This from Rude Awakening:

Welcome to “The Great Suppression.” The government keeps trying everything it can to suppress the unfolding economic bust. Whether the Great Suppression succeeds or not is beside the point. What concerns us is that its actions will have consequences in the marketplace. And as investors and speculators, we have to think about what those might be.

It’s sometimes uncanny how history repeats itself. Historian Frederick Lewis Allen writes about the New Deal of the 1930s in his book The Big Change: “It rewrote a good many of the rules of the economic game as played in America.” The steps the government took resemble what’s happening now an awful lot.

“The New Deal,” Allen continues, “continued to prop up ailing corporations through Hoover’s RFC; made arrangements to prevent near-bankrupt firms from going broke; aided farm owners and homeowners in meeting their mortgage payments; underwrote the financing of new housing enterprises; insured bank deposits…” And on and on.

It also went into the business of stimulating the economy directly by “building dams, bridges, parkways and playgrounds on a grand scale.” If FDR walked the Earth again, Obama’s stimulus would look familiar.

Over the weekend, we got more details of Obama’s stimulus plan, which comes with a price tag of at least $820 billion (and climbing). Some of the projects of interest to us include:

• Renovate 10,000 schools
• Build more than 3,000 miles of new or modernized transmission lines and install 40 million “smart meters” in homes
• Weatherize at least 2 million homes and 75% of office buildings
• Launch 1,300 wastewater projects, 380 drinking water projects and 1,000 rural water and sewer system projects
• Repair and modernize thousands of miles of roadways.

“Shovel ready” is the hot new phrase in Washington these days. It means a project is all set to go as soon as the money arrives. The list of projects for Obama’s plan are shovel ready — so they say. As soon as Congress approves the deal, the money goes right to work, like a needle sticking into a vein.

Our infrastructure stocks have been among our best performers over the past year.

Insituform Technologies (Nasdaq:INSU), for instance, continues to announce new contract wins. (See Rude Awakening from July 23, 2007 – Pipe Down!) The company repairs water and sewer pipes with a trenchless technology that does not require you to dig up the pipes. We’re up about 37% on that, a welcome spot of green in what has otherwise been a tough row.

Ameron Intl. (NYSE:AMN) is another infrastructure play. It has a water pipe business, which ought to benefit from the slew of water projects. Scott Black, of Barron’s Roundtable, had Ameron as one of his stock picks for the year. “In Arizona, Nevada and California, a lot of shovel-ready water projects are waiting for a go-ahead,” Black said.

“Ameron makes wind towers, too, and infrastructure products. It owns 50% of Tamco, which makes steel rebar for highways, bridges and overpasses.”

He also pointed out Ameron’s good backlog. “For each $100 million incremental increase in revenue under an infrastructure bill, based on 22% margins, they’d make $15.3 million after taxes,” he says. “Ameron… is cheap based on both tangible book value and expected earnings. It’s an interesting way to play a pickup in infrastructure in California and the West.”

Others in our portfolio that may see some increase in business thanks to the swell of money from Obama’s bill include Gorman-Rupp (AMEX:GRC). I updated this one in your last issue. GRC makes a variety of pumps. It has exposure to a number of markets affected by the stimulus plan, including municipal water and wastewater systems.

I like Gorman-Rupp for a lot of reasons, as I outlined in the issue. Chief among them is a rock-solid balance sheet — excess cash and no debt — and a good long-term track record. While not stone-cold cheap at 16 times earnings, it’s not a bad price to pay for an unlevered business earning a steady (and resilient) 16% return on capital with good growth opportunities in front of it.

Viterra (TSE:VT), as I mentioned in this column last week (”Investing in Food“), is another very compelling investment. The company, which operates in various aspects of the Canadian grain handling and agribusiness, posted very impressive numbers in the fourth quarter.

In a year which most would rather forget, Viterra’s business shined. For the year, it booked $1.31 in earnings, up 56% from a year ago, thanks to closing the (brilliant) acquisition of Agricore. At today’s price of $9.25, Viterra trades for only 7 times earnings. You’re not going to find many companies putting up those numbers available at 7 times earnings — and Viterra is financially strong.

Viterra generated $400 million in free cash flow in 2008. That on a market cap of just over $2 billion, for a 20% free cash flow yield. There is a lot of room for error when you buy stocks at those kinds of valuations. And the outlook here is still bright if you believe agriculture markets will be strong, as I do.

In today’s Financial Times, there was a story on a new report from the London-based think tank Chatham House. As the FT reports: “The world faces ‘the real risk of a food crunch’ if government does not take immediate action to address the agricultural impact of climate change and water scarcity… ‘Food prices are poised to rise again.’”

This is something I’ve been writing about here and in C&C. I think we’re looking at a strong back half of the year for grain prices as global grain stocks fall. That will be good for a lot of our ag-related names, including Viterra, but also for our irrigation play Lindsay Corp. (NYSE:LNN). (See Rude Awakening from July 4, 2007, “The Most Dangerous Religion.”) The latter is another nice pickup here, with no net debt and trading for less than 10 times earnings.

Irrigation and fertilizers play a big role in boosting yields and producing more food. Viterra, a sort of toll road on grain traffic, also benefits. For now, these stocks look cheap. But the market won’t be able to ignore the numbers as we roll through 2009. Good results and rising grain prices will attract attention.

Already, wheat, corn and soybeans are up 15%, 17% and 22%, respectively, since December. As the FT notes: “In contrast with other raw materials such as oil or aluminum, which have plunged back to the levels of 2002-2005, agricultural commodities are trading higher than they were 12-18 months ago.”

As I write, the S&P 500 is down about 8% in the month of January. Barring a rally, we’re on pace for the worst January on record for the S&P 500 since 1970, when the S&P fell 7.7%. I pass this onto you so you appreciate the historic nature of this market we are in. It’s been difficult to show any gains investing on the long side.

But when you invest in good names with valuable assets and quality businesses, their stock prices will – eventually – reflect the good things going on under the hood.

Source: The Great Suppression

This from Taipan Daily:

“Dr. Copper” is known as the metal with a PhD in economics.

This is because the use of copper is so widespread throughout our lives. Most of the appliances in your house use copper: the fridge, the dishwasher, the microwave, and the washing machine just to name a few.

By the time you add up the electrical wiring, pipes and so on, the average home uses 400 pounds of copper. And your car? Another 50 pounds.

We also know that, on average, 40% of annual copper consumption goes to building construction.

So copper prices have something to say about global construction trends.

As you can see from the chart, copper went on an extended bull run starting in 2003, topped out below $4.00 per pound, and then fell off a cliff.

The severity of the drop was registered almost all in one month – October 2008. That’s an indicator as to what degree the entire global economy slammed on the brakes as a result of the credit crisis.

But now that copper has retreated back to 2005 levels – and other base metals back to 2003 levels – what does it mean?

I can think of two plausible explanations. Either the global infrastructure boom is well and truly dead, or the panic-driven sell-off as a result of the credit crisis was overdone.

China Picks Door #2

On Sunday, November 9th, China sent a clear message that infrastructure is not dead. We still need it, China said in so many words, and we’re going to build like crazy.

In more official terms, Beijing approved a 4 trillion Yuan “stimulus plan,” with most of the funds slated for infrastructure spending between now and 2010. (In dollar terms, 4 trillion Yuan is roughly $586 billion.)

Not everyone was impressed by the news. While some called it a major development, others shrugged. China was going to spend this money on infrastructure anyway, the shruggers said. The announcement was meant more as a booster shot – a tonic for global sentiment.

My view, though, is that it doesn’t really matter whether China’s “mass stimulus plan” is truly a big shift or just new gloss on an old agenda.

The point is, that money – more than half a trillion dollars –  will be spent on infrastructure. Beijing has confirmed it aggressively and openly: the global building boom is not dead.

We Still Need It

Everything the world needed before the credit crunch, it still needs now. Bridges, roads, ports, airports, refineries, you name it. And China, a country sitting on $2 trillion in reserves, has just pledged to open up the checkbook and spend like crazy.

It’s true we don’t need any more houses in the U.S. or Britain just now – but even in the aftermath of the housing bust, countries like China and India and Brazil are on a residential upswing.

And by the way, what we do need in the U.S., and need badly, are repairs and upgrades.

America’s infrastructure – everything from sewer pipes to interstates – is on the verge of falling apart. We are looking at long-term repair and upkeep charges that run into the tens of trillions.

Basic Comforts

In sum, I like the base metals here. (I like precious metals too, but that’s a different story.) If you’re looking for good, safe places to put your money, I would consider some of the well-run base metal producers.

To recap:

• Base metals (also known as industrial metals) have been unduly crushed by the credit crisis.

• The market is acting as if the global infrastructure boom is dead and buried.

• China’s 4 trillion Yuan (nearly $600 billion) “mass stimulus plan” says infrastructure spending is not dead. Maybe they were going to build like crazy anyway… but that’s the point.

• It’s the world, not just China, that has plenty of building left to do. In due time we will see a return to global growth, and a return to pre-crisis trend patterns.

• The U.S. might have a housing glut, but we are looking at huge outlays on the maintenance and upkeep side of things. The longer we put off these repairs, the more pressing they become.

“Free Money” From the Government?

Follow the detailed instructions outlined in this letter and you’ll learn how to add $4,570 to $11,450 to your bank account every month, courtesy of the U.S. government. Sound too good to be true?

Read on and learn how you can boost your bank account every month…

A Quiet Oil Hedge

Oh, and one more thing. Another modest benefit of base metal producers is their negative correlation to oil prices.

In other words, if you’re holding any long energy positions in your portfolio – and who wouldn’t be with the bargains out there now – you have exposure to slumping oil prices right?

As heavy users of diesel fuel and electricity, the base metal miners can actually benefit from weak oil prices (which lower their production cost).

As I said, not a huge factor… but a modest diversification benefit for an energy-biased portfolio.

The “Lethargy” Strategy

When will base metals prices start to rise again? I don’t know. But I’m not buying these producers for a trade, so I don’t have to know. I can be patient.

In the past Warren Buffett has joked that “lethargy” (laziness) is a key component of his investment strategy. I’m taking a page from the Buffett book here.

In practice, that means I’m on the lookout for high quality base metals producers with strong balance sheets, plenty of cash in the bank, good cash flow, smart management, and low share prices to boot.

When you come across a company with the above characteristics, you can just buy a good chunk of shares, throw the position in a drawer, and sit back to wait for the inevitable double or triple.

Source: What China’s “Mass Stimulus Plan” Says About Where to Invest Now

This from Investment U:

Our next President will be faced with unprecedented challenges in health care, energy, global warming, an aging infrastructure and huge “legacy” automobile businesses that are teetering on the verge of bankruptcy.

He’s also being presented with an incredible opportunity… one that, if implemented correctly, could have profoundly positive effects on the economic health of the world, just when we need it.

For years, the engine that fueled global economic growth was the spending of the American consumer. Market crashes because of the dot-coms and the housing boom have left many individuals with too much debt and not enough money. Americans are tapped out, and they’re closing their wallets.

Reinvigorating our economy rests upon jumpstarting consumer spending – and ultimately improving the financial condition of millions of Americans. It’s much easier said than done – and this new administration will have its work cut out for it.

If you’ve got an eye on how these government actions could benefit your bottom line, you should take a look at our past. You might find these newest sources of “economic fuel” and wealth creation look surprisingly familiar. The government’s solution could be just the thing our portfolio needs for a healthy return in the years to come…

The Cause of The Current U.S. Economic Slowdown

Ask most people to give you the cause of the current economic slowdown enveloping the United States and the rest of the world, and their likely answer will be the explosion of housing and the subsequent bubble in the credit markets.

But that was just the peak of the problem, not the beginning. The trouble has its roots in something that started 20 or 30 years ago.

That was when we started seeing the shift away from personal savings in America and toward the beginning of a huge consumer credit crisis.

And now, we are witnessing first-hand the effects of the increasing use of massive leverage can have on the markets, and ultimately on the American consumer. They’re broke and can no longer be the fuel that powers the world’s economic engine.

With consumer spending slowing, layoffs increasing and hiring all but stopped, the prospects for future economic growth aren’t particularly bright. Or are they? We have almost everything we need to fire up the world’s economic engine again: The ingenuity of the American people, plenty of factories, etc.

There’s only one thing missing… the fuel to get it going again. So what’s going to be the new “fuel?” History is a great teacher, and we need look no further than the Great Depression, and Franklin D. Roosevelt’s New Deal.

The New Deal was a series of programs Roosevelt employed between 1933 and 1936 with the intent to provide work for the unemployed, reform of financial and business operations, and economic recovery. Here are a couple of examples:

• The Works Progress Administration (WPA) was the largest of the New Deal agencies. It alone was responsible for providing almost eight million jobs. What did all of those people do? They built public buildings, roads, bridges and other infrastructure projects. Anyone who needed a job could easily become eligible.

• Another program, created by an act of Congress in 1933, was the Tennessee Valley Authority. The TVA, as it was known, was chartered to provide food, navigation and flood control, electrical generation, fertilizer manufacturing and general economic development for the people of the Tennessee Valley, a region hard hit by the Great Depression. And it was just what the doctor ordered: The TVA’s projects were catalysts that fueled unprecedented economic growth in the area that continued through the 1960s. Today, the TVA’s 43 power plants make it one of the largest producers of power in the country.

7 Companies Profiting From a “New” New Deal

While the slowdown we are experiencing is nowhere near as severe as the Great Depression, the solution will be the creation of similar New Deal programs in two specific areas: the infrastructure and energy sectors.

More specifically, developing energy savings, making alternative forms of energy our mainstream sources, and building the green infrastructure to support what will be our growing energy independence.

More insulation in a house’s walls, lower thermostats, fluorescent bulbs, more fuel efficient cars and commercial building energy management systems are just a few of the ways to save energy. Public transportation is another. Expect the new government to provide tax incentives for these and other programs as short-term incentives to save. Companies that stand to benefit are Owens Corning (NYSE:OC): insulation, General Electric (NYSE:GE): lighting and Johnson Controls (NYSE:JCI): energy management systems.

Clearly wind, solar geothermal and tidal energy companies stand to benefit, too. While a comprehensive list is beyond the scope of this article, companies like First Solar (Nasdaq:FSLR): solar panels, Ormat Technologies (NYSE:ORA): geothermal and Vestas Wind Systems (PINK:VWDRY): wind turbines, will do well.

As new green sources of energy begin to come on-line in a big way, the nation’s electrical grids will have to be upgraded to move the power to where it’s needed. This is a huge project, and one of the biggest winners will be ABB (NYSE:ABB): power and automation technologies.

Ironically, the same government that’s trying to find a solution to the energy problems we face has been the biggest roadblock to solving them. The trillion dollar coal and oil subsidies prolong the carbon industry’s advantage over – and are a constant roadblock for – fledgling alternative energy companies.

The new President and his administration have an opportunity to turn the recession ship around, before it runs aground. By implementing new energy and infrastructure projects, thousands of new jobs will be provided at a time when they are desperately needed, and most importantly, these projects will provide the fuel to restart the world’s economic engine.

Source: Obama’s New “Economic Fuel”… and 7 Ways to Profit

This from Money Morning:

The $585 billion (RMB4 trillion) stimulus package that China announced Sunday may or may not help China’s economy. But with investments in low-income housing, water and energy projects, airports, disaster relief – and $100 billion for new railroads – over the next two years, this financial package provides oodles of opportunities for investors.

There is no doubt China needs infrastructure. Now the world’s fourth-largest economy, China has grown so rapidly that many of its services are stretched beyond belief. Equally, it is not so certain that the government knows what infrastructure to build, or that it can be built, without hopeless corruption. For instance, the Three Gorges Dam became a global watchword for waste and environmental destruction, while the fancy toll roads built between major cities are still very underutilized, because the tolls are too high for all but the rich. In the stimulus package, more than $100 billion is earmarked for railroads, a seemingly 19th Century priority at the beginning of the 21st.

(As Money Morning reported in a market analysis story this past summer, General Electric Co. (NYSE:GE) said it expects its business in China to double to $10 billion a year by 2010 – making that country a key element of the struggling U.S. industrial giant’s strategy to offset its struggles here in its home market by pursuing business in faster-growing markets abroad. GE also announced that it would be providing China with 300 of its most modern locomotives between now and 2010).

Even if the Chinese economy had slowed sufficiently to warrant stimulus, there was a better way of getting it. For a decade, China has enjoyed unbalanced growth, with excessive rates of savings and investment and inadequate consumption. This has resulted in the huge buildup of Chinese foreign exchange reserves, now more than $1.9 trillion –the largest in the world, both in relation to the economy, and in real terms.

To rebalance the economy and maintain growth, China actually needs more domestic consumption. While Bush-style cuts in high-level income taxes would benefit only the “Chuppies” – China’s newly emergent yuppie class – there are other taxes that bear heavily on the economy and could usefully be cut.

The farmland usage tax, for example, levied at 13.6 cents to $1.36 (one to 10 RMB) per square meter in 1987, was late last year boosted to 68 cents to $3.40 (five to 25 RMB) – thus increasing what was already a huge imposition on the poorer farmers, whose margin above subsistence is very limited, only to be made even more so by such regressive taxes. Thus a Chinese government that truly had the welfare of its people at heart would have engaged in tax cuts, not grandiose public sector infrastructure projects.

There is considerable danger of such a massive Chinese infrastructure program leading to inflation. Assuming that China uses $585 billion of its foreign exchange reserves to fund it, increasing the domestic supply of Renminbi, this will increase its M2 money supply by almost 10%

However, The People’s Daily yesterday (Monday) stated that this massive financing package would have a positive effect on “cement, iron and steel producers.” The capital outlay should also be a boon for China’s trading partners: Not so much its three largest trading partners – Japan, South Korea and Taiwan – as they primarily manufacture components that are assembled in China for re-export to the West, or supply manufactured goods, which would benefit from a consumer-led spending surge, rather than this government-led stimulus.

However, suppliers of raw materials – which have already found the long Chinese boom to be a bonanza – can look to benefit further.

And that brings us to some possible profit plays that should rise with the tide of this $585 billion infusion:

• Anhui Conch Cement (Pink Sheets: AHCHF) is China’s largest cement producer – hence, it’s certain to benefit from a major infrastructure program of this kind. Be careful, however: It’s quoted only on the “Pink Sheets,” and is trading on 17 times earnings.
• China Railway Construction (Pink Sheets: CWYCF) is China’s largest construction group, with a special expertise in railroads. Again, it’s traded on the Pink Sheets, this time at 31 times earnings.
• Yanzhou Coal Mining Co. Ltd. (ADR: YZC) is an energy supplier that should profit greatly from the additional infrastructure investment. It’s much-better priced than the two predecessors, trading at only three times earnings and has an alluring dividend yield of 4.3%.
• Huaneng Power International Inc. (ADR: HNP) is a top China energy producer that’s been generating losses lately due to high coal prices. But it’s likely to increase output and profits with the economic expansion that should follow the massive infusion – and the 9.3% dividend yield is rather electrifying, as well.

But a big winner from China’s infrastructure boom (don’t forget, $100 billion in railroad investment) is Brazilian iron ore producer Vale (ADR: RIO), which has increased its prices to China twice in 2008, and that’s now actually holding back supplies while the Chinese market rebalances. China is a huge importer of iron ore, its imports will increase with heavy infrastructure investment, and Vale is the world’s largest supplier. Best of all: With a Price/Earnings ratio of 4.3 and a dividend yield of 4.2%, Vale’s shares are not at all expensive.

Source: Five Ways to Profit From China’s $585 Billion Stimulus Plan