Ed Yardeni Dr. Ed Yardeni is the Chief Investment Strategist, and a Managing Director of Deutsche Banc Alex. Brown in New York City. He writes Global Portfolio Strategy, which explores issues and trends in the economy and financial markets that are vital to a broad spectrum of decision- makers . Dr. Yardeni has published articles in The Wall Street Journal , The New York Times , and Barron's . He writes a monthly column, The View From Wall Street, for Capital (Germany), Nikkei Financial Daily (Japan), Milano Finance (Italy), FET (Belgium), Business Times (Malaysia),and Jornal Valor (Brazil). He has appeared on numerous television and radio shows, including Wall Street Week, CNBC and CNN's Moneyline. He is a member of Time Magazine 's Board of Economists. Global economic trends -
The New Globally Competitive Economy: invest in companies that can sustain above average earnings growth in highly competitive markets. The end of the Cold War ended the greatest trade barrier of all times. Freer global trade and the globalization of markets will continue. So will the pressure to deregulate national economies and restructure businesses. Global markets will become increasingly competitive. -
The Innovation Revolution: invest in companies with leading edge innovations and relatively little competition, particularly in high-tech and biotech. In competitive markets, business must cut costs, increase productivity, innovate, and sell globally in an ongoing effort to offset deflationary pricing pressure on profits. Most of the benefits of these efforts will go to consumers' pocketbooks, not corporate earnings. However, companies that innovate regularly can be very profitable. But even innovators face competition and risk that high R&D costs will not be recovered. -
Tech II - Wireless and Wired: invest in companies that provide the infrastructure hardware and software for wireless, internet, and optical fiber networks. In the 1990s, during Tech I - the first stage of the High-Tech Revolution - the internet was the 'killer application' that powered the PC boom. During the current decade , wireless technologies are likely to lead Tech II. With wireless communications, companies will be managed on a truly real-time basis. This means that resources will be allocated even more efficiently than now possible, allowing for both dramatic cost reductions and productivity gains. -
Productivity for the Masses: invest in low-tech companies that are using technology to cut costs, to increase productivity, and to innovate. The secular rebound in the growth of productivity during the second half of the 1990s was concentrated in the technology sector, but it should continue and become more democratic during the current decade. Now many low-tech businesses are likely to use technology tools - including wireless, internet, and ecommerce systems - more effectively. -
The Outsourcing Imperative: invest in companies that build B2B systems, and also in outsource vendors . Outsourcing is the modern-day equivalent of the division of labor, which is one of the main sources of productivity gains. B2B is likely to boost the outsourcing trend as companies focus on their most profitable core businesses. -
The China Challenge: invest in capital goods companies, especially technology and telecom equipment manufacturers. The 'China Challenge' should stimulate greater economic integration and prosperity within and among the three major regional economic blocs: -
North Asia - including China, HK, Taiwan, Japan, and Korea -
Euroland - including many new members from Eastern Europe -
North America. Direct investments into China are likely to grow dramatically. A more open China market should also benefit global consumer product and services companies. -
Sweet & Sour Deflation: invest in Treasury bonds and interest-rate sensitive stocks, with low exposure to credit risk if possible. Inflation will probably remain near zero over the rest of the decade. The risk is deflation, not reflation. Peace, free trade, competition, deregulation , technology, and China are all powerful sources of deflation. Productivity-led deflation can be profitable. Unprofitable deflation can cause a prolonged recession . In either case, Treasury bond yields could fall as low as 4%. -
Demography is Destiny: invest in outsource manufacturing in emerging markets and also in consumer electronics suppliers. Populations will age significantly in Japan, Germany, and the United States over the next two decades. Expect more pressure on politicians in ageing nations to cut tax rates, to boost savings incentives, and to encourage equity investments. Invest in asset management companies and, of course, health care providers. Populations remain relatively young in most of Asia, Latin America, and the Middle East. -
Jurassic Park: invest in companies that are likely to be acquired , and also in the investment banks that will collect the M&A fees. Competitive pressures will force many companies to acquire or merge with competitors globally. Eventually, this may revive inflation. But, over the next several years , that's not likely. Consolidation means more rounds of restructuring, and job insecurity. Capital markets will continue to expand and become more integrated globally. -
The Meaning of Life: Shopping! In competitive markets, the only sure winners are consumers. If productivity continues to grow rapidly , then so will real income. The trend in purchasing power will set the pace for consumer spending. The key to global prosperity is Asia, especially China and Japan. If both nations transfer power to consumers with more open markets and tax cuts, then the outlook for global growth and equity investors will be a sweet one. If not, a sour deflationary future would be a real threat. In the sweet scenario, stock prices could double, even triple by 2010. In the sour version, a long- term bear market would result. www.yardeni.com 'High money supply growth is associated with high bond yields. The crucial investment messages are: if money supply growth is high and rising , sell bonds, and conversely, if money supply growth is low and falling, buy bonds.' ”Tim Congdon | |