Why Beer, Gold & Drugs Are Always Popular

CHICAGO -- If you listen long enough at a financial conference, you can find someone who echoes your views. While most fund managers and analysts remain generally pessimistic, a few are surprisingly optimistic. And some, like Anne Gudefin of PIMCO, are refreshingly practical: "No matter what happens, the Russians will continue to drink beer, and the Chinese will keep buying gold."

Gudefin was one of three managers who spoke about The Global Picture during the keynote session this morning at the Morningstar Investment Conference. Although all three -- Gudefin, Cory Gilchrist of Marsico Capital Management, and Dennis Stattman of BlackRock -- focus on international opportunities, they expressed divergent views on the global economy.

But regardless of whether they see the glass as half empty, half full, or twice as large as necessary, they all agree on one thing: You make money by investing in things people want and need. The challenge is deciding what things are most important, in spite or because of the economy.

Gudefin co-manages the eight-month-old PIMCO EqS Pathfinder D. Gilchrist is lead manager on Marsico Global, which launched in mid-2007. Stattman has been at the helm of BlackRock Global Allocation since the fund's inception in 1989. Because the fund looks at global opportunities, it looks beyond a company's current stock price. It looks at the bigger picture: interest rates, the political stability of a country or region, and the valuations of markets and currencies.

The fact that three such highly regarded fund managers put such decidedly different spins on the economy underscores the problem facing most investors. It's hard to know what to believe when the people you're supposed to trust have agreed to disagree.

Stattman and Gudefin have been cautious to the point of pessimism on the US economy for a few years now -- and Stattman's not so hot on Europe, either, noted Gregg Wolper, a senior mutual-fund analyst with Morningstar.com.

But Gilchrist isn't daunted by the latest data on economic growth and job creation. A contrarian by nature, he thinks the US housing market is "mending itself," predicts manufacturing will come back from abroad, and sees the US on the verge of recapturing its competitive edge. Here's why: Investors, turned off by declining multi-family cap rates, have started buying single family homes and converting them to rentals. "The private market is solving the inventory overhang," he said.

That's not all. Inflation abroad is making outsourcing less attractive, especially because other countries are running low on labor. Manufacturers are reassessing US operations, and they're finding it cost effective to bring factories home. Of course, there's one potential monkey wrench -- and a big one, too. "The US government just has to do its part," he said.

But suspend disbelief for just a minute. If the government does what it needs to do to control debt, then "the confidence cycle changes," Gilchrist predicts. Hey, it could happen.

Maybe. Stattman isn't so sure, calling Gilchrist's scenario "possible," though not "probable": "A few things would have to really go right."

Stattman tries to gain exposure to emerging markets by investing in multinationals -- global oil companies, especially Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX); big pharmas like Bristol-Myers Squibb (NYSE: BMY) and (Johnson & Johnson (NYSE: JNJ); and core technology firms (Apple Inc. (Nasdaq: AAPL), IBM Corp. (NYSE: IBM), and Microsoft Corp. (Nasdaq: MSFT)).

Gilchrist sees opportunities where others may not. He likes banks, especially Wells Fargo & Co. (NYSE: WFC); car companies like General Motors (NYSE: GM); consumer luxury products and services like Richemont (VTX: CFR.VX); and casino resorts like Wynn Macau Ltd.. But he agrees with Stattman on one company: Apple.

Gudefin, meanwhile, thinks the best investment strategy is simple. Keep a hefty cash stake. Buy things people demand in any economy -- tobacco, including Imperial Tobacco Group plc (LSE: IMT.L) and British American Tobacco (NYSE: ADR); oil, including BP (NYSE: BP); and booze, including Carlsberg AS (CPH: CARLB) and Pernod Ricard (PAR: RI). Oh, and gold: SPDR Gold Shares (NYSE: GLD).

Carlsberg is big in Eastern Europe, which accounted for 41% of total volume, and 45% of operating profit last year. It's big in Russia and the Ukraine and the emerging beer markets of Kazakhstan, Uzbekistan, Belarus, and Azerbaijan. And Chinese demand for gold bars and coins as private investments could push bullion imports above 400 tonnes in 2011, leading global consultancy GFMS said last month.

Gudefin said she has only two investment rules. "First, don't lose money. Second, don't forget rule No. 1." As long as the Russians drink beer and the Chinese buy gold, there won't be any problems.