amid uncertainty

By John P. Calamos Sr.

“The curse of me and my nation is that we always think that things can be bettered by immediate action of some sort, any sort, rather than no sort.” – Plato

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In this season of elections, it is our belief that we can expect the new Congress and policy makers in Washington, D.C. – as well as lawmakers on the local level – to cause changes of some sort in the very near future that impact tax rates, reform of the healthcare and the financial sectors, and the questionable policy of continuing to print money to support a sluggish economy. We don’t know exactly how each of those changes will impact our families, our businesses, and our money. Combine all of that uncertainty with continued stock market volatility and it appears there are more questions than answers for investors.

The good news is that we believe there is still reason to be optimistic about certain investment opportunities. I don’t think there will be a double dip recession, although growth will be slow. Whatever the outcome this November election, financial market volatility will continue in this uncertain economic environment. Investors must remember that the financial markets are forward looking; therefore favorable financial markets will lead favorable economic data. In addition, looking back in history the best environment in which to invest has been when the economy was not doing well. 1982, for example, had the worse GDP numbers since WWII and the worse unemployment rate since WWII. Recently, we received a report that current auto sales were the worst since August of 1982. To put this in perspective, in August of 1982 began one of the best bull markets in history and it came as a surprise -without any announcements by the media or other experts. So despite current volatility, we still believe the flipside of volatility is opportunity.

The way we believe many investors can get comfortable with investing in today’s markets is to focus on the valuation of companies and their future prospects. We believe valuations of stocks in many different types of businesses are very compelling today. For example, growth companies with more of a global footprint are as undervalued as I have seen in more than twenty years, relative to the rest of the market. The reason is that the market is very unwilling to forecast beyond the next quarter, therefore a company’s future prospects are not priced into the current level of stock prices. We feel this provides some excellent opportunities.

On the other side of the investment spectrum, we believe the bond market seems risky as interest rates have plummeted to historically low levels. With the uncertainty in the economy there has been a flight to safety that has caused many investors to sit on the sidelines in cash or bonds - even at these very low interest rates. However, the risk of reinflation (increasing inflation due to a monetary policy) should not be ignored. The quantitative easing policy that the Fed is pursuing combined with the tremendous amount of federal debt is causing a loss in confidence of the U.S. dollar. These two factors also increase the risk that future inflation may occur. The increasing prices of commodities reflect this concern, as currencies around the world attempt to adjust. The additional concern of a trade war developing also adds to the uncertainty and volatility of the financial markets. So what some investors don’t realize is that the safety of bonds could be in jeopardy if inflation were to occur.

We believe there are opportunities in this period similar to other periods in the past, but there is a difference today. I have been investing since 1970, but more than ever before I believe it’s time for U.S. investors to think more globally. This means that investors should take an increasingly more global look at opportunities – because those opportunities do exist. By thinking beyond the borders of our country, globalization provides ways to put money to work in other countries that are experiencing more rapidly growing economies. Our focus, even in our U.S. portfolios, is to find companies that generate a significant portion of their revenue from global markets and not simply the United States.

We are seeing attractive values in the global stock markets, particularly in developing or so-called emerging markets, like China or India, where the expansion of the middle class is dynamic. Their countries need to build roads, buildings and factories while their residents are buying up lifestyle and technology products. The burgeoning middle class - and the efforts of the poor to become middle class - will likely drive the global growth trend for years to come. In addition, technology and a worldwide trend toward economic freedom now make it easier than ever before to research companies around the world and to take advantage of those investment opportunities. It does not necessarily mean investing directly in those markets that tend to be volatile, but finding companies that derive most of their revenue from those growing economies. Large growth companies around the world can give investors a means to participate in the trend of increasing global middle class consumption. It is our belief that this trend will only be stronger in the coming years.

In our opinion, opportunities are particularly compelling among growth-style stocks that should increase in value with this middle class growth. More specifically, we like large, multi-national companies that have customers in many countries. What this means is that the location of a company’s headquarters is not nearly as important as the places in which that company does business.

We see encouraging signs that the global economy is improving, with a better balance between what people are saving and how much they are spending on goods and services.

The progress of emerging nations represents a significant opportunity for companies and investors all around the world. In our opinion, emerging market stocks have caught momentum and are priced for continued success. That said, we remain cautious. Although we do not believe emerging market stocks represent a bubble at this time, they can be more volatile than those from established economies and can present a greater risk to investors. The return for taking that risk, however, can be noteworthy.

One way we have found to dampen the volatility of emerging markets is through the use of convertible securities. We’re seeing increasing issuance of convertible securities outside the United States as growth in those areas continues to be strong. The use of convertibles securities is a means by which companies can access capital to expand their business.

The decision to include global growth investments, including those from emerging markets, can be a natural evolution for certain investors seeking new sources of returns. We believe that companies participating in the growth of the middle class and its increase in worldwide consumption can present a timely and welcome choice for investors, regardless of what changes may come from Washington in the months to come.

John P. Calamos, Sr. is the Chairman, CEO and Co-Chief Investment Officer of Calamos Investments. He is the author of “Convertible Securities, the Latest Instruments, Portfolio Strategies and Valuation Analysis.” To comment or ask a question about this article, you can contact John at

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice. 10116 1010Q C

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