The Lost Decade: How the U.S. Financial Crisis Resembles Japan’s Ten Years of Misery – And How to Play it for Profit
Jul 18th, 2008 | By William Patalon III | Category: Politics & EconomicsOxford Club Investment Director Alexander Green prefers the Market Vectors Gold Miners (GDX) ETF. Market Vectors is linked to the AMEX Gold Miners Index and owns all of the world’s leading gold and silver mining companies. That means you can capture the performance of the entire sector in a single, well-diversified investment. For a complete report on this ETF that’s published elsewhere in today’s issue of Money Morning, please click here.
Finally, there’s our favorite gold-mining stock: Barrick Gold Corp. (ABX). Barrick is a Toronto-based company with mostly North American production, though it also has properties in South America and Africa, and some copper and zinc add-ons. It has a $41.4 billion market capitalization, so there’s plenty of liquidity. By gold-mining standards, this company has a substantial presence, is reasonably valued, and has little political risk. The company also recently sent some very bullish signals to the market and reasserted its confidence in meeting its 2008 output target of up to 8.1 million ounces of gold. [Indeed, for additional details, check out a recent related story about Barrick Gold].
3. Profit From the New Trading Blocs: A decade ago, professional traders would tell you that “when Wall Street sneezes, the rest of the world catches a cold.” There’s one major difference between the world today and the one that existed back in the early 1990s when Japan skidded into its Lost Decade: Globalization has today finally taken hold, and isn’t just some concept to be talked or hypothesized about, as it was back when Japan’s overheated economy threw a rod back in 1989.
That will make a huge difference, for it means that global growth can continue – even if the U.S. economy stalls and falls into decade-long slumber. One of the biggest developments is the emergence of new trading blocs – that don’t include the United States. At the center of most of them: China.
The biggest of these new blocs is undoubtedly China and Japan, an immensely powerful alliance that might develop into the United States’ military equal, in addition to its economic superior. It’s ironic that Japan – which suffered through its own Lost Decade – would be one of the antidotes for investors seeking to escape a looming U.S. downturn that has the potential to be equally as devastating.
Investors will want to uncover profit plays from this deepening relationship, and would do well to look at major Japanese companies that already are shifting production from their high-cost home market into lower-cost China. One such company is Japanese heavyweight Toshiba Corp. (PINK: TOSBF).
This major manufacturer of computers, medical electronic equipment and telecommunications systems has developed a highly integrated manufacturing capability in China, enabling it to synergize its technical innovation with China’s highly skilled, low-cost workforce. Toshiba’s shares are trading at about 22 times earnings, reasonable for a high-tech company – especially one that’s poised to capitalize on such new-technology markets as flat-panel televisions and solar power.
For investors, one of the biggest profit opportunities will be with companies that are helping China build out its still-archaic infrastructure and build up its consumer sector, which is why such companies as solar-ceramics maker Kyocera Corp. (ADR: KYO), and trading giant and independent power plant developer Mitsui & Co. Ltd. (ADR: MITSY), are logical choices.
China also is establishing trading blocs with Africa and the Middle East.
For a broader exposure to the Chinese through a high-quality mutual fund, investors should carefully consider the China Region Opportunity Fund (USCOX), managed by the San Antonio, Tex.-based U.S. Global Investors (GROW), itself not a bad stock to consider.
4. Invest in the Global Infrastructure Boom: Global consultant Booz Allen Hamilton recently estimated that the world’s water, power and transportation systems would require an outlay of $40 trillion to bring them up to modern standards – an amount equal to the value of all the world’s stock markets combined.
Some of our favorites plays in this area include raw-materials suppliers, such as miners Rio Tinto PLC (ADR: RTP), BHP Billiton Ltd. PLC (ADR: BHP) and Companhia Vale do Rio Doce, now referred to only as Vale (ADR: RIO).
One of the very best plays may be ABB Ltd. (ADR: ABB), the Zurich-based giant that’s a leading global provider of power-generation systems and components. With a market value of roughly $63 billion, ABB is one of the real heavyweights in a sector that includes such rivals as America’s General Electric Co. (GE) and Germany’s Siemens AG (ADR: SI). Over the last several months, for example, ABB has announced deals of $233 million in Korea, $74 million in India, $170 million in the Sweden-Finland region, $53 million in Dubai, and $70 million in China, to name just a few.
Of course, you can also buy individual engineering and construction firms, or invest in the broad holdings of the PowerShares Dynamic Building & Construction ETF (PKB).
5. The Middle East Isn’t Just About Oil Anymore: Indeed, thanks to the petro-gusher dollars so many Middle Eastern countries were able to amass, and to the government-controlled sovereign wealth funds that now control that capital, these same nations have been able to transform themselves into major global financiers. There aren’t a plethora of plays here, yet, but there will be. For right now, consider the T. Rowe Price Africa & Middle East Fund (TRAMX), which carries a $2,500 minimum investment, and the SPDR Standard & Poor’s 500 Emerging Middle East and Africa (GAF) ETF, which tries to closely match the performance of the S&P®/Citigroup® BMI Middle East & Africa Index.
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William (Bill) Patalon III is the Managing Editor and Senior Research Analyst for Money Morning, and is also the Managing Editor for The Money Map Report. Patalon's work has appeared in Kiplinger's personal finance magazine, USA Today, and The South China Morning Post, among other publications.
