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Where to Invest? - Investors Roundtable July 2014

Stock-Markets / Investing 2014 Jul 04, 2014 - 02:44 PM GMT

By: Investment_U

Stock-Markets

Steve McDonald writes: A Note From the Editorial Director: The Oxford Club's editors are at it again. The debate this month: Should you invest outside the U.S.? If so, where?

Our editors may have difficulty agreeing on foreign markets, but they do agree on one thing - America is about to go through a revolution. And it will change the way everything is bought and paid for, and it has huge implications for your portfolio. To learn more about what our editors have to say, click here.


- Andrew Snyder


Steve McDonald: Hi, everybody. I’m Steve McDonald. Welcome to the July edition of The Oxford Club’s Editors Roundtable. With us today are all seven of The Oxford Club’s editors. Let’s start by introducing everyone. Here in Baltimore we have Andy Gordon, the editor of The Startup Investor; Matt Carr of the Emerging Trends Trader. Down in Charlottesville, Virginia, we’ve got Alex Green, the big leader here, the Chief Investment Strategist of The Oxford Club. In our Florida studio we have Sean Brodrick of the Gold & Resource Trader and Marc Lichtenfeld of The Oxford Income Letter; and his triumphant return, Dave Fessler, the editor of the Peak Energy Strategist in Nazareth, Pennsylvania. Where is Nazareth, Pennsylvania, Dave?

Dave Fessler: Hey, it’s home of Mario Andretti. Any racing fans out there?

Steve McDonald: The topic this week: investment outside of the U.S. Is it something we want to be doing? And we’re going to start with Alex. Alex, what do you think? Should people be looking outside the U.S. for investments?

Alex Green: Absolutely, and for a lot of good reasons. First of all, 60% of the world’s investment opportunities happen to lie outside the U.S., and you have much more opportunity to choose from. Secondly, economic growth is much stronger in a lot of these markets. People talk about China slowing down to 7.5% after decades of 10% growth. Well, what we wouldn’t give here for 7.5% growth in the U.S. You get currency diversification, which gives you more chance for appreciation. You can have a currency rise in the stocks as well. A lot of the best companies happen to be located overseas. We’re making good money in Toyota Motors (NYSE: TM) and Diageo (NYSE: DEO) and Luxottica (NYSE: LUX), for example. And, of course, one of the biggest reasons is investing internationally actually reduces your portfolio risk even though you’re buying more volatile stocks, because you’ve got a currency factor as well. When you blend foreign stocks with U.S. stocks, your overall portfolio shows less volatility instead of more, so there’s lots of good reasons to spread the risk around and diversify a portion overseas.

Marc Lichtenfeld: And I would say you’re insane if you don’t diversify outside the United States, just like if you were living in Europe you wouldn’t only invest in European stocks. You’ve got to be all over the world. This is a global economy these days, and, as Alex said, you need to spread those investments and spread the risk all over the world as well.

Steve McDonald: Dave Fessler, how about from the energy perspective? What kinda energy opportunities are there outside the U.S.?

Dave Fessler: Well, there’s certainly plenty of energy opportunities with the advent of global fracking starting to occur in places like Australia, Europe starting to get on board in a few countries, and China is certainly very interested in fracking for oil and gas. You’re going to see a lot of opportunities in that sector certainly over the next couple of years. Australia’s already on board with fracking.

Steve McDonald: And here in Baltimore you’re awfully quiet, Andy. What are you thinking?

Andy Gordon: Sorry about that, Steve. Well, first of all, I’d just like to make clear that by urging people to invest overseas we’re not saying that the U.S. market is going to crash or I think global markets are going to go way up over the next three months or a year.

Steve McDonald: But you’ve got to admit the U.S. market is getting tight.

Andy Gordon: It is getting tight, and there are great bargains and buys overseas. I’ve been following the iShares MSCI Emerging Markets Index (NYSE: EEM), and there’s one metric that’s very interesting. It’s the price to book. It’s following the law of 1.5. Now, before I go further, let me make sure that everybody knows what price to book is. Book is net asset value, which is assets plus the cash minus liabilities in debt. So, price to book of the Emerging Markets Index now has fallen below 1.5. It’s done that twice before since 1995. In both instances, the emerging markets have shot up in the following 12 months between 25% and 30%. I’m not saying it’s going to happen this time.

Steve McDonald: Stick your neck out and say it.

Andy Gordon: But it’s a very nice metric, and I think it does. It’s just another sign that this is a very good time for investors to dip into overseas markets.

Steve McDonald: Matt, how about you? You’re quiet.

Matt Carr: Like I said, I made a mistake letting Alex go first, because he took all of my great points, but I do think it’s imperative that investors invest overseas not only because of growth. We’re talking about U.S. GDP contracting 2.9% in the last quarter, but China, Nigeria, Bangladesh, Philippines, India... those are all growing more than 5%. And then I think there’re a lot of value plays in terms of object and –

Steve McDonald: So you’re looking outside of China?

Matt Carr: Yeah. I think China’s a great consumer play, I mean, Yum! Brands, all that kind of stuff. I mean, they’re just going to gobble that up.

Steve McDonald: Down in Florida, Goldfinger, our very own Sean Brodrick. How come you’ve been sitting there just smiling?

Sean Brodrick: Well, I mean, these are all great ideas, but one thing that we have to hammer home is the word Alex used, which is volatility. Let’s see if I can even say the word. But the thing is I like to buy foreign markets. When things go really bad, I like to buy Japan when a Godzilla rears his head in Tokyo Bay. That’s when you want to buy those markets. For example, Russia – when the Western powers imposed sanctions on Russia, that market cratered, but if you’d bought the bottom, you’d be up 24% now. And it wasn’t hard to buy the bottom, because after it went up a little bit it came down and tested the bottom again, and then it went higher again. So, I think looking for those opportunities is one thing you can do. The other thing you can do is just look for big trends and the breakouts that really come from those trends, but you have to expect volatility in those markets, and if you don’t have a steel spine, you might want to have second thoughts.

Steve McDonald: Well, I have tell you, from a bond perspective – and you guys are all looking at it from the equity perspective – I just don’t like going outside the U.S. for bonds. I’ve had very bad experiences. It’s tough to get information unless they’re listed on the U.S. exchange. The only default I’ve ever had on a bond was in a Norwegian company that had no news of any kind ever, and then all of a sudden they were out of business. So, from a bond perspective it’s a little different. I don’t think bonds get the kind of coverage that equities do, so I would have to caution people about that. I still like the U.S. bond market.

Alex Green: Well, Steve, I actually agree with you there, and one of the things about currency diversification is if you buy a stock and the currency goes against you by 10%, even 15%, if the stock doubles, you still have a very nice return. But if you own an international bond denominated in euros or yen or what have you and the currency goes against you by 10% or 15%, you’re wiping out years’ worth of interest.

Steve McDonald: I agree.

Alex Green: So I would agree with you that now’s not a good time to have high level of holdings of non-dollar-denominated debt if you’re a U.S. investor who’s keeping score in dollars, because the potential is there to really get hit hard if the currency goes the wrong way.

Steve McDonald: Let’s try to get a little bit more specific. I want to go back around. Matt already said he likes Japan. I want to start with Matt. Tell us why you like Japan.

Matt Carr: Well, I think there’s something very interesting going on right now, which is Japan is debating about legalizing gambling, and so bringing in integrated resorts. So I think this is a great opportunity for Las Vegas Sands, Melco Crown – these are companies that are already in Macau in China and are trying to get into this Japanese market, which could be $40 billion per year.

Steve McDonald: These are gambling companies?

Matt Carr: Yeah, all gambling companies, and they said it’s going to be $40 billion per year by 2020, and Japan has to do something here, because they need to pay for the 2020 summer Olympics.

Steve McDonald: Andy?

Andy Gordon: I like –

Steve McDonald: I know it’s hard getting specifics out of you.

Andy Gordon: I like India. It’s a huge country. Everybody knows that, but the market has been going up. It’s gone up over 25% in the last 12 months and it’s still cheap. It’s much cheaper than the U.S. market. It’s cheap by price to book, by price to earnings, and price to earnings over the last 10 years, which is cake. It just elected a new leader. Everybody’s excited about him. He’s pledged to take economic reform. The Indian economy has had problems the past couple of years. It’s had trouble growing. There’s a lot of pent-up growth as a result of that, and the stock market has a lot of room to grow, I believe.

Steve McDonald: Interesting. Dave Fessler in Nazareth, Pennsylvania?

Dave Fessler: At the risk of contradicting myself, I’m going to give investors a way to play the international markets with respect to energy, anyway, by buying U.S. companies. We’re seeing a lot more coal starting to be exported, because the use here in the U.S. has gone down, and just this morning – in fact, I’m still in shock. Obama actually did something that I agreed with. He opened up the U.S. – or beginning to open up the U.S. – export of crude, Pioneer Natural Resources and, I think, Enterprise Products Partners. Both got permission to export a limited amount of crude oil, and that’s something that we haven’t been able to do in this country for 40 years.

Steve McDonald: That sounds like it’s going to be a major game-changer, that alone. I saw that in the Journal.

Dave Fessler: It’s a killer for the U.S. refiners, because they’re going to have to go buy Brent crude. They’re all set up to refine the real thick, gooey stuff, and all the West Texas Center Media is it’s all ________ crude. We don’t have the ability to refine a lot of that here in the U.S., so I think it’s going to be a great play for U.S. producers.

Steve McDonald: Great. Down in Florida, Marc, what do you think?

Marc Lichtenfeld: Well, I agree with what Sean was talking about with Russia. In fact, I added a Russian stock to the Oxford Income Letter portfolio after that market cratered. But right now I really like Europe, and I’ve liked it for a while. Here in the United States there’s the expression, “Don’t fight the Fed,” and certainly the Fed has been what’s been fueling this bull market. In Europe they’ve got negative interest rates on some of their key interest rates. If a European bank wants to deposit money with the European Central Bank, it’s a negative interest rate. And so I think that’s just going to fuel a continued bull market in Europe for a while, and specifically I like the pharmaceutical companies. I love the deal that Novartis and Glaxo worked together, and so I like the European pharmas.

Steve McDonald: Sean, what do you think?

Sean Brodrick: I like playing the big trends, and right now there’s a big trend in Mexico. Ten years ago, labor costs in Mexico were probably twice what they are in China. Now, fast-forward. Labor costs in Mexico are actually 20% less than they are in China. We are seeing factories move from China to Mexico, and so if you look at the big Mexican ETF, it is starting to break out, and I think that’s a great way to play it. Also, Mexico has a lot of natural resources. You know how I feel about those. There are great Canadian mining companies working down in Mexico, so there’s really a lot going on there.

Steve McDonald: And, last but not least, let’s go to our fearless leader in Charlottesville, Virginia. Alex, take us home. Wrap it up for us, will you?

Alex Green: Well, I think we’ve made a good case for spreading your bets beyond the U.S. market, and if I had to look at a particular sector of international markets, as I’ve been saying all year, the valuations of emerging markets are the most attractive they’ve been in years. It’s kind of ironic that the world’s strongest growth in China and India and Brazil and these other big nations also coincides with the cheapest stock valuations. I think that’s attractive an combination in emerging markets right now.

Steve McDonald: Interesting. Well, thank you so much, all you guys. Thanks for taking the time to be with us. Lots of great ideas. I hope you guys at home enjoy it as much as we do. Again, thanks so much for being a part of this. From everybody here at the Editors Roundtable, I’m Steve McDonald. We’ll see you next time.

Source: http://www.investmentu.com/article/detail/38484/financial-editors-roundtable-july-2014

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