Infrastructure: The New Gold!

If you haven't realized: Inflation still remains a concern, & commodities, though exciting, look volatile as always. So invest in something like concrete & solid may proof discerning & appropriate. I am talking about roads, ports, rail lines, airports etc....

Fact is: Inflation isn’t dead. Good news is: There's a way that you can make more money from inflation & lower the risk from inflation in your portfolio at the same time. You can diversify into infrastructure stocks. I call them "the new gold."

According to the PPI numbers released last month, inflation is alive & well. The headline index of inflation at the wholesale level climbed at an annualized rate of 2.5%. That's not good news, since future inflation at the consumer level often follows the wholesale trend with a lag of six months or so. An annual 2.5% rate is certainly high enough to make the Federal Reserve nervous about cutting interest rates, as Wall Street hopes it will in the months ahead. It is not happening now, as expected.

In a normal financial market, I would advise adding gold & other commodity stocks as a hedge against inflation. The prices of the underlying commodities typically go up when inflation climbs, & the stocks of commodity producers climb even faster, since their earnings rise faster than the prices of the commodities themselves. That's because the costs at these companies are largely fixed, so increases in commodity prices drop straight to the company's bottom line.

However, this isn't a normal financial market we are talking about now. Because the sell-off of Feb. 27 was largely a result of traders unwinding speculative positions purchased with borrowed money, the prices of gold & other commodities didn't zig when the stock market zagged, as they usually do. Instead, since traders were also selling speculative positions in gold & other commodities, shares in these sectors went down along with everything else. Bad news.

Nevertheless, no one should abandon gold & other commodities as hedges against inflation. The sell-off in this sector seems to be over. So I'm going to stick with my commodity play, as they are also good hedges against the long-term downward trend in the U.S. dollar. But it's time to re-examine the assumptions behind portfolio diversification. The unwinding of global leverage & the re-pricing of risk in the asset markets that started on Feb. 27 is still a long way from over.

Investors who want to take some of the risk out of their portfolios by diversifying into asset classes that will go up when everything else goes down need some new tools. And I think investors should think of infrastructure stocks when it comes to hedging against inflation, besides the good old gold. Started to think about the infrastructure sector, companies that make the raw materials for building roads, ports, rail lines, airports, etc., companies that do the actual design & construction work on those projects & companies that raise the money for these projects.

You may have realised, increasing growth by building roads & other infrastructure projects has been a standard tool of governments at least since the days of the Qin emperor who started the Great Wall of China in the third century B.C. Spending on infrastructure creates jobs that lead to more economic demand that creates yet more jobs. China is doing this, but India is not.

In India, decades of underinvestment in roads, ports, airports & rail lines are a central cause of the inflation now at a two-year high of 6.7% & running out of control in the country. Take a look at the agricultural sector of India's economy to see the connection between infrastructure & inflation. While inflation in the economy as a whole is running at more than 6% annually, inflation in food prices is at 11%!

Some of this inflation can be blamed on short supplies of foodstuffs. But much of the country's soaring rate of inflation in food prices is self-inflicted. Somewhere between 30% & 40% of the country's crops rot in the fields or spoil in transit because of the country's creaky infrastructure. There simply isn't any way to get the food to market in time.

Agriculture isn't the only sector of the economy paying the price. On overcrowded highways, speeds average less than 20 mph is also costing the economy big time. Major cities in some Indian states cut power to factories one day a week. Ships have to be unloaded manually & cargo manually loaded onto trucks. Getting cars the 900 miles from the factory to the port at Mumbai takes one automaker 10 days!

India spends just 4% of its gross domestic product on infrastructure in comparison to the 9% spent in China. That disparity has existed for more than a decade. As a result, while China has 25,000 miles of expressways, India has just 3,700 miles. The government budget released in March promises to tackle the infrastructure part of the problem by raising spending on roads, bridges, airports, etc., by 40%. But the government isn't stopping there: It is promoting public-private partnerships on infrastructure projects that are projected to invest $300 billion to $500 billion over the next five years!

The lesson from India is simple but important: The faster a country grows, the more it needs to invest in infrastructure so that growth won't send prices rocketing out of control. It's not an overstatement to say that the faster the growth, the faster the increase in the rate of growth of infrastructure spending.

So how do you diversify your portfolio by adding this kind of anti-inflation hedge? For a start, you can add the shares of companies that make the stuff that goes into roads, ports, airports, etc. You can add the shares of companies that design & build infrastructure projects. You can add the shares of the companies that finance this global infrastructure buildup. India, for example, can't afford to pay the bill for its infrastructure needs out of government funds since the country's budget already runs deep in the red. Private investors will have to put up a big part of the cash. That means you, yes, you.

Practicing My Art

In a long line of people waiting for a bank teller, one guy suddenly started massaging the back of the person in front of him.

Surprised, the man in front turned & snarled, "Just what the hell you are doing?"

"Well," said the guy, "you see, I'm a chiropractor & I could see that you were tense, so I had to massage your back. Sometimes I just can't help practicing my art!"

"That's the stupidest thing I've ever heard!" the guy replied. "I'm a lawyer. Do you see me screwing the guy in front of me?"

Today's One-liner Humor

How do you tell when you run out of invisible ink?

Kiss Goodbye

曲名：Kiss Goodbye
歌手：王力宏

Baby不要再哭泣
这一幕多么熟悉
紧握着你的手
彼此都舍不得分离
每一次想开口
但不如保持安静
给我一分钟专心
好好欣赏你的美

幸福搭配悲伤
同时在我心交叉
挫折的眼泪
不能测试爱的重量
付出的爱收不回
还欠你的我不能给
别把我心也带走
去跟随

每一次和你分开
深深的被你打败
每一次放弃你的
温柔痛苦, 难以释怀
每一次和你分开
每一次 Kiss you Goodbye
爱情的滋味
此刻我终于最明白

幸福搭配悲伤
同时在我心交叉
挫折的眼泪
不能测试爱的重量
付出的爱收不回
但欠你的我不能给
我才明白
爱最真实的滋味

我终于明白