Six Trends to Profit From 42 comments
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We’re all familiar with the story about the frog. If you drop him in boiling water, he’ll jump right out. But if you put him in cold water and then heat it to boiling, he’ll adjust gradually to the increasing temperature, be lulled into inaction, and die.
It’s not true; the frog will eventually jump out. But as a cautionary tale, it reminds us that we should be wary of inaction in response to gradual changes in our environment. In other words, as change happens–and it happens every day–you must adapt. If not, you’ll fail to thrive … and you might die.
So today I want to mention six major changes in our own environments, and discuss how we might adapt to them, and profit from them. These are big factors, messy and complicated–nothing as simple as rising water temperature. But if you are alert to the existence of these trends, I believe you’ll be more able to detect investment opportunities–and pitfalls–in the years ahead. So here we go.
Six Big Trends:
1) The Improvement of American Balance Sheets
I was alerted to a major factor of this trend over a decade ago by Harry Dent, who noted that as Baby-Boomers aged, they would pay off their mortgages and focus more on saving. But I thought the change would come gradually; instead it began with an 18-month fall off a cliff. Now that the trend is in place, expectations for future prosperity have been reduced, and credit has been demonized, I think the trend will continue. In fact, that’s a concept we believe in strongly at Cabot. “A trend, once in place, tends to persist longer and go farther than people expect.”
So what does America look like if our appetite for credit continues to shrink, if we pay off our debts and build our savings accounts? Interest rates stay very low. Consumption falls. And the GDP growth rate stalls. I’ve long thought we should focus more on balance sheets as a measure of our financial health and not just incomes, and I believe my wish may now be coming true.
I like Visa (V), which is a dominant force in the debit-card processing business.
2) The Slimming of American Bodies
With three-fourths of Americans overweight, the trend to obesity has peaked. Now it’s time to go the other way. Looking ahead, I expect reduced subsidies for agribusiness, particularly those responsible for high-fructose corn syrup. It looks like taxes on soft drinks are on the way. I expect a gradual retreat from junk food and calories and growing support of healthier food.
I like Whole Foods Market (WFMI) and United Natural Foods (UNFI) (the biggest organic foods distributor). If you’re brave, short Coca-Cola (KO).
3) Growing Government Involvement in Everything
The past century has brought the birth of the income tax, Social Security, Medicaid, Medicare, the Department of Education, the Department of Energy, the Department of Health and Human Services, the Environmental Protection Agency, the Department of Housing and Urban Development, the Department of Transportation and the Department of Veterans Affairs. The past decade alone has brought the USA PATRIOT Act, the Department of Homeland Security (including the beloved Transportation Security Administration), the Troubled Asset Relief Program, the Housing and Economic Recovery Act and more. The trend will continue.
I like Orion Marine (ORN), a leading marine contractor primed to benefit from stimulus spending.
4) The Slimming of American Vehicles
The U.S. Government’s new Corporate Average Fuel Economy (CAFÉ) requirements will be phased in from 2012 to 2016, resulting in vehicles that are smaller, lighter and more aerodynamic. You’ll see fewer eight-cylinder engines and more turbochargers. And you’ll see more hybrids … and eventually electric vehicles.
On a related note, gasoline will slowly become less plentiful, as the cost of extraction of this limited resource continues to rise. Prices may eventually return to $4 per gallon. On the other hand, if the growth in demand is sufficiently offset by growing use of new high-MPG vehicles, the price increases will be slower.
I like Tata Motors (TTM), the Indian automaker of the $2,500 Nano.
5) The Rise of Alternative Energy
Solar power and wind power will continue to take market share, as government subsidies increase and economies of scale reduce production costs. Alternative energy will remain a drop in the bucket compared to the vast fossil fuel-based energy infrastructure, but the upside of that is enormous long-term growth potential.
I like First Solar (FSLR), the leading making of photovoltaic power systems.
6) Growing Government Influence on Healthcare
Over the course of my life, insurance companies have replaced doctors as the deciders in the healthcare system. Now it appears that the federal government will replace the insurance companies. The upside will be better coverage for the underprivileged. The downside will be less profit for insurance companies and rationing of healthcare for most Americans. There will, however, be higher-quality care if you’re spending your own money, just as in the education system today.
I like Quality Systems (QSII), a leading provider of computer-based practice management systems and medical records applications for doctors and dentists.
In conclusion, look forward. Think big. Less than a century ago, investors who hung on to the stocks of buggy whip makers suffered when the world fell for the automobile. Ask yourself, “In 2009, which industries are prone to long-term shrinkage, and which are primed for explosive growth?”
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This article has 42 comments:
Also people will reduce spending on exercise, and employer sponsored gym memberships are on the wane. Not a recipe for reduced obesity.
> jack
As to slimming waistlines, forget it. No way this will happen any time soon.
More govt involvement in everything: Yes, and it's a crying shame.
Slimming of American vehicles, perhaps (slowly).
Rise of alternative energy: Not quite yet, the current energy sources are not expensive enough (nor the cost of alternatives cheap enough). When it happens, it will happen naturally. We don't need government "help" to make this happen (i.e. I truly hope Uncle Sam doesn't try to hasten things through taxation).
Increased involvement of govt in healthcare; yes I am afraid so.
Nonsense. While there be short term adjustment problems from the rapid change, consumers need to save so there will be money available for business investment, as well as financing the federal deficit. The alternatives are either foreigners supplying the funds or printing money. If foreigners supply the funds for business investment this means the profits will go to them. If foreigners are supplying the money for our government's operations this means the U.S. is very vulnerable to them politically, that we are no longer in control of our destiny. Printing money will result in inflation.
On May 30 08:42 AM john s. gordon wrote:
> it seems to be true that obesity thrives in low-income neighborhoods.
> part of the problem is that the poor (lacking transportation options)
> buy from their local merchants who overcharge them for basic necessities,
Unless people form the mindset that exercise is an absolute requirement, it will be considered secondary and most likely abandoned.
High fructose corn syrup & diet drinks are the problem, not sugar. As long as people think they can eat more while drinking diet drinks, obesity will persist. HFC appears to inhibit the body's ability to metabolize sugars. I only drink Jones Soda, Blue Sky & Mountain Dew Throwback.
The Slimming of American Vehicles
CAFE is what got The Big Three into trouble. Smaller and more efficient vehicles are going to be here only when fuel prices go up and stay up due to either higher taxes or scarcity or both. Many governments (states) are going to raise taxes because of declining fuel use caused by better mpg.
The Rise of Alternative Energy
Better to buy and ETF, rather than bet on a single volatile stock.
My east-coast family constantly reminds me that, "We're not Portland!" So when I look around with my eyeball survey, I am well aware that everywhere does not look like here. Just thumb-down me if your location isn't like mine, ok?
Nonetheless, 24-Hour, LA, and myriads of other health and fitness clubs seem to me to be more ubiquitous than pubs used to be.
I seem to recall reading that when women, in particular, are challenged with massive change, e.g., getting laid off, they throw themselves into exercise and volunteering.
Some people began riding bikes when the oil crisis happened, and then they got addicted to the added testosterone, human growth hormone, and other biochemicals that exercise generated, and they bought spandex and decided to keep it up. Some of them bike to the health club for their spinning classes (stationary biking, to music).
I just concluded a clinical research trial on exercise and cancer survivors, and persons interested in staying around a while will be hearing about exercise more, I wager.
When City Repair, Portland, called for volunteers to DePave an asphalt lot for a future garden, they were nearly overwhelmed with volunteers. People wanted to sweat in the sun to music to liberate dirt. Organizers had to make an emergency call for faster drop-box pick-up. There's a YouTube.
We will continue to have wild ends of the exercise-non-exercise spectrum. Betting on particular players is tough because the competition is so stiff. I rather doubt there's a health-club ETF, but I think it would be fun to watch. I understand the ancient Hebrews got pretty upset with the Greeks when Hebrew kids stopped reading and started hanging out in gyms.
"I seem to recall reading that when women, in particular, are challenged with massive change, e.g., getting laid off, they throw themselves into exercise and volunteering."
And while watching, here are the caveats: trends that do take root may take longer to play out than most investors have patience for at the moment. And even when the trend is clear, the stock picks may shift suddenly. For example, TTM has just announced that it is cutting its CAPEX budget due to severely reduced profits in the last quarter; in my mind, that puts it out of the running for leadership in this sector, at least for awhile. Maybe Honda or Nissan is better positioned.
On May 30 12:13 PM La Marque wrote:
> The Slimming of American Bodies
> High fructose corn syrup & diet drinks are the problem, not sugar.
> As long as people think they can eat more while drinking diet drinks,
> obesity will persist. HFC appears to inhibit the body's ability to
> metabolize sugars. I only drink Jones Soda, Blue Sky & Mountain
> Dew Throwback.
>
> The Slimming of American Vehicles
> CAFE is what got The Big Three into trouble. Smaller and more efficient
> vehicles are going to be here only when fuel prices go up and stay
> up due to either higher taxes or scarcity or both. Many governments
> (states) are going to raise taxes because of declining fuel use caused
> by better mpg.
>
> The Rise of Alternative Energy
> Better to buy and ETF, rather than bet on a single volatile stock.
It's all about the calories.
> The Slimming of American Bodies
> High fructose corn syrup & diet drinks are the problem, not sugar.
> As long as people think they can eat more while drinking diet drinks,
> obesity will persist. HFC appears to inhibit the body's ability to
> metabolize sugars. I only drink Jones Soda, Blue Sky & Mountain
> Dew Throwback.
HFCS may indeed turn out to be uniquely nasty, but you're wrong -- total calories are the problem. Try drinking water instead (or plain unsweetened iced tea if you want the caffeine). Soda, whether sweetened with cane sugar or HFCS, is for dessert, not hydration.
The idea that regular consumption of Jones Soda or Pepsi Throwback -- tasty as they are -- is somehow a healthy choice is completely ridiculous, and only serves to show how far away from reality this debate has drifted.
On May 30 08:42 AM john s. gordon wrote:
> it seems to be true that obesity thrives in low-income neighborhoods.
> part of the problem is that the poor (lacking transportation options)
> buy from their local merchants who overcharge them for basic necessities,
They are not going to make any profit as the cost of production is on rise in the India's inflationary environment. Also they have a way too much debt. Not a good pick for long term investment.
<If you’re brave, short Coca-Cola (KO)>
Agree with you. It is going to take some time for the consumers to realize that they are paying for junk drinks like cola and pepsi.
Cycling is great, but I don't expect it to substitute for trucking and other transportation needs. Whenever I hear someone wax rhapsodic about the virtues of cycling, I picture a horde of cyclists strugglilng to carry tons of frozen McDonald's burgers and fries from warehouse to store -- each and every store -- twice a week. And another horde for Wendy's. And another horde for each grocery store. etc... And, of course, we'll all make several trips to and from the mall to bring back all of our stuff.
The notion that our society could function without lots and lots of fossil fueled vehicles is ridiculous fantasy. One can observe carless societies throughout the world. They are not productive.
On May 30 04:06 PM Jimbo wrote:
> Several years ago I saw a film based in South
> Africa: "The Gods must be Angry" I think was the title. The biggest
> laugh was when a housewife got in her car to drive about 50 feet
> to place a letter in her mailbox. She then returned her car to the
> garage.
That said, $1.8 Trillion in debt in a single year that largely finances political pay-offs is a frightening example or irresponsible credit.
On May 31 04:40 PM Stomarkt wrote:
>
> Total credit market debt as a percentage of GDP has risen from 130%
> of GDP in 1952 to 350% of GDP today. The various bailout
> and stimulus schemes enacted in the last year will drive this percentage
> above 400% in the near future. When a country allows
> this much debt to accumulate versus its GDP, they have done something
> seriously wrong. The country’s politicians, business
> leaders, and citizens have all contributed to this disaster.
>
> I came across this interesting site..check it out url.moosaico.com/10424
> Econ & Finance Articles Updated Daily
On May 31 05:31 PM Wisdom vs. Information wrote:
> who are the four idiots who thumbed down the geoffsters simple statement
> of facts on poor eaters? if you do not like the facts, just disagree
> with them, brilliant!
'the gods must be crazy'.
in one scene, a guy threw an empty coke bottle from his airplane, it landed in soft sand unharmed, the natives having never seen one of those kept it & venerated it as some sort of a talisman.
> jack
On May 31 05:31 PM Wisdom vs. Information wrote:
> who are the four idiots who thumbed down the geoffsters simple statement
> of facts on poor eaters? if you do not like the facts, just disagree
> with them, brilliant!
the point i was trying to make & evidently didn't make very well is that the local stores in question stock mostly nonnutritive starchy stuff & to get quality food you have to drive crosstown. my son lived in a low- income section of richmond for a number of years & had to go over to ukrop's in careytown to get his healthy food.
> jack
On May 31 11:17 AM guruji wrote:
> <I like Tata Motors (seekingalpha.com/symbo...), the Indian
> automaker of the $2,500 Nano.>
> They are not going to make any profit as the cost of production is
> on rise in the India's inflationary environment. Also they have
> a way too much debt. Not a good pick for long term investment.<br/>
>
> <If you’re brave, short Coca-Cola (seekingalpha.com/symbo...;
>
> Agree with you. It is going to take some time for the consumers to
> realize that they are paying for junk drinks like cola and pepsi.
On May 31 04:46 PM milkchaser wrote:
> That would be "The Gods Must Be Crazy", I think.
>
> Cycling is great, but I don't expect it to substitute for trucking
> and other transportation needs. Whenever I hear someone wax rhapsodic
> about the virtues of cycling, I picture a horde of cyclists strugglilng
> to carry tons of frozen McDonald's burgers and fries from warehouse
> to store -- each and every store -- twice a week. And another horde
> for Wendy's. And another horde for each grocery store. etc... And,
> of course, we'll all make several trips to and from the mall to bring
> back all of our stuff.
>
> The notion that our society could function without lots and lots
> of fossil fueled vehicles is ridiculous fantasy. One can observe
> carless societies throughout the world. They are not productive.
>
>
> On May 30 04:06 PM Jimbo wrote:
I fervently believe, that had we continued to develop nuclear energy after Three Mile Island, the direction our country would have taken would have helped us to be strong, independent, and and kept important jobs here. I also believe it is imperative that we use the resources we have in abundance- coal and nat gas- and that we must drill for additional fossil fuel on our own lands.
On May 31 07:21 PM optionsgirl wrote:
> Dear Milk Chaser: Cycling is great when it's optional. That's why
> our Indian brothers crave the Tata Nano. Cars improve our quality
> of life.
How come you leave out the most investment-relevant trends of all: the rise of hard-working and frugal China and India?
It truly is an epidemic in the US !
Years ago I worked with a " tiny " thin lady who really " inhaled " the groceries at times . One day I asked her , Robin , how do you stay so thin ?" Her reply was quick + true . She said , " #1 , I only eat when I am truly hungry , + quit eating when I am 80% full ". i'll tell you , works like a charm . Also GREEN tea + green tea extract make one reduce weight . I even gave it my dog who was chunky , she eats well , but now thin . A very good , cheap supplement to take .I will also add , Robin is the mom of 3 children + worked full time !
Mr. Lutts, I don't buy it. Americans are saving FOR NOW, but I don't see them cutting out lattes, SUVs, and granite countertops for long. I think we're too spoiled, pampered, and unwilling to defer gratification. I hope I am wrong, but--working in criminal law--I think it's way to difficult to change human/cultural nature. We as Americans believe we're entitled to consume like there's no tomorrow, and--despite a temporary hiccup--we are going to continue to do so whenever we can.
I remember when I was a kid and the 1990s were ushering in. It was supposed to be the "we" decade, all the trend watchers said, after the "me" decade of the 1980s. The trend watchers also said that Americans would be doing a lot more "coccooning" and doing things close to home, not traveling or attending sporting/entertainment events. They were wrong on both points.
Interest rates won't go up because of a larger money supply (if played right, that actually lowers rates), but because prospective debt suppliers (buyers of T-bills, primarily) are worried about either risk of repayment (default) or quality of repayment (future payment currency is worth significantly less). If the government can show that entitlements can be reigned in, this won't be a problem. Big if there, for sure, but not impossible.
On May 30 08:34 AM fxmaven wrote:
> I would be shocked to see a reversal of obesity in America. Economic
> hardship, unemployment, leads consumers to seek low cost, high calorie
> options, i.e. starches, bread, less meat, fewer vegetables. Organic
> is clearly going to decline. McDonald's is replacing other (healthier)
> dining options, look how successful they are in the Great Recession.
>
>
> Also people will reduce spending on exercise, and employer sponsored
> gym memberships are on the wane. Not a recipe for reduced obesity.
Well let me introduce you to the "new reality", America is the buggy whip maker, why would you even invest in America when you can invest in Australia which gives you currency upside, commodities upside, China upside and the safest banking system in the world?
Thats 4 trends to profit from that are far superior to any you will find in America.
Health care reform will be the icing on the cake for this massive debt monster we have created in this country. I present five reasons why it is doomed to fail (in comparison even to the somewhat mediocre successes of European socialized medicine):
1. Our population is roughly 10x the size of the average nation employing broad net health care services (EU or Canada, for example)
2. Our population is much more unhealthy... 60% of Americans are obese... We have the world's largest concentration of diabetics... These facts are bad enough in their own right, but there is an exponential effect when combined with the first fact.
My wife is a nutritionist. Because of this fact, I am aware of the fact that practically everything that you find in an American grocery store is (at the least) unhealthy for you in some way and (at the worst) actually the direct cause of many maladies that are straining our healthcare system.
3. America's attitude vs. a European attitude. You will find in most European nations a sense of community, history, and consensus on social policy. Not so here. Again: at the very least, you have strong bipartisan divides which will ensure a compromised and anemic system. At the worst, you have to consider how the "me first" attitude which most Americans don't even know they have will play into this system. Yes, I'm talking about you and me, right now. More on that in my next point...
4. American education on food is dismal. When you compound this with point #1 and #2, you once again have a recipe for disaster. The food lobby's effect directly contributes to an overabundance of bad food choices. Do you know that the "Food Pyramid" has been debunked? Do you know that it is still taught in public schools? Why do you think that is? Do you know that the food pyramid was created by a conglomerate of food manufacturers?
When you combine this poor education with overeating, you once again compound the problem. Almost 75% of Americans eat more than their body requires because the crap they are eating doesn't have much nutritional value. Thus, they need more quantity to get the few nutrients that can be found in the average Big Mac or Hormel Chili can (again, more facts from my wife).
5. Finally, the money issue. The current problem with our nation's finances is that about 70% of our GDP is consumption based spending. Nothing productive. Buying cheap plastic $h!t from China. If we go to nationalized healthcare, we will have the same problem... BUT MORE OF IT. Once again, the compounding effect. In raising taxes, we take more "growth capital" out of the marketplace and spend it on tens of millions of lower and middle class families who are eating themselves to an early death... while they are blowing trillions and trillion$ on care that could be avoided if they just got off the damn couch and on to a Stairmaster.
In closing...
If someone else has the right to take MY money for their health care, then I should at least have the right to tell THEM what they are going to eat and how often they are going to get outside and run 5 miles. That's just as fair as reaching into my wallet to pay for the problems that someone perpetrated on their own self.
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Believe it or not, I don't think peoples penchant to spend has been significantly sated even with the pain of the 2008 market. Just as you say, trends don't turn around that fast.
As to slimming waistlines, forget it. No way this will happen any time soon.
More govt involvement in everything: Yes, and it's a crying shame.
Slimming of American vehicles, perhaps (slowly).
Rise of alternative energy: Not quite yet, the current energy sources are not expensive enough (nor the cost of alternatives cheap enough). When it happens, it will happen naturally. We don't need government "help" to make this happen (i.e. I truly hope Uncle Sam doesn't try to hasten things through taxation).
Increased involvement of govt in healthcare; yes I am afraid so.
i'd like to remind you of more government intervention . this will dictate the smaller ,more efficient cars again,all governments are getting involved in the Rise of alternative energy: as mandates increase here as well.