|Bob Irish Reporting: Delray Beach, FL. Wednesday December 16, 2009|
"Have you been keeping track of all the economic predictions for 2010?" Ted asked me this morning at our IDE editorial meeting.
"Not really," I replied. "But I'd say 9 out of 10 pundits are expecting slow to very slow growth. Grant's Interest Rate Observer is one of the few publications not sticking to majority opinion."
"Really? What do they say?"
"They're more optimistic. They basically take the view that the bigger the recession, the sharper the recovery. And since we just had the biggest recession since the 1930s, they're predicting a strong recovery for next year."
"And don't forget what the government is hinting at..."
"Oh, you mean that it thinks we're already out of the recession?"
"You got it. I've heard that one of the people on the board that declares an end to the recession says it happened sometime in the middle of last year."
"I'm not holding my breath on that one. They're going to wait well into next year before making anything official."
"Not very encouraging, huh?"
"Oh, I wouldn't say that. It's a big world out there, Ted. You know as well as I do that there'll be plenty of opportunities to make money."
A Rebounding Year
In fact, I think 2010 can be an incredible year for investing globally. And I know just the strategy. It protects you if all hell breaks loose, and rewards you if the global economy stages a speedy recovery.
Why would you want to get some global exposure in your portfolio? That's easy. Just take a look at these numbers...
And if the U.S. somehow does better than the 1%-2% growth most economists expect, the above countries will almost automatically exceed their numbers too. So, no matter how you slice it, the majority of markets outside the U.S. will be growing much faster than ours.
And you need a piece of that growth. That's where my barbell strategy comes into play...
Where the Fastest Growth Is
Notice that all of the countries I listed above are emerging markets. That's where the fastest growth is expected to take place. So that's where you need to be as an investor.
Fortunately, all of those countries have ETFs (Exchange-Traded Funds) following them, so investing in them is pretty easy. And by spreading your investments over several countries, you're protecting yourself against the possibility that one of them will have a bad year.
But you need more protection in case of a worst-case scenario. If, for example, one of those countries defaults on its debt, you can be sure investors will be fleeing emerging markets as fast as their panicky legs can carry them.
They'll be cashing out and seeking safer harbors. One destination for this "safe" money? The big multinationals.
Multinationals give you substantial global coverage, but their sales are still anchored in their home markets and the markets of other developed countries. They allow you to leverage global economic growth. At the same time, these companies have the deepest pockets and the greatest pricing power. Whether it's inflation, deflation, or a recession you're worried about, they are built to weather the storm.
What to Look For?
Make sure any global multinational you invest in gets at least 30% of its revenues from overseas markets. And it should not be burdened by big debts. I like companies with price-to-cash flow (P/CF) ratios of less than 10. You can also look to see which multinationals are included in Steve McDonald's and Andrew Gordon's portfolios in Sound Profits. (Sound Profits will be debuting in January.)
OPEC on Your Side
The easiest money to be made in 2010 could come from predicting the winner of the OPEC versus Big Oil battle. Here's what you need to know:
OPEC wants oil prices to stay where they are right now, between $70-$80 a barrel. (Crude was $71 per barrel this morning.) Big Oil would like higher prices. OPEC is worried about high prices undermining a fragile global recovery. Big Oil would simply like bigger profits.
Who's going to win this war? Count on Big Oil getting its way, with the help of speculators pushing up the price of oil like they did during the first half of last year. How does oil over $100 a barrel sound? That's where we're headed. And the oil majors will make out. Pick one of the oil companies that are increasing their production of either crude or natural gas. Those are the ones that will be getting a double boost from rising oil prices.
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