Capital Ideas Newsletters


Weather or Not

September/October 2010

The world has just experienced the hottest decade since weather records have been kept. As such, the world economy must adjust; weather patterns affect the economies of all nations… some for the better and some for the worse. Weather will be an increasingly important theme in investing in the coming years.

As a result of the rising cost of healthcare in the U.S., medical tourism is becoming big business outside of the United States. More than 500,000 Americans traveled abroad to receive medical care in 2006. Experts predict that by 2012, medical tourism will be a $100 billion business with more than 780 million patients traveling abroad to receive care from foreign doctors, dentists and hospitals. Thailand, Costa Rica and Panama are fast becoming the hot spots in this burgeoning industry.

Is it time to bring back debtor prison? There was once a time when if you were broke, you would have to pay back your debts or go to jail. You even had to pay for your own imprisonment! I’ll bet this would serve as an effective deterrent to the rampant overspending on credit cards!!!

The country is sputtering along — some good statistics, some bad statistics. We expect this trend to continue for quite some time, however, we do not believe in the double dip scenario.

We do see a “new normal” as described by Bill Gross from PIMCO and the themes below make gut sense to us at this time:

First, we believe that big American firms will benefit from their competitive advantage (size, balance sheet, cheap cost of capital) and will generally be better investments than their smaller counterparts. The exception to this rule will be small firms bought by big companies attempting to secure their sales while laying off employees. As a result, we believe merger activity will be significant.

Second, we believe the dollar will experience continued weakness and thus, the big firms with foreign sales will benefit via currency translation back to dollars that enable their earnings to get an artificial boost.

Third, real assets will benefit from their ability to maintain purchasing power. Everything from real estate to diamonds, gold, silver and other agricultural-related investments can benefit from the U.S. printing an abundance of dollars.

Fourth, the U.S. will do everything in its power to defeat any deflationary trends — democracy, it is said, is inherently inflationary, and we believe now is no different.

The most unfortunate piece of our economic puzzle is that 43.6 million people (or 14.3% of the population) in this country were living in poverty in 2009. A family of four that earns below $19,971 is considered to be below the poverty line.

As for the stock market, there is reason to believe that the remainder of the year will see the Dow and S&P 500 advancing as the big corporations show profits, as we discussed above.

Interest rates should turn slightly higher, but in our view, not significantly; that would speak to a cautious view on longer term issues, but if one finds good value based upon historical yields (or one’s own income needs) opportunities should be seized.

One of our major concerns are the disincentives being put in place by the Obama Administration to create a safety net which begins to serve as a way of life for those who lack the impetus to strive. Abraham Lincoln said, “You cannot build character and courage by taking away a man’s initiative and independence.”

We should be mindful of President Lincoln’s words. After all, this is a country built not only upon individual freedoms, but also, and equally important, on individual responsibility.

Take care of yourself—we’ll be happy to help!

Join Our Newsletter