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Consumers Harboring Pent Up Demand?

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    Bill Smead, Portfolio Manager of the Smead Value Fund, on emerging markets and market trends.

  • Duration 6:02
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If you want today's market action what we can expect heading into June that we're joined by bills need portfolio manager of that -- -- -- -- TO.

Thank you OK so you know with the mixed economic news we're seeing market stall here a bit so are we in store for a long slow summer.

What we think we're in a transition.

And the transition.

Is away from those that benefit the most from.

The the in the emerging markets and the international growth in fact that the case was just made on your show just a few minutes ago that.

These thriving middle classes and in emerging markets are gonna.

Eat up all these things and the United States economy is going to benefit from that.

And we think we're gonna go from there.

Two.

A transition to where people are very much more interested in the pent up demand that has been created by the discipline that you talked about a few minutes ago.

Soul if you go to the average household.

Just because they've gotten on a budget and they've pulled back doesn't mean it -- creating pent up demand for things they want.

Palaces in cars and food and clothing in and other things.

And when you take 310 million people that make an average of say 45000 dollars here and you give them three or four years of pent up demand.

-- that's quite -- that's huge buying power compared to people in the world that make.

Three or 4000 dollars a year there might be billions of them but they make 110 there.

Or 112 the money.

I mean that's terrific to hear very optimistic outlook because so many of these strategists who speak -- say make sure -- diversified take advantage of the emerging market growth that you say they're so much pent up there.

In the supply chain in terms of people stuff in their money away waiting for that appropriate moment so when do you think we could see the full effect of that.

Well the first that your point is great.

Andy Grove was the former CEO of Intel he was asked what the best investment advisor business advice he'd ever had.

He said as professor at city college of New York said when everyone knows that something -- so nobody knows nothing.

And -- I think everybody knows we've had a huge foreclosure problem.

I think we -- -- window as we've had a huge cleansing everyone knows that the emerging markets have had a great run.

Those are all known what people are drastically under estimating is that the United States of America is about ready to have -- great five to ten year stretch.

Therefore rather than focus -- macroeconomic concerns we should focus on individual businesses that might.

You know do really well from that and and I think we've we've mentioned eBay for example has one business that -- it just look at the new -- -- -- -- -- We're raising its outlook and buying back stock and and selling Skype to to -- -- it wants to pay too much it's setter.

They're doing fantastic things in getting ready for this wonderful interaction between the virtual economy.

And the real economy that that is the growth engine of the next ten to twenty years is the -- virtual meets real.

And the United States has all the companies that dominate that and one of those is.

You know it's it's a great outlook it's very bullish what about the headwinds I -- I have to ask you about inflation gas prices they've come down but -- -- elevated still.

Food prices I mean people I think will continue to hold back here for which -- got the GDP sub 2% expansion -- -- real concerns here.

Oh yes that's why we we think 2011 is the transition year because -- were also one of the out wires that believes that China is hitting a wall.

United States was the most successful emerging market in history.

We grew 9% a year on average from 18119100.

But we had fifteen recessions for depressions and we took a time out in the middle to slaughter each other for four years.

-- picture the Chinese have had uninterrupted 10% growth for twenty years.

Their economy is so badly in need of a cleansing of a contraction and no one's talking about them contracting.

They're gonna have a recession or depression sometime the next two or three years commodity prices are gonna fall for cleft.

And that is the all -- stimulus package no taxes involved no government involved lower commodity prices we -- -- those.

Guys I want a little on some can get together stock picks he's at the this is the fun stuff Wells Fargo you like setting aside more money for loan loss reserves though mortgage apps declining yet you see upside here.

All yes that you know they now -- the investment business of Wachovia securities that it won't call walls Fargo advisors they they -- the trust company from Wachovia so they're much more into savings than they used to be.

And investment than they used to be.

And -- platform now it's just so powerful.

We think the company might earn four to five dollars a share in three or four years you put a below market multiple of safe.

Eleven or 12145.

Dollars you got a fifty to sixty dollar stock a stock currently trading around 28 dollars a share.

OK you've got Merck you describe -- is having a beautiful pipeline what does a beautiful pipeline at empirical look like.

Yet that the -- Lipitor comes off patent.

-- and and there is a huge market for the Staten state deal with bad cholesterol and raise good cholesterol.

And Merck -- got 88.

A -- going on with about I think 30000 people that the first 15100 person test.

For -- -- raising a good cholesterol lowering bad cholesterol was the best test that anybody's done the last ten or twenty years.

And that's just one example there are they've got to add up newly approved hepatitis C.

Product coming out it's just.

Very bright and and the worst part of the Health Care Reform has kind of been small the last twelve months you know.

Companies like Merck took write downs for the negative -- of obamacare and now the positive having more customers on insurance and -- end up.

And you're you're really wanna do to our if if you really -- -- talk about the emerging market people what those folks need more than anything is basic medicine.

And those great basic medicines are made by American companies like Merck.

-- -- thank you so much one and the brightest outlooks have heard a long time appreciate that.

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