Rise Of The Droids And The Downside To Globalization

Includes: GOOG, SPY
by: Lou Basenese

Each Friday, we usher in a few timely graphics to help impart financial and economic wisdom. This week, I’m serving up an update on the mobile revolution. Then it’s on to the sad state of (un)employment. Finally, I’m issuing a stern warning to look before you leap into an S&P 500 Index fund. You might not be buying what you think.

Pictorial enlightenment awaits. So, let’s get to it.

Attack of the Droids

As it turns out, our departing Fed chairman is a prince of sorts. That is, the prince of wireless, as Bernanke’s tenure just happened to coincide with one of the biggest booms in history. Not even his bad policy making could stop this train.

Google (NASDAQ:GOOG) just announced an impressive milestone: Android activations hit the one-billion mark. Are there any lingering doubts that we live in an increasingly and overwhelmingly mobile world? If so, this chart should put them to bed.

Over the past two years, mobile Internet data has almost tripled as a percentage of total internet traffic. Yet we’re nowhere near the peak. How can I be so sure? Because smartphone penetration sits at a modest 21%. So we’ve still got billions upon billions of people left to get on board.

Bottom line: Smartphones radically (and permanently) changed the way we communicate and access the internet. It remains the biggest tech transformation. Ever. But we’re still in the early innings of growth. So we’d be stupid not to own a few mobile companies in our portfolios. (Just saying.)

It’s All About Employment

Is Fed Chairman Bernanke truly gauging the employment market for a good time to begin his highly anticipated taper? If so, this chart all but guarantees that he’ll wait.

The labor participation rate (the percentage of Americans who have a job or are looking for one) stands at a 34-year low. A whopping 90 million Americans are no longer in the labor force. Bottom line: The downtick in the widely reported unemployment rate is a total sham. The real unemployment situation keeps getting worse. No way the Fed could possibly justify a September taper.

Caveat Emptor

Want easy exposure to U.S. stocks? All you have to do is buy a low-cost ETF that tracks the S&P 500 Index -- like the SPDR S&P 500 (NYSEARCA:SPY), right? Wrong!

New research from Howard Silverblatt, senior index analyst at Standard & Poor’s, reveals the true impact of globalization.

An increasing percentage of total sales for S&P 500 companies comes from overseas. Almost half, in fact. If we parse the data by sector, the technology sector is the most exposed to foreign markets. A whopping 58.32% of sales came from overseas in 2012, according to Silverblatt’s tally.

Bottom line: When you buy large-cap American companies, you’re getting much more global exposure than you probably bargained for. The solution? If you want the purest exposure to the U.S. economy, stick with U.S. small caps. Why? Because Howard Silverblatt told me so. In a recent conversation, he shared that U.S. small caps carry the least exposure to foreign sales. And now we have four compelling reasons to be bullish on small caps.

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