The Rude Awakening
Laguna Beach, California
Tuesday, August 15, 2006 ------------------------- - Welcome to the editor's table, the word on investing
in a failing infrastructure,
- The next Group Rude Research Project,
- Just like a beat up old Jeep, the Empire crumbles
from within, all the markets and more...
------------------------- Eric Fry, reporting the sands of Laguna Beach... "If it ain't broke, don't fix it," an age-old adage
advises. But here in the States, we have taken the
adage to an extreme. But the fixin' time has arrived,
and we got so many things that are broke, that we
might go darn near broke trying to fix it all now. That's bad news for us taxpayers, but darn good news
for the companies that fix stuff... --- Investment Alert --- Why Buy a Silver ETF When You Could Make 400% in Just 34
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The Crumbling Empire
By Eric J. Fry
"It's pretty basic; if you neglect anything long enough, it
simply falls apart," observes Kevin Kerr, the mind behind
the Resource Trader Alert. "One need only look at my 1996
Jeep Cherokee to see what years of use and minimal care
will yield. The British Petroleum pipeline shutdown was
just the beginning of the coming infrastructure meltdown
here in the U.S." Kerr's simple observation contains the kernel of a long-
term investment opportunity. That's because America's vast,
aging infrastructure is receiving a failing
grade...literally. The American Society of Civil Engineers'
2005 Report Card assigned an average grade of "D" to 12
categories of American infrastructure. 
"Fixing stuff costs money," Kerr's flatly asserts. "It's as
simple as that. BP said that the costs to repair the
Prudhoe pipeline are 'hard to pin down.' I think the
technical term is 'a lot.' It's pretty basic, to borrow from Kerr, America has been
under-investing in her critical infrastructure for so many
years that she now faces a multi-trillion dollar repair
bill. Repairing our water and wastewater infrastructure,
alone, will cost about $1 trillion over the next 20 years.
The nation's bridges, highways and power systems are also
aging ungracefully, and in need of major repairs. "There has been no significant investment in the North
American [electric] transmission grid for three decades,"
observes Kiril Sokoloff of 13D Research. "The Department of
Energy calculates that 70% of transmission lines are 25
years or older; 70% of transformers are 25 years or older;
and 60% of circuit breakers are over 30 years old." Simply stated, Uncle Sam is hobbling into the future. Upon
observing this phenomenon, colleague Ian Mathias, raised an
open question to many of the editors here at Agora
Financial. "The experiences of post-Katrina New Orleans and the
corroding BP pipeline suggest that we Americans are just
waiting around for the next crisis to occur," Mathias
remarked, "instead of being proactive about fixing
infrastructure before its tragically broken...In the end,
how will a continuation of this reactive way of thinking
affect our economy? What do you guys think will happen?
Will we spend as much as we can and fix it all? Do you
think we will just have to undergo lifestyle changes?" Your New-York-cum-California editor responded first: "Ian, I think that you raise a valid point. I have been
thinking along a similar line, recently. Specifically,
George Bush et al. have been so focused on the enemy
without, that they have completely ignored the enemy within
- i.e. our crumbling physical and FINANCIAL infrastructure. "Corroding pipes on the North Slope probably knocked out
more oil production than all the terrorists' attacks of the
last three years combined...America seems unaccustomed to -
and unprepared for – internal decay. "She will realize it eventually, and as she does, she will
devote resources to addressing the problems. For the
investor, therefore, the better big-picture investments
will be in the companies like Gorman-Rupp (AMEX: GRC) that
make pumps for New Orleans (thank you Chris Mayer, editor
of Capital and Crisis) or Grant Prideco (NYSE: GRP), that
make the sorts of pipes that could replace corroding pipes
in Alaska (thank you Dan Amoss, editor of Strategic
Investments), rather than in the stock of some military
hardware provider." So daunting is the task of repairing America's aging
infrastructure, that Federal and municipal agencies cannot
possibility foot the bill on their own. If the American
Society of Civil Engineers' assessment is on target,
America faces a $1.6 trillion repair bill over the next
five years alone! "Private enterprise will figure prominently here," says
Chris Mayer, "or our infrastructure won't get re-built. Is
it possible to one day have privately owned and run
airports, marine ports, toll roads, etc.? "Well, there's always the 'Macquarie Solution,'" replied
Justice Litle, editor of Outstanding Investments. "In other
words, we could let overseas investors with capital
surpluses buy up all our infrastructure in disrepair, fix
it up, and lease it back to us for a 99-year term. The
ultimate outsourcing." Litle is referring to the Macquarie Infrastructure Company
Trust, a quirky, but direct, investment in U.S. and
international infrastructure projects. This investment
trust, which trades on the NYSE under the symbol MIC, owns
and operates various types of airport and toll road
services. (The stock pays a current yield of almost 7%). It
offers, therefore, a diversified, high-yielding investment
in two types of infrastructure. We would not turn our editorial noses up at the Macquarie
Trust, but we would rather invest in the infrastructure
fixer-uppers than the infrastructure owners. But now we'd like to hear from you, the Rude Awakening
faithful. Yes, it's time once again for another "Rude
Awakening Group Research Project." Our past projects have
yielded a great variety of compelling investment ideas,
many of which have already produced handsome gains. So let's give it a whirl one more time. Specifically,
between today and next Sunday, we would ask you to share
with us your favorite "infrastructure stock" – i.e. any
stock that would benefit from the long-term effort to
repair or replace some facet of America's infrastructure.
(The table above presents the main infrastructure
categories). A few of the most attractive investment
candidates might also earn a dollar or two in China. As always, we are seeking only mid- to large-cap companies.
No small caps, please. So the suggested stock must have a
market capitalization greater than $500 million. And
obviously, no inside information, please. We will examine
the submissions that we receive over the few days and will
provide a sampling of the best ideas in upcoming editions
of the Rude Awakening. You can send along any thoughts to
aussiejoel@the-rude-awakening.com. Thanks in advance for
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