Mittal is the chairman and largest owner of ArcelorMittal (NYSE:MT), the world’s largest steel company. Therefore, his words carry some weight in the steel markets. The fact that these words are so contrary to what everyone else seems to think is significant…

Mittal is singing a rosy tune that has the market atwitter. He thinks steel demand could grow more than 10% in 2010, which would be a strong rebound, indeed.

Whether Mittal turns out to be right or not will hinge on what happens in China. China makes up about half of the world’s steel demand. That’s where the controversy begins, because there is just a lot of uncertainty over China’s economy right now.

I think it’s noteworthy that even those who think Mittal is way too optimistic are still calling for a 5% increase in steel demand next year. The contraction in demand was so severe and happened so quickly in 2009, it is hard to imagine steel demand not rebounding some next year.

Source: Steel Sector: Still Suffering or Rebound Ready?

The stock is still a far cry from its record-high level of $83.56, but is only 0% below its 52-week high of $53.46.  Much has changed since then, as the U.S. auto industry is no longer producing the 16 million cars it produced in 2007, nor the 13 million it managed to sell last year.  This year we are looking at some 10 million units sold, according to J.D. Power and Associates, the leading forecaster in the industry.

But there is encouraging news:  The very quick restructuring of both General Motors Corp. (NYSE: GRM) and Chrysler Group LLC, the U.S. Federal Reserve’s efforts to stabilize the financial markets, and the U.S. government’s fiscal stimulus plans have helped keep the economy from falling into a depression.  The Fed’s support for the auto industry included buying auto receivables under the Term Asset-Backed Securities Loan Facility (TALF) program, in order to restart this type of securitization.

Therefore, the paralysis of sales that we saw late last year, when the financial system froze and there was no financing available, has subsided and sales are increasing.  In fact, J.D. Power expects U.S. vehicle sales to increase to 11.5 million units next year, a full 15% pickup from projected 2009 levels.

In fact, we are already seeing an increase in auto sales already, thanks in no small part to the government’s Car Allowance Rebate System (CARS), popularly known as “Cash for Clunkers.” So far, CARS has spent some $1.29 billion and Congress has expanded the original $1 billion authorization by another $2 billion.

Total light vehicle sales for July were just shy of 1 million units, a milestone the industry hasn’t topped since August 2008, mostly due to the program’s success.

This shot in the arm on the back of the general cost restructuring that Ford Motor Co. (NYSE: F) is carrying out under Allan Mulally has already prompted Ford to increase production of its Focus model.

Similarly, Chrysler has reported that it is running two plants in overtime and a third shift at another plant just to keep up with demand.  And GM, which is seeing a huge rebound in sales, will add to this by increasing advertising spending and selling new cars on eBay Inc.’s (Nasdaq: EBAY) popular online auction Web site. Most of Wall Street is in “wait-and-see” mode, which gives us more of an incentive to jump in.  But the steel story is not just about cars.

Nucor will not only profit from the remaining $1.75 billion to be deployed through the government’s cash for clunkers program and the general improvement in market conditions, but on the pick-up in government construction in the United States that will result from U.S. President Barack Obama’s massive fiscal stimulus.

Additionally, the company will benefit from the already massive stimuli being deployed in China, Brazil, India and Russia.  And let us not forget Europe, where the European Central Bank will soon consider raising its benchmark lending rate to 1.25% from its current record low of 1% in order to prevent inflationary expectations from building up.

China will achieve more than 8% growth this year, driven by public spending, especially in construction and a strong pickup in auto sales  (up 63.6% in July from a year earlier) and domestic appliances.  All of these have a very high content of steel.

Similarly, India’s gross domestic product (GDP) will grow by more than 6%, barely down from last year’s 6.7% expansion. Auto sales in India jumped 18% last month.  Remember that India’s Tata Motors Ltd. (NYSE ADR: TTM) launched the cheapest car in the world last January and this is likely to work wonders in today’s budget-conscious market.

So what about Nucor itself?

The company reported a second quarter loss of $133 million, which improved over the first quarter’s $189 million loss.  But the key is that volumes are already turning around.

Volumes increased 11% in the second quarter, which allowed the company to increase its capacity utilization from 45% to a still very low 46%.

And this is where the upside lies.

In capital-intensive industries like steel, the very high fixed costs induce very large swings in profits, depending on volumes.  And not only did Nucor see its volumes pick up in the second quarter, the trend should continue accelerating in the third quarter and beyond, thanks to the recent burst in car sales and increased government infrastructure spending.

In addition, prior to the cash for clunkers program, Nucor announced it already expected to see an improvement in its third-quarter results. The company said that many of its customers had run their inventories too low and would need to replenish them just to meet demand.

So, at reporting time, investors could be very positively surprised by Nucor and many other companies in the sector, which will provoke many analysts to increase their stock targets.

And to make the whole story even better, we are counting on increasing inflationary expectations and a weaker dollar, which will continue to drive portfolio managers to hedge this risk in commodity stocks.

That means Nucor, which has been bumping into strong resistance levels since the beginning of January, but making higher lows in every subsequent correction, is likely to break out of its current range with an explosive rally before it even reports third-quarter earnings.

Nucor stock closed down 92 cents, or 1.93%, Friday at $46.79 a share.

Source: Nucor Corporation Will Get Is Due for a Boost from Government Spending

The next three weeks are going to be very important ones for investors. Nearly a trillion dollars is up for grabs. Smart investors will do all they can to ensure they get their hands on a piece of the action.

On Monday, President-elect Obama and Nancy Pelosi are scheduled to meet and start formally discussing their plans for a massive stimulus plan. Their goal is to have legislation waiting for Obama when he takes over the Oval Office on January 20.

Current estimates have the total package worth about $675 to $775 billion in taxpayer money. Nearly every industry in the country is lobbying with all its might to ensure they get a mention in the massive measure.

It is time to repay the voters

The next few weeks will look like pigs feeding at a slop bucket. Industry leaders will be pushing through the mud and the waste jockeying for a top spot in the handout line. Already, the steel and the newspaper industries are turning up the volume of their cries for help.

After spending nearly $20 billion to “save” Detroit and $350 billion to “rescue” the banking industry, the nation’s newspaper publishers want to get their hands on a few billion bucks.

Instead of proving that they are vital to the nation’s manufacturing sector and national security, news outlets claim without them, a strong source of free speech and a voice of dissent would be eliminated. Therefore, they are crucial to the health of the country.

Once again, the nation’s newspapers overlook the power of the Internet.

Steelmakers are taking a different route. Knowing that an infrastructure based stimulus would send their revenues skyward, the steel industry is not asking for a check from Uncle Sam. Instead, they demand that Obama’s package have a “buy America” clause is a virtual tariff that forces builders to buy American steel (regardless of the fact that it will be more expensive).

Over the last four months, steel demand throughout the United States has fallen by about 50%, dragging prices down an equal amount. So far this year, the steel industry has fired thousands of American workers. If the situation does not get better, executives promise (or is it threaten) that more cuts are on the way.

Might as well get your share

No matter what Pelosi and Obama hammer out, hundreds of billions of dollars in taxpayer money will be spent over the next 24 months. Much of the cash will flow through the steel industry, making it a prime investment opportunity.

Look at companies like Nucor (NYSE:NUE), United States Steel (NYSE:X), and ArcelorMittal (NYSE:MT) to be amongst the leaders as the stricken industry returns to its feet and runs ahead of the pack.

The steel industry has typically been a strong leading indicator for the American economy. Thanks to help from Washington, it will gain a leadership position once again, whether it deserves it or not.

Source: Who Is Next For The Easy Money

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.

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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

After all, the commodities boom fed off global prosperity. India, Russia, Southeast Asia were all rolling in dough during peak commodity prices.

It was the overall scope of commodity consumption that gave rise to the term “Commodity Supercycle.” And that consumption was fed in large part by liberal credit.

The problem, however, is that there’s simply no more credit to feed the beast – despite trillions in government bailouts.

As a result, it could still be too early to get back into commodities with the expectations that prices will rise again any time soon.

While China’s $586-billion massive infrastructure build-out will certainly consume plenty of steel, cement and oil, the country remains in a deflationary cycle.

China is literally attempting to dig its way out of this deflationary cycle with new construction projects. Other statistics coming out of China argue that the $586 billion package may not be enough on its own – and that China is more reliant on the global economy than construction projects for true economic growth.

Housing prices continue to decline, manufacturing is shrinking and the trade surplus is on the rise.

Building new roads, railways and airports won’t really affect the trade surplus, raise manufacturing output and make the cost of living much cheaper than it is today.

So if you believe that China’s stimulus plan could drive up commodities worldwide you may be in for a rude awakening.

Commodity prices will only go back up after governments find a way to inject new cash into their respective economies.

This from Whiskey and Gunpowder:

The bell of American finance has cracked. It was a long time coming, as I’ll show you. The biggest change in the American economy in the last generation or so has been the rise of finance at the expense of making things. This seemed to work for a while, but like a boxer who has a habit of dropping his hands, America finally caught one on the chin.

Every crisis, though, brings opportunity. In this one, investors will go back to investing in simpler, more durable things (at least until forgetfulness kicks in). For instance, investing in a company that supplies grains to hungry people looks like a better bet than investing in one that sells mortgages to people who can’t afford them. The focus will shift to things we need, rather than things we want.

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Sometime over the past few decades, we abandoned the old-world notion of making things. We turned to making shuffling paper our stock in trade. Precisely when and why this happened will be something for historians to debate. But sometime in the 1990s, the percentage of corporate profits from finance passed that from manufacturing.

It was the first time that had happened, and the gap has only grown wider since. Before the great credit crisis hit, profits from financial firms made up nearly half of corporate profits. Only 10% came from the manufacturing sector. As recently as the mid-1960s, it was the other way around.

Mortgages, before the crisis hit, made up 60% of total bank loans and the financial sector grew to become our biggest sector — bigger than health care, retail or manufacturing.

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Replay the 1970s — Only Bigger…

To a smaller degree, we had a similar crisis in the 1970s, Kevin Phillips tells us in his new book, Bad Money. Mortgage debt doubled from 1960-70. The Dow crashed, losing 36% of its value from 1969-70. Hedge funds blew up. The top 28 funds lost 70% of their assets, and about 100 brokerage and financial firms disappeared — by either acquisition or outright failure. Seems a lot like the outlines of the present day, does it not? The 1970s also had two major oil price spikes. The first in 1973-74 and the second in 1979-80. We’ve already had one oil spike now, and a second one is in the cards.

The neglect of making things is perhaps most evident in the oil business. Phillips says the U.S. has a “dated, ghost-of-glories past petroleum infrastructure.” He writes that the major oil companies “are wealthy, but aging behemoths, hard-pressed to maintain production levels, despite large exploration outlays, and no longer enjoying access to overseas oil fields they once commanded.”

Exxon Mobil (NYSE:XOM), once the largest oil company in the world, now ranks 25th by booked oil reserves. The top 10 are all state-owned national oil companies (NOCs). The top 13 NOCs own four-fifths of the world’s known oil reserves. They don’t share them cheaply.

A look at where we get our oil is not encouraging, as the chart below shows. Most of these sources of supply are not particularly reliable. As Phillips opines (the table below comes from his book): “Of the eight principal 2007 suppliers of petroleum to the United States as of August, only one, Canada, could be called secure and reliable.” Mexico seems secure, but exports have been falling since 2004, as Mexican production has fallen. It could become an insignificant source of oil by 2012.

And we are not alone in competing for these oil reserves. China became a net oil exporter in 1993, and its appetite grows every year. It is now the world’s second largest consumer of oil, behind only the U.S. China actually imports more oil from Saudi Arabia than the U.S. This partnership is not surprising, given the dynamics of the New Silk Road.

The “New Silk Road” is a term I use for the boom in trade between countries from the Middle East to China. In matters of energy, you see a lot deals inked on the New Silk Road. Saudi Arabia and China get together regularly like newfound pals. Sinopec, a Chinese oil company, recently got the OK to explore the Saudis’ Empty Quarter for oil and gas. Saudi Aramco, the big oil company, put $750 million toward a huge plant in China.

Just as interesting to me is what I like to call the “New Burma Road” — after the road of World War II fame that linked China and India via Burma. The New Burma Road identifies the booming trade between India and China. As Phillips writes, “China has already made a six-lane highway out of its portion of the road from Chinese Kunming to India’s state of Assam… The demographics of a Sino-Indian entente would make it especially momentous.” Yeah, I’d say so, given the strengthened ties between more than two billion people.

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As you know, there is an awful lot going on in the world today, and it’s all far more complex than I can get into here. But this is where we are, in brief: The U.S. economy faces a crisis in its biggest sector — finance. The neglect of making things is finally taking its toll, a fact most apparent in the oil and gas world, but also apparent in infrastructure across the spectrum. And the world is less U.S.-centric than it has been in a long time. We see this, too, in the oil and gas sector and in the flurry of deal making along the New Silk Road (and its “momentous” segment, the New Burma Road.)

The implication of this post-finance U.S. economy is a theme we’ll explore more in this letter. As an early conclusion, though, I believe the spread between finance and manufacturing has reached millennial extremes, like a rubber band at its limits. Now begins the snap back.

Source: Finance, Meet Manufacturing…

This from Penny Sleuth:

Molybdenum is harder than chromium, lighter than tungsten and more resistant to compression than graphite. It also has a higher melting point than boron and reacts less to temperature changes than vanadium. These characteristics still make alloy makers and scientists marvel at molybdenum’s advantages.

It’s these advantages over lesser metals that let molybdenum contribute to the world’s infrastructure. One of the most important industries that use molybdenum is pipeline manufacturing. Manufacturers use it to strengthen their main assets, the actual metal that carries oil and gas throughout the world. We’ve been working on this with Mayer’s Special Situations editor Chris Mayer for months. Here’s what he writes:

“It takes about 2.6 million pounds of moly for every 1,000 miles of pipeline. Just for a frame of reference, there are something like 50,000 miles of pipeline in the planning stages globally.”

In just this one industry, current demand dictates at least 128 million pounds of molybdenum. At current prices, that puts us in the ballpark of $4.4 billion. But many other industries require this truly precious metal…

Moly’s the Word from Clean to Green

Molybdenum’s anti-corrosive properties make it crucial to the production of the oil in tar sands and offshore drilling. Crude oil refineries use it to remove sulfur. Government mandates to reduce the amount of sulfur in oil make this even more attractive.

But many other energy companies have to rely on molybdenum for its unique properties. One up-and-coming energy source, geothermal, needs it for drill bits. To drill deep into the Earth’s crust takes a very hard metal to rip apart the rocks and mantle. This small industry is taking off and will continue to increase the demand for molybdenum. But other renewable energies use this metal.

The solar power industry uses molybdenum’s conductivity to form strong electrical connectors that make the whole process work.

The rapidly growing windmill industry takes advantage of molybdenum’s hardness and durability to strengthen the massive propellers that must endure all kinds of wear and tear from Mother Nature.

The nuclear industry, which is once again growing at a rapid pace, is required to use only the most radioactive-resistant and strongest materials to build its pipes and reactors. Molybdenum is the only thing that fits.

Even the “green car” revolution uses molybdenum’s comparative lightweight to boost fuel-efficiency and overall safety. The list goes on and on…

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Molybdenum also has a few other special characteristics that make it irreplaceable at any price. One contribution of the remarkably important element is to plant growth. Fertilizer companies incorporate it into their products to ensure the required assimilation of the plants to nitrogen — an essential element of plant growth.

Molybdenum’s most important application, however, is in the production of steel. We already stated this element’s outstanding strength. To make durable steel, you need to add molybdenum to the alloy. With tremendous growth in China and India, tons and tons of steel are produced to erect the massive skyscrapers and factories we read about on the front page of the business section every day.

But no metal is worth investing in if it’s going to stay cheap. So we have to look at molybdenum’s supply and demand…

A 1,000% Jump Is Just the Beginning

With so much demand coming from just about everywhere you look, it wears on the metal’s suppliers. Molybdenum production is growing at only a 3% clip annually. Compare that with China’s 10% annual demand growth and it’s clear that new mines need to open for the producers, which have been shipping the metal out as fast as they can pull it out of the ground.

This imbalance between supply and demand has caused molybdenum’s price to skyrocket. Just a few years ago, you could buy a pound of the metal for $3. Today, it costs around $34. That’s quite a run-up for an element few have heard of.

As you can see, the metal’s price sharply increased between 2004–2005 as production slipped and roasters (essentially the same as refineries for the oil industry) met full capacity. But industry experts expect the start of a multiyear bull market for molybdenum prices next year as supply falls lower than demand.

Current molybdenum producers are looking high and low for new mines to produce this metal. Unfortunately, it doesn’t grow in our backyards. It is almost always mined alongside copper, but not in high grades.

So finding a pure molybdenum play isn’t easy. However, there are significant mines throughout parts of China, Chile, Canada and the U.S. In fact, back in 1978, oil giant Exxon stumbled on the world’s largest and highest-grade molybdenum mine in Nevada. But the metal’s price wasn’t worth the hassle of development.

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Source: Exxon-Sized Profits in the Next 12 Months

Chris Mayer says the next “megatrend” will be a $41 trillion global infrastructure boom. Urbanization on a massive scale in China and India requires huge construction projects. And this will create huge demand for building materials (like cement and steel) and basic commodities (iron ore, copper and nickel).

Chris says power-grid builder ABB (NYSE:ABB) and road-building equipment maker Astec Industries (NASDAQ:ASTE) are stocks to watch…

This from Whiskey and Gunpowder:

Investors are always on the lookout for the next big thing. You know the sort, a big-picture idea so powerful and long-lasting that you can confidently ride your investments through the ups and downs that market life presents. Frank Holmes, CEO of U.S. Global Investors, calls these “global megatrends” – “sustainable and substantial growth in capital expenditures in any country or sector.”

Holmes offered a couple of past examples. There was the massive growth of infrastructure in the ‘50s and ‘60s, which included the postwar rebuilding of Europe and the massive highway system build-out in the U.S. There was the 1990s megatrend, which led to massive growth in information technology and data communications. And there is the present megatrend: “Unprecedented change in global growth driven by globalization, urbanization and wealth creation, [which] leads to a global infrastructure boom on a massive, intractable scale.”

That’s quite a mouthful, but I believe Holmes is right. Holmes also cites numerous studies – one by Booz Allen Hamilton, as well as ones by World Energy Outlook, the U.S. Department of Transportation, the OECD and a host of other official-sounding places. But the total bill, give or take a few trillion, is about $41 trillion out to 2030 – for water, power, roads and bridges, as well as marine and seaports.

This is your next megatrend. Don’t miss it. We have some ideas at work here, but before we get too ahead of ourselves, let’s look again at some of the key points of the thesis.

First, some mega population shifts. By the end of 2008, half of the world’s people will live in urban areas. Leading the way are some 500 million Chinese and another 540 million Indians. The world’s cities are getting a lot bigger. Beijing alone grew from 12 million to 16 million in the past decade. Plus, there are a lot more souls on the orb than ever — 6 billion of us. Next year, the world’s total urban population alone will exceed the total world population in 1965.

This helps drive economic growth. Asia as a whole, for example, is building five times more homes than the U.S. Incredibly, China alone is constructing 80 percent of them. This, in turn, drives consumption of many commodities, including things you may not think of immediately – like cement. Asia, excluding Japan, uses about 14 times as much cement as the U.S. Asia ex-Japan has also overtaken the U.S. in steel production by a country mile. Asian steel production is more than six times the U.S.’ Electricity consumption is 32 percent more than the U.S.’

I could go on like this for pages…the stats are simply amazing. But I think you get the idea. The industrialization of Asia’s enormous populations has unleashed a torrent of demand for the basics.

There was a lot of discussion at the conference in Vancouver about just how much of Asia’s economic growth begins with U.S. consumers. The answer isn’t clear, as you might expect. But it is clear that trade routes in Asia are flourishing. I’ve talked about the New Silk Road before. It’s one of my favorite themes – the opening of old trade routes that stretch across the Middle East through India and into China. Holmes had a chart that showed that the Asian stretch of that old road is still healthy – despite an economic slowdown in the U.S.

Asian trade is ticking up, even as U.S. exports take a dip. It’s not the only data point, either. Asian retail sales are also trending higher as U.S. retail sales head lower. I think it’s a bit arrogant on the part of some analysts to say that China exists to satisfy our needs for rubber toys and cheap underwear. In their view, a U.S. slowdown dooms most of Asia’s export-driven economies. Plenty of evidence shows that’s not the case, at least not yet.

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In fact, Asian demand is on the rise for a whole host of goods. In 2008, vehicle sales in Asia ex-Japan are set to exceed those in the U.S. First time that’s ever happened. Sometime in 2008, also for the first time ever, there will be more Internet subscribers in China than in the U.S. I suspect that’s one top spot that the U.S. will never claim again. There are also four times the number of mobile subscribers in Asia than in the U.S.

All of these points come from Holmes presentation, which I think painted an amazing panorama of the truly historic shifts in the global economy.

As fast as the Asian economies are growing, their demand for power is growing faster. You can also expect to see increasing use of aluminum, copper, iron ore, coal and nickel – all basic infrastructure materials.

Holmes offered that to satisfy the global demand for copper, the world would need to mine as much in the next 25 years as it has up to this point in history. These predictions may prove wildly inaccurate. But even if they are only directionally correct, it points to a long bull market in the basics.

I have recommended stocks that are deeply involved in the megatrend of infrastructure. Companies like ABB Ltd. (ABB:NYSE), the world’s largest builder of power grids, and Astec Industries (ASTE:NASDAQ), a leading manufacture of road-building equipment. Plus, I have also recommended companies that own the basic commodities the world will need – copper, oil, natural gas and more.

As we come to learn early in our investing careers, the market seldom moves in a straight line. Years can separate cause and effect. One of the great megatrends in the market today is this idea of infrastructure and all that it entails. So don’t let the recent volatility in the stock market blind you to long-term investment opportunities.

These are the moments to enter the fray, not to run from it.

Source: Where to Invest After the Collapse

Today Rio secured a massive 97% price increase from its Asian steelmakers – piling the pressure on BHP to get an even bigger increase. BHP claims that Rio’s agreement isn’t enough to cover extra shipping costs.

BHP Billiton, Rio Tinto and the American Civil War

Dan Denning

Let’s get the ugly part out of the way first. The S&P ASX/200 limped home yesterday to finish the fiscal year down 16.9%. Let’s call it 17. It was the first down year since 2002, or 1 BB (Before the Boom).

If not for the iron-ore solid performance of BHP Billiton (ASX: BHP)-up 24.7% on the financial year-it would have been much worse for the ASX 200. Rio Tinto (ASX: RIO) did its part to hold the line for the resource sector as well. Rio was up 38.2% for year, from $98 to $135.50.

But wait, why is BHP’s 24.7% gain more weighty than Rio’s 38.2%? Is this some weird new math? Some sleight of hand or trickery? No.

The ASX/200 is a market-cap weighted index. A stock is judged not by the colour of its performance but by the content of its market capitalisation. BHP’s market cap went from $194 billion to $244 billion in the last twelve months. Rio went from $98 billion to $135 billion.

You reckon Rio’s CEO Tom Albanese will not be happy to hear that BHP still means more to Australia – at least the performance of its share market index-than Rio. Yet Rio is not unattractive. The Financial Times reported yesterday that ArcelorMittal (AMS: MT) – the world’s largest steel company – may be interested in buying a piece of Rio.

Does that kind of deal make sense? Arcelor is trying to bring its resource supply chain back on to the balance sheet. Buying the world’s second-largest iron-ore maker sure would do that. But Rio’s biggest customer is China. So does Arcelor just want a piece of Rio’s growing earnings? Does it want the ore? Or does it want a piece of Rio’s assets in a post-BHP merger carve up?

Who knows? Lakshmi Mittal does probably. But he’s not telling.

Yesterday we mentioned we’d look at the markets geopolitically. What we meant by that is that most pundits are assuming the resolution to the credit crisis will come in form of a normal economic cycle or some change in monetary policy, or a currency readjustment. But maybe it will end in bullets.

This current state of affairs is not just a friendly tilt between inflating commodities and deflating financial assets. An allusion is in order. At the First Battle of Manassas on July 21st 1861 the American Civil War got underway. Everyone thought it would be a short, quaint affair. Manassas is not far from Washington D.C.

Today, you take Interstate 66 to Route 50 West, if memory serves (our brother used to live in the area). But back in 1861, day-trippers from DC took carriages out to watch the opening of the war. They brought picnic baskets and clapped. They anticipated a Union rout of the rebel troops led by Confederate General PGT Beauregard.

It was all going the Union’s way until a bunch of Virginians under General Thomas Jackson held the line at Henry House Hill. “There stands Jackson like a stone wall,” said Brigadier General Barnard Bee Jr. The Southerners rallied and won the battle and the war was much longer and bloodier than anyone expected.

We mention the battle for three reasons. One, it was a nice way to think of BHP and Rio in your portfolio, buttressing it against a larger route. Two, the Civil War was much worse than anyone expected because it was really the first war where industrial production mechanised warfare. You had tremendous firepower concentrated in large masses of men. The result was industrial scale slaughter and a preview of World War I fifty years later.

No one went into the war thinking it would be newer and deadlier. And no one has gone into globalisation believing that there were drawbacks as well as benefits. The obvious drawback now is that a synchronised global asset bubble has become a synchronised global asset bust, with falling asset values leading to reduced consumption, lower corporate earnings, and more falling asset values… all in a downward spiral.

The third reason brings us to Clausewitz, the German military strategist. He wrote many famous things. One of them is that, “war is a continuation of politics by other means.” Clausewitz used the German word Politik, which can mean either policy or politics.

One reader writes in that our theory of a seamless migration of wealth and capital from West to East is rubbish. “People never relinquish what they have easily,” he writes. “If Asia is to become rich and the West poor, we will see war, actually many wars, first. The history of man is war.”

This is the other possibility, then. The economic tensions created by globalisation turn into hot resource wars, via both politics and policy. It’s no coincidence that the oil price has gone up since the Iraq war began.

Will Americans under John McCain or Barrack Obama take their new position in the world with good grace? Or are they going to fight it? What is China’s ultimate resource policy? Does Australia even have one? Should it? Will markets take a back seat to geopolitics in the coming years?

Let’s not be so dire. We could be in the midst of a painful but necessary financial adjustment.

Dan Denning
The Daily Reckoning Australia

Source: BHP Billiton, Rio Tinto and the American Civil War