Commodities had been very good to investors during the last few years. Whether it’s oil, nickel, uranium or even corn, the investment returns for companies producing them had been strong. Another commodity that investors should look at is water. Water is often overlooked and taken for granted. It is the lifeline to good health and a hgih quality of life.

Developing nations such as China and India have a growing need for water. Developed nations such as the United States also need more water as its population grows. Another issue that developed nations face is their aging water infrastructure. Studies by government, environmentalists, and utilities reveal that that cities and towns will need to spend $250 billion to $500 billion more over the next 20 years to maintain the drinking water and waste-water systems.

The way to play this is to invest in companies that build and maintain the infrastructure for water. Developed and developing nations need to address their populations’ growing water needs. Water cannot be produced and it’s a precious resource that needs to be managed properly. 

In an aggressive bid to break the Japanese lock on the mid-size car market, GM will let you compare their cars against the Toyota Camry or Honda Accord, starting next month you’ll be able to do it at a Saturn dealership. General Motors is hoping that customers will compare their Saturn Aura and the soon to be launched Chevrolet Malibu against the Japanese stalwarts. It is the right move to make. GM has simply nothing to lose. Even though many of their models have good reliability records, most American consumers haven’t caught on. The perception is still that Americans produce inferior cars.

It will take time to change the consumer’s perceptions. For too long, the Big Three has let down the auto buyer with shoddy products, where as the Japanese delivered on fuel efficient reliable cars. To keep the momentum going, GM needs to produce reliable, well designed vehicles and get the message out. At this point, they can only go up.

If you believe in the super commodity cycle, you want to be in the natural resources sector. Unlike the previous run up where anything that is remotely involved with resources got bid up. It didn’t matter whether you were a producer or an explorer, your shares were in demand.

In the present environment, the market is much more selective. Companies who are actual or near producers of resources are favored by investors. Companies that are generating profits and free cash flow are coveted and can be possible takeover targets. Another consideration is where are the companies’ operations located. Investors are worried that governments, particularly in developing and Third World countries, might nationalize or demand a greater stake in the operations.

In terms of commodities, the hot plays are uranium and agricultural goods. Oil and gas seem to nearing the end of thier consolidation phase and are ready to move up. Despite the higher prices, energy demand still remains healthy.  More people, particularly those in China and India, are enjoying higher standards of living. This translates to greater demand for natural resources.

Thanks to China, the cost of goods have plummetted. Because of the significantly cheaper labor costs in the world’s most populous nation, we are getting more purchasing power for our dollars. DVD players are under $30, flip flops can be had for under $5 and not to mention $5 sunglasses. Just remember this, you get what you pay for.

The recent tainted pet food scandal can be traced back to wheat glutten tainted with melamine from a Chinese supplier. This development highlights the risks we expose ourselves to by using China as a supplier for many of our drugs and foods. With rampant economic growth, it will attract aggressive entrepreneurs who will break the rules. Don’t bother relying on the Chinese government to maintain the needed inspections. They simply don’t have the necessary resources to do a proper job.

Memorial Day weeken marks the start of the U.S. vacation season. It also marks the time of year when demand for gasonline is at its highest. Record demand is leading to record prices. Already comfortably in the $3 dollar range, will gas hit $4 a gallon. Don’t be surprised. If we have hurricanes hitting the Gulf Coast, be ready. 

Before we all start demanding our politicians put in law a price cap and restrict the obscene profits made by the evil oil companies, they are actually not at fault. We are. We insist on living in big houses in the burbs situated far from work, we like our big vehicles and we rather drive than take public transit. At the same time, we don’t want oil refineries built near where we live and work.

Guess what, demand greatly exceeds supply. No refineries had been built in North America during the last three decades. An unexpected shutdown in the remianing refineries will cause the supply situation to be even tighter. Welcome to the new reality. If we want to continue living the way we do, be ready to pay up. 

If you had been a bear on stocks the last few months, it must feel like hunting season. It seems that there is no place to hide. Asia is booming, Europe is strong and North America is extremely healthy. Unfortunately for the market bears, the current market conditions suggests that the move upside will continue.

Thanks to growth in global trade, developing nations flushed with cash, low interest rates and corporations brimming with cash, there are tons of money looking for a home. Whole corporations are being bought out and massive stock buyback programs are diminishing the supply of stocks. Based on the laws of supply and demand, less supply means higher stock prices.

So what’s going to end the current up cycle? Higher interest rates, recessions occurring in the major economies and over speculation are the obvious culprits. More often than not, it’ll be something that’ll blindside the markets. For now, be happy but be careful. We are heading into the latter stages of this cycle.

Cerberus, the private equity firm, won the bid to purchase Chrysler for $7.4 billion. The challenge for the new owners will none the less be daunting. A product portfolio that has too many trucks and not enough fuel efficient cars, operations that are burning cash and pensions and health care liabilities are some of the major issues that need to be dealt with. On top of that, the new owners will have to work out a deal with the United Auto Workers Union to tackle its legacy costs.

To make the Chrysler acquisition work, the new owners will have to act fast. This includes unrelenting costs cutting, turning the operations into being cash flow positive and pumping out reliable products that the market actually wants. The hope is Cerberus can halt the cycle of pricey rebates that hurts the overall industry. If Cerberus manages to turn Chrysler around, there will be even more pressure for Ford and GM to follow suit. Can auto wizard, Wolfgang Bernhard, be waiting close by to take control? You can probably bet on it.

If you’re working in Detroit or have a huge exposure to the residential home market, you’ll probably say that the economy is in the dumps. From an economist’s viewpoint, the American economy seems to be almost just right. Not too hot, not too cold. The Dow is up about 100 points today after the latest economic data shows that inflation is relatively mild. Yes, there are worries that the weaker housing market and higher energy prices will drag down consumer spending, a vital component of the US economy.

Thanks to a weak US dollar and strong global markets, US exports are healthy. American  corporations are raking in profits, suggesting that capital spending will pick up the slack from the consumers. Given the outlook of flat and possibly lower interest rates, strong corporate profits and the relative low indebtedness of American corporations, it all points to higher equity prices.

For now, it’s a good time to be in the stock markets. Just make sure to look behind your back for some potentially nasty developments. Be ready to sell quickly when this does happen.

The hurricane season officially starts June 1 and ends November 30. According to the hurricane experts such as AccuWeather, the 2007 Atlantic hurricane season should bring 13 to 14 named storms, of which six or seven could hit the United States, including the Gulf of Mexico. This is where a quarter of U.S. oil production is located and where lies most of future oil growth production.  

For energy bulls, this is good news especially if the weather experts are actually correct. Thanks to no new refinery cappacity and record gasoline demand, gasoline is already over $3 a gallon. The supply of oil globally is not expected to match overall growth in demand. We are competing with the Indians and Chinese for new sources of oil. Thanks to a booming economy, even the Middle East is seeing strong growth in demand for energy.

Oil seems to be building a base between $60 to $65. It seems that it wants to retest its $80 price. The catalyst could be the hurricanes. In this case, buy the producers, refiners and drillers. Even at current oil prices, these companies are very profitable. Just ask Exxon.

Here’s a problem that we all like to have. The Oracle of Omaha’s company Berkshire Hathaway is generating so much cash from its various holdings, they have trouble effectively redeploying the cash. In today’s liquidity filled market, finding investments at bargain prices is becoming more of a challenge. Mr. Buffet must compete with private equity funds and hedge funds for investment plays. All these managers are paid to invest, not sit on cash.

The Oracle has a tendency to invest in companies that generate tons of free cash flow. They are businesses that tend to be around for a very longtime and are not too vulnerable to major technology disruptions. Essentially, Mr. Buffet likes to invest in profitable industries that can even be managed by idiots.

Given the current environment, W. Buffet is going outside the United States to find companies to invest in. He is scouring the world to deploy his money. He has stakes in companies from Asia and Europe. His stake in PetroChina is creating a stir with social activists. Never the less, expect to see more foreign acquisitions being made by Berkshire. In the end, money always talks.