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Where to Invest in Panic Times

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- These are exciting times. There is great market volatility as investors phase in and out of panic/despair and speculators profit. But what is really important for investors has not changed: Western nations are still in a mess, while Africa, Asia and Latin America are relatively debt-free and continue to grow rapidly.

You might argue that other factors matter, like changes in government policy and the earnings reports of individual companies. No doubt this information is important, but I am a believer in the random walk theory. That means this sort of information is immediately reflected in stock market prices. How immediately? With the large amount of computer-driven trading that goes on today and professionals following every company day and night, any new information will be reflected in stock prices before I get it. Picking stocks is a losing game for individuals.

So what to do with your money in today's environment? I address this question by reviewing my earlier ideas, what went wrong, and what I have learned.

My Message

Since May, 2009, I have suggested investing in Africa, Asia and Latin America because they are relatively debt-free and growing rapidly. Table 1 summarizes how they are doing relative to others. Note that the IMF projects that advanced economies will only grow at 1.6% this year, down from their 2.5% projection in Nov. 2010 (2010 projections are included in parentheses for all Table 1 entries). In contrast, emerging market countries are expected to grow 6.4%, down by just 0.6% from last year's projection. Government deficits? 6.5% of GDP in advanced countries and only 1.9% in emerging market countries. The story is the same with debt: only 36.2% in developing countries but 103.7% of GDP in the developed world.



And then there are trade deficits. The U.S. is unique among these nations with a trade deficit that exceeds 3% of its GDP. Question: Why would anyone invest in the advanced countries when prospects in emerging market nations are so much better? Recent history provides the answer.

Recent Happenings

The world has come through a rough patch:
  • U.S. banks gambling (mortgage-backed securities), a real estate bubble, the collapse of U.S. banks, panic, massive stock market and real estate losses, and a global recession;
  • More recently, European banks gambling (sovereign-debt backed securities), fear of another bank collapse and panic.
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