The 21st Century Marshall Plan: Stock Strategy Part 1
I have a theory that I'd like to share. I call it the 21st Century Marshall Plan.
The original Marshall Plan followed WW2 and was a massive outflow of cash from the US to the European and Turkish economies. The intent was to reconstruct the industrial base and push back Communism. The primary mechanism was loans to buy US goods, although expertise was also offered. Japan similarly benefitted but mainly due to the Korean War and US demand for local staging.
I see a similar situation today, albeit driven less by design or purpose and more by market forces. The US is providing a massive outflow of cash to India & China (our service and manufacturing outsourcing partners) and to Middle East countries and Indonesia in the form of high oil prices. And there are also political targets: the first MP had communism and this 2nd one has Islamic fundamentalism as well as similar movements resistant to the global economy.
That accidental rather than deliberate design is an interesting difference but it really doesn't affect the basic premise.
We have a very familiar framework with money going from country A to countries B-Z. These countries are then recycling that money by buying goods and services from country A. When I buy a tank of gas, Saudi Arabia turns around and buys planes, weapons, oil equipment and internet infrastructure from the US. When IBM sets up shop in India, th emoney ends up funding hospitals, internet, planes and other infrastructure to improve the quality of life. It is far from a zero sum game, in other words.
If I'm right, if there is a massive transfer of wealth to these countries and if they are recycling it, then thi sis what will happen. Not only will they consume US goods and services today, they will consume even more tomorrow. Exposure to American standards of living creates the desire and the wealth is creating the opportunity.
I'd also like to add that I am late, very late, to tying these trends together and seeing the pattern for what it is. Because this enables me to better predict the right market sectors to target.
I see the following phases:
Phase 1 - Infrastructure buildout. Transportation (Roads, waterways, planes, cars, trains), raw materials (iron, coal, oil), energy (power plants, hydro, solar, wind), construction, internet (yep, now a key ingredient in infrastructure)
Phase 2 - Quality of life. Healthcare (more hopitals and equipment), cheap luxury goods (PCs, cars, designer clothes, jewelry, iPods, Starbucks, wine, flat panel TVs). Look at whatever the US is trying to keep out of North Korea, and that's what defines luxury.
Phase 3 - Youth market driven consumerism
I'd say India and China are well through Phase 1 and in Phase 2. The Middle Eastern oil economies are in Phase 1 (oil really only began hitting the highs a few years ago, whereas we've been outsourcing a few years longer).
I'd also say that Russia and Eastern Europe are involved in similar paths, having been more or less freed economically.
What this tells me is that companies that rise and fall according to the US or European markets will be falling soon. On the other hand, countries that are playing in the infrastructure and luxury goods markets are probably better positioned.
Test the infrastructure premise against Boeing. There are other plane makers - Embraer of Brazil, Mitsubishi in Japan, Airbus, and even Chinese and Russian makers - but no-one of consequence really buys those planes. Kuwait is buying $6B or 30 new planes. Boeing has 500 purchase orders for its new 787 and is about to boost production (I've been talking about this probability for a loooong time http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070319:MTFH70258_2007-03-19_16-24-03_N19291262&type=comktNews&rpc=44)
Test the quality of life premise against Whirlpool. Again, Whirlpool dominates the market for laundry machines, with several smaller upstarts. The US & European markets will be down ~3%. India is growing 10%.
The place to put money, IMHO, is in infrastructure plays and truly global companies. Anything overly dependent on the US or Europe will be hurting. I would also add that as the US economy softens and the stock market wobbles (it will), conservative money will rush to old favorite blue chip companies.
----------------
to be continued
End of part 1
The original Marshall Plan followed WW2 and was a massive outflow of cash from the US to the European and Turkish economies. The intent was to reconstruct the industrial base and push back Communism. The primary mechanism was loans to buy US goods, although expertise was also offered. Japan similarly benefitted but mainly due to the Korean War and US demand for local staging.
I see a similar situation today, albeit driven less by design or purpose and more by market forces. The US is providing a massive outflow of cash to India & China (our service and manufacturing outsourcing partners) and to Middle East countries and Indonesia in the form of high oil prices. And there are also political targets: the first MP had communism and this 2nd one has Islamic fundamentalism as well as similar movements resistant to the global economy.
That accidental rather than deliberate design is an interesting difference but it really doesn't affect the basic premise.
We have a very familiar framework with money going from country A to countries B-Z. These countries are then recycling that money by buying goods and services from country A. When I buy a tank of gas, Saudi Arabia turns around and buys planes, weapons, oil equipment and internet infrastructure from the US. When IBM sets up shop in India, th emoney ends up funding hospitals, internet, planes and other infrastructure to improve the quality of life. It is far from a zero sum game, in other words.
If I'm right, if there is a massive transfer of wealth to these countries and if they are recycling it, then thi sis what will happen. Not only will they consume US goods and services today, they will consume even more tomorrow. Exposure to American standards of living creates the desire and the wealth is creating the opportunity.
I'd also like to add that I am late, very late, to tying these trends together and seeing the pattern for what it is. Because this enables me to better predict the right market sectors to target.
I see the following phases:
Phase 1 - Infrastructure buildout. Transportation (Roads, waterways, planes, cars, trains), raw materials (iron, coal, oil), energy (power plants, hydro, solar, wind), construction, internet (yep, now a key ingredient in infrastructure)
Phase 2 - Quality of life. Healthcare (more hopitals and equipment), cheap luxury goods (PCs, cars, designer clothes, jewelry, iPods, Starbucks, wine, flat panel TVs). Look at whatever the US is trying to keep out of North Korea, and that's what defines luxury.
Phase 3 - Youth market driven consumerism
I'd say India and China are well through Phase 1 and in Phase 2. The Middle Eastern oil economies are in Phase 1 (oil really only began hitting the highs a few years ago, whereas we've been outsourcing a few years longer).
I'd also say that Russia and Eastern Europe are involved in similar paths, having been more or less freed economically.
What this tells me is that companies that rise and fall according to the US or European markets will be falling soon. On the other hand, countries that are playing in the infrastructure and luxury goods markets are probably better positioned.
Test the infrastructure premise against Boeing. There are other plane makers - Embraer of Brazil, Mitsubishi in Japan, Airbus, and even Chinese and Russian makers - but no-one of consequence really buys those planes. Kuwait is buying $6B or 30 new planes. Boeing has 500 purchase orders for its new 787 and is about to boost production (I've been talking about this probability for a loooong time http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070319:MTFH70258_2007-03-19_16-24-03_N19291262&type=comktNews&rpc=44)
Test the quality of life premise against Whirlpool. Again, Whirlpool dominates the market for laundry machines, with several smaller upstarts. The US & European markets will be down ~3%. India is growing 10%.
The place to put money, IMHO, is in infrastructure plays and truly global companies. Anything overly dependent on the US or Europe will be hurting. I would also add that as the US economy softens and the stock market wobbles (it will), conservative money will rush to old favorite blue chip companies.
----------------
to be continued
End of part 1
posted by Andrew at
7:54 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home