Turn Short-Term Fear Into Long-Term Profit

In a February 2005 column, I picked 12 Growth Stars That Shine in Foreign Lands. Nothing has changed my mind about the fundamental trends driving stocks such as insurance giant American International Group(AIG Quote), South Korean banking company Kookmin Bank(KB Quote), hotelier Accor Asia Pacific and Philippine beverage producer San Miguel.

Demand for commodities will continue to exceed supply. A fast-growing developing world has created demand for commodities that global commodity producers in industries from oil to copper to coal to iron (and don't forget water) are having a tough time meeting. That has produced what some Wall Street investment houses are calling a "supercycle" boom in commodities prices.

I gave a talk on the commodities boom -- and why it will last longer than the usual commodities boom -- at the Las Vegas Money Show in mid-May. You can find a link to the PowerPoint version of that talk here. In that presentation, I recommended stocks such as BHP Billiton(BHP Quote), Phelps Dodge(PD Quote), Newmont Mining(NEM Quote) and Companhia Vale Do Rio Doce(RIO Quote).

We've seen the low in the inflation cycle. Although it will be a very odd kind of inflation, in that higher energy and commodity prices will bleed through into the core inflation rate. "Loose money" policies in China and the U.S. and the need to recycle petrodollars will keep the globe awash in cash, though not as much as at the peak in 2005-06. However, thanks to the surplus production capacity added to the global economy from China, India, et al., the prices of manufactured goods aren't likely to climb very fast.

Official government measures of inflation are likely to lag subjective impressions of inflation and the measurable inflation in specific economic sectors that have scant competition from developing economies, such as education and health care. This kind of stealth inflation will keep the fire burning under trends such as outsourcing, especially of service-sector jobs, downsizing and contracting out to contain costs.

Companies will invest in technology -- if it cuts costs. (Follow this link to another PowerPoint presentation from the Las Vegas Money Show on "Redefining Technology in an Age of $70 Oil.") Gold and other hard assets will remain in demand as hedges against inflation and because of the next trend in this list.