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Theme #1 – Equities will outperform early in 2010
We believe that new money will flow into stocks for at least the first few months of 2010. Like most professional investors, we see stocks as the most attractive investment option for 2010.
Let us look at the alternatives to stocks for investors. In an environment where inflation is starting to resurge in many countries, bonds are in danger of declining in value as inflation pushes long term interest rates up in 2010. Due to overleveraging and excess inventory, real estate is doing poorly in Japan, U.S., and Europe. Collectibles are not in demand. Private equity has performed poorly. Globally, stocks and commodities are the investments of choice as we enter 2010.
Theme # 2 - Profits for cyclical companies will rise strongly.
Large companies in cyclical industries worldwide should do well as their global export business continues to pick up and corporate profits surge due to the high operating leverage inherent in cyclical companies. Economically cyclical companies often have high fixed cost businesses, where a small change in revenues creates a big change in earnings due to their high fixed cost structure. We expect revenues for many cyclical industries to rise in 2010; hence we expect their profits and stock prices to rise.
We especially favor companies which produce machines for building infrastructure, for installing new manufacturing capability, and for producing or extracting commodities. Some of our favorite sectors are: machine tools, construction equipment, semiconductor, computer and telecommunications related companies, mining equipment, farm equipment, transportation equipment manufacturers and the suppliers to all of these industries. The major manufacturers of these products are located Germany, U.S., Japan, Korea, Norway, and Taiwan.Click here to read full article... |
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THE U.S. DOLLAR RALLY HAS BEGUN
We recently wrote that the U.S. dollar could begin a rally after the New Year. It appears the rally has arrived three weeks before we had anticipated, and we expect the rally to last into 2010.
How long the rally continues will be determined by the magnitude and pattern of the rally now underway. In the current dollar rally environment, we do not anticipate that gold or oil will move much higher. We do not see them as vulnerable to a major decline. We expect them to trade in a range, resting for a while until they begin their next assault on new highs in a few weeks or months.
For the next few months our investment focus will be on faster growing companies from around the world, and on major multinational U.S., European, and Asian companies that can use their global operations to access the fast growing markets within the multinational sphere we particularly favor large technology companies.
We especially favor domestically oriented companies in Canada, China, Hong Kong, Korea, Indonesia, Singapore and Taiwan, and we plan to add Australia, Brazil, and India after their markets have price corrections. We will continue to buy shares in oil companies that are making new discoveries, and shares in mining companies that can add to reserves and grow their production in the coming years.
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DUBAI
The debt crisis in Dubai is just the first of many that will occur in the Middle East and Eastern Europe in the coming years. It was a wake up call, but not particularly serious by itself. Many Eastern European countries, the Baltic nations, Hungary, Ukraine, Bulgaria, Slovenia, Kazakhstan, Romania, the UAE in the Middle East, Vietnam in Asia, are in poor economic shape. Their economies are over-levered, and have low income levels. The property markets in the Middle East and Eastern Europe have a long way to fall, and many banks (primarily in Europe) will have to be bailed out as a result of their unwise loans to these regions.Click here to read full article... |
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ELECTION ECONOMICS-NOVEMBER 2010 ELECTIONS
Although they are almost a year away, the 2010 U.S. elections should be foremost on the minds of all investors. Why? Because the 468 incumbents in the House and Senate who are running for reelection are already springing into action. Terrified about their prospects for reelection, the candidates are ready to do (spend) what it takes to secure another term. This will set into motion a chain of economic behaviors that will ultimately have a depressive effect on the U.S. dollar.
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CLOUD COMPUTING
A new era in computing and delivery of information has begun. If you aren’t yet familiar with cloud computing, you probably will be soon. We expect there to be an onslaught of news articles, editorials, and advertisements about cloud computing accompanying Microsoft’s launch of their new computer operating system, Windows 7.
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WILL INFLATION RETURN?
In the last twelve months, wheat, corn, soybeans, and the prices of many soft commodities and foodstuffs have fallen at the wholesale level. This has been due to a cool and rainy summer in the Midwestern U.S. and in Europe, and a strong soy crop in Brazil. The old saying held true in 2009; “rain makes grain”. The exception has been sugar which has risen in price due to crop issues Brazil and India.
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Many of our wise friends have been concerned for years that the world will see another Middle East war. Simultaneously, others who we respect are currently concerned that peace in the Middle East will cause oil prices to fall. Recent news coverage of the Iranian nuclear program has heightened these fears among many investors. Will Iran get the bomb? Will they use their nuclear power rashly? Although we believe that eventually Iran will have nuclear warheads, we believe that sane behaviors will prevail.
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