The table comes from Jeremy Grantham via Barron's. Grantham expects an explosion upward in the commodity space for many of the reasons that many others do.The numbers on the table are new to me and quite eyeopening in terms of item after item with such high numbers. China has about 1/6 of the world's population. India has a similar portion of the world's population but is quite a ways behind China with many people expecting India make a lot of progress. There is something close to one billion people in Africa and again the a similar potential exists.
Part of this of course rests on the idea that quality of life continues to improve in these place (along with much of Latin American and other parts of Asia) in conjunction with the ongoing emergence of a middle class.
I've mentioned before my belief that the demand for food is a one way trade but the stocks involved will be subject to the regular ups and downs of the stock market cycle. One reader recently pointed out that I could be wrong which of course could be correct and why no matter how strongly you feel about something you should not be so exposed that being wrong does you in.
The list of commodities would seem to have very little reliance on real estate development--kind of. What I mean is that cement and some of the other things obviously do go into construction but they also go into the infrastructure build out as well. One criticism of China that pops up regularly is the excess in infrastructure projects which supposedly are being done to keep more people employed (so social reasons)--perhaps akin to bridges to nowhere. To the extent this is true I believe it is less destructive than real estate speculation in that misallocation of capital by the state, while continuing to generate cash will be less destructive than when people buy multiple apartments that go unrented. There is no greater fool aspect to building bridges or remodeling airports.
In looking at the food items on the list, it seems to me that long before someone would go much more expensive with a house or buy a car they would seek better nutrition. If this idea is wrong then it would probably be wrong for underestimating aspirational demand.
I think the idea of better diets has a lot of time to play out and that the demand is much stronger because of the fundamental need for food and water. Obviously this does not exist with a third apartment purchase.
13 comments:
"There is no greater fool aspect to building bridges or remodeling airports."
If you truly believe there is no greater fol theory to over building, malinvestment in anything including bridges, etc, than you are the greater fool.
if a bridge is built, who is China then trying to sell it to? this form of malinvestment differs from real estate speculation.
WSJ has interesting article today in which it says,
"countries without good institutions such as universal property rights, impartial courts and equitably enforced laws tend not to rise above a per capita annual income level of $15,000. Those institution coincide with political freedom, which seldom comes without upheaval."
"...it (China) will need a revolution to achieve rich nation status."
I guess this comment reveals my biases with respect to China's communist government.
That is an awesome chart.
Excellent post.
Not much to add to those sobering stats.
T
bull bear segment about China on CNBC. If China somehow blows up (which is absolutely possible) it will look nothing like the US blow up.
Really????
You recommend investing in toll roads etc. and you believe they can not get very, very overvalued in China or other countries?
Are you certain you could not become the bigger fool?
Sorry but if silver, houses, equities, etc. can get overvalued why not shares of toll roads, bridges, airports, anything?
b ob,
I think you're adding one plus one and getting eleven.
anything can get overvalued. Your comment implies however they are not overvalued now. So are you saying that you would avoid something because it might become overvalued later?
I certainly could be the fool, I avoid getting hurt by this possibility with moderate position sizing.
BTW a quick scan of four of the larger chinese toll road stocks shows PEs ranging from 10-12.5.
They surely could drop from here and drop a lot but they are far from recklessly priced.
Roger,
In previous posts, including a couple of today's comments, you have discussed toll roads and infrastructure plays. With that thought in mind, do you have any thoughts on playing the explosion in cloud computing . . . kind of a "toll road" for off site data storage and many android based user programs? There are a couple of data storage REIT's, CLR & DFT, that look to be almost pure plays.
Oops, meant to type: "DLR". COR would be another one.
the comparison is apt, but I've not really dug in to this space
The table of China's consumption is eye opening. I am wodering if it is mislabled. Is this consumption by China, or is this importation of natural resources that are then exported in products. If the later case is is significant, then it would be interesting to list figures for what is imported and consumed by China and compare that to similar figures for the US.
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