Taking the Long View

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At the same time that respected Wall Street guru David Rosenberg, Chief Economist at Merrill Lynch declared that in his opinion the US is actually in the first month of recession, we came across a wonderfully upbeat report on the prospects for the world economy in Britain’s Daily Telegraph that we wanted to share with you as you pondered the falling value of your house and impending tax return.

Tom Stevenson, often noted for his insightful and contrarian views, noted a report by the research group Iris for fund managers Robeco on the subject of scarcity as a theme for investment. Some of the findings may on reflection not come as a great surprise individually but looked at cumulatively they paint an astoundingly positive picture for companies able to position themselves to offer products or services identified as being in high demand.

The background briefly is that the world is fast moving from being an agrarian, dispersed population of some 2.5B in 1950 to 6.5B today and 9B in 2050, 85% of whom will be in what are emerging markets today. Well before then, over 60% will live in cities where their newly resource hungry lifestyles will require an explosion in demand of commodities, water and energy. Per capita consumption of energy in China is comparable with S Korea and Japan at similar stages of their development. If China follows a similar path, its demand for energy will rise 10 fold in the next 30 yrs. Calamity you say, opportunity says Stevenson ” for human ingenuity and creativity to find solutions to water scarcity, energy consumption, pollution and food supply. Specifically these are the certainties identified:

¢ Demand for industrial metals will outstrip supply. China currently uses a third of the copper per head compared to Europe or North America., but by 2030 China, Mexico and not far behind India will have living standards closer to Spain today, nearly 3B people with a metals demand to match. Just look at the effect car consumption will have on copper demand. Currently mining companies as a whole spend only 5% of their profits on exploration. With demand outstripping supply, exploration will have to increase.

¢ World energy demand will be 50% higher in 2030 than today. Both oil and alternative energy prices will remain high.

¢ Food prices will continue to rise, both for human consumption and for feeding cattle. Meanwhile bio fuels targets will mean 12% of the world’s agricultural land will be needed for transport compared to 2% today.

¢ The WHO predicts 35% of the world’s population will be in water stressed areas by 2025, the non economic pricing of water will have to change.

¢ Air pollution will get worse but so will the opportunities for companies providing solutions. The market was US$60B last year and is forecast to double in five years.

So there is plenty of growth out there, once we raise our sights to look beyond the housing market and the availability of short term credit.

–Stuart Burns

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