Wednesday, December 31, 2008

The Ultimate Buy: PART TWO

Okay, so I went over in a very general way how we will see rapid decrease in the supply of all things tangible and base. This not only sets the playing field for part two, but also amplifies it exponentially.


As a result of the crises worldwide, governments worldwide have decided they need to pitch in and provide work for their people in the wake of rapidly rising unemployment AND decreasing wages.

Most notably, USA alone has committed $800 Billion over 2 years to infrastructure projects to provide jobs. China has committed $560 billion, Russia has committed $130 Billion, and Brazil has committed $90 Billion.

That's a big number in total. $1.5 Trillion dollars for infrastructure. Wowie. At Citigroup's peak in 2006 they were the largest company on earth, managing $1.1 Trillion in assets. To put that into perspective as a Canuck, that is more than my country's total GNP!

On infrastructure.

By infrastructure, these governments mean they will be building roads, bridges, railways, etc etc. What do you think they will need to build such things? Blackberry's? Ipods? Toyota Camry's or Ford Focuses? Nope. (obviously)

They will need basic materials! Over a trillion dollars worth!

Oil, coal, steel, iron, copper, zinc, molybdenim, etc etc.

So while on one hand you have a massive decrease in supply you simultaneously have an unprecedented hike up in demand.

If we go back to good old Economics 101 and remember what happens when you have a few of somethign that a whole lot of somebodies need, does the price go up or down?

Hmm.... And with further decoupling of the paper fantasy profits industry and "service" industry investments, the money pulled out of there needs to go somewhere. Somewhere easy to understand, after all of the complexities of the derivatives markets. Somewhere safe where the thing you own is something you can touch and not just a bunch of papers that say IOU on them.

An unprecented flood of money will pour into the commodities markets. More importantly, that money will flood into the stock of companies that have tangible things. It will be a tsunami. If you do your due diligence and find companies with cash that have low production values and are making money selling to foreign countries, or better yet are IN foreign countries making money in non-USD's, you could ten-fold or more your investments.

Why avoid USDs, you ask? That is something for my third post.

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