Brian Hicks, who co-manages our Global Resources Fund (PSPFX), is in Santiago, Chile, this week for the 9th annual CRU World Copper Conference— […]

The OECD’s latest assessment sees a possible peak in U.S. unemployment and a rebound in business confidence for both the U.S. and […]

If you want to see the right shape for an economic recovery, have a look at Turkey. In 2009 the nation suffered its worst recession on record – its GDP shrank roughly 15 percent year-over-year in the first quarter of last year (see red line on chart below). But since that bottom, Turkey has bounced back with a V-shaped recovery – in the fourth quarter of 2009, GDP grew 6 percent compared to a year earlier. The domestic market was the key – strong consumption growth (light blue bar) more than made up for a slight decline in net exports (dark blue) in the quarter. Among the G-20 group of industrial nations, Turkey was second only to China in its GDP growth in the fourth quarter. The chart also shows some of Turkey’s neighbors in emerging Europe and how they are mending their economies after the Great Recession. In both Hungary and Poland, the recovery is U-shaped, while the Czech Republic, Romania and Latvia are trending sideways in an L-shaped pattern. Turkey’s growth pattern is likely to continue to stand out in the region.  In addition to a vibrant export economy, growing household consumption is likely to play a significant role in the recovery in 2010 as Turkey can hope for more domestic demand stimulus than other countries. For more insights into this promising region, we invite you to join us on Thursday, April 29, at 11 am ET for the webcast “What’s Ahead for Emerging Europe?” Registration is easy – just click here or on the banner below.

The new report “Gold in the Year of the Tiger” from the World Gold Council (WGC) predicts that gold consumption in China could double in the coming decade as a result of rising demand for jewelry, hard-asset investments and industrial uses. This forecast seems reasonable, and it lines up with what I’ve long been saying about the profound evolution in China’s economy – domestic consumption is replacing exports as the growth engine as more poor Chinese move up into the middle class and from there into the ranks of the wealthy. Tens of millions of people in China are joining the middle class every year – by some estimates, they already number more than the entire U.S. population and could double in the next decade. They are buying more spacious and better-outfitted homes. They have made China the world’s largest automobile market, and a wide range of brand-name Western luxury items are available even in provincial cities. China has a centuries-long cultural affinity for gold, so it makes sense that more middle class and wealthy would mean more gold sales. The line on the WGC chart above shows how investment demand for gold has rocketed up from next to nothing in 2001 to 80 tonnes (2.6 million troy ounces) last year, with the sharpest upswing coming after trading rules were liberalized in mid-2007. Over the same period, China’s GDP roughly tripled. The Chinese are famous for their high savings rate, and the chart shows how important gold has become as a store of their growing wealth. The next chart compares China’s annual gold jewelry consumption to more than a dozen other countries. Last year, China consumed 347 tonnes in jewelry, which was about 30 tonnes more than the country’s total gold production (tops in the world). But on a per-capita basis, China is near the bottom of this list. The World Gold Council points out that, if China matched Saudi Arabia on a per-capita basis, it would consume an additional 4,000 tonnes of gold jewelry each year. That’s more than last year’s demand for the entire world (3,386 tonnes), so even the most enthusiastic gold devotees would probably agree that it’s not a realistic number. But given projections that the Chinese middle class will double in the next decade as China’s economic growth generates a wider distribution of wealth, it’s not farfetched to think that its gold consumption could also double. It is farfetched, however, to think that China’s domestic gold output could keep pace with demand growth – more and more of the world’s gold production (on a declining trend for years) would have to be diverted to the Chinese market, and the result could be a significant impact on gold prices in the years to come.

President Lula de Silva of Brazil has big plans for his country’s energy sector. Lula proposes to spend $255 billion on energy between 2011 and 2014, and another $344 billion in the years after that. The goal is to secure a reliable supply of energy, and would include expanded electrical grids, oil and gas exploration, renewable sources and improved energy efficiency. Energy represents nearly 70 percent of the $872 billion allocated to Brazil’s latest economic growth program, known locally as PAC 2. Other areas of focus for the plan are housing, transportation and general quality-of-life improvements. The need is certainly there – last fall we highlighted some of Brazil’s infrastructure gaps, as observed by our global strategist Jack Dzierwa when he traveled there. But what about the funding? Brazil has a relatively small tax base and its public debt-to-GDP ratio of 67 percent is relatively high among other key Latin American economies. Lula’s plan would require a tax hike or more debt on the national balance sheet. Another potential hurdle is this year’s presidential election. Lula can’t run again, but he is throwing his weight behind Cabinet Chief Dilma Rousseff – if Rousseff wins (she now trails in the race), the plan’s chances improve.

President Obama proposed plans today to open areas along the coasts of Virginia, the Carolinas, Georgia and northern Alaska for offshore oil and gas exploration. This follows the president’s step to restart the nuclear power industry by making $8 billion in loans available for a plant in Georgia. Also today, the president said he wants to double the size of the federal fleet of hybrid vehicles, and federal funds have been allotted for a range of alternative energy projects. Diverse sources of energy are important, but the administration also recognizes reality – that oil and gas will be the foundation of U.S. energy demand for many years to come, and for that reason, we have to boldly seek out new sources of domestic supply. Offshore drilling has been banned since 1981 for most of the U.S. coastline, but it seems that’s where the deposits are. The outer continental shelf (mostly Gulf of Mexico) now accounts for nearly 30 percent of U.S. oil production, up from 11 percent in 1990. Today’s announcement will elate those who have been pushing for more offshore production, but it’s important to remember that any drilling in these waters would not begin for years. The impact may be felt sooner in certain segments of the oil and gas sector. Jack-up drill rigs and offshore platforms — in high demand and short supply less than 18 months ago — may see renewed demand. In addition, new pipelines and other infrastructure would be needed to make production in these new areas economically feasible. By clicking the image link, you will be directed to the New York Times website. U.S. Global Investors does not endorse all the information supplied by this website and is not responsible for its content.

What would happen to the price of gold if China’s annual consumption went up tenfold? That’s the high-end demand case laid out by the World Gold Council (WGC) in its new report “Gold in the Year of the Tiger,” which focuses on China. The WGC says China’s gold consumption of 423 tonnes in 2009 works out to about one-quarter of a gram per person, which is lower than other Asian countries with cultural affinity for gold (chart). The Saudis consume more than three grams per person, and in Hong Kong, it’s more than two grams. “If gold were consumed in China at the same rate per capita as in India, Hong Kong or Saudi Arabia, annual Chinese demand could increase by at least 100 tonnes to as much as 4,000 tonnes in the jewelry sector alone,” the WGC writes. OK, 4,000 tonnes (128.6 million troy ounces) looks pretty extreme, even for the most enthusiastic gold devotees. The WGC offers a more reasonable but nonetheless bullish outlook: China’s gold demand has nearly doubled over the past five years (13 percent growth per year), so it would not be a huge stretch for a doubling to roughly 850 tonnes per year in the next decade. Gold demand is rising as China’s middle class expands, and while the nation is the world’s largest producer, domestic supply falls short of demand by some 100 tonnes per year and that gap will almost certainly widen with rising demand. As more foreign gold is diverted to the Chinese market, the impact on world prices could be significant.

Chart is from the latest edition of U.S. Global’s Weekly Investor Alert: Indonesia is one of the giants of Asia, yet for most people it doesn’t come to mind when thinking about the continent’s economic vitality. A few quick facts about Indonesia: a population of 234 million (4th in the world) that has been rapidly urbanizing since the 1970s. An estimated 22 million people live in or around Jakarta, making it the world’s second-largest urban area. Its natural wealth (oil, gas, metals, agriculture) enables it to be part of the G-20 group of major economies, and GDP growth in 2010 is estimated at 6 percent. The chart shows how annual cement demand in Indonesia has more than doubled in the past decade, with the key driver being housing as the country deals with urban growth – nearly seven of every 10 Indonesians are expected to live in cities by 2030, up from 42 percent in 2000. But the infrastructure needs run deeper than housing, and so do the opportunities. A story last week in the Bali Times quoted top government officials saying that the nation wants to attract $90 billion in private infrastructure investment in the coming five years to build and upgrade roads, railroads, seaports, power generation, health care  and other facilities critical to economic growth. This represents a significant policy change in Indonesia, which attracted only $10 billion in foreign direct investment last year. We watch government policies for signals of a change in investment climate. Indonesia, recognizing that it must deal with its changing demographics and at the same time remain competitive with its neighbors, may be sending an important signal that its doors will open wider to overseas investors. To get more insights and perspective from the U.S. Global Investors investment team, subscribe to the Weekly Investor Alert.

The most quoted line in the 1980s film Wall Street goes “Greed is good,” but fascinating new research suggests otherwise. An Economist article highlights the work of researchers in Canada who wanted to measure how much different societies value fairness in their dealings with others. They set up an experiment of volunteers from 15 small-scale societies around the world, among them the Hadza (nomads in Tanzania), Dolgan (Colombian fishermen) and Sanquianga (hunters in Siberia). Participants played two money games. In the first, involving two players who did not meet, one was given an amount of money and could decide how much (if any) to give to the other.  The researchers then tweaked the rules to add a punitive element – the second player had to decide ahead of time how much he would accept, and if the offer wasn’t close enough, he turned it down and both players ended up empty-handed. The researchers discovered that societies with little market integration (expressed in terms of how they meet their food needs) were the ones where fairness counted the least. The greater the market integration, the more fairness played an important role in the exchange between the players. The graphic plots the results. The Hadza nomads had the least market interaction and thus the least emphasis on fairness. The Sanquianga hunters in Siberia had among the highest levels of market integration, and they exhibited a high degree of fairness in how they played the money game. This experiment may shed some light on how we see commerce evolve in the future. For example, many emerging nations that were once isolated economically are closely linked with developed countries in the West through globalization. How will their various notions of fairness evolve in these interactions? If governments and corporations don't play fair, they could be marginalized in the global market. A good example of this is Venezuela, where the socialist Chavez government has nationalized the assets of foreign oil companies, supermarket chains and other businesses. This has damaged the country’s reputation and consequently its economic growth prospects. Read the Economist Article By clicking on the link, you will be directed to the Economist website. U.S. Global Investors does not endorse all the information supplied by this website and is not responsible for its content.

It’s getting to be common news for a Chinese company (usually with links to the government) to buy a foreign commodities producer […]

Lost in the scuffle between Google and the Chinese government is how fast China’s Internet use is growing. The total number of Internet users in China grew by 86 million in 2009 to reach 384 million by year-end.  That’s well more than the entire population of the U.S. and Canada combined, and a 29 percent increase year-over-year. Of that number, 90 percent had broadband connections, according to the China Internet Network Information Center (CNNIC). Nearly 30 percent of Chinese are now Web users, and this sets the stage for explosive growth in the years ahead. Once Internet penetration in the U.S. reached 20 percent, it took just six years to get to 60 percent. Japan needed only three years to go from 20 percent to 40 percent, and Brazil went from 20 percent penetration in 2005 to more than 35 percent by 2007. While the highest penetration rates surround China’s largest cities, the mobile Internet is bringing the Web to rural and lower-income users. Mobile internet has lowered the cost of entry for consumers—smart phones are cheaper then desktops. A surprising result from CNNIC: more than 45 percent of mobile Internet usage is from people with monthly income of 100 yuan ($14.65) or less. A recent survey reported by McKinsey & Co. shows that people in China’s 60 largest cities spend around 70 percent of their leisure time on the Internet. Most of this usage is for games, entertainment and shopping. On the commerce side, two of the biggest growth areas were online banking and e-commerce. Users who book travel online jumped 78 percent last year. McKinsey says a significant number of consumers ages 18 to 44 won’t purchase a product or service without first researching it on the Web. As the Internet continues to expand its reach into the lives of Chinese people, keep an eye on how users leverage the technology to improve their living standards. The following securities mentioned in this post were held by one or more of U.S. Global Investors family of funds as of 12-31-09: Google Inc.

India’s prime minister says his country’s “creaking infrastructure” is becoming a pressing problem and called for $1 trillion to be spent between 2012 and 2017. The goal is astounding, but so is the need. Many of India’s 1.1 billion people live without access to clean water, reliable electricity and stable shelter. India’s rapid urbanization is overwhelming its cities.  A special Financial Times report said that only 25 percent of India’s large cities has adequate transportation systems. India isn’t alone in its vital infrastructure needs. The International Monetary Fund says Asia has to invest $8 trillion over the next decade to fight poverty and boost productivity. In Mexico, President Felipe Calderon wants to raise some $6.6 billion in infrastructure investments by 2012. China was early to recognize infrastructure investment as an economic growth driver, and the bulk of its 2009 stimulus package went to that purpose. It appears that other governments are seeing the light. Don’t forget that tomorrow we will be hosting a special Web presentation called “Building a Better World: The Global Infrastructure Opportunity.” Our Global MegaTrends Fund team and researchers from Macquarie Group will participate.