One of my favorite ways to invest in the rapidly growing emerging markets is through the back door, so to speak. Invest in companies, wherever they are, that have what these economies need or want, but don't have. Airliner production is a classic example.

I bet most Americans would be surprised to learn, for example, that the Middle East is a very important market for new jets. The Gulf's leading airlines - Emirates (out of Dubai), Etihad (out of Abu Dhabi) and Qatar Airways have become big reasons why Boeing and Airbus make any money. "The Middle East is still the hub of aviation growth," says Airbus CEO, Tom Enders.

According to informed guesses, the Middle East will buy 1,400-1,700 planes over the next twenty years, at a cost of $240-300 billion. These planes will support passenger growth of nearly 5% annually over that timeframe. Many other developing nations around the globe are also becoming active buyers of passenger jets. Airbus just signed a $1.8 billion deal with Vietnam Airlines for four A380 super-jumbos and two A350s. Ethiopian Airlines recently put in an order for 12 A350s, at a cost of $3 billion. These are just two examples.

The Asia-Pacific region, despite the impressive growth out of the Middle East, is still the largest buyer of aircraft. Over the next 20 years, for instance, the Asia-Pacific region will require close to 9,000 planes, at a cost of over $1 trillion.

I've focused mostly on civil aviation. But there is also defense spending. In the Middle East, defense spending will probably rise to more than $100 billion by 2014, from only $36 billion now, according to a new study by consultancy Frost & Sullivan. That's why Lockheed Martin recently announced it would double its capacity to produce the C-130 Super Hercules - because of increased demand from the Middle East.

Also, I can't end without saying a word about the world's urge to lower carbon emissions. The industry has pledged to cut its carbon emissions in half by 2050 - an effort that will require new planes with lighter material, different design and innovative engines.

Despite all the good news on the aviation front, there is a fly in the soup that Boeing and Airbus will have to fish out before long: They are having a hard time making the planes on time. This is a rather fascinating subject on its own, given the history of aviation. In 1944, for example, Boeing used to crank out 16 B-17 bombers every 24 hours. Today, it's having a hard time producing one of its ballyhooed Dreamliners after more than two years of trying. Airbus has had its share of delays as well.

Eventually, they'll sort it out. Eventually, they will build the new planes. There are lots of ways to play on these ideas as an investor, as these new planes ripple through the supply chain.

My favorites are the titanium producers. Titanium is a lightweight metal. In fact, it has the highest strength-to-weight ratio of any metal, making it ideal for aircraft. The newer planes are titanium intensive, more so than in the past.

Our play here is Titanium Metals (NYSE:TIE), the second-largest producer of titanium in the world. It has a solid financial position with lots of cash and no debt. It's stayed profitable, even through the slump. And Wall Street doesn't expect much from it, as analysts rate the stock as a poor performer. The potential upside when it comes makes it worth hanging onto. In TIE's heyday back in 2006, it was a $40 stock. Today, it's about $13. All cycles turn, remember. And this one will, too. The company only recently signed a new agreement with Boeing that will keep it as a key supplier through 2015.

Titanium Metals has the potential to be a big winner once the aviation cycle gets in full swing again.

Regards,

Chris Mayer
for The Daily Reckoning Australia

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"China also bought 590,000 tonnes of aluminium, 159,000 tonnes of zinc, 30 tonnes of indium and 5,000 tonnes of titanium, said Yu, who works in the National Development and Reform Commission's industry department." Now that metals prices have rebounded, though, will the stockpiling continue, even at high prices? Or was it a case of bargain shopping at everyday low prices?

There are several components of demand. There's real economic demand (you need the stuff to make other stuff). There is investment demand (you're buying it in order to make a profit from what you think the price trend is. There is also pure speculation, and it's possible that some middle-men were flat-out speculating by buying alongside China's State Reserve Bureau (sort of like the banks and brokers in the U.S. buying Treasuries ahead of the Fed late last year to improve Q4 earnings).

But if you're trying to figure out the ultimate direction of certain base metals prices (or commodity prices in general) you have to also consider the currency in which they're priced. Or, as my colleague Dan Amoss writes, "You also want to consider what Ben Bernanke and Tim Geithner will do to debase the dollar in the coming years. If you're a foreign creditor facing with this constant portfolio decision, which has higher marginal utility? Is it 1.) US$2.32 or, 2.) one pound of copper?"

Dan is referring to a pretty handy economic concept. Marginal utility is the economist's attempt to quantify how much satisfaction or benefit you get out of each additional good or service you buy. You have probably heard the term "diminishing marginal utility" more often.

An easy way to understand this is that while one cheeseburger may satisfy your appetite (and your craving for animal fat), four cheeseburgers gobbled down in a row are neither useful nor terribly good for you. They might even be bad (although as an American, we are reluctant to concede this point).

In Dan's scenario, U.S. dollar holders will ask themselves if each additional dollar owned is more useful. Given the fact that the U.S. monetary authorities are making so many dollars, it's pretty clear that each additional dollar added to supply makes each existing dollar less useful. It is not very satisfying to see a methodical reduction in the purchasing power of your savings.

If Dan is right, then stockpiling real assets (even during a relatively weak economy) makes more sense that stockpiling U.S. liabilities. Or, as Dan says, "The Chinese will probably go with #2, especially because copper (and oil, and iron ore) can be stored and used in infrastructure projects to keep the population somewhat placated with infrastructure jobs," says Dan.

He adds that you should look for the Chinese to stockpile resources on the dips in commodity prices, while selling/divesting of U.S. Treasuries into the rallies that come with 'safe-haven' buying. That sounds right to us. But the only catch to the plan is if Treasuries fail to rally on safe haven buying.

On that score, the Treasury market seemed to survive last week's big auction without a huge spike in yields. If the economic news remains neither bullish nor exceptionally bearish, then we reckon Treasuries could rally (prices up, yields down), providing a discrete exit opportunity for certain large investors.

Incidentally, we still haven't seen much in the Australian press about the long-term consequences of government deficits. That's probably because most people are accepting the government's case that Australia's borrowing (and its deficits) will be temporary. We're not as sure. And besides, there are some serious questions about how structural deficits affect a country's currency, its credit markets, and its interest rates.

Those are just some of the questions we hope to take up at our upcoming debt symposium/summit, which will precede the first Australian screening of I.O.U.S.A. We've even picked a date, booked a venue, and secured a cracking panel of experts to train their eye on Australia's very own addiction to debt. Stay tuned for your official invitation!

Meanwhile, did you see that China has astonishingly and rather conveniently discovered some 3 billion metric tonnes of hematite and magnetite iron ore? It's apparently true, and probably comes in pretty handy during the current stagnated annual price contract discussions with Aussie iron ore producers BHP Billiton and Rio Tinto.

As you know, China is the world's largest steel maker and thus the largest importer of iron ore. Chinese geologists claim they have found Asia's largest iron ore deposit ever in Benxi city, which is in the northwest province of Liaoning. The good news is that the deposit is said to be about 2.5 miles long and 1.8 miles wide and could, officials say, have a mine life of 50 years-if a mine is built.

The bad news is that the resource (not a reserve because it's not know if it can be produced economically) is buried around a mile underground. That's a long way down, or a long way to lift iron up, if you prefer, and if you're strong (which China is).

Contrast that with the Pilbara, where the stuff seems to lying around waiting to be found in the hundreds of millions of tonnes by any Tom, Dick, or Kerry. That's right. Iron Ore Holdings, owned by Kerry Stokes, told the ASX yesterday it was increasing by 50% its estimate of its mineral resource at Iron Valley in Western Australia.

This deposit is only 97 metres below ground. It's surrounded by big projects by BHP, Rio, and Fortescue. And the company says it reckons its sitting on a 132 million tonne resource-which is up from the 88 million tonnes it believed it had just three months ago.

Proving up a resource into a reserve-and seeing your share price benefit because of it-is the name of the game for the iron ore juniors. Despite the big Chinese find, we reckon the Iron Valley story is where the Big Picture meets the Little Juniors (or where the rubber meets the road, if you prefer).

At the right prices, stockpiling commodities makes sense to people who will need them later anyway and already have too many U.S. dollars. And if prices aren't right...if..in fact...commodity prices decline (either because of slow economic growth or a halt in stockpiling) then commodity stocks probably fall a bit too...which makes those very stocks-especially the smaller ones that need capital and JV partners-the next logical candidates for acquisition or accumulation.

Dan Denning
for The Daily Reckoning Australia

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• China Performs a Kind of Financial Alchemy
• Chinese Steel Price to Rise in Wake of Coal and Iron Price Hike