April 17th, 2009

The Next Industrial Revolution

For all the cynics out there who claim that this is a sucker’s rally, a bear trap and to those skeptics who resist the possibility that bottoming process began last fall and really put on a head of steam on March 9, I only have this to say: “Tell that to the rest of the world”.

They need to get their heads out of the sand and begin accepting that the next phase of economic growth may not come from our spendthrift consumer economy but as a result of the creation and catching up of consumer economies in the rest of the world, especially Asia, South America and, yes, Russia. The economies and the stock market’s in those regions aren’t waiting for our economy to get back on its feet. Those economies and stock markets are already moving beginning to surge ahead (click on chart to enlarge):The index is set to 1.00 and begins January 15, the day Cramer compared the Brazil and China ETFs (see my “Cramer and EWZ, FXI and Other Intermational Markets“. That show helped me focus on the opportunities in markets around the world. While the S&P 500 has increased 2% since January 15, the Russian ETF is up a comparable 49% and China 29%.

While we’re pointing fingers and trying to figure out who to blame for the mess we’re in, those stock markets are forging aheadtrying to figure out which industry group is going to lead us out of our bear market, whether GM will go into Chapter 11, whether commerical property and credit card debts are the final shoes to drop and whether the market will start correcting at 850, 900 or 950 …. while that’s what we’re focused on markets around the world aren’t waiting for us and are forging ahead (European markets aren’t doing much better than ours.)

We often use metaphors when describing challenging situations, so what we’re facing as the world economy resumes its forward momentum might be considered a “World Industrial Revolution“. The first was in Great Britain as factory production began to displace independent trades people. The second was in the US and Europe when technological and economic progress gained momentum with the development of steam-powered ships, railways, and later in the 19th century with the internal combustion engine and electrical power generation. The Internet Age might be considered a sort of Industrial Revolution. The next could be the industrialization and “consumerization” of the rest of the world.

It’s something that we’ve envisioned for a long time, something taught in business schools for years (e.g., International Trade) but has mostly been considered the sourcing of goods and services for American consumers from abroad. This coming Industrial Revolution will be about the rest of the world gaining closing the gap.

We’re going to hear a lot more again about resource shortages, escalating commodity prices and booming international stock markets. If you don’t feel comfortable buying foreign ADR’s, you can participate through the foreign market ETFs.

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