International Investing

We are living in a global economy yet it seems that many investors often forget that.

Many of the top US multinationals do well over half of their business outside of the USA.  It doesn’t matter where the headquarters are, it’s where the sales are.  About 80% of Apple’s Iphone sales are from outside of the US.  This is just one of many examples where international sales make up the lion’s share of an American company’s sales.

As an investor, I really can’t figure out why the US unemployment numbers have such an amazing ability to move the markets.  We report global sales and then go ahead and report domestic numbers like unemployment rates, housing starts in the US, or US consumer confidence.

There are several reasons that this is ridiculous…

First of all, when a company moves their manufacturing plant to China, the stock might jump a few % because investors can think of all the money saved on not having to pay American workers.  Then a couple weeks later the stock will drop a few % because there is more unemployment in the US.  If it’s true that the Chinese are “stealing our jobs” for example, then the Chinese people are getting paid instead.  It’s a transfer of wealth and not a loss of wealth.  The newly employed Chinese then start to pick up the spending slack lost by the newly unemployed American manufacturers.

We don’t have reliable stats for “global unemployment rates” but it’s not hard to figure out that when a company moves, some people lose jobs and other people get jobs.  The company saves money and are just selling their goods to new consumers.

Someone might argue that the cheap labor in China for example won’t allow those people to have enough disposable income for things like Iphones.  That makes logical sense but it’s just not the case.  The Chinese pay full price for Iphones they can barely afford.  (I’m oversimplifying by using China and Apple but the same arguments could be made with countless other examples)

The US isn’t the only show in town either.  I realize it’s still the richest nation with the largest GDP, but the gap is continually closing.

Many of the populous nations are starting to wake up and get into buying stuff.  That’s why corporate profits are so massive while stocks are slumping.  Old school economists are giving too much attention to numbers that matter a lot less than they used to and smart investors should be able to take advantage of this.

Here is a world population pie chart.  I understand it can be misleading if you are an idiot, but it’s still interesting and it will give you a feel for where the people in this planet live.  Many of these big countries on the chart are getting a lot richer fast.

Expect the domestic numbers to matter less and less.  It’s why corporate profits are soaring while the stock market isn’t following suit.  The so called “experts” can’t quite get their head around what’s going on.  It shouldn’t be a surprise because these “experts” and “stock analysts” are basically the same people allowed the credit crises to happen by selling homes to a bunch of people with no money.  They didn’t see that one coming.  Pretty pathetic when you think about it.

At one point, investors are going to wake up and realize that many companies are incredibly cheap right now.  They just aren’t sure which numbers to use when doing their analysis at the moment.  They seem confused at how unemployment can be so high in the US while corporate profits are soaring.  I truly believe that many of the old school analysts are so near sighted it’s ridiculous.  A lot of them haven’t been out of the country.  A lot of them couldn’t pass a 12th grade stats test either, even though they have an economics degree.  It’s the reason why so many companies keep beating analyst’s expectations.  When you think about it, if someone keeps guessing lower sales figures for a company quarter after quarter for years, they obviously don’t understand the company and are using a weak model.