Stock Market Video
Money Is Ready to Flow … Eventually
All Is Not Lost Until All Succeeds
In Case You Missed It
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Money Is Ready to Flow … Eventually
If you've been reading Cabot Wealth Advisory for a while, you
know that the people at Cabot are fond of Wriston's Law, the rule
that money will go where it is wanted and stay where it is well
treated. The practical consequence of the Law is that capital is
always looking for a place where it will achieve the highest
return on investment relative to risk (which is money's idea of
being well treated).
There's a lot of money traveling the world looking for ways to
fatten up, and you can learn a lot by taking a look at where it's
going. And the standard way to do that is to examine what's known
as foreign direct investment (
FDI
). This is the money that crosses borders as a result of M&A
activity, international expansion of companies, investment by
mutual and hedge funds and the search for safe and profitable
havens by managers of sovereign wealth funds.
FDI peaked in 2007, but was squashed by the Great Recession in
2008. But it's been coming back. In 2011, global FDI reached $1.5
trillion, which is a sizable sum, even if it is 23% below those
record 2007 levels. And UNCTAD, the United Nations Conference on
Trade and Development, estimates that 2012 will finish up with
about $1.6 billion in FDI.
The most interesting thing to me, as someone who's professionally
interested in investing in emerging market stocks, is that the
three countries estimated to be in line for the most FDI growth
from 2012 through 2014 are China, the U.S. and India.
As I interpret that predicted movement of cash, it reflects a
hunger for the higher potential gains that may be found in the
two largest emerging markets, plus a yearning for the relative
safety of investing in the U.S.
As UNCTAD conveniently points out, one reason for the projected
increase in cross-border investment is that trans-national
corporations have accumulated enormous amounts of cash, and are
looking for opportunities to put it to use when conditions are
favorable. (Apple alone has $117 billion in the bank.)
We also know from the way U.S. markets surge when good news leaks
out of Europe that an impressive amount of private capital has
been parked in low-yielding bonds and even (horrors!) savings
accounts by rattled investors. And that money is getting bored
and ready to seek some growth.
The moral of this little collection of statistics and
observations is that Wriston's Law is still in full effect, but
money can't quite figure out where it ought to flow. There are
just too many genuine economic uncertainties (and way, way too
many alarmist speculations in the financial media) to allow for
rational decision making.
But make no mistake about it, there is a reservoir of frustrated
cash looking to circle the globe one of these months, and you
will need a clear head and a well-researched watch list when the
sluice gates are opened.
Here's this week's Contrary Opinion Button. Remember, you can
always view all of the buttons by
clicking here.
All Is Not Lost Until All Succeeds
Cryptic, this one is, and contrary, to be sure. What it
means is that when all has succeeded, then it is time to worry,
for when there are no problems, and when everyone thinks
everything is rosy, then all buyers will have already bought
stocks. At that point, there will be no more fuel available
to push stocks higher. Furthermore, there will be no way
for perceptions to improve. Perceptions will worsen and
stocks will fall. The classic example in recent history was
the first quarter of 2000, when we had successfully come through
the millennium Y2K scare and the consensus was that the Internet
would solve all our problems. As most investors know,
technology stocks led the way down shortly after.
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In case you didn't get a chance to read all the issues of
Cabot Wealth Advisory
this week and want to catch up on any investing and stock tips
you might have missed, there are links below to each issue.
Cabot Wealth Advisory 7/30/12 - Would You Rather
Buy Hot or Cold?
In this issue, Tim Lutts contrasts the Cold Investor (who buys
what's out of favor), with the Hot Investor (who buys stocks in
uptrends). Featured stocks:
Align Technology (
ALGN
)
and
Questcor Pharmaceuticals (
QCOR
)
.
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Cabot Wealth Advisory 8/2/12 - Expectations vs.
Reality
Mike Cintolo argues in this issue that investors are now
suffering from excessively low expectations, historically a sign
that markets are ready to rebound. And there are signs that the
market is already strengthening. Featured stock:
Western Digital (
WDC
).
Have a great weekend,
Paul Goodwin
Editor,
Cabot Wealth Advisory