U.S. investors are obsessed about the fiscal cliff, but overseas investors are looking on with disbelief at our dysfunctional political process, averting their eyes and moving on.
Opportunistic U.S. institutional investors are doing the same, putting their money in countries where the budget and tax legislation process is not held up year after year in arcane disputes that serve little purpose other than to enhance or diminish political fortunes.
Click to EnlargeAs a result, major stocks around the world are forging much stronger paths technically than their equivalents here in the United States. And that goes for virtually every sector, including health care, banking, technology, food processing and materials production.
One of the easiest ways to see this is via an exchange-traded fund that measures all stocks in the developed and emerging markets outside the United States, called the Vanguard FTSE All-World ex-US ETF (NYSE:VEU). It is actually back to the highs of the springtime, while U.S. indexes are now well below that level. The chart to the right compares the VEU with our S&P 500 since the June low of the past summer.
Now before we get completely worried about the U.S. economic recovery, I want to call your attention to a great article that ran in Bloomberg that looks at three bearish economists — David Rosenberg of Gluskin Sheff, Mohamed El-Erian of Pimco and David Levy of Jerome Levy Forecasting Center — who see the potential for a recovery on the horizon.
Each says that they see some hopeful signs, including a housing market that is healing, a more competitive manufacturing industry from companies like TransDigm (NYSE:TDG), and technological breakthroughs that could boost productivity. “More so than at any time in the past three years, I am doing whatever I can to identify silver linings in the clouds,” Rosenberg told the wire service.
None of the three is ready to declare the all-clear, but they do see the value in taking some prudent risks. El-Erian suggests that investors look outside the United States for economies that are growing faster and put money in companies and nations with strong balance sheets, including Brazil and Mexico. He said that investors also should actively manage their portfolios to protect against downside risks and take advantage of upside surprises that might materialize through the use of options and futures.
Click to EnlargeCompanhia de Bebidas das Americas (NYSE:ABV) will allow you to do just that. It’s a large manufacturer of beer and soft drinks primarily in South America and the United States. Some of its most familiar beer brands are Stella Artois, Labatt Blue and Kokanee. The company is also the licensed bottler of Pepsi, 7UP, Lipton Ice Tea and Gatorade in Latin America. Shares peaked in April this year, then slipped $10 into the summer and have slowly recovered. They just popped over resistance as shown in the chart, and the next month tends to be a positive time of year for the shares. Buy ABV stock.
Options Alternative: Buy to open ABV Jan. $40.99 calls. Hold for a $2.45 target.
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