-- Posted Tuesday, 8 September 2009 | Digg This Article
| | Source: GoldSeek.com
Rick’s Picks
Tuesday, September 8, 2009
“Phenomenally accurate forecasts”
Recently, I told the story here of Louis Piro, a Mountain View barber who made millions by plowing every dollar he could save into the shares of growing companies that paid generous dividends. Following is another uncharacteristically bullish column that I wrote for the Sunday San Francisco Examiner around that time, in the late 1990s. It ran under the headline “New Global Middle Class Fuels Stocks,” and its thesis is that U.S. multinationals stood to benefit hugely from the rapid rise of an Asian middle class.
This scenario was delayed by the collapse of the Thai baht in 1997 and the severe Pacific Rim recession that followed. It now looks like it will be delayed even longer by a looming Second Great Depression in the U.S. You can judge for yourself whether such optimism is still warranted:
U.S. stocks have been in a scorching, vertical climb for months, confounding the bears and effortlessly vaulting the immediate expectations of the most ardent bulls. What factors might account for this powerful rally? Could there be forces at work besides the steady earnings growth and low inflation usually cited as key reasons for the longevity of this bull cycle, now well into its seventh year?
U.S. Exporters’ Sweet Spot
I believe so. A more plausible explanation may lie in the relatively recent and rapid emergence of a vast, global middle class, particularly in Asia, Eastern Europe and Latin America. To the extent this trend creates a burgeoning new marketplace for a wide variety of goods and services, U.S. companies stand to benefit the most, since they are indisputably the best in the world at meeting its demands.
The point was driven home to me recently by news reports that the Malaysian government, with public and private outlays of as much as $15 billion, will attempt to replicate the Silicon Valley in the rolling countryside just south of its capital, Kuala Lumpur. The intention is not merely to create some industrial-park-on-steroids where workers can have a crack at the minimum wage by churning out trinkets for export. Rather, it is an all-out effort to catapult Malaysia into the information age, thereby allowing its labor force to compete on an equal footing with some of the highest-paid workers in the world - most notably, the software engineers, chip designers and networks specialists of Silicon Valley.
Indonesia’s ‘Super Corridor’
It is a fantastic undertaking: creating a Buck Rogers city-within-a-city on land that is now producing little besides palm oil. But within 10 years, the tract dubbed the "Multimedia Super Corridor" could easily become the most technologically advanced urban enterprise zone in the world, with schools, hospitals, government and retailers patched into a $2 billion network of fiber-optic cable. There will also be a multimedia university to serve as an intellectual breeder-reactor, much like Stanford. As the corridor develops - and in the space of a single generation - per capita income is expected to quadruple from its present $4,500. Simultaneously, Malaysia would presumably emerge as a global purveyor of computer hardware, software and high-tech services.
To the extent this occurs, incomes in this part of the world, as well as elsewhere, are about to take off on a runway paved by Yankee know-how. The implications for U.S. multinationals are positive, to say the least, and may serve to explain why the U.S. bull market is not as mature as some would speculate.
Small Firms Benefitted
It is not just the shares of Fortune 500 giants like Pepsi and McDonald's that we can expect to benefit, either. Indeed, dozens of smaller companies, some publicly listed, played a key role in the construction of the world's tallest building, the Petronas towers in Kuala Lumpur. U.S. firms did the architectural work, installed the glass, and even helped local contractors circumvent prohibitive tariffs on structural steel by developing a type of concrete four times stronger than anything ever poured in Malaysia.
If Malaysia were the only country gearing up like this, it would surely be good news for the shares of U.S. companies with global reach, not to mention their domestic suppliers. But the fact is, similar leaps are taking place all over Asia, Latin America and Eastern Europe.
No longer does it require the span of a generation for a middle class to evolve in places previously regarded as economic backwaters. Any country with sufficient brain power, private property and stable government can leapfrog the blue-collar stage of industrial development.
There’s Risk
This lends immediacy to a question that Wall Street has always pondered wistfully: What if we could sell a single widget to each and every household in China? That day may not be far off, nor would it preclude opportunities to sell billions of widgets elsewhere. It is reason enough to give pause to those who think this bull market is on its last legs. For my part, I have attempted in previous columns to make clear the considerable risks of owning U.S. stocks at current levels. I will continue to point them out, if for no other reason than to illuminate why, even in a world economy seemingly on the verge of spectacular growth, those risks will neither vanish nor even necessarily diminish. But at the same time, I will refrain from suggesting that anything like underlying growth is surely real, and it could be a long way from reaching its climax.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Tuesday, 8 September 2009 | Digg This Article | Source: GoldSeek.com
