2014 started with a slam, not a boom. Currencies have been crashing. And emerging market stocks have tanked.
So why invest in international markets???
Because the fundamental case for these stocks is incredibly bullish. And now, thankfully, the best international stocks are selling for even less than before.
The fundamental argument is a subtle one, but don't let that distract you from how powerful it truly is. Read on to learn more.
Global growth in 2014 depends on the good Ol' United States of America!
In this piece, I am going to show you that the U.S. economy has healed more than most investors realize. The first sign of that: its budget situation has become completely normal. In turn, building strength inside this dominant economic engine is being widely felt outside it. The prospects for U.S. growth is projecting a much more solid picture of global growth than investors realize.
U.S. Budgets Deficits Don't Look Scary Anymore
To start, global investors have indirectly gotten big news on global growth from U.S. budget circumstances. The new budget deficit is no longer a threatening number.
"On the broader economic and budget outlook, the Congressional Budget Office (known as the CBO) said the U.S. budget deficit would fall from $680B in the 2013 fiscal year to $514B this year and to $478B, or -2.6% of the economy, next year. This is far from the $1T annual deficits that marked most of Mr. Obama's first term in office." – Financial Times
More . . .
2 Stocks to Shake the World
A Russian info-tech colossus has already expanded into 6 other countries. A media company could become China's NBC with 5 times as many potential viewers. Both stocks have explosive 100%+ gain potential. Yet you can trade them easily on U.S. exchanges.
These powerhouses were uncovered by Zacks' international initiative to add diversity to our members' U.S. holdings. An added benefit is to ride the tailwinds of stock valuation discounts, and economies growing much faster than our own. Normally closed to new investors, our international portfolio has been re-opened. But only until Saturday, February 15.
The U.S. gets to a -2.6% deficit in 2015? That's impressive! Since the Congress agreed to a two-year budget deal, the only way to pull that off is to revise up future GDP growth rates, and push forward tax deal expirations.
Here is what the CBO projected for U.S. macro... "The CBO report also offered new economic projections, estimating unemployment remaining at 6.7% during 2014 and falling to 6% by 2016. GDP growth is expected to accelerate from +3.1% this year to +3.4% in 2015 and 2016, but fall to a much slower pace of 2.2% between 2018 and 2024." – Financial Times
So the CBO says the U.S. economy peaks in its cycle in 2015 and declines to +2.2% U.S. growth afterwards? Those figures look a little suspicious. I think the CBO might bring down the GDP growth rate for 2015. And the CBO might bring up the GDP growth rate after 2015. Nonetheless, the U.S. budget outlook is NORMAL for the 1st time in 6 years.
Should Non-U.S. Investors Care?
Yes, international investors. Keep the CBO's positive budget projections in mind. But ultimately, pay the most attention to how final U.S. GDP growth numbers play out. These numbers directly impact a company's top line, regardless of where it is located.
Final U.S. GDP numbers come from the Bureau of Economic Analysis (BEA), not the CBO. In light of that, re-read the CBO budget comments after digesting these BEA figures. The BEA says U.S.A. GDP in Q4 totaled $17.1T. A year earlier in Q4-12, it totaled $16.4T. That means the U.S.A. added +$700B in nominal GDP last year, a nominal GDP growth rate of +4.2%. Break it into +2% inflation and +2.2% real growth. That's the CBO long-term projection! Getting U.S. real growth rates to +3.1% in 2014 and +3.4% in 2015 requires ongoing momentum. And the U.S.A. did a preliminary +3.2% real GDP growth rate in Q4. That's the CBO's short-term projection!
To complete your thoughts as the coming chapter in global expansion unfolds, keep this in mind: The role of monetary stimulus may be grossly exaggerated. In my opinion, investors and the media paid too much attention to central government monetary initiatives grouped into Quantitative Easing (QE). QE was seen first in the USA; then a version spread to Europe; and finally, still another version to Japan. Don't get me wrong. QE has been essential to growth and stocks. In the budget context, QE lowers interest payments, which helps lower deficits. Still, heavy monetary and fiscal policy attention displaces a direct focus on the private sector.
The world's best companies did not stand still. Quite the contrary! They seek out, create, and exploit global growth wherever they can find it.
It's Subtle But True -- U.S. GDP Growth is CRITICAL Outside It!
What's the most overlooked element in global resurgence? - The huge potential opened by real U.S. GDP growth to non-U.S. firms. Investors labeled +2.2% GDP growth rate a "muddle through" economy. Firms outside the U.S. saw it as a beacon of opportunity.
Inside International Trader, we seek to benefit from three tales of U.S. expansion from three European companies: a Russian firm, a Greek firm and a Spanish firm. These three top companies were stuck at the very heart of all kinds of chaos. Yet, each managed to not only survive -- but also thrive. Each did it, in no small part, by acquiring U.S. assets, opening a U.S. subsidiary, or completing a U.S. joint venture.
More important, the sum of their stories shows HOW important U.S. GDP expansion has been to companies outside the U.S. Consider the GDP table below. It shows a steep annual loss in GDP in both Greece and Spain, and a GDP gain of +$130 billion in Russia from 2011 to 2012. The sum of GDP growth in these three countries came to -$43 billion. For the U.S., its standalone GDP gain was +$710 billion in the same year.
Source: IMF Statistics, all in Current U.S. Dollar Billions
What a difference! Absent U.S. GDP growth - revenue growth for these top Zacks Ranked international firms could shrink.
What Can This Mean for Your Portfolio?
Today, there is a way to take advantage of U.S. GDP growth without putting all your investment eggs in the U.S. basket. We call it the Zacks International Trader.
With it, we move outside the borders of the U.S. to explore exceptional opportunities where 78% of the world's GDP is created. We can take advantage of foreign companies expanding into the U.S., stocks selling cheaply relative to U.S. counterparts, and enterprises rooted in economies that are growing much faster than the U.S.