Will Mr. Market present a new all-time high? Should we join the party? We maintain the TSX as the mo...
3 Common Themes to Understand
09/28/2011 3:00 pm EST
Tom Hudson of the Nightly Business Report discusses what he sees as the three common themes that investors need to understand to stay on top of their investments, in this exclusive interview with MoneyShow.com.
Tom, I know you’ve got a lot of mail in your inbox. Do you see any common themes?
Yeah, there are three common themes that we’re seeing. One is be sure to get paid if you’re a shareholder. That means have a stock that’s got dividends and likely increasing dividends.
Two is go global. We know the story with the gridlock in Washington. We’ve seen the Federal Reserve on hold and the kind of damage that’s done to the US dollar long-term, so go where the growth is. That’s likely in emerging markets in Latin America and emerging Asia.
And be sure to have large multinational companies that may be based in the US, so there’s no accounting questions and those kinds of things and regulatory issues, but that have exposure in those areas where there is global growth.
Three, I mentioned the Federal Reserve, it’s on hold, it has told us don’t expect us to raise the cost of cash until 2013, call us in two years. Don’t fight that trend.
But that’s an interesting trend, the Fed saying we’re going to hold rates steady. Is that almost an admission that they’ve run out of ammunition?
On the negative side, that is an admission by the Federal Reserve that economic growth is tepid, is lackluster...some would say worrisome.
Certainly the Federal Reserve is concerned enough to say we’re going to keep money cheap until 2013. That has other implications. We’ve seen that in metal prices and gold prices and whatnot.
I also think that it means that the Federal Reserve is trying to keep some of its powder dry. I think that it still has some tools that it can use to try to invigorate the economy—give it a sugar high—but right now, it would rather keep those in reserve at the Fed as opposed to deploy them right away.
You mentioned going global. We’ve seen a lot of turmoil going on in Europe. Do you think that once the dust settles, we’ll see some opportunities there, or would you stay in the Asian region?
I think most of the sources that we talk to are looking at Latin America especially. Brazil being a key area, but also Chile—it’s got a lot of natural resources.
You’re also looking in the developed economies in Asia. Australia, for instance, and New Zealand, strong commodity based economies that have very low public debt-to-GDP ratios, so they’re not in trouble like we’re seeing here in the US, which is perceived trouble, or the real trouble we’re seeing in the Mediterranean.
In Europe, it is an aging demographic, it is overleveraged governments, and it is slower growth ahead, at least in Western developed Europe. Eastern Europe and the new companies to the EU are a little bit different, have maybe a slightly higher growth trajectory.
You mentioned dividends, but I also want to ask you about corporate insider purchases, the buying and selling of their own stock with their own money, not just...
The legal kind of inside buying . . .
Yes, definitely yes. What do you think about that?
It’s a good indicator, and it’s a nice tool to use, but it’s not a tool that fits every instance. There’s been a lot of academic studies that have looked at insider buying as an indicator. Whether or not it’s an accurate indicator of a stock price ready to move higher, it’s not clear that it is.
Each and every insider buying instance is for personal reasons. There are different reasons for this to happen. I think executive compensation has changed significantly since the days of Enron and WorldCom.
You are seeing some restricted stock, restricted options, these kinds of things, so it’s not the only way to look at a signal to buy a company if an insider is buying. But it certainly is a nice endorsement by that insider that the company they’re running they clearly feel bullish about.
Related Articles on MARKETS
How the yield curve can suggest the next recession, the amazing volatility of bitcoin, and three ris...
Today’s focus is in the US auctions, the FOMC later and the mood for risk. The GBP is an examp...