Dynamic's David Fingold - Looking Ahead to 2011

David L. Fingold - Looking Ahead To 2011

Here is a partial transcript:

Christina Pochmursky: David, What do you see coming for the global economy over the next twelve months?

David Fingold: We think the global economy's going to grow; we don't think its going to grow a lot, but we think its going to grow.

There's a real air of pessimism where people think that the world economy can't grow and as a contrarian investor I'd like to take advantage of that.

CP: Commodities?

DF: I would say the best days of commodities are behind them. They will continue to do well, but they can't do as well as they have in the last ten years.Just think about the math - oil's gone from $10 to $80 - that's eight times your money in terms of a return.

We need to go significantly higher - $300-$500 a barrel to repeat that performance. So its a given that the growth in commodity prices is going to decelerate.

But what does that tell you? It tells you that we're at high commodity prices - they're going to be at sustained to increasing, albeit at a lower rate. The real opportunity is in the picks and shovels. They say in the Klondike, the real money was made selling the picks and shovels. And, we think those companies, companies in mining equipment like Atlas Copco or in Slurry Pumps like Weir. They have the picks and shovels, all mines are depleting assets - If you don't replace your reserves, you won't have a business. We really like the picks and shovels business.

CP: Which companies
outperformed in the past period - the high quality businesses or the low quality ones?

DF: Its been an interesting market, because if you look at 2009, what did the best was low quality companies - in fact, companies with lousy balance sheets that were highly cyclical did incredibly well in '09, and it shouldn't be a surprise because everybody thought the world was going to come to an end and all kinds of businesses were going to go bankrupt - and then it simply didn't happen.

So we had that relief rally where the worst companies outperformed in 2009. Today, that's left low quality companies at very high valuation, and people have completely missed the companies that have strong profit margins, good dividends, good balance sheets, a long term record of growth, very very inexpensive, and we think there's catchup there.

CP: What about the US?

DF: As far as the US economy's concerned, I think there are two camps. There is debt-deflation going on in the financial and real estate complex, there's no way to sugar coat that. We may have seen most of the downside in homes, but there is no reason to believe that home prices are going to appreciate. Because of the increased savings rate, and because of corporate deleveraging, there's no reason to believe there can be growth in the banking system. You also have a lot of unemployment that's been created by the people who have been laid off in the financial services sector, and in construction, and those jobs are not coming back.

But, theres a second US economy: There's a US economy that is very globally focused, Multinational companies that sell all over the world, exporters that sell all over the world, and with the US dollar that has weakened dramatically in the last ten years, the world is their oyster in terms of accessing growth that is happening all around the world. Foreign profits as a percentage of GDP I think have doubled in the last 10 or 15 years, and people completely forget the influence on the foreign profits earned by American companies coming back into the GDP.

CP: So right now, you're thinking the world could be the US' oyster right now in terms of potential profit.

DF: We're bottom up investors so we don't fixate on where a company is registered, we don't fixate on the countries, what we're looking for are the opportunities for growth around the world, and where they're undervalued, and if we find it in an American company, so be it. We found a lot of opportunity in European companies when everybody was worried in the first half of this year about the European sovereign debt crisis.

The markets were punishing companies that sold [their products] all over the world just because of they're registered in Europe, and we took advantage of that too. The key for us is to ignore what index a stock is part of, ignore what country they're registered in, look at the business, talk to the management, find out who their clients are, and if they're accessing the growth that's going on around the world, and the valuations attractive, we get involved.

CP: David Fingold, Thanks very much!

David L. Fingold - Looking Ahead To 2011