Sat Oct 15th, 2005 at 05:17:29 PM EST
(Please note there is a poll below)
Though there are some negatives on the horizon, predictions of no growth are ignoring many positives in the worldwide economic climate. It's not uncommon for bears to outnumber bulls, right before economies and stock markets really explode in growth. IMHO, this is one of those times.
the negatives are increasing energy prices and threats of global terrorism. But markets normally have a way of adjusting to shortages, because shortages create profit making opportunities for new supply, or new technologies. Shortages also create higher prices in the short term, which will cause industry and consumers to use energy, in this case, more conservatively. But new supplies of existing energy sources are likely to emerge with higher prices making exploration more intriguing and certain existing sources more profitable. And remember, one of the reasons for the energy tightness is a very positive outlook for worldwide growth--new Asian economies are exploding with growth. They are creating industrial goods at lower prices which is good for consumers around the world, (though to some extent this is through holding exchange rates artificially low), they are increasing GDP per capita for their populations (and only just beginning to do that--there are decades of growth in Asia just by training workers and putting them to work at more productive jobs), and they are opening vast new consumer markets with their expanding wealth.
Business and financial markets don't like uncertainty, and terrorism and political conflict in the Mid-East, particularly with their oil resources, is clearly an uncertainty. This could mean the five year growth, particularly in the financial markets, could be very volatile, but IMO, still upward. But certainly a worldwide catastrope out of the middle east could blow apart this economic outlook. IMO, that is a low probability scenario.
On the positive side, I guess I've already mentioned the positive aspect of growing Asian economies. This will be new competition for Western economies, and it will be disruptive in the sense that Asian economies will excel in certain industires which have traditionally been controlled by the West. Flexibility in retraining workers, having educated and flexible workers open to retraining, etc. will be critical. But consumers will have more choices, lower prices and higher quality products. Employees who see the opportunity to move into industries and opportunities where there countries have advantages, will have significant opportunity to gain. Investors, and employees who invest directly or through tax advantaged (sometimes employer matched) accounts such as 401K's in the US, will have an incredible chance to increase their wealth--but obviously it's their choice as to what to invest vs. spend, and also whether or not they invest in stocks.
IMO two western industries will do especially well, and I mentioned this in an earlier post. Those industries were information technology and health care (where I used medical devices as the example, and specifically the endovascular segment of this industry). Demographics in Western countries and increasing wealth in developing countries will lead to rapid growth in healthcare, and many life savings products and technologies. The technology base in healthcare is incredible right now to support new innovation, with gene structure information available and many new tools available to exploit that data base. Minimally innvasive technology forms a wonderful base for miniaturized chips and "machines" to be placed in the body for diagnostic and therapeutic purposes.
In technololgy, there is the same type of opportunity in the sense of a wonderful existing base of technologies, tremendous opportunities to improve productivity in general industries by using these new technologyies, which is a key driver of improving GDP per capita. Asia is heavily involved both as a consumer and a producer. Both technology and healthcare are truely world wide markets.
While I agree with an earlier diary that perhaps the soda industry is not a particularly fast growth area, the comments made regarding using the dividend rate as the method of analyzing shareholder return is not a method generally accepted today.
Total Shareholder Return (TSR) is a concept used to compare the performance of different companies' stocks and shares over time. It combines share price appreciation and dividends paid to show the total return to the shareholder. The absolute size of the TSR will vary with stock markets, but the relative position reflects the market perception of overall performance relative to a reference group.
With Pricebegin = share price at beginning of period, Priceend = share price at end of period, Dividends = dividends paid and TSR = Total Shareholder Return, TSR is computed as
TSR = (Priceend - Pricebegin ) + Dividends / Pricebegin
The following shows total shareholder returns for companies in the Dow.http://online.wsj.com/public/resources/documents/scoreboard2004-dow30.html
While Coca Cola is unlikely to be one of the fastest growth companies, IMO they will represent a good investment as they continue to expand their markets worldwide, with one of the greatest know brand names. Note that the world's putative best investor, Warren Buffett, is heavily invested in this company.
It's likely that all economies can benefit from this growth. The US is best positioned in healthcare and technology, and should benefit significantly, and has been showing good growth the last several years. Asian growwth will likely be the most explosive, due to their tremendous potential growth as a result of an underutilized population. Europe should certainly benefit, but growth numbers over the past several years place them third behind the US and Asia. European employees and industries may have to be flexible as Asia challenges entrenched European business positions. IMO, heavier percentage allocations to the US and Asia in terms of funds invested, may lead to better overall returns.
My apologies for such an investment oriented and economic oriented post. But I think the no growth scenarios previoously presented on this site, will turn out to be inaccurate. And the site needs to hear alternative points of view. IMHO, the next five years offer great opportunity to all income levels--either in terms of investment returns, and/or in terms of positioning ones career where success is more likely.