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i) Intel Chairman Craig Barrett just completed his 9th trip to India in the 1st week of September. The stated reason for his visit was the advancement of Intel’s “World Ahead Program” and he must no doubt take great pride in the fact that Intel’s sales in Asia Pacific (ex-Japan) were $ 4.46 Billion in Q2 2007 as opposed to $ 1.82 Billion in the Americas. (Revenue growth was 11.02% in Asia vs. 6.42% in the Americas over Q2 2006) ii) In Q2 2007, Nokia unit sales in Asia were 41.5 million units as opposed to 15.1 million units in the Americas. Its subsidiary Nokia Siemens Network also derived 42.9% of its $ 3.44 Billion Q2 207 revenue from Asia. iii) Indian Telecom giant Bharti Airtel recently decided to farm out its entire IT operations to IBM in a comprehensive, end-to-end 10-year deal. Additionally, the company also inked a landmark deal with Swedish telecom equipment maker Ericsson that would see Ericsson design, plan, deploy and manage its GSM network across the country. The combined value of the outsourcing deals was $ 4 Billion. iv) Boeing Co recently projected that China would require 3,400 new airplanes worth over $ 340 Billion over the next 20 years, while raising its forecast for the country’s booing aviation sector. It seems quite clear that from the above examples that Asia is no longer just a manufacturing or business processes outsourcing hub for a large number of western businesses but rather their single most important geography – both in terms of revenues as well as revenue growth. Significantly, U.S. companies are at the forefront of this paradigm shift as they benefit from their first mover advantage in the entire globalization process. Companies like GE, McDonalds, Microsoft, Boeing, Cisco & countless others may well be US-headquartered but their footprint spans the entire globe. Now consider the headwinds being faced by the US economy as well as the US consumer – Housing woes, higher gas prices, much higher food prices, anemic job growth, and an increasingly negative media & domestic business environment. It seems natural that some observers would extrapolate these domestic woes onto the stock markets and conclude that the Dow will climb in bed with the Dollar in its long-term secular decline. However, in my opinion, US companies (especially the large-caps represented in the Dow) are much better placed to face the headwinds than the individual consumer or even the US economy at large. Investors would be well served by research separating individual Dow Components by their geographic footprint and not thinking of all 30 companies as a single entity. Even from a technical stand-point, the Dow’s performance over the last 2 months has been quite encouraging. It has already made up most of its August sub-prime decline by mid-September (at a time when everything and the kitchen sink was thrown at it) and this reaction to positive news clearly indicates that there is a lot of strength hiding there. In conclusion, I am extremely positive on the long term possibilities of Gold & Crude and quite bearish on the US Dollar but would like to offer a contrarian call on the Dow- It might just surprise you – on the upside!
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