Global Water in Deep Trouble?

The world may be running low on its most precious commodity—water. This map shows water scarcity projections for the world in 2025. Large chunks of Australia, Asia, Africa and North America are expected to have severe water issues. Credit Suisse estimates that, by 2020, 37 percent of the global population will face severe water stress. The problem is unrelenting demand for a finite resource. Since the 1940s, the global population has tripled to more than 6 billion people worldwide. Over the same period, global water use has quadrupled. Water infrastructure has been slow to attract money from investors. The chart below from Credit Suisse shows that private sector investment in water infrastructure in emerging markets—where it is most desperately needed—is at pretty much the same level it was 20 years ago. Over the same period, investment in telecommunications has increased roughly 1400 percent and energy 5000 percent. Even now there’s only a handful of investible companies that offer exposure to water infrastructure. Credit Suisse thinks investment growth “should pick up substantially over the next 5-10 years,” with the bulk of this investment likely going to desalination and recycling opportunities.

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Frank Holmes - U.S. Global Investors | February 24, 2010 | 10:00 pm

A New Era for Autos

New Yorkers looking to catch a glimpse of the world’s hottest car have until late April to visit the Cooper-Hewitt National Design Museum, which is displaying the $2,200 Tata Nano as an achievement in efficient design. I was fortunate enough to drive “the people’s car” on a recent trip to India (that’s me in the photo). The Nano is at the forefront of a new trend: affordable cars designed specifically for the developing world. How much has the emerging world embraced the car culture? The chart below shows the dramatic rise in vehicle sales in China, India and Brazil since the beginning of 2009. China’s vehicles sales were up 104 percent year-over-year in January and up 75 percent from two years ago, according to data from PIRA. India’s car sales grew by 50 percent year-over-year in January and were up 25 percent from a year ago. The sales pace is a bit slower in Brazil but the country just set a new record in 2009 with 3.1 million sold. The world’s automakers are scrambling to carve out shares of this promising market. Volkswagen’s Gol is already the best-selling vehicle in Brazil and this week VW debuted the Polo, which will soon go on sale in India. In January, Tata reported that 17,357 Nanos were sold from July to December. The company will soon be rolling out additional production in other areas of the country. As we’ve mentioned before, vehicle sales are a good proxy for economic activity because of the amount of energy, labor and materials it takes to produce a vehicle. They are yet another indicator of how rapidly the middle class is expanding in key emerging markets – this group’s consumption patterns stand to have a profound impact on global commodities demand going forward. None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of December 31, 2009. #10-49

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Frank Holmes - U.S. Global Investors | February 23, 2010 | 10:00 pm

Deflation Risk: Good for Gold

Massive sovereign debt loads, yawning budget deficits and high unemployment in the developed world raise the chances of deflation in 2010. If deflation were to occur, it could be good for gold. I have written about deflation in the past, but it’s such an important theme that it warrants a revisit. I see it as a key risk to the global economy — a far greater risk than inflation in the near term. Deflation is especially risky because, once under way, it’s a cycle that’s hard to break. In the U.S., for example, slow economic activity and high joblessness (currently around 10 percent) can drive down prices, which leads people to delay spending because they think prices will keep falling. This further slows economic activity, which leads to more joblessness, and around and around it goes. The competitive effects of globalization add to the deflation risk. Labor is getting ever cheaper in a worldwide jobs market, and excess global capacity continues to lower production costs. An article from the Federal Reserve Bank of San Francisco offers an excellent discussion of deflation risk based on studies of the Great Depression and the late 1990s in Japan. According to an analysis detailed in that article, there’s an 85 percent chance of deflation in the U.S. this year. Read Article* Governments are keeping capital cheap — interest rates are near zero and will be for a long time. U.S. banks have a lot of money to lend, but we don’t see that happening based on measures of money velocity. And given the enormity of government debt loads, future fiscal and monetary options are limited — not that the White House and Congress won’t be tempted to provide desperation stimulus as the 2010 midterm elections draw closer. In the face of low or no domestic growth, the U.S. and other countries can be expected to engage in a competitive spiral of currency devaluation to increase exports. This race to the bottom stands to lift gold as investors seek to store their wealth in an asset with tangible value. *By clicking the link, you will be redirected to FRBSF.org. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals.  The weights of components are based on consumer spending patterns. #10-118

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Frank Holmes - U.S. Global Investors | February 18, 2010 | 10:00 pm