With the added risk, though, comes added (potential) reward.  25 years ago the emerging markets barely constituted more than “zero” in terms of a percentage of the world economy. Today, they stand at about 17%.  In another 25 years, this number may be more than double again.  Expect some air pockets along the way, of course.

So until then, park your money in a broad-based emerging markets ETF to start. You can always specialize later on.

In Canada, you have three to choose from (to US readers: this doesn’t, of course, mean that Canadians have to line up behind one of only three ETFs – we’re talking about Canadian-dollar-hedged ETFs here – we’re all able to shop on the NYSE quite easily and pick up all those Vanguard offerings if we want, too).

Claymore – TSX: CBQ

Claymore was the first leader in innovating ETFs in Canada and the CBQ is the oldest emerging markets ETF in Canada. The CBQ tracks the Bank of New York Mellon BRIC Select ADR Index.  This means that the ETF focuses only on the BRIC countries (Brazil, China, India, Russia) and their stocks in ADR form on the NYSE.  Current market price is $31.43 (the NAV is $31.50). The management expense ratio (MER) is 0.66%.  Distributions vary considerably and have been paid so far on a somewhat inconsistent schedule, but appear to be attempts at quarterly distributions.

iShares – TSX: XEM

This is from the Canadian edition of iShares, of course.  The XEM tracks the MCSI Emerging Markets Index.  Current price and NAV are $26.47.  The management expense ratio (MER) is 0.79%.  Distribution amounts vary and are paid at least once a year.  They were paid twice in 2010 (June and December).  In terms of holdings, this ETF is clearly the most diversified of the three, with Samsung Electronics currently the largest holding at just 2.1%.

Bank of Montreal (BMO) – TSX: ZEM

The newest provider of ETFs in Canada, BMO has been surprisingly innovative at filling in market niches where there were no ETFs before.  A case in point is the recent, popular covered calls ETF.  In terms of emerging markets, though, you can buy the ZEM.  The current market price is $16.60 (NAV is $16.59); the MER is a maximum of 0.54%, and distributions will be paid at least once a year (the only apparent distribution so far is scheduled to be paid in January 2012.  Top-weighted holdings (between 11-14% each)  include the Brazil, Taiwan, and India indexes.

Each of these is slightly different, so do some further reading.  Think about diversification and which countries you want to be in.  Consider the MERs.

But you don’t have to worry about “track records” with ETFs.  You should be able to trust that the ETF will follow its benchmark (manager strategy or talent is not an issue as it is with mutual funds).  So you don’t need to think about who is managing it or what their “past performance” is (not that you should ever look to past performance anyway – don’t.).

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Meanwhile, the Business Insider reported that stocks “surged” following the initial announcement and elsewhere, the USD has risen from its lowest low at 73.025.

Monday morning market reactions to Osama’s death will no doubt tip further favorably in the USD’s favor, unless another unexpected turn of reactions to this counter-terrorism effect occurs.  U.S. authorities were quick to warn that Americans should postpone travel overseas in the wake of Osama Bin Laden’s capture.

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Protests in Madison, Wisconsin

It started in Tunisia, quickly spread to Egypt, where the most dramatic protest narrative came to a satisfyingly dramatic conclusion with the resignation of Mubarak.  Before Egypt was finished, though, there were reports of protests in Morocco, Libya (where they have turned violent – that is, the military shooting against citizens), and Bahrain.  As one commentator said, “if Bahrain – usually such a stable state – can see an uprising, this can happen anywhere.”

Can such a “revolution” happen in the United States?

First, we would need to define what we mean by revolution.  It can’t simply be mass protests that fizzle out and effect no change (just think of all the Iraq war protests under Bush – what good did any of that do?).  Second, if an Egyptian-style revolution were to occur (i.e., mass protests that actually achieve a widespread consequential resolution), it would likely look very different in the United States than it does in the Middle East.

State of the Food Riots and Food Inflation in Egypt

No One-Size-Fits-All Revolution

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There is no one-size-fits-all style of revolution. Someone on Twitter commented that many of those in the Middle East are willing to “die for their freedom” but yet people in Germany don’t even want to go vote.  This is a bit of an unfair comparison.  First – the “freedom” spoken of is likely understood to mean some version of a free-market-influenced political “democratic” freedom, which Germany already has.  So they don’t need to fight for it anymore. Fighting for freedom in Germany would refer to something very different indeed.

Second, it is the nature of advanced capitalist economies to gather up all political and social energy and route it into ongoing cycles of sales and profits.  This language isn’t meant to be hyperbolic.  Products are the Gods of capitalism, and they are constituted by their own mythologies – the virtual marketplace is the 21st century Mount Olympia.  This is a place where you can have any need fulfilled if you can pay for it – and a place where all opportunity is yours if you can create a product for it.

Capitalist social organization creates the illusion of individual autonomy – it requires this illusion in order to survive.  You think you are such an individual because you bought such and such a car rather than the one your neighbor has – or because you’re “opting out” of consumerism when really it has just defined a new market niche built just for people like you (and you might even be complicit in this, if you’re a minimalism blogger selling e-books from your website on how to become a minimalist blogger).

Revolution in the United States isn’t going to look anything like the Middle East, simply because American social organization is a much more intricately woven, manufactured social system.  It is an ecology of competing mythological narratives, all of which compete to claim their participation in the ideal narrative – that of the “real America.”  The variety of constructed market segments and “voter populations” and social niches each with their own official narratives and needs and wants – everyone with a “unique voice” and “unique role” to play in the economy – all of this segmentation and citizen differentiation prevents any critical wave of mass consciousness from getting off the ground.

Predictions of the Financial Crisis Coming to America in 2015

Protests and Coming Economic Austerity

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What do all the protests have to do with the economy? Well, there’s the massive food inflation that Bernanke has exported everywhere else in the world.  This is at least part of the reason for Egypt’s unrest.  It’s starting to come back home, though – check out the valuation of Green Mountain Coffee Roasters – now the officially most expensive company in America.  You can’t think that none of that has anything to do with higher coffee prices going forward.

In Wisconsin, Republican governor Scott Walker wants to trim benefits and bargaining rights for many public unionized workers – including large groups of students and teachers.  Protesters have spent much of the week protesting against Walker’s bill, drawing out some of the largest crowds the capital has ever seen.  The protests have been completely peaceful, but police officers were drawn in from neighboring counties to help bolster support.

This is what the creeping austerity is going to look like. Who has the right to say how much money is enough to live on?  America likes to think that it stands for equality, but America is one of the least equality-producing nations on earth.  Citizens are all equally “American,” that’s for sure – but aside from that, what does that really mean?  It means everyone gets the same chance to run in the big capitalist wealth-accumulating marathon, that’s all.  And what happens when that race has been run?  On what basis can America constitute itself as the ground of equality then?

The problems of Libya and Morocco are not the problems that America has now, nor in its past.  People can’t look at Egypt or Libya and project American ideas of freedom onto those situations.  Americans are just as “enchained,” and need to understand what this really looks like at home.  They need to see themselves in Libyans, not as potential fellow consumers of more bite-sized capitalist freedoms, but as individuals similarly subject to nationalist narratives (which, in the case of the United States, includes the capitalist economic ideology) that work to keep social order.

Niall Ferguson on the US Empire’s Tipping Point (it’s coming soon)

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The Egyptian political crisis is not immediately related to food inflation, but food inflation is rapidly exacerbating Egypt’s crisis.  This week it was reported that Egypt’s exports are already down 8% in January (when the protests started).  So less money is already coming in to Egypt’s coffers.  Worse, many Egyptian shopkeepers and businesses have been closed to domestic business for the past 12 days for reasons of safety.  This includes Egyptian banks, making daily life much harder for most Egyptians (they certainly can’t enjoy the Costco-style apocalypse stockpiling sprees that so many love in the U.S.).

Egyptian exports may be down, but that doesn’t mean there is extra supply sitting around in Egypt.  Just the opposite, in fact, because the supply that matters is the FOOD SUPPLY – and, as it turns out, astonishly, Egypt is the world’s largest importer of wheat.  Now, since shops have been closed for so long already, the supply of goods available from the few places that ARE still open has meant that food prices have risen. Egyptian authorities have thus been working to bring in even more supplies in order to bring demand and prices back down again.  How many more supplies?  About $480 million (U.S.) just for wheat in the past two days alone.

Egypt: An Emerging or Frontier Market?

Economic Growth Lags Population Growth

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One of Egypt’s key problems, notes Financial Post analyst Diane Francis, is that its economic growth lags its population growth.  There are too many young, unemployed workers, and more of them coming of working age that won’t have any work because the economy is either not growing fast enough, or inflation is too quick for the economy.  Francis does well to distinguish this key segment of the unemployment numbers. After all, even though Canada can now be proud of a “mere” 7.8% unemployment rate, if you look just at youth unemployment, the figure jumps to 14%.

The kids are growing up and they need to start working.  All around the world.

In the U.S., youth unemployment rates across all categories average out at 18%.  In Spain, the youth numbers are more like 50%.  Francis notes that IMF Director Strauss-Kahn has pointed to population growth as a “ticking time bomb” if economic growth can not keep up with it.  I’ll cite Francis further (emphasis mine):

“Much as the notion of democratic reform has led many to romanticize about what’s going on in Cairo and Alexandria, the facts are that this is about an exploding, and growing, underclass of young people without opportunities.”

While everyone is focused on the political drama, as far as I know, Diane Francis is the first to call this a primarily demographic problem.  In doing so, she insightfully connects Egypt’s plight with that of several other regions that cut across national, economic and cultural boundaries.

For simplicity’s sake, we should just all agree that the world is increasingly facing a severe population problem.  Then consider the fact that the highest rates of youth unemployment and population growth are in the “MENA” region (Middle East North Africa).

You think slowdowns in economic growth are a problem?  How about slowdowns in the rate of food production (read: extracting natural resources)?  If your answer to that was “more genetically-engineered meat labs,” we have an even bigger problem, indeed.  But I won’t talk about that problem here.

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When the emerging markets become more developed markets, we’ll need some new emerging markets to take their place.  I think this is going to happen much faster than many of us have been expecting.

The Best Way To Invest In Africa

What are the Frontier Markets?

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Remember the “BRIC” acryonym?  It used to represent the darling emerging market economies.  About 4-5 years ago.  Now, post-crisis, you don’t see “BRIC” come up in media discourse as much anymore.  That’s at least largely due to the fact that China is clearly no longer an “emerging” economy – it’s pretty much a full economy in its own right, even as it continues to grow.  It makes more cars than anyone else, and it has control of more gold than anyone else.  That’s not exactly a precise way to measure “having arrived,” but I think we all see it pretty clearly.

Then there’s Brazil, a close second.  Maybe Brazil is still “emerging,” but you can no longer call it fledgling by any means.  Brazil is rocking the southern hemisphere.  It has long since left the “ground floor.”

So who are the new emerging markets? You need to look to a new term, actually: frontier markets.

Frontier market economies are those that are clearly on the edge of “emerging,” but haven’t really entered popular financial discourse yet.  Places in Africa and the Middle East are clearly part of this new investment frontier.

Cashing In On the African Gold Rush

The Youngest Emerging Markets

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These are the youngest emerging markets, and they provide good alternatives to the more well known and established emerging markets.  Eastern Europe, for example, is now probably square within the standard “emerging market” model.  We know about Ukraine’s bread basket self-sufficiency, but Poland is becoming increasingly strong as an economy in its own right.

The youngest emerging markets are places like Pakistan, Georgia, the United Arab Emirates, Kenya, and the Congo.  Tons of natural resources make them likely targets for economic exploitation, and so far there are barely any ETFs with which to exploit the exploitation (or “extraction,” if you prefer).

As more and more capital is created at the hands of the US Fed, and it goes sloshing around the world in search of profit opportunity, it will look for places to co-opt and extract profits from.  In the form of venture capital, private equity vehicles and mergers and acquisitions, the new money will find new opportunities, and that means that we’ll see more market creation and more ETFs to sell a piece of those markets to the middle class investor.

See the world’s largest global gold mining stocks

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Most people still think of Africa’s wealth in terms of its natural resources – gold, diamonds, oil.  This is true, but the fact is that capitalism has trickled down far enough into the African masses that an African middle class is forming and growing rapidly throughout many African nations.  According to data recently put together by Reuters, 220 million consumers are projected to join Africa’s consumer class by 2015 – in just 4 years.

Labor productivity growth in Africa has grown at an average of 2.8% between 2000 and 2008 – which may not sound like much until you see that the rates for the U.S. and Europe were only 1.5 and 1%, respectively.

More astoundingly, in just six years (from 2003-2009), the number of Africans with access to the internet across the continent doubled not once, not twice, but three times.  DOUBLED three times.

In terms of best GDP growth, Asia is still ahead, of course, but you might be surprised to learn that Africa’s overall GDP is growing faster right now than the Latin American average.

Finally, if you think platinum is where it’s at – you’d better start studying Africa’s equity offerings now, because Africa houses no less than a whopping 88% of the world’s platinum.

Recommendations for How To Invest In Africa

Best African Countries to Invest In

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You might think all the foreign direct investment into Africa (which totals almost as much as FDI into China, relative to GDP) is headed for South Africa and Egypt, but you’d be wrong.  In fact, per capita, the African countries attracting the most capital right now are the Congo, Libya, Namibia and Botswana.  Incidentally, these are also some of the countries with the highest relative amounts of per capita income (though much of that figure comes from some of their low population densities).

For those interested in the ETF route, I compiled a list of African ETFs you should check out.

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“Saudi Arabia isn’t just running out of oil — it’s running out of water.  So is the whole region.”  So explains Jeff Rubin in his latest book, Why Your World Is About To Get A Whole Lot Smaller (2009) (read my review of Jeff Rubin here).

If you thought it was bad enough to see the extent to which OPEC countries are overconsuming severely underpriced energy resources, wait til you hear about what they’re planning to do for their water and food needs.  My point in this article is not to make any moral judgments – just to discuss the points in support of Rubin’s central thesis that the world is going to run out of oil a lot sooner than it thinks.

• fresh underground water levels in Saudi Arabia are down 50% already from mid-1990 levels
• yet current water use in Saudi Arabia is seven times sustainable levels
• Saudi Arabia drained most of its water in order to become self-sufficient in wheat
• In the UAE, water use is at 15x higher than natural replenishment
• In Kuwait, water use is running 20x higher than sustainable levels

These are some troubling facts.  Especially when viewed in light of the relentless population growth of the area and the higher food and energy demands that will create. Rubin explains that most of this water usage, naturally, goes towards trying to grow food in the desert.  Unsurprisingly, given its declining water levels, the Saudi kingdom has since begun to invest in the agricultural sectors of Thailand, Pakistan and Sudan in order to secure some of its future food supply.  But they’ve got a plan B, as well:  Use their seemingly ever-plentiful oil fields to turn salt water into drinking water.

How Saudi Arabia Will Create Fresh Drinking Water From Oil

Given the vast crude oil resources it has, its access to saltwater, and its shortage of freshwater, Saudi Arabia has turned to desalination in order to provide for its drinking water and agricultural needs.  But as Rubin cautions, “desalination is a solution whose energy requirements will make the energy costs of Dubai’s ski hill look trivial by comparison.”

1. Reverse Osmosis – this process “forces saltwater through a semi-permeable membrane under enormous pressure to remove impurities.”
2. Flash Distillation – an alternative process that “vaporizes seawater by passing it through a drum of reduced atmospheric pressure then reliquifying it once it is free of impurities.”

The problem with Shuaibah 3, the world’s largest desalination facility, is that it will be powered by one of the largest generation plants in the world, too.  A generation plant that burns a constant stream of underpriced oil up its smokestacks.  So not only is Saudi Arabia not even yet desalinating enough water to replenish their own freshwater levels, but the closer they get to doing so, the more cheap oil they have burned in the process.  Apparently, World Bank estimates show that the amount of desalination the region will need in the years ahead will ultimately require the burning of a million barrels of oil a day.

“That’s a million barrels a day that won’t be fueling the world’s cars and trucks.  To put that in perspective, the largest oil field discovered in the North Sea in the past twenty-five years, Buzzard, has a daily output of less than a fifth of that.  All of the Alaskan oil fields put together pump out considerably less than a million barrels a day.  Peak water will hasten peak oil.”

And given Dubai’s indoor ski resort, you know that all that water isn’t strictly going to drinking and agriculture needs.  And given how much electricity and gasoline are overconsumed in the region, one wonders how much of this extremely expensive water is also overconsumed.  How much can the region cut back on its water usage?  Why is the answer always “we need more” of everything?

I remember traveling through Europe and using showers that automatically shut off after 20 seconds (in France and Germany, I think).  This was annoying at first, but I was able to quickly adapt to it.  Then I really appreciated that enough people would care that much about conservation to make it a widespread practice.  Compare that to the energy usage in the Middle East – the discrepancy is frightening.

With Western mainstream media’s focus on the Middle East in terms of politics only, or oil supply, or nuclear development in relation to how this is good or bad or not for the West (i.e., the U.S.) – the energy depletion problems get swept under the carpet.  One of the benefits of Iran developing their own nuclear technology, of course, is that it would also enable them to wean themselves off such heavy oil consumption – and that would be good for the whole world.  But we don’t hear that side of the story, either – at least not on any front pages.

From Shorter Showers To Self-Reliance and World Peace

I think it’s good to heed Jeff Rubin’s observations – while we can only control our own individual energy and water usage, it helps to be thankful for the resources we do have in North America and the West more generally, and to realize that these all come at a price.  The mere fact that we have so much access to freshwater that doesn’t require extra oil energy for processing is a blessing in itself.

What this tells me is that “being green” isn’t just about being a moral citizen. It’s not advisable simply for ethical reasons.  It’s seriously practical.  And, potentially, political, as the world’s resources might dry up sooner than some are expecting.  If Canada and the U.S. – as well as Europe and Asia – can become more energy efficient sooner rather than later, it will also be a great boon to political stability and sovereignty.  Self-reliance has meaning at the national and international levels, too.

You might also like to read what I recently wrote about this topic:

Why Your World Is About To Get A Whole Lot Smaller
10 Fast Facts About The World’s Declining Oil Supply
Where the U.S. Gets Its Oil (can you guess the top 5 countries oil is imported from?)
The OPEC Oil Consumption Cycle and the Dangers of Cheap Energy

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