Let me know if you see anything here you agree with, Greg.
Deutsche Bank--Dr. Ed Yardeni: "Ten Big Themes For 2001 & Beyond"
yardeni.com
>>>Ten Big Themes For 2001 & Beyond
Dr. Edward Yardeni, Chief Investment Strategist
Deutsche Bank Securities
January 2001
1) NEW GLOBALLY COMPETITIVE ECONOMY. The end of the Cold War ended
the greatest trade barrier of all times. Freer global trade and the globalization of
markets will continue. So will the pressure to deregulate national economies and
restructure businesses. Global markets will become increasingly competitive.
Invest in companies that can sustain above average earnings growth in highly competitive markets.
2) INNOVATION REVOLUTION. In competitive markets, business must cut costs,
increase productivity, innovate, and sell globally in an ongoing effort to offset
deflationary pricing pressure on profits. Most of the benefits of these efforts will
go to consumers’ pocketbooks, not corporate earnings. However, companies that
innovate regularly can be very profitable. But even innovators face competition
and risk that high R&D costs will not be recovered.
Invest in companies with lead-ing edge innovations and relatively little competition, particularly in high-tech and bio-tech.
3) TECH II: WIRELESS & WIRED. In the 1990s, during Tech I—the first stage of
the High-Tech Revolution—the Internet was the “killer application” that powered
the PC boom. During the current decade, wireless technologies are likely to lead
Tech II. With wireless communications, companies will be managed on a truly real-time
basis. This means that resources will be allocated even more efficiently than
now possible, allowing for both dramatic cost reductions and productivity gains.
Invest in companies that provide the infrastructure hardware and software for wireless, Internet, and optical fiber networks.
4) PRODUCTIVITY FOR THE MASSES. The secular rebound in the growth of
productivity during the second half of the 1990s was concentrated in the technol-ogy
sector, but it should continue and become more democratic during the current
decade. Now many low-tech businesses are likely to use technology tools—includ-ing
wireless, Internet, Intranet, and eCommerce systems—more effectively.
Invest in low-tech companies that are using technology to cut costs, to increase produc-tivity, and to innovate.
5) OUTSOURCING IMPERATIVE. Outsourcing is the modern-day equivalent of
the division of labor, which is one of the main sources of productivity gains. B2B is
likely to boost the outsourcing trend as companies focus on their most profitable
core businesses.
Invest in companies that build B2B systems, and also in out-source vendors.
6) CHINA CHALLENGE. China is on track to join the World Trade Organization in
2001. A new wave of competitive pressures unleashed by China will force many
countries to restructure their economies more rapidly. The “China Challenge”
should stimulate greater economic integration and prosperity within and among
the three major regional economic blocs: 1) North Asia—including China, Hong
Kong, Taiwan, Japan, and Korea, 2) Euroland—including many new members from
Eastern Europe, and 3) North America. Direct investments into China are likely to
grow dramatically.
Invest in capital goods companies, especially technology and telecom equipment manufacturers. A more open China market should also benefit global consumer product and services companies.
7) SWEET & SOUR DEFLATION. Inflation will probably remain near zero over
the rest of the decade. The risk is deflation, not reflation. Peace, free trade, compe-tition,
deregulation, technology, and China are all powerful sources of deflation.
Productivity-led deflation can be profitable. Unprofitable deflation can cause a pro-longed
recession. In either case, Treasury bond yields could fall as low as 4%.
Invest in Treasury bonds and interest-rate sensitive stocks, with low exposure to credit risk if possible.
8) DEMOGRAPHY IS DESTINY. Populations will age significantly in Japan,
Germany, and the United States over the next two decades. Expect more pressure
on politicians in aging nations to cut tax rates, to boost savings incentives, and to
encourage equity investments.
Invest in asset management companies and, of course, health care providers. Populations remain relatively young in most of Asia, Latin America, and the Middle East. Invest in outsource manufacturing in emerg-ing markets and also in consumer electronics suppliers.
9) JURASSIC PARK. Competitive pressures will force many companies to acquire
or merge with competitors globally. Eventually, this may revive inflation. But, over
the next several years, that’s not likely. Consolidation means more rounds of
restructuring, and job insecurity. Capital markets will continue to expand and
become more integrated globally.
Invest in companies that are likely to be acquired, and also in the investment banks that will collect the M&A fees.
10) MEANING OF LIFE. In competitive markets, the only sure winners are con-sumers.
If productivity continues to grow rapidly, then so will real income. The
trend in purchasing power will set the pace for consumer spending. The key to
global prosperity is Asia, especially China and Japan. If both nations transfer
power to consumers with more open markets and tax cuts, then the outlook for
global growth and equity investors will be a sweet one. If not, a sour deflationary
future would be a real threat.
In the sweet scenario, stock prices could double, even triple by 2010.
In the sour version, a long-term bear market would result.
Let’s hope that more people around the world discover the true meaning of life: Shopping!<<< |
