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GLOBAL INVESTMENT THEMES

GLOBAL INVESTMENT THEMES

Well the New Year is underway and we hope that all is well with you. For us it has been an interesting period with many new global themes developing that we will be sharing with you in coming months.

THAILAND

We are writing about Thailand for the obvious reason that the Thai market has had a major decline and is probably at a very good juncture for new investment.

The Thai decline was a result of a botched strategy by the new military government in Thailand. As a result, Thai stocks are cheaper than they have been in many years and we have begun to make some purchases in this market in the recent days and weeks.

The generals who run the country have not imposed any restrictions on personal freedom. They have moved to stop the corruption that they believed was endemic under the previous administration. Their other problem is the ongoing strength in the Thai currency, which is known as the Baht.

The baht has risen a lot versus the dollar in the last year penalizing Thai exporters. In order to slow down the rise in the baht, the new government put foreign exchange controls on the equity market. This caused a flight from Thai stocks, and a short term meltdown in the market index. Seeing their mistake, the government reversed course and removed the foreign exchange controls on the stock market although they kept them on the bond market.
This should keep the baht from rising too fast, but it has scared foreign capital from moving into Thailand so rapidly.

Now that the market is cheap, we are considering buying a few percent for global portfolios. We will stick to the most well capitalized and highest quality companies. Why gamble on low quality companies when the whole market is already cheap? Our strategy will be to purchase with the highest quality companies with the greatest earnings visibility.

INDIA

The consumer has come out to play, and the government is not doing anything wrong. As a result, Indian corporate profits will be good in 2007. GDP growth should be strong as well.

We anticipate India to be the second fastest grower of any large country on earth after China. Within India there will be a continued demand for utilities, infrastructure, energy, retailing, manufacturing and financial services. India can grow in many ways and if the government would modify some of its more benighted social policies the economy could add many new jobs. We are ready, when and if a correction occurs, to add to our positions in India.

RETAILING IN INDIA…A REVOLUTION COMING

Western retailers are entering India and replacing the small mom & pop shops (and their haggling and manipulative selling techniques). Western style stores offer fixed prices and an easy return policy, wider aisles and more merchandise selection. This makes shopping quicker and encourages more spending.

We see the advent of western style retailing as a huge step forward for Indian retailing. We believe retail sales in India will grow fast once people have their time freed up due to less haggling, and can buy and later return goods more conveniently. We know that western style retailing will not replace the traditional style overnight, but it will eventually change the face of the Indian retail market.

GLOBAL AGRICULTURE WILL CHANGE DRAMATICALLY IN COMING DECADES

Theme #1: Much more food will be consumed per capita in coming decades.

Wealth creation in the emerging world will change global eating habits. More costly foods will be consumed by those in emerging countries as they grow in wealth.

They will eat more vegetables and grains, and they will eat more meat. The increased consumption of meat will dramatically increase the global consumption of grains. Feeding an animal, to later eat the animal, requires many times the number of kilos of gains to produce a kilo of meat protein. Vegetarian cultures consume much less food per capita than meat eating cultures. In our opinion, the percentage of meat in world diets may expand dramatically in the coming decades. This is bound to increase the demand for and the cost of food globally.

Theme#2: Global energy policies will consume grain to create energy, which will further increase the cost of food and create inflation.

The U.S. initiative to promote the use of more ethanol, in our opinion is an unwise policy for the economy, and for U.S. citizens’ tax bills. It is however, very popular with politicians and farm state voters. The U.S. presidency and most of Congress will stand for election in late 2008, and the campaigning is already underway. Part of the campaigning is focusing on ethanol as a substitute for gasoline.

The obvious beneficiaries (many of which have risen in price) are fertilizer manufacturers, farm equipment makers, ethanol refining equipment makers, those who construct ethanol refineries, companies that transport and store grains and ethanol, as well as those who grow the grain. Grain prices will head higher as soybeans and other animal feed products will be demanded to substitute for the corn supplies that are raw materials for the manufacturing of ethanol.

Those likely hurt by the shift are: U.S. taxpayers (big handouts from taxpayers’ wallets), oil producers (as the tax breaks formerly going to oil companies may be transferred to ethanol producers). The ethanol production will be subsidized. As we have written in the past, this is costly and unwise, even if it is politically popular.

I will be writing periodically to review events in countries and industries where we see opportunities and obstacles.