Americans are down in the dumps about their economy, soaring oil and food prices and the sub prime fiasco. All are legitimately upsetting, but there is a silver lining in America's current economic clouds and the United States remains the world's greatest economy.
One of Canada's to portfolio managers, David Fingold of Dynamic funds, is bullish on the U.S. and has put his clients' money where his mouth is. His global funds are 50% invested in the U.S., with minimal investments in Europe or booming Asia.
He said American multinationals are well-poised to cash in on the boom in China and high commodity prices and pessimism and negative headlines have made their stocks bargains.
"This bad news is good news because troubles mean an accommodative monetary policy [which means lower interest rates and downward pressure on the dollar]. We have 50% of our global fund in the U.S. because the weak currency means great opportunities," said Fingold at a recent conference in Scottsdale Arizona.
So did his boss, Rohit Sehgal, who is Chief Investment Strategist for Dynamic Funds' $30 billion funds. Sehgal was named the world's second top-ranked hedge fund manager this year by Barron's magazine.
"The U.S. economy is fine and American companies in the infrastructure and commodities businesses will benefit substantially," he said.
Fingold said investors should avoid the American financial sector and the consumer discretionary sector (luxury goods). Higher commodity prices make luxuries unaffordable for many and the banks and brokers still face huge problems. The credit meltdown is only starting for most.
"The mortgage crisis is not over and has two phases. The first is that after 90 days of non-payment, a loan is delinquent and industry practice is to charge [write off] 1% of the loan and also 60s day's of unpaid interest payments. The second phase, which is in its early stages, is after 180 days of non-payment which is a default when banks are supposed to mark to market, or write down the difference between the mortgage outstanding and the value of the property."
This will cripple many banks which may find that their write downs will leave them under water themselves, forcing the government to shut them down or bring about shotgun marriages.
But as financials struggle, the Fed's interest rate cuts have weakened the dollar even more, which greatly benefits exporters and multinationals. He has invested in those who will profit from the energy, technology, infrastructure and materials booms underway worldwide.
The biggest boom is China which plans to move, from farm to city, more than 400 million people within the next 17 years. The country is booming internally because of huge infrastructure projects: a power plant is commissioned every month; some 174 subway systems are under construction and Beijing plans to build five New York Cities and 50,000 skyscrapers.
Fingold likes U.S. companies who are, and will, cash in on this and infrastructure or commodity booms going on around the world. For instance, his current favors are:
Exxon Mobil Corporation
Forest Oil Corporation
Nucor Corporation (which just became the biggest steelmaker in the U.S.)
Exelon Corporation (biggest nuclear power operator in the U.S.)
Emerson Electric Co. (the world's biggest maker of controls and software systems for the world's power plants, refineries and petrochemical projects).
"Coca-Cola Company, Wal-Mart Stores Inc. and Johnson & Johnson are great multinationals positioned to benefit going forward," he said.
Wal-Mart is a beautifully managed company which has defied the downturn in retail spending because people paying more for gasoline and staples turn to discounters. Sad but true, there is a correlation between Wal-Mart's success in a region and local employment rates.
The current slowdown is temporary because the U.S. has competitive advantages compared to virtually all other countries. Said Fingold:
"The United States still has huge competitive advantages to the rest of the world. It has tax advantages, good laws, its government goes to bat for its corporations around the world, its government protects intellectual property."
Fingold's global funds are under-weighted in Europe because the Euro has risen by 40% and has decimated corporate profits and exporters. He's also cautious about Asia. "Asian currencies will be the next to rise against the U.S. dollar which is why we are reluctant to invest in Asian exporters and multinationals," he said.
The U.S. has huge underlying strength:
"America is one of the only free markets in the world, where intellectual property and people can be developed. Its industrial and technology companies are the hot houses of the world for producing innovation. The low dollar means that there is a huge wind at the back for companies who can serve the world with exports, services and goods that help build their economies and enable infrastructure development."
Follow Diane Francis on Twitter: www.twitter.com/@dianefrancis1