SUNDAY, DECEMBER 26, 2010 PERSONAL FINANCE


Take stock of companies reaping global rewards in 2011 T


BY ANDREW TANZER


o understand the investing outlook for 2011, let’s look back.Despite emerging


froma long and brutal recession, the economymustered only an anemic expansion in 2010. The most notablemanifestation of the tepid recoverywas a high jobless rate that scarcely budged all year.And yet, over the past year (throughNov. 5), theU.S. stockmarketmanaged to post an impressive 17.3 percent return. The same pattern—a stagnant


economy but a decent stock performance—may repeat in 2011. The economy should grow by littlemore than 2.5 percent, and the jobless rate could even tick up to 10 percent.But stocks could still return 7 to 10 percent over the next year, in linewith corporate earnings growth and themarket’s current dividend yield of 1.9 percent. TheDow Jones industrial average should finish 2011 above 12,000. Howto explain the apparent


disconnect between themuddle- through economy and the perky stockmarket?Anumber of factors contributed. Interest rates are already at rock-bottomlevels, and the FederalReserveBoard says it plans to buy $600 billion in Treasuries by themiddle of 2011 to keep rates low. The balance sheets ofU.S. companies, unlike those of our government and households, are in excellent shape. Profits should continue to risemoderately in 2011 and match or exceed the record level, set in 2006.With Standard& Poor’s 500-stock index selling at 13 times projected 2011 earnings, stocks do not appear to be excessively valued, especially relative to bonds and cash. Don’t forget that the S&P 500


companies earn 40 percent of profits abroad,where growth is higher than at home.David Bianco, chief stock strategist of Bank ofAmericaMerrill Lynch, calculates that profitmargins of U.S. companies are far higher


corrections in 2011 and beyond. Volatility should remain high


in 2011 because of contradictory signals froman economy that is expanding in fits and starts.Even FederalReserveChairmanBen Bernanke frets about an “unusually uncertain” environment.He andmost Fed governors think inflation is too lowand clearly seek to engineer higher price increases through ultra-loosemonetary policy. Because the Fed’s gambit is untested, there is a risk that the inflation geniewill escape the bottle. Governmentmonetary and


budget policies are helping to drive the dollar lower,which aids U.S. corporate profits. The trouble is thatmany other governments are also cheapening their currencies to juice exports and job growth. There is a chance this race to the currency bottom, which is a formof protectionism, could degenerate into a trade war.


Bond outlook After years of delivering


ILLUSTRATION BY TIM GRAJEK FOR THE WASHINGTON POST


stunning gains, bondsmay be a less-comfortable resting place for yourmoney in 2011.During 2009 and 2010, individual investors pouredmore than $600 billion into bond funds.But a rise in long-terminterest rates—a distinct possibility in 2011— could result in losses formany bondholders. Surveying the risks stemming


overseas.Bianco says four sectors in the S&P index—technology, energy,materials and industrials —are generatingmore than half their profits abroad. Profit increases in 2010 at


global companies such asBoeing, Caterpillar andCoca-Colawere powered by buoyant growth in developing countries— economies thatMerrill Lynch projectswill generate no less than 75 percent of theworld’s economic growth in 2011.


Risks towatch Also in 2011, the shift in


control ofCongress,whichwill be split between aRepublican House and aDemocratic Senate, will likely produce political gridlock. Some observers think that could be good for stocks becauseCongresswon’t be able to enact laws that could harm business. It could be a negative if lawmakers are unable to address a financial emergency. We’d be remiss ifwe didn’t


outline some of the risks and lingering structuralweaknesses in the economy.Recognizing risks as they come to the foremay help youmakemidcourse


fromcurrencywars, and from rising inflation, interest rates and the sluggish domestic economy, one analyst concludes that investorswould bewise to embrace global investing. “Alot ofU.S. investors need to


make a paradigmshift in 2011,” saysDean Junkans, chief investment officer forWells Fargo PrivateBank. “Think of yourself as a global investor living in the U.S. rather than as aU.S. investor with some global exposure.” In his portfolios, Junkans says,


he’s increased foreign exposure “permanently” by 50 percent over


the past four years. Any pessimismabout


prospects for the economy stems largely fromthat familiar trinity of linked problems—housing, banking and busted household balance sheets—whichwill dog us for a fewmore years.


Gauging opportunity Sowhere do you invest if


growth remains sluggish in 2011? One idea is to look for companies that can expand revenuesmuch faster than the overall rate of economic growth, such asApple andMarvell Technology, amaker ofmicroprocessors and storage devices.Or look formultinational corporations that can tap into much stronger growth abroad, especially in vibrant developing nations. Whatmakes blue-chip


companies especially intriguing is that they appear to be attractively priced relative to the market and to their own past levels of value.Moreover,many of these companies comewith sturdy balance sheets—which provide ameasure of safety in an uncertain economic environment —and proven, consistent businessmodels. One sweet spot in themarket is


blue chipswith direct or indirect exposure to emergingmarkets. For instance, saysChanning Smith, co-manager ofCapital AdvisorsGrowth Fund, companies such as Procter& Gamble, Pepsi, IBMand ExxonMobil. MichaelKeller, co-manager of


BBHCore Select Fund, likes multinationals that sell products that consumers in emerging markets buy on a regular basis, such asNestle, the Swiss food giant,with its powerful global brands and distribution capabilities, andBaxter,which he thinkswill benefit froma sharper focus on health care and hygiene in developing nations. Sometimes you can find


companies that can growfaster than the economy at home and ride brisker economic growth


New computer? First, unpack; then, uninstall. M


any new computers should come with a version of the usual consumer warning: Some


disassembly required. No, you won’t have to break out a


Torx screwdriver to remove any internal components. But you probably will have to spend time uninstalling software that a theoretically helpful manufacturer loaded on themachine. That’s sone way in which the


welcome arrival ofMicrosoft’s Windows 7 in 2009 hasn’t eased the routine of setting up a new computer, or the need for an update of this column every year. Apple’sMac OS X Snow Leopard,meanwhile, continues to need fewer tweaks of its own. Start where your new computer will:


with a round of system-software updates. OnceWin 7 or OS X detects a network connection, each should automatically fetch updates for you; if not, click theWindows Control Panel’s “Check for updates” link or select OS X’s Software Update programfromthe Apple-iconmenu. (Even before you first log in, OS X


will prompt you to transfer files, settings and applications fromanother Mac using its fantastically helpful Migration Assistant.Microsoft’s Windows Easy Transfer programwon’t move over programs but is still an immense time saver; you, however, might as well save that until you’re done withmore basic chores.) InWindows, the first thing you’re


ROB PEGORARO Fast Forward


likely to see after aWindows Update prompt is a nag froman Internet- security programbundled by the PC’s vendor. This software is usually a bad deal:Microsoft’s free, nag-free Microsoft Security Essentials (microsoft.com/securityessentials) won’t ask you to pay for a subscription after the first 30 or 90 days. So I’d dump the included anti-virus


programby clicking the Control Panel’s “Uninstall a program” link—after downloadingMSE’s installer and disconnecting the computer fromthe Internet. (Keeping two anti-virus programs active at once won’t keep you safer but willmake computingmuch more of a nuisance.) On aMac, you only have to turn on


the systemfirewall that Apple inexplicably left off. Open System Preferences, click its Security icon, click the Firewall tab and click its Start button. You don’t need anti-virus software on


aMac unless you’re gullible and careless enough to install a strange programoff theWeb and then type in


HELP FILE


Q:Howdo Iwipemy data frommy old computer?


A: This evergreen task remains difficult because deleting files through the Recycle Bin or the Trash only clears a computer’s record of their locations. InWindows, install the free, open-


source Eraser (eraser.heidi.ie) to scrub files completely. InMacOSX10.3 or newer, the Finder’s “Secure Empty Trash . . .” does the same job (inOSX10.1 or 10.2, use older releases of the free Permanent Eraser fromthe “Downloads” page at edenwaith.com). But some critical data hides in


obscure, even invisible locations. Digging up things such as saved e-mail, one folder at a time, can get beyond tedious. Instead, create a newuser account just for erasing your data. InWindows, open the Control Panel


and click “UserAccounts” (inXP) or “Add orRemoveUserAccounts” (Vista). Note your old account’s name, then create a newaccount and pick “administrator” as its type. Log out of the old account and into the newone. In theMy Computer


window, go to your computer’s hard drive and open its “Documents and Settings” folder (XP) or “Users” (Vista). Right-click the folder named after your old account and select “Erase” to scrub it. Be aware that thiswill takemany hours. InMacOSX, open System


Preferences and selectAccounts.Again, note your old account’s name and create a new, administrator account. Log out of your old account and into


the newone. In the Finder, go to your Mac’s hard drive and open itsUsers folder. Select your old account and use Secure Empty Trash or Permanent Eraser towipe it. Reload the computer’s original


software before selling or donating it.On a PC, you usually do that by starting it off a system-recovery partition, but check itsmanual for help.On aMac, boot from the systemCDorDVDand select its “Erase and Install” option. The free, open-sourceDarik’s Boot


andNuke (dban.org) can alsowipe out everything on a PC if you’ll only recycle it.


Nextweek:ways to donate or recycle old computers and electronics.


your systempassword on its request. BothWindows and OS X require


updates to some Internet plug-in software. Themost important one is Adobe’s Flash plug-in, which plays mostWeb videos and other interactive content. You can download the latest version at get.adobe.com/flashplayer; see wapo.st/aPNFLf for tips about Adobe’s cumbersome installation process. If you useWindows, you’ll also need


Adobe’s new Reader X, a considerably more-secure version of its Portable Document Format program: get.adobe.com/reader. SomeWeb plug-ins are toomuch


trouble to keep around. Oracle’s Java has few uses on home PCs, and Microsoft’s Silverlight has even fewer. I’d uninstall both inWindows. On aMac, you can't uninstall Apple’s


built-in Java, but you can deactivate it in Apple’s Safari browser (open its preferences window and click the Security icon); fortunately, Silverlight doesn’t come preinstalled onMacs. Then it’s time to set up a backup


system. InWindows, type “backup” into the Control Panel’s search box or click the little flag in the bottomright of the screen (Win 7’s reminder of pending systemchores) to haveWindows start backing up your data to a CD, DVD or an external flash or hard drive. Apple’s TimeMachine software is simpler but pickier, excluding CDs and DVDs as backup destinations. In either situation, an external hard


drive provides themost capacity with the least effort. Don’t own one?Make that your next tech purchase. With security and backup done, you


can proceed to take back the computer. This ismostly aWindows chore, thanks to the often inept, tasteless software bundles planted bymost manufacturers. Start with easy things: Drag any


unwanted desktop links or shortcuts to the Recycle Bin and hide space-wasting browser toolbars by clicking the “x” at the left end of each. Uninstall trial software and other bundleware you’re sure you don’t want through the Control Panel. The free PCDecrapifier


(pcdecrapifier.com) can automate this work, but decline any offers by it to remove updaters for the PC vendor’s own software. Apple doesn’t ship the junk that the


PC vendors seemso fond of, but you can still tidy up the Dock at the bottom of the screen by dragging away shortcuts to unused programs. Now you should think about


installing the programs a smarter vendor would include. The free, open-sourceMozilla Firefox


browser (mozilla.com) is a great replacement for Internet Explorer, but


abroad. JimTierney, chief investment officer ofmoney managerW.P. Stewart, sees such possibility in PoloRalph Lauren andMasterCard.Ralph Lauren is expanding globally—with new stores inChile,Korea and Malaysia—and extending its product line intowatches, jewelry and sunglasses. MasterCard benefits fromthe growing use of credit cards all over theworld. U.S. companies gainwhen they


produce abroad or export goods and services to foreign consumers, factories or infrastructure projects.But companies can indirectly benefit fromrising emerging-market economies. For example,Ed Maran, co-manager of Thornburg Value Fund, is high onU.S. Steel, a domestic producer, because the strength of developing nations boosts steel prices —and profits. Urbanization,


industrialization and rising living standards in the developing worldwill drive up commodity prices, saysEvan Smith, co- manager ofU.S.Global Investors Resources Fund. JordanOpportunity Fund’s


Jerry Jordan is bullish on agribusiness.As ruralmigrants flock to cities, and as incomes rise in countries such asChina and India, diets change dramatically and demand for animal protein —which requires lots of grain to produce— surges. Jordan estimates that 500million to 800 millionmore residents of lower- income countries are shopping in food stores and eating in restaurants than a decade ago. He holds tractormakerDeere, fertilizer producerMosaic and iPathDJ-UBSGrains, an exchange-traded note that tracks the price of corn, soybeans and wheat. —Kiplinger’s Personal Finance


6


More from Kiplinger Go to www.kiplinger.com for


more analysis.


KLMNO


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TIM RUE/BLOOMBERG


After opening your newMac or Windows PC, you probably will have to spend time uninstalling software that a theoretically helpful manufacturer loaded on it.


Google’s free, open-source based Chrome (google.com/chrome) is faster and updates its own Adobe Flash and PDF plug-ins automatically. Many PCs now includeMicrosoft’s


Windows Live Essentials bundle of e- mail, photo and video software. If yours doesn’t, hit get.live.comto download that, taking care to download only those three components to start. You’ll also probably want the free Skype Internet-calling program(skype.com). Not tired yet? Customize the


computer a little. On aMac, try putting the Dock on the right side of the screen to leave room for your applications and renaming the hard drive to something more original than “Macintosh HD.” On a PC, “pin” shortcuts to programs on the taskbar so you don’t have to find them in the Start menu, change your user name from the default and peel off all those useless stickers. You know you’re allowed to do that, right? robp@washpost.com


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