Reader Question 3

A reader asked me to expand on my thoughts about investing in surplus countries or other types of themes where money appears to be flowing. He says that Laszlo Birini has also mentioned investing along these lines and lastly the reader asks if there are any sites that track this.

First let me say that I cannot vouch that Birini has talked about this or not, certainly the reader says so and I believe him but I have not looked at Ticker Sense to find that info.

As far as sites to track this, I'm not sure what he means exactly. Surplus info is available most of the time on central bank web sites which almost always have an English version (Uruguay is the one exception I know of). One other way to look is to just type "country name budget surplus" into Google which will take you to something that will tell you one way or the other.

Now as for the the theoretical, or maybe philosophical, part of this...I can remember reading various things long before the current phase of my career where very smart people in the field talked in very simplistic terms about trends that were very obvious but seemed to get missed by other people in the business (a forest for the trees type of thing).

Reading this sort of thing over and over made an impression. As I am lazy by nature I am drawn to find the path of least resistance in everything including portfolio construction. If money must flow into some segment for whatever reason it is only logical that prices have a good shot at going up.

Water is an example of this. There are all sorts of ghastly statistics about how many people die because they do not have access to clean drinking water. As the emerging world ascends this issue is either going to be rectified or a ton of money will be spent in failing to rectify the problem. Either way this likely means good things for any company that is part of the solution.

There are several ETFs in the water space and obviously many stocks as well. A given stock or ETF may be the best way in or the worst but money must be spent here and it creates a tailwind for anything associated with the water industry.

There are obviously many other ideas like this that exist, some better and some not as good as water.

As far as surplus countries...it is possible that this decade could be thought of in terms of divergences. Last I checked the US was a deficit country (a little levity). Forgetting everything else about the US for a moment, it is a country whose deficit has become much larger and whose stock market is down slightly for the decade. All of the reasons and opinions notwithstanding these are two facts.

The All Share Index in Norway, which is a surplus country, is up about 150% since early 2001 (as far back as Yahoo Finance can chart on that one). Canada is up 50% this decade. Brazil is up 200%, after what looks like a huge decline on the decade-long chart.

The UK has Budget deficit that appears to be headed in the wrong direction and the FTSE 100 is down on the decade similar to the S&P 500. France has a budget deficit and the CAC 40 is also down on the decade.

I am sure there are examples that work against my point too but a surplus implies a healthier starting point. To be clear I do have some exposure to deficit countries in addition to the US--I am not an all or nothing investor.

If there is anything to what I mention above the question then becomes how long does this last? Bringing in some things that are open to interpretation like how serious are the excesses caused by the credit crisis and what the aftermath will be (credit contraction), maybe this will last for a long time yet. In the mean time the surplus countries seem to be less impacted by this, the ascending countries are still ascending and everyone needs more water.

If any of this makes any sense to you, then you need to ask yourself where is the path of least resistance.