gold Corporations In Strong Position In 2011; Global Growth To Support Commodities

gold Corporations In Strong Position In 2011; Global Growth To Support Commodities
Corporations are sitting on record piles of cash and with the U.S. and
global economies likely to grow in 2011, those firms will likely deploy
that money in several ways that put them in strong positions for the
future.

Global growth will also increase the need for raw materials, which will
support commodities across the board this year. On the other hand, U.S.
state and local governments will do poorly to very poorly as they are
saddled with massive debts and must manage without federal stimulus
dollars to plug those gaps.

The stock market should benefit from the strength in corporations, said
Robert Froehlich, senior managing director at The Hartford Financial
Services Group. In fact, he said the Dow Jones Industrial Average should
end the year at 14,000. It’s around 11,700 currently.

“There are three things in place that you can’t stop” that bode well for
growth: a pickup in business and consumer spending and a booming global
economy, Froehlich said.
He spoke as part of an economic outlook panel for 2011 and beyond, sponsored by The Executives Club of Chicago on Thursday.

Froehlich said companies have been sitting on cash reserves during the
economic downturn, and now that the U.S. and global economies are
starting to grow, institutional investors for these public companies
will demand those funds are put to use. That will happen three ways, he
said. One, companies will either establish or raise dividends, there
will be stock buybacks and there will more merger and acquisition
activity. “This will be a great time to buy market share,” he said.

Diane Swonk, chief economist and senior managing director at Mesirow
Financial, agreed that the cash position for firms is strong. However,
she and Froehlich both said that doesn’t mean these companies will be
hiring new employees with their wealth. Swonk said it’s likely to be
redeployed for purchases of equipment, and Froehlich said most companies
will probably look to technology to improve productivity.

“We’re at a crossroads in business. They can either hire back or spend
on technology…. Ninety-percent will spend on technology,” he said.

Because companies aren’t likely to rehire laid-off workers, Swonk
believes the unemployment rate in the U.S. will hold above 9%. She said
if the jobless rate declines, it will be from workers who have given up
looking for jobs after not being able to find any. The U.S. unemployment
rate only counts those who are seeking employment and haven’t found
any, not those who are jobless and have stopped looking for work because
they are discouraged.

Further, those who have exhausted their 99 weeks of jobless benefits are
also no longer counted on unemployment. “They are not being counted….
Those are the people I worry about. What will happen to them? Will they
become homeless, or go on welfare?” she asked.

Froelhich also said consumer spending is rising as the wealthy start
buying again and those who are receiving unemployment benefits spend
money. The ones who are not spending are those who have jobs, but their
houses are not worth as much. They have stopped spending and are paying
down debt, he said.

Emerging markets will continue to grow and that benefits corporations
that either export or have exposure outside the U.S. Swonk expects trade
in developing nations to pick up “as the world needs to develop.”

Froelich said emerging markets will consume raw materials as they grow,
which is bullish for commodities in the larger picture. “In the next
five to 10 years, 2 billion people will move from below poverty to above
poverty… that’s extremely bullish for commodities,” he said. “When
people move above poverty they do two things, they change the way they
eat and their mode of transportation. That’s extremely bullish for
agriculture and energy.”

Commodities that benefit from this demographic shift, in descending
order, are agriculture, energy, industrial metals and precious metals.

Dark spots in the economic outlook will be state and local governments,
Swonk said. Tax cuts have been extended, but the federal stimulus is
ending, she pointed out. Many U.S. state and local governments are
dealing with big deficits and won’t have extra money from the federal
government to help in fixing their budgets.

Noted commodities investor Jim Rogers, who also spoke at the panel, said
he is “very keen” on some areas of the American economy – particular
areas which produce goods.

But he is concerned about the level of debt in the U.S. and the amount of federal spending to support the economy.

The number one question people ask her, she says, is about how to reduce
the deficit. “The problems are substantial, but they’re not
insurmountable,” she said.

She’s hopeful, though, that something will be done. She pointed to the
deficit commission put together last year which suggested ways to tackle
it. While not everyone agreed with the ideas, there was agreement that
something needs to be done, adding that the first step in fixing a
problem is to acknowledge it exists.

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