Many U.S. corporations are in trouble in the current economy. Even though the banks are showing a profit, this is ephemeral because much of it is due to investing bailout money as well as raising interest and fines on credit cards.
Because the current downturn is international in scope, multinational corporations are also in trouble. All economies ultimately operate on supply and demand. Money can be made by shuffling paper around, at least for a while, but if something isn’t behind that paper, you are creating a bubble that will eventually pop.
Some multinationals do well in downturns, depending on their product or service and the current demand. If you are in the war business, you are probably doing pretty well. Defense industries such as Boeing (BA), Lockheed Martin (LMT), and others are very profitable during wartime. Cheney’s old company, Halliburton (HAL) and its offshoots, have made lots of money since the initial invasion of Afghanistan and Iraq.
Plenty of money can be made in defense through products and services. It you can commit some fraud and simply steal money, profits can be even higher. There are actually trillions of defense dollars unaccounted for and fraud has been found among many companies. Some companies that are not thought of as defense industries, like GE (GE), are also good bets during wartime.
If you’re not interested in investing in multinationals that make their living on war, there are plenty of other options. One business sector that includes numerous multinational corporations is the commodities industry. As with many other industries today, commodities are affected by world markets as well as national markets.
Commodities were hit during the crash along with other sectors but commodities are coming back quickly. Regardless of the economy, people still need to eat and they still need energy. Multinational food and energy corporations should do well in the long term and should weather this current storm in the meantime. Think of Kraft (KFT), Monsanto (for fertilizer, seeds, and other products) (MON), John Deere (DE), and other chemical or farm equipment companies.
Energy is a big one. We’re using a lot more oil than we are finding. While natural gas is in good supply, oil finds are on the decrease and old fields are drying up. Any of the big multinational oil companies should be profitable over the next few years and beyond. Think of Exxon Mobil (XOM) and others. Also think of coal, natural gas, and uranium. Alternative energy sources will be lucrative eventually but are still young.
Commodities also includes materials for building, such as base metals, wood, and cement. In spite of the housing crisis, which is spreading to commercial property, building is still going on around the world. Multinational corporations are in a position to profit from the infrastructure creation in China and India. This includes emerging nations in south America and some Asian countries.
Finally, deflation and the threat of inflation as well as the gradual destruction of the dollar bode well for multinationals involved in precious metals mining. Gold, silver, and platinum are in a bull market and have a long way to run. Mining companies also took a hit during the recent crash but are already recovering. Gold and silver are considered real money and act as insurance in shaky times. Those who saw this crash coming have already doubled or tripled their investments in precious metals.
U.S. multinationals will struggle or prosper in this environment depending on the product or service they have to offer. Even well run companies will be in trouble if they cannot offer what is needed in a down market. Those offering necessities will do far better than those selling luxury or disposable income products. The very rich can only buy so much stuff.
The “green shoots” are probably weeds and the economy has not hit bottom yet. It is the job of government to keep telling us that everything is okay, regardless of the facts on the ground. Some multinationals will fail unless they can find markets overseas. But since most countries are hurting to one degree or another and because competition is stiff, some big companies will fail or sell off pieces of themselves until they may no longer be multinationals
No one knows the outcome of the current downturn. We need to hope for the best and prepare for the worst. U.S. multinational corporations need to do the same. Reading the international economic weather accurately has never been more important.