Not much time for reckoning today, dear reader. Bill is traversing the globe somewhere and I'm about to board a plane. Still...

Dollar in, risky Mediterranean debt out. At least, that's what the markets were indicating earlier today. Indexes from The Thames to The Nile and back again were in the red last we checked. The euro was down too.

That the Greeks are in trouble is hardly breaking news, of course... Heck, even those geniuses at the ratings agencies had time to figure it out! Fitch, one of the agencies NOT responsible for forecasting the biggest economic tsunami since (at least) the Great Depression, just downgraded Greece's sovereign rating from a single-A-minus to BBB+. So NOW investors run for the hills?

The only thing really surprising about all this brouhaha is that investors should find it at all surprising in the first place. Did they think Dubai was going to be a one off occurrence? That the same immutable laws of nature would not also apply to other overleveraged, undercapitalized economies? Not likely!

If the agencies are crying wolf, dear reader, your lamb dinner is likely already minced meat. Fitch worries that Greece's government debt burden may reach 130% of GDP before stabilizing and that it has a poor record of debt management.

Now why pick on the Greeks, we wonder? If imprudence and debt additions are the indictments, why not hall the United Kingdom in for questioning? And what about those hot-to-trot Baltic economies? And what about those American consumers? Household liabilities for the average American family now happen to weigh in at a familiar 130% of total disposable income.

It doesn't take a ratings agency to figure out that consuming more than one produces must eventually end in tears...either for the spender or the lender...or both! It's little wonder then that American banks are tightening their belts so much. Consumer lending fell 1.7% during October, representing the ninth consecutive monthly decline and a 4% drop since its July 2008 peak. Curiously, consumer economies don't tend to fare too well when consumers start (or are forced to) economize.

And it's not only the American Gap-goers who find themselves in a tight credit squeeze either.

Joel Bowman
for The Daily Reckoning Australia

• Ratings Agencies Put Spain on Negative Debt Watch
• Trichet Should Tell Greeks to Drop Dead
• Dollar Up, Gold Down
• Will Bailing Out the Greeks Really Make American Businesses More Profitable?
• Surely Gold Will Trade at One Times the Dow

In part due to this shift, these economies - China, India, Brazil, etc. - command an increasingly important role in the geopolitical arena. In addition, these New Economies on the Block are forging important trade ties with each other and inking deals to secure their mutually beneficial future, ex-US.

The United States, meanwhile, is up to its ears in ever-mounting debt...both to its creditor nations in the Middle and Far East and, to an even larger extent, to its own citizens.

And so we ask ourselves, will the young Johnnie and Jenny Smiths of the West be able to bluff their way through the next round of negotiations with a pair of twos? Or will the Changs, Patels and Ahmeds of the world call their bluff and take them to the cleaners?

Unfortunately, the trouble started for Generation iPod before they even had a chance to cause it for themselves. "Like America itself," observes Bill Bonner, "[Young Americans] are in danger of finding themselves slipping downhill. Instead of expecting things to get better, they may find it hard even to hold onto what they've got. Instead of the 'Morning in America' that Ronald Reagan promised, they may find that it seems more like evening, both in their personal as well as their national lives."

Much of America's international influence was acquired during a time when the dollar roamed free and easy as the world's reserve currency. French President Charles De Gaulle called it an "extraordinary privilege."

At its height, the greenback commanded a magisterial awe and its position was largely considered unchallengeable. But no challenge is too great for the mighty US government...especially the challenge to debase its own currency.

It is true that extraordinary privileges carry extraordinary responsibilities. Within a single generation, the irresponsible goons in charge of preserving the dollar's integrity had destroyed almost all of its purchasing power. Measured against gold, it has slumped some 97% since Nixon closed the gold window in '71. And now, when the Treasury Secretary of the United States of America tells a classroom of Chinese university students that his nation's currency is trustworthy and reliable, they laugh in his face.

Then, on top of an increasingly worthless currency, Generation iPod also inherits about a quarter of a million dollars each in unfunded Social Security and healthcare obligations, the overdue infrastructure bills of a crumbling nation, a couple of distant wars to fight and die in and a world full of disgruntled foreign creditors.

Is there any hope?

Opined John Mauldin on the subject in Tuesday's issue: "It is not the times which dictate the man (or daughter!), but the response of the man which dictates his own time. Today has a brighter future for someone young than any other time in history, whether they are in the US or Brazil or China. They just have to seize it..."

Echoes Bill, "The real advantage in life is having the gumption to get on with it; no one knows where that comes from."

Indeed, history provides us with countless examples of individuals triumphing over adversity. A hard working American student has every chance to succeed in life, as does a hard working Asian student. It's just that, on the whole, graduating classes of Asian engineers and computer programmers are far more diligent than graduating classes of Western feminist film studies students.

Taiwanese university graduates, for example, would happily take on the workload of most western jobs as a vacation, never mind as a vocation. The forty-hour workweek (35 for our French readers) is something students here manage between classes...and cram sessions...and helping run the family business...and music lessons...and English school in the afternoons and evenings. Not only have the Asian countries already outworked the west over the past generation - by a measure significant enough to now own virtually all of the western countries' debts - but they continue to up the ante even now. They have raised the bar, in other words, and they are raising it still.

A generation ago, Mao Tse-Tung did his people a huge favor and finally died. His successor, Deng Xiaoping then told the Chinese masses not to fear wealth and that, in fact, to get rich was "glorious." It was a stark contrast to the self-immolating edicts spewed forth from Mao. The people rejoiced...and got to work. Last year, China created millionaires at the second fastest rate of any nation on the planet. Only India outpaced her. Meanwhile, America "demoted" millionaires quicker than any other country could manage. England was next on that dubious accolade.

The people in this region of the world are hungry...and they are only now beginning to taste the fruits of their labor. As finite resources - energy, food, land, water - stretch over the coming years to meet exponentially growing demand, Generation iPod needs at least to know what they are up against in the scramble to stake their claims.

And, not unlike the Eastern generations of yore, they must work hard to succeed, despite the impediments their government impose. This unfolding reversal of fortune between the West and East does not simply suggest that American college students might face a less inviting future than their parents faced. It also suggests that investors might find a more inviting future in the Emerging Markets than they will face in the Developed Markets.

Joel Bowman
for The Daily Reckoning Australia

• Getting the New iPod to Work
• Government Pretends to Punish the Bankers
• HSBC Reveals Days of the Dollar are Numbered
• Emerging Markets Are Still a Buy
• India Can Grow for Many Years

One day does not a trend make, dear reader, but it does us give pause for thought. What if we dollar bears are wrong about the greenback's fate? What if all these column inches spent bashing the buck - and the frauds at the Fed in charge of protecting it - all come to naught?

"Nonsense!" we say.

Mankind will eventually bury the greenback in the cold, hard ground, alongside every fiat currency that ever went before it. The only question, it seems to us, is when the first shovel of dirt will be thrown. Traders from New York to New Delhi are gathered around the open pit, but they may have to wait, at least for a while. Just to be on the safe side, we've bought a golden shovel, but for now we're content just leaning on it.

Here in the Far East, the dollar is a particularly curious entity. Once upon a time, the mighty greenback was the best show in town, the "must have" ticket for the rocking Asian economies. China, Korea and Japan all amassed gargantuan stockpiles. The three hold about US$4 trillion (with a "T") in foreign reserves, much of it in US Treasuries. Even Taiwan - an island one-third this size of Tasmania but with a population equal to Australia - has stashed away the equivalent of US$332 billion in foreign reserves.

But that was then. This is now. And now everyone knows what all those dollars - and the men who stand behind them - are really made of...paper and promises, promises and paper. And now that the game is up, everyone is betting on a dollar collapse. But that presents a problem, and an opportunity, in itself...

"Whenever you find yourself on the side of the majority," Mark Twain once observed, "it is time to pause and reflect."

Right now, every necktie on television is betting against the dollar. The Powershares DB US Dollar Index Bullish and Bearish Funds - which measure the sentiment for and against the greenback versus a basket of six major currencies - are showing dollar bearishness in the extreme. But what if this "recovery" is not all it's cracked up to be? What if equity markets suddenly start resembling reality - even for a short while? If risk appetite contracts, even marginally, might we see a rally in short term Treasuries...just like we did last time? And just how quickly will currency traders be able to cover their short dollar positions if such a scenario unfolds?

We don't know the answers, dear reader. We only observe that the larger the mob, the more likely it is to be galloping in the wrong direction.

So are we dollar bears, or bulls? The answer, dear reader, is both - the former over the long haul...but the latter before then.

Dan Denning, our friend and colleague on our Australian DR desk, puts it thus: "Though we are confirmed US dollar bears, the dollar is looking oversold. Stocks are looking overbought. And frankly the reflation of all asset markets (bonds, stocks, commodities, and real estate) is looking over cooked... Watch out!"

Asian and European markets largely floundered overnight after Wall Street's lackluster session yesterday.

Here in the Far East, Japan's Nikkei 225 dipped 1.35% by the close while Hong Kong's Hang Seng and the Aussie All Ords ended down by 1.85 and 1.45% respectively. China's CSI index was the only major measure to buck the trend. It finished higher by 0.45%.

Back to the European measures and London's FTSE, Germany's DAX and France's CAC 40 all finished lower by around 1.3% for the day.

In the commodity pits, crude had slipped back a bit last we checked. A barrel of the world's goo was down about 60 cents to just shy of $79. Gold was hanging on around $1,036 per ounce...but looking a little punch drunk.

Until next time...

Cheers,

Joel Bowman
for The Daily Reckoning Australia

• Inflation Up… Gold Up… Oil up… Dollar up… Dollar down…
• HSBC Reveals Days of the Dollar are Numbered
• The Only Thing Really Going Down Right Now is the U.S. Dollar
• When People Fear Inflation or a Falling Dollar They Find Refuge in Gold
• U.S. Dollar Strength or Oil Weakness?

The history of the kafuffle over the Dubai Ports World deal, in a (very small) nutshell goes something like this…

Shareholders of Peninsular and Oriental Steam Navigation Company (P&O) approved the sale of their company to Dubai Ports World (DP World) in February of 2006. The sale of a British company to an Arab-owned one may have gone relatively unnoticed in the U.S. press had it not been for the fact that the deal meant Dubai Ports World would now assume control of the leases P&O handled in the U.S. These contracts included operations in six major U.S. ports (New York, New Jersey, Philadelphia, Baltimore, New Orleans, and Miami) in addition to 16 other, smaller ports.

Because of issues over national security the whole agreement had to go through a process whereby the specifics of the deal be presented to the Committee on Foreign Investment in the United States (CFIUS). Dubai Ports World had already approached the committee in October of 2005 in an effort to frontrun any potential obstacles and, after P&O approved the sale, the deal was reviewed and approved by the committee.

Deal done? Not quite…this was just the beginning.

Eller & Company, a Florida firm that had joint ventures with P&O, expressed concern over becoming an “involantary partner” with the Arabian company. Eller & Co. took advantage of the post 9-11 state of fear and ran with the story to Democratic New York Senator, Charles Schumer, and a reporter with the Associated Press. The whole thing blew up in the press shortly after and both Republican and Democratic representatives became deeply divided over the issue, both within their own parties and against each other.

Some argued that ceding control of America’s ports to an Arab firm constituted a direct threat to national security. Others pointed out that Dubai Ports World had no known terrorist connections and had operated within all the necessary legal framework required to obtain the leases.

Republicans Bill Frist and Dennis Hastert were among the most vocal in their opposition to the deal. Frist, for his part, released a statement which read, “If the administration cannot delay the process, I plan on introducing legislation to ensure that the deal is placed on hold until this decision gets a more thorough review.”

One representative, Sue Myrick (R-NC) , took the issue one step further, writing a letter directly to the president. The letter read, simply: “Dear Mr. President: In regards to selling American ports to the United Arab Emirates, not just NO — but HELL NO!”

Daniel T. Griswold, director of the Cato Institute’s Center for Trade Policy Studies, said mishandling of the affair would “send a chilling signal” to friends both in the Gulf region and beyond. “It is just assuming that if a company is from the Middle East it is de facto disqualified from investing in the United States, and I think that is a terrible message to send,” he argued.

On March 8, 2006, a House Panel voted 62-2 to block the deal. Under mounting pressure to abandon its investment, Dubai Ports World eventually sold P&O’s American operations to American International Group’s asset management division, Global Investment Group, for an undisclosed sum.

Fast forward to this past weekend…

Speaking from a podium at the Dubai International Finance Centre on Sunday, Sultan Ahmed Bin Sulayem, Chairman of Dubai World, announced that 20% of Dubai Ports World would be floated exclusively on the Dubai International Financial Exchange. The IPO, which is the largest in the brief history of the exchange, set an indicative price of between $1 and $1.30 for the 2,882 billion shares. A 498 million share overallotment will cater for any additional interest. If sucessful, the total IPO will be worth about $4.32 billion.

As for the future of Dubai Ports World, it looks rather bright. The company outgrew its market by almost 2:1, clocked over 18% growth during ’06. Expansion plans are set to double capacity over the next decade as mammoth demand from the nearby emerging markets of China and India clamor to ink deals with the Arabian company.

Just last month Dubai Ports World finalized 25-year concession deal to develop and operate Dakar port in Senegal and acquired a 90% stake in Sokhna-based Egyptian Container Handling for $670 million.

After the conference, I spoke with the company’s Senior Vice President of Corporate Strategy, Yuvraj Narayan. I asked him where he sees the key regions of the future.

“You’ve got to look at the real growth regions, like China, India and here in the Middle East,” he told me. “But what will the growth areas of tomorrow be? Latin America and Africa.”

Dubai Ports World’s decision to list exclusively on the DIFX is consistent with the mantra that has served so well for the company’s home city of Dubai: If you build it, they will come.

Maybe Dubai Ports World wouldn’t have considered a duel listing with the NYSE even if the P&O deal went through smoothly…maybe they would have. One thing is for certain; the icy response they received over their last foray into the U.S. markets certainly wasn’t interpreted as a friendly welcome.

American’s were petrified that national security would be compromised if an Arabian company were allowed control of their ports. Now, if U.S. investors want to get in on Dubai Ports World’s enviable growth opportunity, they’ll have to allow the Middle East DIFX bourse take control of their money.

A couple of centuries ago, a man by the name of Thomas Jefferson made a timeless statement that seems as pertinent now as it was then.

“Commerce with all nations, alliance with none, should be our motto.”

Joel Bowman
for The Daily Reckoning Australia

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Driving alongside Knowledge Village here in Dubai, you might notice a bit of a glare coming through your windshield. No, it's not a desert mirage. It's the reflection from a 40-meter wide solar panel.

The panel, donated to the TELCOM building by Swedish photovoltaic outfit, Switchboard, is capable of delivering a none-too-modest 10 megawatts per year. It's just one of the many impressive initiatives springing up around the country as the oil rich nation looks to ensure its profitable future beyond the age of oil. Already there are solar traffic lights, parking meters and offshore buoys, and many hotels nationwide now have solar heated water. But this is just the beginning.

Record high oil prices have provided a glut of petrodollar liquidity here in the UAE. The national oil and gas reserves are ranked fourth and fifth in the world respectively. But the recipients of this windfall know the age of oil won't last forever. By diversifying their economy to include renewable energy investments, the UAE is effectively hedging their oil-heavy hand.

Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, has declared his commitment to the development and promotion of renewable energy initiatives. He hopes that, by 2014, Dubai will source around 14% of its peek electricity consumption from renewables as the number of solar cell companies in Dubai continues to grow.

But even more impressive than the initiatives of solar cell companies in Dubai is what's going on just up the road, in Dubai's sister city. Abu Dhabi, the nation's capital, is responsible for 95% of the nation's total oil production. It is also the home of the largest alternative energy initiative in the Middle East.

Abu Dhabi was recently voted Sustainable City of the Year at London's Global Renewable Energy Awards. This accolade came in hot step after the UAE government initiative, Masdar, received the first World Clean Energy Award from the Transatlantic21 Association in Basel, Switzerland.

The Masdar Initiative (Masdar meaning "the source" in Arabic) is a government-sponsored project that aims to provide a global cooperative platform for the research and development of sustainable energy technologies.

Set up in May of last year, the pioneering project has modeled itself roughly on California's Silicon Valley as a venue where competing renewable energy companies can exchange ideas and further the advancement of their cutting edge technologies.

"For us this represents a unique opportunity, knowing our position in the energy market, knowing our energy expertise and the substantial financial resources we have today," says Sultan al- Jaber, chief executive officer at Abu Dhabi Future Energy Company (ADFEC), set up to drive the Masdar Initiative. "The question is not to replace the oil and gas sectors, it's basically to extend the life of the oil and gas sectors and find alternatives for the future."

As part of its commitment to furthering development for alternative energy, the Masdar initiative has set up the Masdar Clean Tech Fund. ADFEC along with the Consensus Business Group, Credit Suisse and Siemens have kicked in a total of US$250 million to get the ball rolling. The fund provides an investment vehicle that will build a portfolio of clean technology funds, direct/co-investments and joint venture initiatives.

A quick scan through the fund's portfolio reveals a range of investments aimed at providing energy security as well as sustainable human development through the use of renewable energies.

Given that we "locals" bask under an average of 325 days of sun per year, it is hardly surprising that solar cell companies in Dubai take a large slice of the Clean Tech Fund's pie.

One example of such a company is HelioVolt http://www.heliovolt.net/, a Texas company specializing in manufacturing thin-film photovoltaics ("PV") solar power conversion modules. According to their website, HelioVolt, "Derives its technological edge from superior understanding of the Copper-Indum-Selenide material system, and from the revolutionary FASST process."

FASST is a unique new method pioneered by HelioVolt to manufacture the photovoltaics layer at high rates and thus low costs. It is predicted to be less than half the cost of any other method.

The portfolio also boasts names such as Solyndra, a Californian photovoltaics company, and Sulfurcell Solartechnik GmbH, a German company also operating in the solar realm.

On the practical front, Masdar has joined forces with Foster and Partners in planning the first "zero-carbon, zero-waste" city. The six-million square meter sustainable development will be a car free zone and source its energy from, you guessed it, a massive solar farm.

With the Masdar initiative leading the way, the future for renewable energies and further expansion of solar cell companies in Dubai and across the Middle East looks bright.

"In the UAE today, we do not suffer from a lack of energy security, but we never want to suffer from it," Sultan Al Jaber recently told the Emirates Evening Post. "We are thinking ahead of ourselves."

Joel Bowman
for The Daily Reckoning Australia

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RealtyTrac, a group that maintains a national database on US real estate, tells the grim tale.

“While 43 states experienced year-over-year increases in foreclosure activity, just five states - California, Florida, Michigan, Ohio and Georgia - accounted for more than half of the nation’s total foreclosure filings.”

How did so many folks get themselves hooked on the subprime junk?

The whole mess brings to mind an experience I had recently, while living in the UK. A friend of mine and I were killing time in the waiting room of a British bank that, along with decidedly sub-par coffee, also featured a limited reading selection. “How do first-time homebuyers afford these kinds of prices?” asked my no-time homebuyer friend, while flicking through the property pages of a London newspaper.

“Don’t ask me,” I replied, reminding my friend that sky-high property prices had chased me out of Laguna Beach, California. “I couldn’t even afford to rent a doghouse there. The thought of actually BUYING a home was very far from my mind.”

A young lady in a suit approached the waiting area. “Ticket 24b,” she announced in a chipper tone. She led us to her cubical and politely inquired as to how she may be of assistance today. My friend began, sheepishly, “I wanted to see about extending my overdraft line of credit.”

“We can certainly take care of that,” replied the teller before adding, without hesitation, “How much would you like?”

“Well, I just started at my new job and they only pay monthly,” the friend offered, “so I’m kind of between paycheques.” This information seemed to be of little relevance to the teller. She repeated her question, “How much would you like?”

After considerably fattening our friend’s line of credit – and declining her offer to provide proof of employment – our helpful bank teller effortlessly segued into a special deal the bank is running at the moment. The deal was for a credit card.

After our little sojourn to the local bank, we learned just how easy it is to secure “no documentation” credit…and we also realised where all the “money” has been coming from to buy these ridiculously priced homes. If we were bankers instead of borrowers, we wouldn’t be extending any credit in our direction…That’s just common sense.

But common sense rarely intrudes upon the banking industry…except when defaults and foreclosures are on the rise. And now, today, defaults and foreclosures are most definitely on the rise from Seattle to Sarasota, which means the EZ money era is over and the tight money era has arrived.

British banks may still be extending credit to marginally employed college kids, but US banks are no longer so accommodating. Tired of filing bankruptcy claims, the lending industry has tightened its belt…and sales have begun to cool as a result. For evidence of the new lending regime, look no further than the websites of America’s largest mortgage lenders. Over recent weeks, several American mortgage lenders began offering 30-year mortgages at interest rates above 8%. They might as well have just hung out a sign that said, “Closed: On Vacation”.

That’s to say nothing of the dire straights of Countrywide Financial.

Therefore, the few home loans that do manage to emerge from the constipated mortgage lending industry are carrying much higher rates of interest than prevailed six months ago. Monthly mortgage payments are jumping much higher.

Lawrence Yun, Senior economist for the National Association of Realtors, recently opined, “We’ve been anticipating slower home sales because many subprime loan products are no longer available.” Mr. Yun then went on to add, “In addition, increased scrutiny by lenders is stopping risky mortgage origination.”

What does this messy subprime kafuffle prognosticate for the days to come? Could this be the end of easy money?

Last Friday’s capitulation of Northern Rock, Britons fifth largest mortgage lender, may be a harbinger of things to come. The subprime conundrum in the US has precipitated an unusually parsimonious relationship between banks. Currently, the rate at which UK banks lend to each other is a full percent above the base rate of 5.75%, set by the Bank of England. That means less quick cash available for the likes of Northern Rock. The aforementioned bank is acutely susceptible to the downside of tightening credit, as it relies heavily on funding from the capital markets - 85% of net funding obtained in the first six months of this year.

The financial phlebotomy continued for Northern Rock in yesterday’s trading. Shares of the beleaguered bank resumed their bloodletting the minute the London Stock Exchange markets opened for business – tumbling another 35%. That was on top of the 31% loss the shares suffered last Friday, when Northern Rock first announced it would seek emergency funding from the Bank of England.

The scenes on the streets in London are eerily reminiscent of textbook photos from the Great Depression. Hordes of frantic customers line the City’s streets, clamoring to withdraw any savings they have with the bank. An estimated 2 billion pounds (US$4 billion) literally walked out the door on Friday.

For now, only a few frightened Brits are making a run on their bank. But you never know which nervous depositors might start queuing up next. So as my good friend, Dan Denning likes to say, “Panic now. Avoid the rush.”

Joel Bowman
The Daily Reckoning Australia

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"Drought has struck the world suddenly," said Melih Gökçek, the city's mayor. "We didn't presume that God would allow such a disaster... God knows everything. If God wills it, our water shortage will immediately end."

Whether God has a greater plan, or was simply out of the office for the day, we are unsure. We do know that since this city-wide prayer was offered the drought has worsened considerably. Local newspapers report horrendous stories of diseases spreading due to desperate consumption of contaminated water. Stray dogs are dying in the streets.

Comments made by Mayor Gökçek, imploring residents to "take a holiday, but only wash your hair," have done little more than enrage the city's residents....

In an ill-conceived attempt to stave off a crisis earlier this month, Gökçek divided the city in to two sections, alternating supply with a two-day-on, two-day-off water conservation plan. The plan backfired. Some districts suffered through three and four day periods without water. The constant diversion of this precious commodity placed huge strains on already insufficient infrastructure. On August the 4th, and then again two days later, parts of the city became flooded when water mains finally gave out. Following the burst, the municipality announced it would be unable to provide the entire city with water for three days. Hospitals were forced to stop admitting patients and non-vital surgery had to be postponed. Predictably, angry protests erupted around the city.

Since this catastrophe, the price of bottled water in Ankara has skyrocketed. Water containers, which sold for 6 Turkish lira (US$4.50) before the water cuts, are now selling for 17 Turkish lira (US$13).

Turkey's agriculture industry has also been hit hard. According the country's Agriculture Union, farmers in the western and southern Anatolia regions have lost crops to the value of more than 5 billion Turkish Lira (US$3.9 billion).

"This is the most destructive summer we have ever suffered," says Semsi Bayraktar, president of the Turkish chambers of agriculture, which compiled the figures.

Some will undoubtedly fob this off as just another foreign crisis, a catastrophe restricted to the plight of second or third-world countries and far off deserts. This is simply not the case. Rainfall does not discriminate on grounds of a region's economic prosperity. It takes no account of race, GDP or - despite enthusiastic prayers from millions of people here in Turkey - religion. But rainfall is only one part of the problem. What to do with the water once it has descended from the heavens is at least equally important. Gross mismanagement (as has been seen here in Turkey) and insufficient infrastructure is also to blame.

Here in Turkey, for example, real GDP growth hummed along at an impressive 7.2% for the period between 2002-06. Its largest city, Istanbul, is a bustling metropolis of some 12 million residents and joining the European Union looks likely in their not-too-distant future. Despite this, resource management in the capital city of Ankara has been nothing short of a disaster.

The State Hydraulic Works warned Mayor Gökçek about possible water shortages back in 2004. The official warning proposed Mayor Gökçek take immediate steps to tap reserves from nearby Gerede. Rather than heed the call to action, Mr. Gökçek stubbornly persisted with his own pet project, a subway system. The daily newspaper "Hurriyet" quoted him as saying, "We will not be able to be involved in the financing of the water supply project because we must secure our financial resources for the priority project." It is worth noting that no other city in Turkey, including Istanbul, has a subway system.

Of course, it is difficult to manage water that is simply not there. Other nations around the world are suffering through serious dry spells.

Australia, one of the world's strongest performing economies over the last decade, is in the throes of its worst drought in recorded history. Earlier this year, Prime Minister John Howard told a largely non-religious Australian population to, "hope and pray there is rain".

Down Under, drought is wreaking havoc on the nation's major export crops. Production of cotton, a notoriously "water-heavy" crop is predicted to fall by 29% this year. Given that Australia is the fourth largest cotton producer in the world, this is bound to have widespread effects. Many industry analysts believe the chance for Australia's cotton industry to recover for the 2008 period has already expired.

Wheat is another crop that has been all but decimated by lack of irrigation. In Australia, the world's third largest producer of wheat, the 2007 crop fell a staggering 29%, down almost 10-million tones. On the other side of the equator, droughts in Canada have contributed to its wheat production forecast being cut by up to one fifth and China's output is estimated to come up around a tenth lower thanks to water- related catastrophes - both drought and floods. Over in the Ukraine, the world's 7th largest wheat producing country, shipments will be a full 58% lighter this year thanks to, you guessed it, drought.

These shortages, coupled with rapidly increasing demand from emerging nations, has seen wheat prices soar to record levels. Last week, wheat traded for US$7.44 a bushel on the Chicago Board of Trade. In the UK, bread making wheat was trading at almost US$400 per tone... double last year's price.

And it goes on...

In Kentucky, TN., cattle farmers are desperately selling their herds off at local auctions, unable to feed them any longer. Pastures are simply non-existent and bales of hay, which some farmers have had to drive interstate to obtain, are selling at up to triple their usual price.

From Turkey to Kentucky, parched lands and the people that live off them are desperate for water. Smart investors will see this as an opportunity to top their portfolio up.

Cheers,

Joel Bowman
The Daily Reckoning Australia

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