The Rude Awakening
Wall Street, New York
Friday, November 17, 2006

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• Following the flow of oil to the 8th wonder of the
  world,
  
  
• Find out what a few billion petrodollars will by you
  in Dubai,
  
  
• A call for Rude traders, selling souls at the
  bookstore, smiles from heaven and plenty more...

-------------------------

Joel Bowman, no longer mourning the temporary orphaning of
a few classic souls, reports...

Riding in a taxi towards Union Square earlier this week,
your junior editor contemplated the contents in the
vehicle's trunk, deciding whether we should really go
through with this after all. Reminding us of their presence
as they knocked about over every bump along The Bowery were
the souls of our heroes...

Dostoevsky...Miller...Twain...Wilde...Camus...and plenty of
lesser knowns, though no less-cherished, were all back
there, jostling for position and blissfully unaware of the
grim fate that lay before them. We were on our way to The
Strand Bookstore – a place known to books as, "the
orphanage." Here they would wait patiently on dusty
shelves, flexing their tiny spines as passers-by browsed
through their pages, in the hope of one day finding an
owner who would love them and bequeath them to inquisitive
children.

Taking a final and decisive gulp, we entered the orphanage
and it's famous 18 miles of books. Presiding over the front
desk was a bifocal-wearing chap who had clearly seen a few
million too many unwanted novels. He seemed both saddened
by such reckless abandonment and resigned to his post. You
got the feeling that if he could afford a basement
capacious enough to house all the store's books, orphaned
works would be a travesty of the past. In any case, he went
about his business politely and was sincere in his
assurance that we were doing the right thing.

After waiting patiently...painfully...as Plath was piled
upon Plato and assigned a value, the man finally looked up
and spoke.

"$194.00." he uttered, almost apologetically.

Unable even to offer a verbal acquiescence, we nodded
solemnly and plodded over to another desk to sign our
receipt and collect our money. Never has the walk home
along Broadway been such an arduous journey. The bustling
of the city occurred in some far off realm and its usually
infectious pulse failed to lift our spirits. Even the $12
we squandered on a ghastly tartan cap didn't brighten the
mood.

A few blocks later the sounding of horns momentarily awoke
us from our daze. Turning to see what all the commotion was
we noticed a black town car idling at a green light,
backing up anxious traffic for blocks. Stepping from the
rear door, a heavenly creature emerged, effortlessly
gliding between the lanes to the safety of the curb...the
curb on which we were standing. As she drew nearer we
recognized her as a movie star of notable mention. (Esquire
magazine recently rated her the sexiest female alive...and
we are not inclined to disagree.)

Feeling stupider than ever in our ghastly tartan cap, all
your bumbling junior editor could manage to eke out as the
flawless beauty approached was a clumsy, "Cool flicks."

Whether she understood our pathetic colloquial reference to
her fine movie selection, we are unsure. We are sure,
however, that the smile she flashed in appreciation was one
directly from the heavens. Although it undoubtedly meant
nothing to her, we would gladly have orphaned all the books
in the world for some witticism that would elicit another
such smile. Never has it been more apparent to us that the
value of something is relative only to what you can buy
with it.

In the column below, Australian Daily Reckoning editor, Dan
Denning, explains what a few billion petrodollars can buy
you in Dubai...and the results are almost as stunning as
Scarlett Johansson's smile.

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----------------------------

The New Pharaohs
By Dan Denning

When the ruthless Pharaoh Khufu commissioned the Great
Pyramids of Egypt, no one dared to ask why. The pharaoh had
the money and the power...and so three massive pyramids
emerged from the dessert sands near Cairo.

A similar story is unfolding today in Dubai, and throughout
the Persian Gulf region. But the "new pharaohs" are
commissioning multi-billion dollar real estate developments
instead of pyramids. "Petrodollars" are fuelling a massive
building boom. Publicly traded infrastructure companies,
therefore, stand to make handsome profits over the next few
years.

The nearby charts appeared in a research report by UBS
entitled, "Petrodollars: where are they and do they
matter?" We're not sure where the petrodollars are, but
we're quite sure they matter. According to the official
statistics, the dollar flows generated by the oil trade are
NOT all showing back up in the U.S. Treasury Market. So
where are they showing up? In gaudy real estate
developments in Dubai, for one thing.

"Palm Jumeirah" is one high-profile example. Palm Jumeirah
was once the world's largest construction site—bigger,
even, than anything going on in China. But you have to
build big when you think big. And there's not much bigger
of an idea than creating a residential and commercial
island in the shape of a date tree with seventeen fronds,
and dredging 80 million cubic meters of mud from the Gulf
of Arabia to do it.

And yet Palm Jumeriah — which will hand over the keys to
new residents on the 9th of November — is but the first,
and not even the largest, of the four projects Dubai has in
mind. The others—Palm Jebel Ali (an artificial island
developed in the shape of a world map), and Palm Deira—will
be even larger and more audacious.

The whole development is being called by its backers, the
8th Wonder of the World. Palm Deira, if and when it's ever
completed, will be 14 kilometres long and eight and half
kilometres wide, creating eighty square kilometres of
commercial, residential, and surreal space where none
existed before.

Whether this is visionary — effectively turning resource
wealth into capital - producing assets that last longer —
or the most colossal and inefficient use of capital in
human history, is an intriguing debate. Alas, it is beyond
the scope of this story. And the truth is, it doesn't
matter. These things will be built. The logical investment
question is simple: who will build them? Who are the
proverbial "pick and shovel companies" of the Arab world's
great building boom?

"With pure global infrastructure demand in the next decade
estimated to be well in excess of $8 trillion and with one
billion new inhabitants projected to populate the planet in
the next 14 years, it has been suggested that this has the
potential to create a US$20 trillion plus capital
requirement in the near term," says Ernst and Young's
Director of Global and Americas Real Estate, Mr. Dale
Young.

Allowing for a good bit of self-serving hyperbole, even a
smaller portion of $20 trillion in global infrastructure
spending is a big number. Big enough, at least, to have our
full investment attention.

In point of fact, not only is the Arab world sitting on a
pile of cash, it is growing. The GDP of the 22-member Arab
League, according to the Associated Press, exceeded $1
trillion for the first time ever at the end of 2005.

So who's wining construction contracts in the Middle East?
MMC Corp, for one. This Malaysian-based builder and
operator of ports, recently won a contract with the Saudi
Binladin group (yes, THAT Binladin) to build the Saudi's
$30 billion new northern city. It is contracts like this
that interest us the most. They can fill a firm's order
book for years. More importantly, they can reward
shareholders in the next twelve months.

Below are two of our favourite global infrastructure and
construction firms and a brief explanation of what we like
about them.
 
Transfield Services (Australia: TSE)

According to the company, "Transfield Services is a leading
international provider of operations, maintenance, asset
management and project management services. It operates in
Australia, New Zealand, the United States, the United Arab
Emirates, Qatar, South East Asia, India and Canada across
diverse industries, including mining and process,
hydrocarbons, roads, rail and public transport, water,
power, telecommunications, facilities management and
defence. Clients of Transfield Services include major
national and international companies, as well as all levels
of government."

The company has demonstrated competence managing and
growing its local business in the booming Aussie
infrastructure market. But its recent moves to expand
globally are what have us most excited. In early October,
the company announced acquisitions that would extend its
reach into the Persian Gulf Region.

Specifically, the company announced it had purchased
international services company Hofincons Infotech &
Industrial Services Private Ltd in India for A$9 million. 
The key part of the deal is that it gives Transfield a
bigger footprint in both India and the Gulf, two of the
fastest growing infrastructure markets on the planet.

Peter Watson, Managing Director and Chief Executive Officer
of Transfield Services, put it this way, "This acquisition
also includes 3,500 skilled employees working across India
and the Gulf Region. Access to a large and technically
skilled workforce is a competitive advantage when labour
shortage is an issue faced by so many other companies. It
is our intention to draw upon this workforce to support our
existing activities in Abu Dhabi and Qatar."

Earlier in the year, Transfield acquired Intergulf General
Contracting LLC, through joint venture company Tespec,
giving it another inroad into the Gulf market. Intergulf,
according to the Transfiled press release, provides
maintenance and capital works services to the oil, gas and
power industries in the United Arab Emirates and enhances
the Company's skills and resource base in the Gulf Region.
Tespec is a joint venture between Transfield Services and
Emdad LLC, based in Abu Dhabi in the United Arab Emirates.

Leighton Holdings (Australia: LEI)

At the end of September, Australia-based Leighton Holdings
(LEI) reported it had AUS$17 billion worth of construction
and development projects in hand. The share markets loved
the news.

Business in Australia is good, but LEI is also expanding
into Asia and the Gulf. Leighton's 2006 pre-tax profits
from its Asian operations grew by 72% to $99.8 million—an
enviable margin by any standard. But as the company expands
into the Middle East, it can expect to take on more
dangerous projects where costs –and risks—are harder to
control.

To compensate for some of that risk the company is going
big into China. In October the company announced a joint
venture with China State Construction Engineering. It has
signed a letter of intent to build the Melco
International/Publishing & Broadcasting Ltd (PBL) casino
project in Macau worth US$1.3 billion.

The project is called "the City of Dreams," and while not
as grandiose in ambition as the Dubai palms projects, is
still ambitious, if only in the construction schedule. But
LEI President Wal King says the company is up to the
challenge and that the business is good. "We're getting a
good performance across the board," King says. "The main
drivers are our resource business, both in Australia and
Asia, where we have a series of big mining contracts,
combined with our infrastructure business, mainly in
Australia, where we've got a series of major infrastructure
projects. We also have some big infrastructure projects in
Hong Kong and our emerging business in the Gulf and India,
all of which will be good contributors."

Transfield and Leighton are only two of the many
infrastructure firms that may prosper during the coming
infrastructure boom. The new pharaohs will be throwing a
lot of money around for a lot of years, so keep an eye on
who's catching it.

[Joel's Note: Always on the hunt for an emerging deal or
macro-trend, Dan Denning is never shy of a word when it
comes to investing all over the world. Currently he is
presiding over the Australian Daily Reckoning in your
junior editor's homeland. I'd say to mention that Aussie
Joel sent you when you sign up but it is already FREE!

If you want to stay abreast of all the action in one of the
world's resource giants, be sure to check out Dan and the
crew right here: http://dailyreckoning.com.au/

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And the Markets...