Interview Part 3
Global Investment Outlook 2011
Global Opportunities and Risks
1. Where are the highest growth economies for 2011?
High growth countries include BRIC countries (Brazil, Russia,
India, and China), GCC countries especially Qatar and Saudi Arabia, the Asian
Tigers and Australia. China and Africa have strong growing relationship; as China
continues to grow, we will see the Chinese offer more infrastructure development
to African governments in return for natural resources and farmland to support
its vast population. It is a natural and mutually beneficial relationship.
2. Where are the highest growth sectors?
Global commodities including oil, gas, metals and
agricultural products. Although we are likely to see periods of volatility, I
see a bull market trend overall. In particular, the growth is tied into the
emerging markets with strong supply and demand factors. As the emerging
nations develop their economies, they have an enormous demand for better food,
more fuel, better housing, infrastructure, and telecommunications. Commodities
have shown a high correlation to inflation, especially in high inflation
periods. In addition to diversification, the commodities asset class may also
protect investment portfolios against an expected inflation or a declining local
Let me be clear, at International Institute of Management we do
not sell investments or investment advice; we sell knowledge to help our clients
make better investment decisions, thus it is always important to fully understand
the performance variables, benefits, and risks of each investment and why you’d
want to add each investment to your portfolio in amounts that fit your risk appetite.
Despite my bullish overall outlook, there are several risks to
commodities going into 2011. The number one investment risk variable is Mother
Nature. Other risks to the recovery and commodities demand include rising
interest rates to
combat inflation. In the US, the risks are the failure of the new round of
quantitative easing, and spending cuts by US state and local governments. Crude
oil could easily hit 3 digits. Its price can increase by 50% to 100% if the
war lobby has its way in US foreign policy. In the EU, there is a risk for the
re-emergence of a debt crisis. Add to that the dangers of domestic policy-making errors that could allow protectionism or price controls to
infringe on the marketplace.
Unlike many in the investment community, I classify these high volatility assets as speculative investments. Although I
would invest in them, I would keep their share of the portfolio to minimum and
would monitor them closely.
3. What do you think of gold and other metals as investments?
Lately, everywhere I travel, I get asked about gold and gold
equities. This has the same eerie feeling of the Real estate bubble in 2006 &
2007. In my opinion, there is still room for growth in Gold prices in 2011. Only
about 1% of all global assets are in gold, and gold is trading right in line
relative to its historical relationship with other industrial commodities and
precious metals. The important thing about gold is that it is the only commodity
that is a currency. Gold is likely to become an even more important part of an
international currency. Although the US took the dollar off the gold standard in
1971, it remains the largest owner of gold in the world for a good
reason. This also explains the support behind the US dollar. Most other central banks hold gold in their foreign exchange reserves.
One reason that led to the spike in gold prices over the past two years is that the
central banks of countries such as China, Russia and India, have all increased
gold as a component of their foreign exchange reserves. Add to that the consumer
and investment demands driven by gold traders and the media blitz exaggerating
the impact of the crises and prophesying the demise of the US dollar soon.
Since gold is one of the most volatile asset classes, keeping it to minimum in
your portfolio is likely to shield you from its volatility. To me, gold belongs
with a class of speculative investments and should be kept to a minimum in
long-term investment portfolios. This statement is valid until the world
adopts gold as the main component of a new international currency.
I will share with you an unscientific tip that
works for me. Whenever several ordinary individuals start giving
me investment tips about real estate, stocks or gold, it is a sign that I
already missed the right entry point and the asset is hot. Although there could
still be room for growth in the price of that asset, the rate of upside growth
is limited compared to the downside. The trick to making money in investments is
to buy an asset before it becomes too popular. You buy low and sell high, you do
not buy high and hope you will sell higher.
So, if I'm a passive investor, I
would not favor buying gold at this time, however if I'm an active trader who
monitors the price of gold in real time, then it does make sense to add it to my
trading portfolio in 2011. As for other metals, I like silver and platinum.
Copper is likely to outperform aluminum, but like other commodities I'd keep them
to minimum in my portfolio.
4. In this uncertain economic climate, in which assets would you
In general, I would look at the stocks of industrials, materials,
trucking, machinery, and coal. They could benefit substantially with the global
economic recovery. However, I do not invest in indexes or sectors funds, I would
only invest in specific companies subject to good valuation and pricing points.
Selecting the right company after detailed research is the only valid investment
strategy; the rest is more speculation than investment.
Over the last two years, many companies have improved their cost
structures and maximized their manufacturing and operational efficiencies that
resulted in higher profit margins, healthier balance sheets, and more cash flow.
Many of these companies have depressed valuations because of the investor's
flight to bonds and gold. When the investment rotation cycle comes back to
stocks, the shares of these firms will rocket upwards. I prefer multinational
companies with more diversified sources of income and who can benefit from the
higher growth of the emerging markets.
With the growth of China and India and their resulting demand on
the energy supply, a new demand will be created for energy efficient products
all over the spectrum including lighting, air-conditioning, power plants, and
engines. As for transportation, I see an increased demand all over the world,
especially in China and India. The Indian's Tata's Nano car, the cheapest car in
the world priced at less than $3,000 will affect not only transportation and
infrastructure, but will send oil prices higher.
Not to forget agriculture companies in emerging markets, with
growing populations and development there is higher demand to improve their diet
(mainly protein). These are good investment hedges against inflation. In the US,
agriculture demand is also increasing due to the mandate to use corn-based
ethanol in gasoline. As farmers plant more corn, supply for soy and wheat can
get tighter, thus raising the prices further. With increasing trend towards
green energy, more corn will be produced. I expect to see rising wheat prices
and instability in many countries that consume bread as part of their daily diet.
I also like some of the undervalued secular (long-term) stocks;
that is the stocks of companies experiencing structural changes in demand for
their products and services that will allow them to grow at rates faster than
the broader technology sector. I like the LCD glass manufacturing, smart mobile
and multimedia companies. The popularity of smart mobiles and internet videos
will increase the demand for higher telecom bandwidth and networking gear
investments. I look for relatively undervalued companies with early product
penetration that will result in a superior growth.
It is important to remember that the only valid investment
strategy is to be highly selective about your target markets and companies. For
example, investment in IT and software businesses in US is less likely to
provide higher returns because the market has entered the maturity stage, on the
other hand, investment in banking software in China can make you rich,
considering that in less developed cities they do not have automated software and
they rely on manual processes and calculators, consequently there is a huge demand for IT
As for oil, I would not be surprised if the price of oil crosses
$100 mark in the short term. In the mid term to long term, I would not be surprised if it increases by more
than 50%. This will reflect well on the oil stocks and oil producing economies.
Oil prices will keep breaking new records until other countries move to nuclear
and alternative energy sources or we discover massive new reserves and increase
production dramatically over the next few years. The same assumptions apply to natural gas, but again
you have to be selective about where to invest. Unfortunately in US we do not
have enough production facilities for natural gas liquefaction plants, and
producers need liquid natural gas (LNG) facilities to put it on boats and export
it, so Qatar and other natural gas exporters will benefit from the growth in
the global demand. Coal prices will also move up with more global development.
As for alternative energy investments, I'm monitoring nuclear, wind and
solar energy technologies. They could pick up steam when the price of oil rises
above $150 and/or they manage to develop new technological innovations that make
them commercially viable alternatives to traditional energy plants.
Government’s investment and funding of R&D can accelerate the development and
commercialization of these technologies.
When it comes to currencies, I like the Australian Dollar (AUD),
Malaysian Ringgit (MYR) and Korean won (KRW) against the US dollar (USD) on
strong growth, healthy balances, and attractive valuations. The main risk for KRW is
with North Korea. I'm also bullish on Indian Rupee and Chinese Yuan, despite
their volatility in the short term. That being said, currency trading is highly
speculative and requires real time monitoring. Therefore, Forex trading should
be kept to minimum in investment portfolios.
5. What countries are you optimistic about?
From a long term point of view, in addition to the BRICS, in
Asia, I'm optimistic about South Korea, Indonesia, Vietnam Philippines,
Bangladesh, and Pakistan. In the Middle East, Egypt, Iran, and Turkey. In Latin
America, I like Mexico and Argentina. In Africa, I like Nigeria, Ghana and South
6. Why these countries?
These economies are sleeping giants. Some of them are burdened
by lack of political stability and immature economic development policies, but
these conditions will not continue for long.
There are three major global trends that are working in their
favor. The first is a freer flow of global capital and the rise of microfinance.
The second is the reduction of global knowledge gap with the rise of the
internet, open source software, open content, and online education. The third is
the rise of India and China manufacturing providing cheaper access to
production, telecom and transportation technologies thus making capital goods
more accessible for these economies.
When you take these economic production factors and combine them
with their large populations, they translate into massive national consumer and
production labor forces. You can see they are poised to ride a virtuous
socioeconomic development cycle.
It is only a matter of time for their economic development
policies to evolve and provide more stability, globalization, governance, and
investment promotion. As their middle class grows bigger and stronger, you will
see more accelerated development like the BRICs. Their economic growth rates
will be much faster than those of the developed countries.
The only caution I have is that on the path of growth, there
will be bubbles and investors have to be careful of them. Some will bet on their
failure as the bubbles bursts, but they will eventually recover.
Innovation and good economic policies are not limited to US & Europe.
We have seen shining
examples with the BRICs and smaller economies like Singapore, UAE and Qatar.
These countries are part of the emerging New World Order. I
would not be surprised if we count some of them among the leading economic
powers in the next two decade.
In about two decades China could take over the US as the world
leading economy and India could be ranked third or fourth. That is assuming that
they do not suffer from slowing economic events such as war with Pakistan or
internal instability with China or other major natural disasters.
Russia has great potential, their human capital is among the
best and they have rich natural resources, if they improve their governance,
they can attract significant global capital and accelerate their economic
What is good about this trend is the reduction in global
inequality in wealth and as the rise of the global middle class. This will also
reflect positively for major US and European multinational companies with
branded consumer products and branded tourism destinations.
All in all
these trends are leading to a virtuous global socioeconomic development cycle. I
hope it is not interrupted or slowed down by wrong policies or other negative
CEO Q Interview
Global Economic Outlook 2011
US Economic Outlook 2011
Global Investment Outlook 2011
GCC Economic Outlook 2011
Lessons from the Global Economic
About Med Jones
Med Jones is the president of International Institute of Management. He is recognized as one of the few experts who predicted the US financial and economic crises of 2008. In January 2007, he challenged the US President's State of the Union Address, Federal Reserve Chairman and world economists. His predictions were the most comprehensive and accurate
among the experts who warned about the crisis.
The original warnings and predictions can be found at:
Jones is a non-partisan technocrat. His predictions are followed by Democrats, Republicans, and Independents. He can be