The Fast Lane of Global Consumer Electronics

When we attended the Consumer Electronics Show (CES) in Las Vegas earlier this month, it was quite obvious that we were witnessing a genuine global phenomenon playing out — an accelerating worldwide demand for cutting-edge consumer technology. CES’s attendance was up 14 percent over the previous shows in 2010 and 2009. Of this year’s 140,000 attendees, 30,000 of them had come from 80 foreign countries.

Technology is thriving internationally, the result of the convergence of several new product cycles inspired by widespread broadband availability. Companies are quickly developing and delivering globally-connected goods and gadgetry to an ever-growing and seemingly insatiable market. Consumers are devouring handheld communications, cloud computing, electric vehicles, and anything promising energy efficiency. Both consumers and businesses are flocking to output-enhancing technologies and upgrades that offer faster speeds, increased capacity, and greater utility. 

Consumer optimism is increasing worldwide, and spending is on the rise, as we reported last week. Retail data shows that tech stuff tops all other types of consumer discretionary goods. Meanwhile, cash-fat corporations in the developed world are primed for serious capital investment ahead and will spend much of their wad on technology to increase profitability. To feed the demand, from consumers and corporations, technology companies will be intensifying and upgrading their own technology capacity.

What This Means to You

Technology is well-situated for growth—in good economic times and bad. Tech promotes corporate productivity and cost savings, and for consumers, it provides cheap entertainment and unique communication possibilities.

At this point in time, we envision technology stoking growth, business opportunities, and employment within all regions of the world.  The prospect makes us bullish on tech. We see new technologies, including cloud computing, mobile devices, and electric vehicles, as beneficiaries of this development. The hardware and software providers to these industries and their suppliers offer immediate growth prospects that will morph and continue to evolve for many years ahead.

In general, companies in the technology area are not raw material-intensive and thus well-suited to benefit from growth in a period of otherwise higher input-costs. Furthermore, market corrections taking place in several areas of the world lately appear to offer good opportunities to purchase shares of some fine companies in this arena.

How to Profit from Coming European Funding Turmoil

Volatile times ahead in Europe. Beginning in the spring, expect to see a spate of financial tics, twitches, and tremors, even possibly rising to the level of crisis, in places like Greece, Ireland, Portugal, Belgium, Spain, Italy, and France. Each episode will create a vicious cycle, igniting more volatility and an overall negative framework for the markets.

Central banks, whether in Europe, U.S., Japan, or other countries, respond to financial turmoil and volatility like this by channeling liquidity into the markets. Historically, such liquidity flow pushes stock, income producing commercial real estate, and commodity prices higher. This year will be no exception.  We recommend using declines as buying opportunities in our favorite sectors.

In this picture, we have reasons to be bullish about the fundamentals for corporate profits of exporting companies in the U.S., Europe, and other parts of the world.  Research tells us that corporate profits drive stock prices, and rising corporate profits combined with an economic environment where interest rates are below the inflation rate tend to drive stock prices higher.  

The Guild Guide

Price Declines In Favored Sectors = Opportunities (Not Calamities)

Our prescription is simple: sell the rallies and buy the dips. We buy dips and take partial profits on rallies, holding core positions in companies which meet our long-term growth objectives.

We continue to focus on the sectors with the most positive intermediate and long-term fundamental influences. We believe that food grains, oil, coal, some base metals, and gold and silver are great buys on dips. This week, we have added technology companies to our favored groups.

It is important to remember that every one of these sectors will rally and will also periodically correct. Do not panic. Use declines as buying opportunities.

China Watch: Growth and Import Demands in High Gear

China's plan for 2011 emphasizes three major components:

1. continued economic growth in order to create tens of millions of new jobs,
2. focus on developing expertise in strategic industries,
3. build more affordable housing for middle and lower income groups.

Implementation requires that the government continues buying more minerals around the globe and lock in long-term supplies of raw materials to meet growth objectives.  We expect plenty of demand for imports such as coal, oil, copper, iron ore, fertilizers, farm products, and heavy equipment to build out the infrastructure that China continues to rapidly develop.

In 2011, bank loans will return to more controlled levels, likely only equal to, and not exceeding, the amount lent in 2010. Bank loans serve as a key indicator to the amount of GDP growth China will experience. It is reasonable to expect growth around 8 to 10 percent in 2011.

We expect Chinese enterprises to engage in more cooperation with western companies in order to promote their own technological expertise. You’ll see more joint ventures and technology transfer agreements. This will give western companies a chance to work with Chinese companies for the mutual benefit of both parties.

Russia Watch: Sitting (Literally) on a Huge Repository of Raw Materials

An analysis of the Russian raw material scene indicates production lagging behind expectations and an effort underway to change the situation. Russia is among the world’s three largest reserve holders in iron ore, coal, platinum group metals, potash, magnesium, titanium, tungsten, gold, silver, sulfur, tin, and the rare earth elements germanium and vanadium.  The country also has huge supplies of oil, salt, nickel, iodine, molybdenum, cobalt, and cadmium.  That’s a huge amount of potential wealth awaiting efficient exploitation.

The Russian government plans to ramp up production of these resources and increase its wealth. It’s worth noting that much of that wealth is controlled by a few politically-connected oligarchs and government officials.

Changing Recommendations Because of Interest Rate Hikes Abroad

Stock markets often decline when interest rates are raised to fight inflation. Investors see an attractive alternative to stocks.  In response to this development in a number of key countries, we have altered some of our recommendations.  For instance, we are no longer recommending investment in the Chinese stock market in general.  We still like China’s economic expansion story, but are closing out our exposure to China stocks as we did a few weeks ago in a number of Asian countries.  China has been raising interest rates and bank reserve requirements, creating a drag on the stock market there.

What Does this Mean to You?

Refer to our recommendation section below to see our most favorite countries for investment today. We have recently taken profits from stocks in several developing countries as a response to declining values in the face of interest rate hikes. We welcome these declines. We will keep our eyes on activity and when rate increases end and begin to reverse we may again recommend the stock.

Currencies

You may notice that we continue to favor some currencies where we are not holders of the country’s stock market. This is because increases in interest rates are not good for stock prices but can make a currency more attractive. [Investor in the currency earn more interest.]

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