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NewswireTODAY - /newswire/ -
Gurgaon, Haryana, India, 2008/08/14 - US CPI rose 0.8% compared with a 0.4% expectation. Core inflation rose 0.3%, marginally over the 0.2% expectation. The knee jerk reaction is futures are down. But is this truly bad news?.
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US is in a unique situation where rates are low while the inflation monster is rearing its ugly head. Look at Europe, a slow down, relatively high rates and inflationary pressure. The global slow down leads to an expectation of falling demand for commodities. At the same time, Bernanke would be quite justified in increasing rates to tame inflation. Europe does not have that comfort, thus the prospects for the $ remain sound. A stronger $ is a negative for commodity prices which together with the demand contraction suggests a sector under-weighting. With interest rates likely poised to rise, consumer discretionary & financials should continue to be under-pressure; industrials look likely to suffer too.
At this point in time, consumer staples & health-care are two defensive sectors; of the two I favor health-care for its valuations, yield, and call me crazy, the sector growth potential is phenomenal. I was born immortal and so shall I die; at birth I drew my first breath on a genetic memory; my heart beat of its own accord and my brain operated a highly complex organism without instruction. As I die, my genetic legacy shall live on. Humans have such a desire to live in perpetuity, be it through life extensions or reincarnations; that an industry which tries to satisfy the human quest for immortality must succeed. That aside, I have always wondered whether an answer to the age old Indian epics lies in Bio-tech; as in is immortality or reincarnation simply a genetic legacy explained; did Rama truly live for an epoch through advanced medicine or is it simply living through passage of a genetic legacy (with death being the consequence of the maternal line being ultimately extinguished); or hybrid beings (mythological beings like Garuda) a genetic possibility. There is so little we know and so much to accidentally discover; health-care remains a huge growth area. And the pharmaceutical space with R&D focus has the best chances of making that accidental discovery. Patience and a yield makes it worth the risk & the wait.
IT (excluding IT services) looks good relative to other sectors; valuations are reasonable but not without risk due to potential for multiple contraction in response to the economic environment.
On a 15 year basis, energy & commodities remain favorites. Leaving aside cyclical volatility, on a long term basis, sustainable demand from BRIC economies is a major fundamental plus. What more the era of low consumer inflation is past - energy and commodities are unrivaled as an inflation hedge. In addition to pure demand driven fundamentals there is the obvious financial (hedging) catalyst.
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