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The oil price headed higher again yesterday.
This time the excuse was violence in Nigeria following elections of dubious democratic merit. The fear is that the unrest may delay oil production in the Nigerian delta. (We’ll have more on Nigeria’s economy in the forthcoming issue of MoneyWeek, out on Friday.)
The price of a barrel of Brent headed over $68, while in New York, it rose to more than $65 a barrel.
But vital though it may be, oil is not the most precious commodity. At this price, alternatives become much more viable. Everything from corn-based ethanol to engines that run on lard is being touted as the new petrol.
There‘s just one commodity in existence that‘s utterly irreplaceable…
As Tom Stevenson points out in The Daily Telegraph this morning, there’s only one commodity for which there is no replacement at any price – water.
We’ve been talking about this for quite some time now in Money Week (you can read a cover story from last year on the topic here: How to profit from the world’s water crisis), but it’s worth going over again because, as John Dickerson of Summit Global Management puts it: “The global water industry combines the best underlying business model with the most inexorable future demand of any existent industry, and this fundamental fact is not likely to change.”
Populations are growing rapidly. They are also moving en masse from country to cities. More people need more water – for food, drink and hygiene. Wealthier, urbanised people use more water. We use way more per head in the West than in developing countries – in the US, the population has grown by just 50% in the past 30 years, but water use has tripled.
Meanwhile, supply is finite, and we are polluting supplies and using them up faster than they can replenish themselves. Nowhere are these problems more obvious – or more pressing – than in China.
China, the world’s next economic superpower, if investment bankers are to be believed, is also one of the 13 countries in the world with the lowest amount of water per head. The Chinese know they won’t get far on the world stage if most of their population is dying of thirst – so they’re looking to spend $128bn on the problem by 2010.
As Stevenson says: “Any company that can help solve this China crisis is looking at a bright future.”
It just so happens that MoneyWeek’s Jody Clarke recently put together a report on China’s water problems, and found a number of stocks that should benefit.
And meanwhile, more on the biggest running story in the UK today – inflation. Up until now, the highest prediction for interest rates we’d read from a mainstream commentator was Roger Bootle’s suggestion that if he were on the Monetary Policy Committee, he’d be pushing to get rates up to 6% or 6.5%.
Now, in an open letter to the MPC, former London Business School professor, Tim Congdon, says that rates could go as high as 7.5% over the next two years. “This is going to end in the usual way, and even if it’s not as bad as earlier cycles, it is nevertheless bad.”
The letter came as mortgage lending figures for March were the strongest for that month in 20 years. The Building Societies Association said gross lending rose 23% to £5.46bn – and yet, still the director general of the BSA, Adrian Coles, tried to talk it down: “We may see slower growth in lending in coming months. A further rise in rates in May would probably take the heat out of the market.”
This assertion is based on nothing but a vested interest in the property market. So far, three rate hikes since last August have done nothing to cool the market down. Unfortunately, we’ve now reached the stage where only a real credit squeeze will work – and that means a hard landing is much more likely.
(By the way, apologies for an error that crept into yesterday’s Money Morning – we said the Bank of England cut interest rates in August 2004 – it was of course, August 2005).
Turning to the stock markets…
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In London, the FTSE 100 was boosted by a late rally yesterday but still failed to stay out of the red, closing 7 points lower at 6,479. Blue chip financial Barclays fell by over 2% as investors expressed doubts over its tie-up with Dutch bank ABN Amro, and pharma AstraZeneca tumbled over 4% despite an 11% rise in first-qurater profits. For a full market report, see: London market close.
Across the Channel, the Frankfurt DAX-30 closed down 13 points, at 7,335, whilst the Paris CAC-40 was 20 points lower, at 5,917.
The losing trend continued across the Atlantic on Monday as US investors consolidated the previous week’s strong gains. The Dow Jones closed 42 points lower, at 12,919, despite hitting a record intraday high of 12,983. The tech-rich Nasdaq was two points off, at 2,523, whilst the broader S&P 500 was 3 points lower, at 1,480.
In Asia, the Nikkei was little-changed at 17,452 today – a 3-point fall – as investors awaited results from the likes of Canon and Fanuc, due after the close.
Crude oil had climbed to $66.09 in New York and Brent spot was at $67.84 in London.
Spot gold had fallen back to $685.70 this morning, whilst silver had edged up to $13.93.
And in London this morning, private equity group Kohlberg Kravis Roberts and billionaire Stefan Pessina raised their joint bid for chemist chain Alliance Boots to £11.1bn, topping a rival offer from a group led by financier Guy Hands. Alliance Boots shares had fallen by as much as 1.5p in early trading.
And our two recommended articles for today…
Why are equity markets soaring as the economy falters?
– The macroeconomic outlook is deteriorating in both the UK and the US. So why have the FTSE and the Dow Jones been hitting new record highs? asks Jeremy Batstone. For more on how much stocks are set to struggle once the severity of a slowdown becomes apparent, read: Why are equity markets soaring as the economy falters?
The best ways to buy into the platinum boom
– If you want to buy into this year’s trend for platinum jewellery, you could do much worse than pay a visit to Argos, says Merryn Somerset Webb. Alternatively, take advantage of a new investment opportunity in order to cash in on the soaring price of the metal. To find out how to profit from platinum, click here: The best ways to buy into the platinum boom