Are Foreign Purchases of U.S. Treasury Bonds Being Faked?

Everyone knows that the American government is gaming the market for treasury bonds to some extent.

For example, the government has itself bought some U.S. Treasuries.

Some writers, such as Rob Kirby and Ellen Brown, go much further, alleging that Bernanke and the boys have also used hedge funds in the Cayman Islands to secretly buy huge sums of U.S. treasuries using dollars printed by the Federal Reserve, while pretending that independent "Caribbean banks" are doing the buying. See this, this and this. I have no idea whether or not they are right.

My Comments: I keep reading about BRIC going away from the dollar and bonds but it hasn't shown up in the charts. Right now bonds are somewhat stable considering the dollar's downtrend and the index's uptrend. The articles posted are rather dated. I'd like to see updated figures of the "Caribbean banks" holdings. Important to note that I'd like to seen these numbers just for fun. Typically by the time somthing like this comes out the market has already made the appropriate move (gold breaking 1000?).

Full article here...

New Records in Gold and $ Update

My Comments: Gold has achieved a record recently withe its first weekly close above $1000. I'm watching the embedded Stochastics and they are hinting at higher prices until the Stochastics close below the green line 80 mark.

The pause in the dollar was just that. We still have MACD divergence but both the dollar and gold have broken out and the momentum is buliding for bigger breaks. Dollar still has some support at the 74 level. If that fails a big move down would almost certainly follow...stay tuned.

Dylan Ratigan: Americans Have Been Taken Hostage

The American people have been taken hostage to a broken system.

It is a system that remains in place to this day.

A system where bank lobbyists have been spending in record numbers to make sure it stays that way.

A system that corrupts the most basic principles of competition and fair play, principles upon which this country was built.

It is a system that so far has forced the taxpayer to provide the banks with the use of $14 trillion from the Federal Reserve, much of the $7 trillion outstanding at the US Treasury and $2.3 trillion at the FDIC.

My Comments: Dylan is easliy one of my favorate finacial journalists. He makes some great points.

Full article here

Weekly Update From Puru

The stealth bull-market is gathering steam. Despite widespread skepticism and disbelief, global markets are staying firm and over the past week, a number of stock indices have climbed to a new recovery high. It is noteworthy that the market’s breadth is very strong and an increasing number of stocks are now breaking out to a new 52-week high. Moreover, the Volatility Index (VIX) has dropped to below 25 and the LIBOR has plunged to 30 bps. These are all positive developments which suggest that the market’s advance is likely to continue. There can be no doubt that on a near-term basis, the markets are overbought but so far, every pullback has been met with strong demand.

Even though the stock markets have risen significantly over the past few months, most people do not trust this rally and many are expecting another autumn crash. In our view, that time is running out for the bears and the longer the markets stay firm, the lesser the odds of a significant plunge. On the contrary, if the markets do not collapse over the next month or so, we could get an explosive year-end rally.

Please bear in mind that our investment strategy does not depend on the short-term price fluctuations and we cannot be certain as to where the market will be in a month or even six weeks from now. Instead, what we do know is that interest-rates are at record-lows in most nations, central banks are creating money and in this environment, stocks offer a formidable competition to cash and fixed income investments. Accordingly, we suggest that you hold on to your positions in quality businesses which are likely to increase their earnings in the future. As far as sectors are concerned, we prefer natural resources, infrastructure, industrial machinery and Asian retail. Yesterday, we have also added a quality health care business to our equity portfolios. Remember, millions of baby boomers all over the world are approaching retirement. As they age and their health deteriorates, dominant businesses in the health care industry should thrive. So, consider allocating some capital to the dependable medical industry.

In terms of markets, we continue to favor the emerging nations in Asia and have exposure to China, India and Vietnam. All these markets have done exceptionally well over the past few months and we expect this out performance to continue over the entire business cycle. Therefore, we suggest that you keep your positions and deploy more capital during pullbacks.

In the world of commodities, the price of crude oil is trading around US$72 per barrel and it should rise over the following years. At present, our biggest investments are in the energy complex and we suggest that you maintain your exposure to upstream oil companies and the oil services stocks. As far as metals are concerned, several base metals have climbed to new recovery highs and this is a good sign for the global economy. Investments in diversified mining companies should produce good growth over the following years, so keep your positions.

Furthermore, in the realm of precious metals, market action is heating up. Gold is currently flirting with the psychologically important US$1,000 level and the renewed weakness in the US Dollar suggests that gold may be on its way to an all-time high. For now, keep your positions in bullion and the precious metals mining stocks but if the price of gold falls below US$920 per ounce, then consider liquidating your precious metals related investments. Based on the recent market action, it seems to us that gold will climb to a new high. So, if a multi-month rally materializes (our expectation), then the precious metals mining stocks will be big winners and silver should outperform gold. Under this scenario, we will hang on to our holdings in precious metals and will probably sell into the euphoria next spring.

Finally, in the currencies department, the US Dollar has broken below important support and its weekly chart looks awful. This weakness in the American currency is a clear indication that the central-bank sponsored reflation is working and the US Dollar is again being used as a carry-trade currency. We suggest that you keep your cash in the Australian and Canadian Dollars.

The ghost fleet of the recession

My Comments: Good article making the rounds. The Baltic Dry Index collapsed and hasn't recovered at all. I leads me to ask "who is going to consume enough products to get these ships moving?". The BRIC nations have relied on the US to eat every thing they produce but that bubble has popped. The only way these ships get moving is if there is a new designated eater.

Full article with some good pictures here

Weekly Update From Puru

The stealth bull-market continues and the recent market action in constructive. As we approach the first anniversary of last year's crash, it is possible that we may get some near-term setbacks, however the trend for global stocks is up. We maintain our view that the bear-market is now behind us and that we are in the early stages of a multi-month advance. Today, considering the ultra-loose monetary policy and near-zero interest-rates, a case can be made that global stocks are moderately priced. Remember, in this low interest-rate environment, cash and fixed income assets do not offer much in terms of competition for equities and this is the reason why we believe that the current valuations are justified. For sure, stock markets valuations at previous bear-market bottoms (1974 and 1982) were much more compressed, however during those periods, interest-rates were significantly higher. This is not the case today and we continue to view last year's market sell-off as a superb long-term investment opportunity.

It is worth noting that last year's panic crushed all stocks and even some of the world's strongest companies experienced huge declines in their stock prices. If you are a long-term investor, such opportunities do not come around often and we suggest that you ignore the near-term uncertainty and allocate capital to dominant companies. Given the macro-economic outlook, we prefer the emerging markets of Asia and in terms of industries, we love the natural resources complex. We have considerable exposure in these areas and we also own world-class companies in several other sectors such as telecommunications, industrial machinery, heavy construction, consumer discretionary and retail. As an investor, pessimism is your friend and the negative sentiment prevalent today is providing you the opportunity to buy into solid companies at depressed prices. So, we suggest that you continue to hold on to your position in equities and perhaps add more capital.

In the resources complex, the price of crude oil is correcting its recent gains and we expect a rally over the following months. Therefore, we recommend that you maintain your holdings in the energy patch. The price of natural gas has declined even further and sentiment is now horrific. For the moment, there is no shortage of natural gas but once the industrial demand picks up, the price of natural gas will rally. So, long-term investors should hang on to their positions in quality natural gas companies. As far as natural gas ETFs are concerned, the excessive 'contango' in the futures market has turned them into a loss making proposition and a few weeks ago, we closed out our positions at a modest loss. Accordingly, we suggest that you participate in the natural gas sector via producing companies as opposed to buying an ETF which simply 'tracks' the price of the physical commodity.

The action is heating up in the metals department and over the past couple of days, we have seen some big moves in gold and silver. As you are aware, we were expecting a large move and now it will be most interesting to see whether gold can break past its all-time high recorded in March 2007. If this bull-market has legs, gold will be able to climb to a new high and stay there. Of course, we will be delighted with this development as we have significant exposure to precious metals mining stocks. However, for us to be totally comfortable with the bull-market hypothesis, gold must

Finally, in the world of currencies, the US Dollar is still bouncing along its support level and over the past few days, it has rallied in tandem with gold! This action is most unusual and we will have to wait and see. For the sake of gold's bull-market, we would have been a lot happier with the American currency weakening, however this is not what is happening. For now, we suggest that you continue to keep your cash reserves in the Aussie and Canadian Dollars, but if the US Dollar Index breaks above the 80 level, consider buying the American currency.reach a new high very soon. For now, our advice is that you stay with your positions in bullion and the related mining stocks, which should explode if gold manages to confirm its bull-market.

My Comments: The last paragraph is what we have been watching in the charts over the past few posts. One point he doesn't make is that if the dollar breaks over .80 it would more that likely coincide with sell off in stocks.

Gold and the Dollar Update

My Comments: Gold has broken out of the wedge and is testing the $1000 mark...my guess is that it break over $1000 and on to new highs soon. Also note that the dollar remained range bound during this period. If the continues it is deflation, not inflation that is driving gold. no one knows for sure but the charts will give us hints/probabilities.

Click on the charts for a larger image...

China Set to Buy $50 Billion in IMF Notes

WASHINGTON -- China is on track to become the first purchaser of notes issued by the International Monetary Fund, a move that would diversify its foreign asset holdings and could give the IMF's quasi-currency more clout.

The IMF on Wednesday said China has signed an agreement to purchase approximately $50 billion in notes from the fund. The notes are denominated in Special Drawing Rights, a quasi-currency issued by the fund and promoted by China as a potential replacement for the dollar ...

My comments: They continue to look for a new asset classes to move into...I dont know enough about IMF notes to comment on them. The real issue is that China seems committed to move away from the US notes.

Full article here...

Special Update from Puru

It looks as though the multi-month correction in precious metals is coming to an end and very soon, we are going to get a major move. If the bull-market is still intact, then gold should break above US$1,000 per ounce within a few weeks. However, if the price of gold fails to do this, we could see a sharp decline in bullion and precious metals mining stocks. Put simply, if the price of gold falls below US$920 per ounce, it will be a negative omen and at that point, our suggestion would be to immediately sell your precious metals and related mining stocks.

My Comments: These are around the areas that gold has been trading in its wedge that I posted yesterday.

Yes, the macro-economic environment is bullish for precious metals but this has now become a very crowded trade. Most investors are positioned for an explosive rally and if gold fails to climb to new highs soon, we may get heavy liquidation from the frustrated bulls. Under this bearish scenario, the price of gold and other precious metals could plummet rapidly and this is the reason why we are suggesting that you exit your 'long' positions if gold breaks below US$920 per ounce. Although the chart pattern for gold looks like a gigantic 'inverse head & shoulders' bottom, it could also turn out to be a massive double top. Remember, gold's chart pattern is almost identical to copper, which staged a spectacular decline last year. So, we will have to wait and see how things develop.

In our view, the direction of gold's breakout will depend on the US Dollar Index, which is currently trading above a major support level. Yesterday, the US Dollar Index managed to break out of its declining trend line and this is good news for the greenback. Over the following days, if it closes above the 80 level, it will be a big positive for the American currency and a drag on precious metals. Conversely, if the US Dollar Index breaks below the 77 level, it will usher in the anticipated rally in precious metals. So, in the near-term, we suggest that you keep a close eye on the US Dollar Index as movements over here will determine the fate of precious metals.

My Comments: This is what I was highlighting in yesterday's charts. However he doesn't account for a possible recouple of gold to the green back...During the panic of 08 gold proved that it can be more then an inflation hedge...Time will tell.

In summary, if gold breaks below US$920 per ounce, we urge you to liquidate all your holdings in precious metals. Moreover, if the US Dollar Index breaks above the 80 level, we advise you to convert all your cash reserves to the American currency.

The above strategy may seem flippant to some of our readers but given all the uncertainty in the economy, we want to keep an open mind. More importantly, we want to ensure that we are prepared for all eventualities. Remember, Wall Street is littered with the graves of those who got married to one market forecast and failed to smell change. Instead, we prefer to be vigilant and will continue to adjust our investment positions based on market action.

My Comments: This is what I was showing on yesterday's post. It looks like Puru and I are on the same page...or he reads my blog. I bet its the former.

S&P, Gold, and the Dollar

My Comments: Big sell off in the S&P. This is expected being at the top of a channel and could continue towards the bottom of the range as MACD and Stochastic divergence are indicating. These arenot sure fire indicators as they were indicating a selloff in late June that turned into the July blastoff.

Gold is remaining within its consolidation range. However with the S&P selling off and gold closing up with the dollar is hinting towards deflation or more deleveraging. I still think its best to wait on gold to either break out of its triangle and as we approach the apex of the triangle, gold should decide soon.

Dollar broke over its trendline that I have been highlighting in past posts. Im watching its relationshionship with gold and im seeing signs that they could be recoupleing. If this develps I will post the charts and show you what I'm talking about.

Why Are We Such Suckers For Prediction?

In his book “The Black Swan” Nassim Taleb says, “We have seen how good we are at narrating backwards, at inventing stories that convince us we understand the past. In spite of the empirical record we continue to project into the future as if we were good at it, using tools and methods that exclude the rare events.” Funny isn’t it, since the big, rare, unpredictable events are precisely what shape the world. Events like the automobile and the World Wars, the internet and the Beatles.

I think it’s ironic that by accepting we have little control over most things, actually gives us greater control over what might happen.

My Comments: Great writeup and I think it can be applied to several different areas of life, investing, ect...

Full read here...

Weekly update from Puru

The stealth bull-market continues and the price action remains solid. Although trading volumes have been weak over the past few months, the market's breadth is very strong with the advance/decline line breaking out a new recovery high. Moreover, the number of new 52-week lows on the NYSE have dried up to 1, whereas the number of stocks breaking to new 52-week highs have increased to 60. Remember, during last October's crash, over 2,200 stocks on the NYSE dropped to a new 52-week low on the same day! That selling panic marked the internal low for the bear-market and ever since, we have seen an improvement in the market's technicals. Furthermore, it is good to note that the Volatility Index (VIX) has now declined to 24.5 and the TED Spread (difference between 3-month LIBOR and yield on the 3-month US Treasury Bill) has plummeted to well below the historical average. This is a good indicator and confirms that the banking system is no longer stressed.

There can be no doubt that we are likely to see more foreclosures over the following year as a second wave of Option-ARM and Alt-A resets hit the US. However, we are of the view that with the steep yield curve and 'free money' from the governments, most banks will be able to withstand any credit losses which may arise from defaults. Therefore, we may see some more jitters but we'd be extremely surprised if the bear-market lows were violated over the following months. At present, our clients' capital is fully invested in our preferred businesses and markets and we would suggest that you hold on to your existing positions. If we do get a pull-back, consider allocating more capital to resources and emerging Asia. If you are good at selecting individual companies, then you can also allocate capital to quality businesses which are outside the resources complex.

For our part, we have identified superb companies which are dominant businesses in their respective fields. Before we allocate capital to any business, we carefully evaluate the financial statements of the past 10 years and we prefer to see consistent earnings growth, growing market share, high returns on equity, low debt levels and most importantly; a reasonable price tag. At present, more than 60% of our clients' capital is invested in the resources complex, but we have also selected superb businesses in the telecom, industrial machinery, retailing and consumer discretionary sector. Remember, last year's bear-market severely punished all stock prices and even the good companies weren't spared. In our view, this represents a fantastic opportunity to acquire partial stakes in outstanding businesses. Now, I must confess that I don't know where the market will be in a few weeks time, but I can say with certainty that this recession will end and and good businesses will continue to thrive over the medium to long-term. The best time to buy assets is when everyone else is nervous. Uncertainty is an investor's best friend, over-confidence is his enemy. So, we would sincerely recommend that you ignore all the 'end of the world' forecasts and convert your temporarily powerful investment dollars into sound assets. Make no mistake; monetary inflation is a fact, deflation is a theory. Over the past century, cash has lost almost all its purchasing power via inflation and this trend will continue for as long as central banks control the monetary levers. So, there is no point in hoarding cash over the medium to long-term.

Over in the commodities complex, the price of crude is trading around $72 per barrel and it should rise exponentially over the coming decade. So, allocate capital to quality upstream companies and oil services stocks. We would suggest that you avoid investing in the oil majors as they are struggling to maintain reserves and production. Instead, independent exploration and production companies should produce more growth over the medium to long-term. Over in the metals department, copper is staying firm and other base metals are also appreciating in value. This is due to an explosion in Chinese imports and perhaps due to the debasement of currencies.

Wherever you care to look, in the entire commodities complex, we are dealing with rising demand and struggling supplies. A few years ago, we entered an era of resource scarcity and this problem will intensify over the coming decade. Put simply, our planet's resources cannot sustain the emergence of an Asian middle-class. Asia has over 3 billion people and you can imagine the drain on the planet's resources even if a third of this population (1 billion) demanded a better quality of life. Fortunately, for the commodities investor, this will translate into mouthwatering profits.

Finally, in the world of currencies, the US Dollar Index is bouncing along an important support level and in our opinion, it will decline over the medium to long-term. Our preferred currencies (Aussie and Canadian Dollars) are strengthening and we expect this trend to continue. Over in the US government bond market, interest-rates have declined somewhat and we expect them to stay range-bound for a few more months. Over the longer-term however, we anticipate US interest-rates to rise dramatically as the American government struggles to raise capital.

Dollar Update

My Comments: If support holds, and the dollar bottoms out, this is bearish for equities, foreign currencies, commodities, Real Estate, ect. However if it fails the opposite is true. The trend is down and we can expect it to continue until proven otherwise. I'm seeing a few hints that it might be proven otherwise.

My Comments: On the Chart.

Weekly Update from Puru

The bull-market continues to climb the 'wall of worry' and the recent market action has been impressive. Rather than declining sharply in order to eliminate the overbought conditions, global stock markets are simply consolidating their recent gains. Remember; we are approaching the first anniversary of last year's autumn crash and investor sentiment is turning jittery. Nonetheless, stock markets are showing signs of strength by refusing to break down and every near-term correction is being met by renewed buying. In terms of technicals, the market's breadth is impressive with the NYSE advance/decline line reaching a new recovery high, meanwhile sagging volume remains a concern. In our view, if the markets manage to remain steady for another month or so, strong buying will emerge and we will witness rising volumes as traders return from their summer vacations. So, rather than a repeat of last year's horror show, it is probable that we will see a strong advance towards year-end.

Over the past few days, China's stock market has declined sharply but we view this pullback as a routine correction within an ongoing bull-market. Although the Shanghai Composite Index may decline further over the coming days, the downside seems to be limited and long-term investors may want to add to their positions during this period of weakness. Look. Since the turn of this decade, we have maintained that China is destined to become the next great country in the world. Fortunately, Beijing has done a fabulous job of managing China's economy during this recession and the stage is now set for superb long-term growth. Accordingly, every investor must have some exposure to China and now is the time to buy quality businesses in one of the fastest growing economies in the world. Apart from China, our other preferred markets (India and Vietnam) are also performing well and we suggest that you hold on to your long-term positions. If we do get a near-term pullback, consider allocating more capital to these developing markets.

Over in the world of natural resources, our view remains that our planet is sleepwalking into a monumental supply crunch and the end result will be a historic crisis. Whether you like it or not, hard data confirms that the era of cheap energy is over and we will see acute shortages of hydrocarbons over the following decades. It is worth noting that during this severe recession, global demand for crude oil has only shrunk by 2.6% and usage in the emerging world has continued to rise! So, what will happen when consumption picks up again? Who will rise to the challenge and produce the extra oil? Our research leads us to believe that it will be extremely difficult (if not impossible) to significantly ramp up oil production from these levels. Therefore, we expect the price of crude oil to rise exponentially over the medium to long-term. And once the depletion rates accelerate, we will see acute shortages followed by rationing. In light of the above, our recommendation is to allocate a large portion of your investment portfolio to energy (upstream oil/gas companies and oil service stocks).

Elsewhere in the commodities complex, base metals' prices are firming and this is another positive development. Yesterday, copper closed at $2.75 per pound and after a near-term correction, it should rise further. Similarly, other base metals are also rallying and this could be due to a pick up in industrial demand. As China, India and the other developing nations continue to industrialise and urbanise, there will be a huge demand for industrial commodities. Unfortunately, supplies won't be able to keep up and the result will be a big bull-market in commodities. So, our suggestion is to buy and hold on to diversified mining and steel companies as these businesses are likely to produce sound operational results over the following years. As far as precious metals are concerned, both gold and silver are in the latter stages of a multi-month consolidation period. If the bull-market is intact, we should see upward breakouts soon and the rally will probably last until spring next year. So, our advice is to hold on to gold and silver mining stocks.

In the money and debt markets, the US Dollar Index is bouncing along an important support level and it looks as though it will weaken sharply over the following months. The US is running a huge budget deficit and almost half of this hole will be financed by printing US Dollars. So, it is probable that the US Dollar will decline against the more sound currencies such as the Canadian and Australian Dollars. Furthermore, the currencies of emerging Asia should also strengthen against American money. Finally, the action in US Treasuries is choppy with the 10-year Note yielding 3.42% and the 30-year Bond yielding 4.24%. Over the past few days, yields have dropped somewhat and they could go lower in the near-term. However, over the long-term, we expect US yields to rise significantly as America struggles to raise capital from foreign investors.

Everything the Government Runs is Bankrupt

My Comments: Can't add anything else. He nailed it.

Toxic Loans Topping 5% May Push 150 Banks to Point of No Return

Missed payments by consumers, builders and small businesses pushed 72 lenders into failure this year, the most since 1992. More collapses may lie ahead as the recession causes increased defaults and swells the confidential U.S. list of “problem banks,” which stood at 305 in the first quarter.


My Comments: When I hear banks going broke I can only think of two things...One, they paid taxes on past earnings that were used to bailout C, JPM, WFC, BAC, GS, GE, GM, ect...Is this socialism for big business or fascism? And second, when is FDIC going to run out of money?

Full article here...

Weekly Update from Puru

The stealth bull-market continues amidst widespread disbelief and skepticism. Over the past week, market action has been constructive and several technical indicators have recently improved. At present, stocks are consolidating their recent gains and apart from periodic corrections, we expect them to rally over the next 2-3 years.

Yes, the West still faces problems in terms of too much debt and rising foreclosures but the markets seem to have discounted these worries. After the horrendous decline last autumn, most major stock markets have broken out to new recovery highs and this is bullish action. Now, it is conceivable that we may get some jittery pullbacks as we approach the anniversary of last year's crash, but our suggestion is to buy the dips.

My Comments: Yes it is possible that these prices have discounted these things. But a more likely scenario is that we are experiencing the beginning of irrational prices.

We continue to favor the developing markets in Asia and recommend exposure to China, India and Vietnam. All these markets are likely to produce exceptional growth over the medium to long-term.

Over in the energy complex, the price of oil is holding above $70 per barrel and it should rise exponentially over the following decade. The reality is that dwindling supply is facing rising demand and this will translate into much higher prices. Eventually, we will see shortages and oil may only be used for aviation and agriculture. So, in our view, every investor should allocate a meaningful portion of their capital to the upstream oil companies and the energy service companies. If our homework is correct, oil drillers and oil service businesses will make a small fortune over the coming decade.

At current levels, the price of natural gas is extremely cheap and it should rally as soon as industrial demand returns. Accordingly, we suggest that you maintain your exposure to gas producing companies.

Over in the metals department, the price of copper has climbed to a new recovery high ($2.92 per pound) and this is a good sign for the global economy. Other base metals are also rallying hard and they should appreciate further over the following months. Accordingly, we suggest that you keep your positions in diversified mining companies and add more capital on pullbacks.

As far as precious metals are concerned, the action in gold and silver has been as exciting as watching paint dry. It seems as though the lengthy consolidation is in its final phase and we should see a big move over the following months. If the bull-market is still intact (our view), then both gold and silver should break upwards before year-end. So, hold on to your bullion and precious metals mining shares.

My Comments: This is what I was pointing out in my last gold chart update. Price is in a slap fight within this wedge and don't expect to see anything phenomenal until we breakout of it in either direction.

Over in the world of currencies, the US Dollar is coming under pressure against our preferred money - Australian and Canadian dollars. As the commodities bull-market gathers steam, both these currencies should benefit immensely and we remain long-term bulls.

My Comments: Take a look at my last post and chart on the dollar. Its reasonble to see that we are carving out a bottom in it. This is contrary to what Puru is forecasting. In otherwords price is hinting that there is demand for dollars at this price. I would need to see the technicals that I pointed out in the dollar to reverse downward to be fully onboard with him.

Dollar Index

My Comments: You'll notice the MACD and Stochastic divergence on the daily chart. This hints that the dollar could be carving out a bottom of some kind. Pay attention to the upper trend line and if it is broken would be a signal that the inflation trade is on hold...With the Stock markets looking toppy to me, a sell off in the equities would send some cash out of Euro, Aud, GBP, CAD and back to the greenback. And keep in mind that I think the inflation trade is the big theme but its important to sideline those opinions when price starts to hint otherwise...

Weekly Update with Puru

Global stock markets are consolidating their recent gains and this is impressive given the sharp rally since March. Rather than correcting sharply, stock markets are clearing the overbought conditions by grinding sideways. Our view remains that we are in the early stages of a 2-3 year cyclical bull-market which will probably end when central banks tighten monetary policy by raising interest-rates. Until that happens, asset markets should continue to benefit from the massive stimulus provided by the establishment. Now, there can be no doubt that this recession is much more severe that the typical slowdown seen in the past few decades, but the current situation is nowhere near as bad as the depression years of the 1930s. Well, it seems that other people are also coming to the same conclusion and this explains the recent re-pricing of risky assets such as stocks and commodities.

As far as stock markets are concerned, emerging Asia is providing leadership and we expect this trend to continue throughout this cycle. So far, two of our favourite markets (China and India) have led the pack. Over the following months, we expect Vietnam to play catch up. These three Asian economies are growing rapidly and long-term investors should be rewarded by owning quality businesses in these nations. Accordingly, we suggest that you hold on to your positions and perhaps allocate additional capital during temporary pull-backs.

In the commodities complex, the price of crude oil is trading around $70 per barrel and it is likely to soar over the following years. Whether you like it or not, the world's oil production is peaking at a time when usage is on the rise. All other things being equal, this supply and demand imbalance should result in much more expensive oil. If our homework is correct, the price of oil will probably rise at an increasing rate over the following years and ultimately we will see shortages. In fact, the supply situation is so dire that within a decade or two, oil may only be used for aviation and agriculture. Obviously, it is difficult to forecast how high the price of crude will go but last year's record of $147 per barrel should be easily surpassed. Over the past few weeks, we’ve allocated a major proportion of our clients’ capital to quality businesses in the energy industry and we suggest that you do the same. To be precise, we’ve invested in upstream oil/gas companies, oil drilling contractors and businesses engaged in producing alternative sources of energy. Dominant businesses in these sectors should produce satisfactory growth over the following years.

Over in the metals department, copper has shot up to a new recovery high and this is an encouraging sign. It is worth noting that most of the high-grade ore in the world has already been mined and copper companies are now being forced to mine lower-grade ore. This development together with the rising cost of energy should underpin copper’s bull-market. Along with copper, most of the other base metals are also rising and the boom should continue for the foreseeable future. Long-term investors should consider an investment in diversified mining companies. As far as precious metals are concerned, both gold and silver are still trapped in a trading range and if the bull-market is still intact (our view), they should soon commence a powerful advance. Therefore, investors should hold on to their physical bullion and perhaps allocate some capital to precious metals’ mining shares.

In summary, it looks as though the secular boom in commodities and emerging Asia has resumed and investors should focus on acquiring partial stakes in dominant businesses positioned to benefit from resource-scarcity and the urbanisation of China and India. After thorough research, we’ve identified superb companies which boast durable competitive advantages, solid balance-sheets and attractive valuations. If history is any guide, such quality businesses should deliver outstanding returns over the medium to long-term. And we suggest that you focus on the big picture by allocating your capital to the strongest companies in our preferred sectors and markets.

My Comments: Dont fight the charts and they are all pointing up at the moment. As long as you understand that this rally will end (some day) and have a plan to exit, you're okay. Fundementally the rally is bogus and if/when it rolls over we could see a big drop in either real or nominal prices. Pay attention.

Gold Chart

The Right shoulder of the year long head and shoulders formation in gold is consolidating into a wedge/triangle. either directin gold decides to break out of should be a significant move. Since we are in an uptrend, I expect that gold will break to the upside. Watch this triangle as a key indicator for the timing and the completion or failure of the head n shoulders.