We are still in a Goldilocks stock market that is gaining new heights because the “three bears” — economic growth, interest rates, and inflation — are all just right, asserts Jim Powell, editor of Global Changes & Opportunities.
However, if any of the three supports should slip from its ideal level, I think today’s sky high stock valuations will tumble. So far, two of the market’s three supports appear to be secure. The economy is still expanding and interest rates are still very low – and are likely to remain low at least for the next few months.
So far, so good. But the outlook for inflation is another matter. It’s not just food and gasoline that are rocketing up in price. Home prices are also reaching stratospheric levels. Commodity prices are doing the same. To make matters worse, workers are becoming hard to find — which means higher wages are on the way.
When we put all the rising costs together we get a case for a new inflation cycle that will be difficult to control. Knowledgeable investors will plan accordingly and stick with conservative stocks — emphasizing value and real assets.
One place where value has lagged for nearly a decade — and is now beginning to rally — is in emerging economies. The combination of low interest rates and abundant money, is making it possible for companies in many emerging markets to expand and prosper.
As a result, I think several developing markets will outperform Wall Street for at least the next two years. The problem with making emerging market investments is few Americans — myself included — understand the politics, the culture, and the business conditions of foreign countries well enough to make informed choices.
As a result, the best way for most of us to make emerging market investments is through funds that specialize in them. A fund will not only select the most promising investments in the country it follows — it will also offer greater safety due to its diverse portfolio.
I think the most promising emerging market is Brazil that’s finally starting to recover from the devastating Covid-19 epidemic. This large South American country produces products as basic as soybeans, to advanced jet airplanes — and nearly everything in between.
Brazil looks particularly attractive now due to the global commodity boom. The country is a major supplier of agricultural products, iron ore, steel, oil and natural gas, cars and trucks, aircraft, paper, coffee, and dozens of other exports, to a world that’s eager to buy them. China is at the top of Brazil’s growing customer list.
Another of Brazil’s assets is its young, energetic workforce. The government also encourages small business development including technology startups. Political approvals needed for new enterprises are also minimal to non-existent – which is in sharp contrast to the stifling red tape bureaucracies found in many emerging markets.
Although several leading Brazilian companies are traded on US exchanges, I think the best way for investors to benefit from the country’s economic growth is through the iShares MSCI Brazil ETF (EWZ).
The fund tracks the performance of the MSCI Brazil 25/50 Index. I think EWZ will be an excellent long-term performer. It should make a particularly good addition to a family trust.