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Thursday, June 17, 2010

Thoughts from the American Beacon Forum - Opportunity is Everywhere

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Recently, I was invited to represent Dantes Outlook at American Beacon's annual Investment Forum. The event took place yesterday morning at the Warwick hotel in New York City. It was great to meet up with like minded investors, portfolio managers, and members of the press. The forum began with a panel discussion about the economy and then proceeded to a Q&A session, then one on one meet and greet with the press. I was able to meet some notable individuals who shared their thoughts about the markets.

All of the panel participants were positive about their outlook on the economy. They see things picking up gradually, but major work needs to be done to sustain this improvement. I was particularly excited about everyone's positivity about opportunity amidst down times. After all, that's what this blog is about; hence the slogan when volatile conditions create smart investments. Sure, people can complain and the media can use scare tactics to boost ratings, but what does that solve? This outlook is my platform, and I use the news in a different way; I hope all can join me to discover the opportunities out there and invest wisely. I was glad that the panel shared the same philosophy. For that reason, I drifted away from the press and approached the panel members directly.

Their investments are geared for the long term which requires heavy due diligence on equities, and in one case fixed income. The crisis in Europe no doubt shook the markets, but the response elsewhere was great, so there was still opportunity to go long. For example, Germany benefits from a weaker Euro because it helps boost their exports. Companies like the German car-maker BMW is experiencing a sharp reversal while the European crisis continues.

Health Care
When asked about the current administration's performance, the panel was optimistic about the opportunities that will arise from these big decisions. There was no room for political talk because it doesn't concern us; we can debate all we want, but is that profitable? One focus was on health care. The panel members are all long on the health care industry because of the increase in demand. The administration set aside quality and cost and just focused on access. Wall Street will respond accordingly as portfolio managers invest in the companies that must keep up with the large influx of insured patients. Expect revenues to increase, which will create higher costs to be transferred to the patient (insurer or government). This is one industry where the demand will remain high despite cost factors once the health bill comes into fruition.

Energy
The BP oil spill in the Gulf is disastrous but it's a moment for the US to finally get its act together and devise a sustainable energy plan. The oil spill is a huge blow for that industry, but soon the focus will shift on alternative sources; specifically natural gas and coal, nuclear is unpopular and takes too long. Solar, wind, and biofuels are expensive but useful. I'm for an all of the above approach, and shifting your investment dollars to these various industries is a smart move. However, narrowing your focus on natural gas at this moment is best. Natural gas is clean and abundant, but most of all it's cheap. For investors this is a clear area of entry. The United States Natural Gas Fund (UNG) is a favorite of mine, and it's riding a gradual reversal wave on the upside. Proponents for alternative energy are heavily lobbying for an energy plan - T.Boone Pickens is stepping up his actions during these desperate times. His plan calls for an increase in natural gas exploration and production. In the meantime, we should be investing in these efforts, and if a decision is made that will increase the demand for natural gas, expect prices to increase and thus a gain for its investors.

Technology
Consumers may not be as active in the US and Europse, but the emerging economies are providing hope for technology companies. Consumer electronics is booming in countries like Japan and China where wages are increasing as their economy accelerates. Japan has a lot of cash, and these consumers are now combining their saved cash with higher wages to consume more. Electronics are the in thing in these markets. The auto industry suffered a great deal in the US, but Chinese demand gives life to keep these brands afloat. Going global and having exposure to these hot markets is important for companies to develop extra revenue and increase cash flow to weather downturns in the rich world. Investors love to see this.

These are some of the participants who I spoke with: Mike Fields, Chief Fixed Income Office, American Beacon Advisors. Cliff Smith, The Boston Company Asset Management, LLC.