the sun doesn’t rotate around the Earth (it doesn’t).

Take a look at this chart:

This chart shows the price of crude measured against the money supply. What it means is the price of crude oil hasn’t increased all that much… It’s just kept pace with the supply of dollars trying to buy that crude. (Click here to read more about this chart.)

So that’s why oil prices have climbed. But why haven’t they fallen back as the U.S. economic slowdown puts a damper on demand? CNN, Fox, CNBC, and all the talking heads assured us demand in other countries would dry up as the U.S. slipped into recession.

Well, I’m afraid the U.S. isn’t the center of the economic universe anymore… and we’ve got a lot of competition.

Back in the 1930s, the U.S. was a country of small towns separated by vast farmlands. Tiny, unreliable roads were the only link between those towns.

That’s where India and China are today. However, they don’t want to stay that way. They want to progress from poor agrarian societies to modern (dare I say more Western) societies. Unfortunately, they aren’t patient. They want it right now.

That means huge infrastructure projects – new power stations, railroads, power lines, water systems, and sewer lines. All that development requires raw commodities like iron, copper, gas… and oil.

As these countries grow, transportation demand grows as well. That requires more gasoline for cars, diesel for trucks, kerosene for jets, and bunker fuel for ships. Along with transportation comes electrification, which requires more natural gas for electrical power.

It all adds up to serious competition for oil and gas on a world stage.

It doesn’t look like the Fed is going to stop the printing presses anytime soon. So don’t expect to see $40 oil again. Add in exploding international demand, and prices are set to climb into the foreseeable future. In the meantime, the U.S. needs to decide where the next 100 years of oil are going to come from and focus on making deals… because that’s what China and India are doing right now.

As I’ve written before, I think Canada will likely be our “gas station” for decades. Already, billions of dollars are pouring into Alberta’s vast oil sands. But I think the big story is another huge deposit most investors haven’t heard of. Click here to read the full story.

Q: Why can’t Americans buy our own oil for less than the OPEC price? – D.C. Cab Driver

A: This question needs some explaining before I answer it. I caught a cab from my hotel to Reagan International Airport yesterday morning. On the radio, some blockhead proposed that our domestic crude production should be sold at a radical discount to world prices.

His hypothesis was that domestic oil belongs to all of us, and it should be used to lower fuel prices. My cabbie was nodding as if this knucklehead on the radio just told us the secret of life.

Let’s think about how markets work. If you make something and can sell it in Italy for a $50 profit or down the street for a $10 profit, where are you going to sell it?

But if your neighborhood demands that, since you live close by, you must sell your goods at an 80% discount… that would be extortion. You’d call the cops, right?

If the government demanded U.S. oil be sold at a massive discount to domestic markets, oil producers would stop investing in the U.S. And we’d end up buying all of our oil abroad.

So the answer to higher oil prices is the one thing Americans are terrible at: dieting.

If you don’t want to pay high oil prices, go on an oil diet. I’m thinking about doing it myself. We bought a big Ford when we had our second daughter. While we like the room, we don’t need it. And when it costs $60 to $70 a week in gas, we really don’t need it.

I’m not going to sell my Ford out of a misplaced sense of environmental angst. I’m going to sell it because gas is expensive. I’d rather spend that money on something else… like oil company stock.

Good investing,

Matt

Editor’s Note: Got a question about the commodities market? Send us an e-mail at editorialfeedback@growthstockwire.com… and look for an answer next week!