How many of us used to play with trucks when we were children? Probably, a lot of us did. Trucks still figure heavily in our lives. Trucks are key to the transportation of many goods we commonly use. In the developed world we are used to seeing many efficient medium and heavy commercial vehicles on the road.

There is a reason that trucks are used so commonly to transport goods, they are effective and efficient. Now that the world is manufacturing and consuming more goods, this prosaic industry is garnering more attention from global investors.


China is big and getting bigger in manufacturing for domestic and export consumption.
There are several themes that argue for the rising growth and profitability of truck manufacturing.

1. China has invoked new taxes to discourage slow moving tractors on public highways and speed up traffic. These higher taxes have caused a demand for trucks to transport goods.
2. Laws prohibiting the overloading trucks have been instituted. Overloaded trucks are common in all developing countries, and are a traffic hazard, which slow down highway speeds for everyone.
3. Strong increases in economic activity have increased the demand for trucks.
4. Truck manufacturing has been much less profitable than car manufacturing, but we expect that will change as truck sales volume picks up, allowing manufacturers to enjoy production economies.
5. China is spending large amounts of money to improve the national highway system. As roads become larger and better constructed, the cost effectiveness of transportation by truck will grow.


India is also expanding their truck manufacturing capability.
1. Last quarter, demand for medium and heavy commercial vehicles in India grew by 36% versus the year earlier period. This is very fast. India has quietly shifted much of their economic growth from a focus on services (the famous call centers and computer software companies for which India is known) and domestic consumption, to manufacturing. The service businesses are continuing to grow, but more manufacturing is being added to the mix. Today, much of India’s growth is coming from manufacturing, and this manufacturing is usually financed domestically.
2. Autos and trucks are a very fast growing part of the manufacturing sector in India. A recent research report by a major truck financing company, predicts growth of 15% to 20% over the next year.
3. Should India ever undertake a large effort to repair its dilapidated road infrastructure, or to legislate against overloaded trucks, the growth rate could be bigger.


When discussing the refining industry in the developed world, the operative acronym in many places is NIMBY-Not near us.

Refineries pollute. There exists the risk of accidents, explosions and spills. For all of these reasons, the wealthy countries make it hard to build new petroleum refineries. There is a well documented shortage of refining capacity in North America, Western Europe and Japan.

India has recently undertaken a program to become more active in the refining of petroleum. This is a wise decision for several reasons:
1. India is a major energy importer. By allowing petroleum refining in their country they can demand a share of the refined products and thus secure more energy supply for themselves.
2. It can be a profitable business, although it is very cyclical.
3. Refinery construction and operation requires scientific sophistication in chemistry and engineering. India has many very competent engineers, and very good engineering education.


India’s fiscal year will end on March 31. India is growing by most every economic measurement. Manufacturing may grow 11.3%, and savings, consumption and infrastructure building are all growing rapidly.

In our opinion, India is a country to buy on market corrections and should be a good long term investment. India is getting the message, and if the politics cooperate, India has the potential to grow faster than China, which currently grows in excess of 10% per annum.
By the way, the west will grow at about 3% and Japan at an even lower rate.


There is a good chance that Iran’s weakened economy and fascist leanings will undermine the economy and create a situation much like the former Soviet Union.

Last weekend, the New York Times had an excellent report about the effects of the incoherent economic policy in Iran, and how the government is providing all kinds of social services in order to allow people to spend a large percentage of their time in religion and in justifying the greatness of the President Ahmadinejad.

Of course, anyone who has a memory of totalitarian mistakes can remember how the Soviet system failed. The Soviets had a very frightening face to the world and they were believed to possess very strong military and scientific expertise. It is true that they were very rich in raw materials including gold, uranium, and other minerals. The problem was their economic system. It was very weak. It was unproductive. It did not encourage hard work and the accumulation of wealth, which benefits society as a whole. It did not encourage leadership, or even good work habits among the populace. After it collapsed we became aware that it was a corrupt and mismanaged fraud.

When the West (namely Margaret Thatcher and Ronald Reagan) called their bluff in the 1980’s, their system imploded.

In summary, the Soviet Union never created economic progress, but instead it provided an elaborate system of corruption and hand outs. We argue that this was very similar to what we are seeing in Iran today.

Our argument is that we are wrong to be so concerned about the power of Iran. Their economic system appears to be rotten to the core, and not far from collapse. If the price of oil stays at about $55 per barrel, Iran will begin to come apart at the seams within a few years.

Iran’s oil production is so inefficient, that they need outside advisers to produce their oil. Recently, energy products are being rationed for domestic consumption within Iran, because there is not enough competent help with oil production. The president’s extreme rhetoric is scaring off foreign oil experts.


There is not now, and never has been, a substitute for economic growth and the development of a balanced economy as a source of long-term political power. Short term political and economic power which is derived from the sale of one commodity, in this case oil, can only last if it is wisely managed and used to develop a broader more viable economy. Clearly, Iran has not done this. Today, much of their economy is in disarray due to the mismanagement of the clerical rulers of the past and the current leadership of President Ahmadinejad and the Supreme Council.


The big metals hedge fund located in London, named Red Kite is beginning to liquidate. We understand that they had withdrawals and were forced to liquidate many positions which put pressure on base metals over the past few weeks.

The question is with the overhanging supplies that were liquidated. Where will base metals prices go? In our opinion, they will rise over the long-term. We favor nickel and uranium, longer term we also see potential in zinc and copper which are currently having a mid-cycle correction. After a few more months we believe that they will resume their up trends.

Who will consume them? India and China, Vietnam, the Philippines, and many other countries which want to improve their economic condition by manufacturing more goods.
As we mentioned above, India wants to do more auto manufacturing and more oil refining, these processes consume metals and chemicals.

The emerging world has not yet stopped demanding raw materials for their expansion. Base metals prices are just having a mid cycle correction.


The government of China is concerned about the amount of speculation in Chinese stocks by the public. Much like the internet bubble of the 90’s in the U.S., Chinese stocks sell in China for higher prices than the same stocks sell for in Hong Kong, New York, London or any other cities where they also trade. There are three reasons for this:

1. The lack of sophistication of Chinese investors who love to gamble, but are not yet sophisticated in the ways of the stock market and company valuation techniques.
2. The shortage of quality companies in China with western accounting conventions. Chinese investors know that the big companies which also trade in U.S., Hong Kong or London have to have solid accountancy and fair reporting systems. Much of Chinese accounting is marginal and possibly fraudulent, and the average Chinese investor knows this and thus is not trusting.
3. Chinese are seeing on a daily basis that there is an unmistakable boom that has been going on for years, and looks like it will continue for many more years. This makes them anxious to participate by buying shares in Chinese companies.

Consequently, the Chinese government will introduce higher taxes and some higher interest rates to keep the currency rising and the speculation down, but there is no doubt that long-term, the Chinese will continue and expand their love affair with stocks. We expect Chinese and Indian stocks to get periodic corrections in price. When they do we plan to buy.


We visit Asia often and we are convinced, that only by repeatedly seeing the magnitude of the boom, can a Westerner or non Asian begin to grasp the magnitude of the changes taking place.


Precious metals are in a strong seasonal period. Monetary policy expansion by many countries has led to a huge bulge in worldwide liquidity. Today, the liquidity is going into equities, commodities and real estate worldwide. Longer term, as the owners of the liquidity become more sophisticated, they will seek the best quality investments to buy. On an economic basis in our opinion, that is precious metals and foreign currencies. We believe that these two asset classes will continue to rise versus the U.S. dollar as the dollar has problems.


We continue to believe in the growth of the developing world, especially the countries with the big tailwinds like India, China, Hong Kong, Singapore, and Brazil. We believe in the same industries we have favored, including alternative energy, transportation equipment, global financial services, farm suppliers, consumer goods in developing countries. We like the long-term outlook for base metals, precious metals, and non-U.S. currencies.

Thanks for your kindness in listening.