May 24, 2014

How much is that 狗 in the Window

Most of you have heard me say that employment is the catalyst for economic growth.  It provides revenue to the government in the form of taxes.  Corporations benefit from improved public consumption of goods and services, which also increases output.  It also benefits individuals by giving them the confidence to consume all those goods and services. However, unemployment can hinder the economic landscape.  Everything from crime rates to divorce rates display changes in employment. Both the individuals who have a stable employment situation as well as those who have a less stable employment situation affect the most important driver of our economy in the last 100 years: consumption.

The near tidal wave of coverage that is afforded to the worldwide race to bring the next technological disruptor has revealed many interesting possibilities for consumers. But the challenge that fact presents to companies often overlooks the casual belief that the US consumer is the ultimate prize. But are they? After being in business since 2000 and traded on the US stock exchanges since 2005 Mr. Yangon Li, the 45 year old founder and head of Baidu Inc. (BIDU) the Chinese search firm that competes with Google was asked what his plans were for competing for the attention of the US consumer. His response was that there were no plans other than continuing the expansion underway in China. Given that the Chinese population is over four times the size of the US, with India not far behind, his response makes a lot of sense to me. And with this week's IPO (Initial Public Offering) of the company (JD) an internet based e-commerce business with a profile similar to Amazon (AMZN) and the Chinese shopping search giant Alibaba, whose IPO is expected in the summer, both have articulated the same strategies.

So many of the companies we own are generating revenues that are dispersed to the benefit of countries that have strong economies and while our markets reflect that growth in aggregate performance the focus is instead on where are the profits from sales are going. Yes a lot has been in the news profiling the attempted purchase of AstraZeneca (AZN) by Pfizer (PFE) as a means of ducking their tax obligations on overseas revenues, but you don't have to follow the money very far to see the consumer centric firms holding their own mountains of cash abroad. Apple (APPL), Google (GOOG), Microsoft (MSFT) and even Starbuck (SBUX) are all are generating revenue with the same global philosophy in mind, namely it's not the US consumer that is the prize of the 21st century, but the foreign consumer.

Now I'm not going to get dirty messing in the mud fight over how to get that money repatriated, my point is that while the US has the benefit of being a stable and industrious country, we have to try harder in the future as I believe whether we like it or not the baton has been passed to where the domestic growth is clearer in the once emerging, now rapidly developing countries around the world. The good news is the world has never been easier to invest in and that's what I aim to do.

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