Wednesday, October 31, 2007
We're entering a recession.
At least that's what Jim Owens, CEO of Caterpillar (CAT), thinks. Caterpillar is the world's largest manufacturer of heavy construction machinery. As such, it's a bellwether for economic growth. Let me explain...
As I'm sure you're aware, housing and development have been the primary drivers in the U.S. economy over the last five years. Builders and developers need large construction equipment to do their jobs, and they order these items from CAT. But once things begin to slow, the orders dry up.
And that's precisely what's happening. Two weeks ago, Jim Owens said:
"The North American machinery industry has decreased month-to-month since early 2006; reduced activity in key industries and tighter credit conditions should continue a downward trend in the fourth quarter."
Months before new home starts fell off a cliff, construction companies stopped calling Caterpillar to order bulldozers and other machinery. Jim just took it in stride, since growth outside of the U.S. has been stellar. But if you ignored Wall Street, and simply listened to Jim's conference calls, the housing bust would have come as no surprise.
Now, Jim's calling for a recession... It's been on the tip of everyone's tongue, but Jim just spat it out. Jim thinks the U.S. economy will be near to – or even in – a recession next year.
So what are we to do? Well, Jim actually had some good news...
"Despite weakness in U.S. markets, our sales and revenues increased 9 percent. We continue to see remarkable growth outside of the United States with particular strength in key industries like mining, oil and gas, electric power and marine engines. The industries we serve are becoming increasingly global, and the investments we are making to achieve our 2010 goals have us well positioned to meet their needs." (Emphasis mine.)
I've said it on these pages before: The biggest economic and investing opportunities today lie outside of the U.S.
Jim Owens – a man with his finger on the pulse of the world's economies – agrees with me. Jim thinks the U.S. will not be a place for serious growth for at least the next 18 months.
If you're interested in moving some money overseas, there are plenty of international mutual funds to choose from, including regional funds like the Global Large Cap 10 Fund we mentioned on these pages earlier this year. And Marty Whitman of Third Avenue has most of his positions outside of the U.S.
Another idea is to look for an exchange-traded fund (ETF) that focuses on the country you're interested in. You might even be able to find a deal in a closed-end fund trading at a discount to its underlying asset value. (Go to www.etfconnect.com and click on "Find a Fund.")
In an upcoming Growth Stock Wire, I'll introduce you to an international fund worth considering. Until then...
Goldman Sachs hits all-time high.
Foreign banks climbing... ABN Amro, Banco Santander, and Bancolombia at 52-week highs.
China still soaring... CNOOC, SINA Corp, China Fire & Security, Baidu, Sohu, China Medical Technologies, and China Unicom at fresh highs.