Author: Vivian Lewis
Covestor model: International Yield
Disclosures: Long FSIN
It is hard to show enthusiasm for the US dollar in the present economic climate of continued high unemployment, a pervasive housing bust, a Washington impasse over debt ceiling and deficit, and fear that higher oil prices will feed into a generalized return of inflation. But actually the USA is doing better than many other countries. However unseemly the standoff between the White House and the Congressional Republicans, it is nowhere near as dangerous to our system as the Euro crisis over, at last count, Ireland, Greece, Portugal, Spain, and Italy.
Euro showdowns are a new phenomenon and unpredictable because the Euro is such a new currency and its political system hasn’t graduated from kindergarten yet. Meanwhile, the USA has a long record of driving to the edge of the default cliff and pulling back at the last minute.
Moreover, while Main Street is in the dumps, Wall Street is doing rather better. So the alternative to US stocks that our portfolio targets must do better still.
The dollar’s current and potential strength acts as a headwind for international investors. One must find a way to overcome the currency drag and the outperformance of US stalwarts like Alcoa.
One way is to focus on high yields, as we do. Another is to look for relatively price-insensitive companies providing a product people cannot do without and will likely pay for regardless of circumstances, like telephone or financial services. Another strategy is to look for market dominance, a high moat that can stop competitors cold. All these are Graham-Dodd tactics now used by the most famous US investor in overseas markets today, Warren Buffett.
Here is another currently appealing area of foreign investing to think about: stocks sold off or even shorted based on unfair reports or misconceptions. Right now, thanks to short-selling analysts like Citron Group and Muddy Waters, there’s an argument for going into honest Chinese companies tarred with the same brush as scams because they also came to the US market as smallcaps through the backdoor of reverse mergers. Some reverse merger companies are legit.
I added such a company – Fushi Copperweld, Inc. (NASDAQ: FSIN) – to the Covestor model, in part because it has a real auditor, and business operations not just in China, but in Britain and the USA as well. Moreover, there is a proposal to take the company private at a premium to its market price as of 7/1. I am examining others as well.
Sources:
FSIN press release, 5/26/11 http://www.fushicopperweld.com/en/investor-relations/press-releases/181-special-committee-of-fushi-copperweld-inc-provides-update-regarding-going-private-proposal.html
