Puru's Weekly update

Market conditions continue to improve amidst widespread disbelief and skepticism. Our view remains unchanged - there is an 80% probability that the bear-market is now over and we are in the early stages of a strong bull-market which will last until the central banks start raising interest-rates. The developing markets in Asia and Latin America bottomed out last autumn and they've now gone past the January highs. Markets in the West seem to have bottomed out in March and as per our expectation, they are under performing the emerging markets. Look, we've had a very strong rally since March and the markets may correct over the following weeks but there is no guarantee of this happening. In any event, we expect the bear-market lows to hold and it wouldn't be surprising if the S&P500 closed the year around the 1,100 level.

My Comments: Its to still to early to make a call on the S&P500. Especially with the banks cooking the books. Wait for a retracement and analyze further.

The broad economy remains weak for now but there are some early signs of improvement. Our world has never experienced such a large scale policy response and it is our firm belief that this wall of money will do wonders for asset prices. Although the broad economy may only recover by year-end, financial markets are already moving in anticipation of this recovery. Now, we are aware that many astute investors are waiting for further declines but this may be wishful thinking based on their psychological commitment to their bearish bias. The longer the market holds up, the lesser the odds of another vicious decline. Time is a great healer and with interest-rates and bond yields at record-lows, it is only logical that investors are moving cash towards growth producing assets. So, our advice is to follow the money rather than the expert opinions of economists and pundits. Remember; it is darkest before dawn and economic news is always most bearish around major market bottoms. In our view, this is a superb opportunity to allocate capital to the fast-growing economies of Asia and Latin America.

Over in the commodities markets, it is nice to the energy complex showing signs of life. Crude oil is now trading around US$56 per barrel and we expect it to climb to US$75 per barrel by year end. If the economy recovers by then, we may see still higher levels. Whether you like it or not; our world faces a severe liquid fuels crisis and every investor must allocate a large portion of their capital to energy. Most of the world's largest oil fields are now past peak production and capital spending on new projects has diminished significantly. This isn't a conspiracy theory, 'Peak Oil' is a fact! Over the following years, the price of energy will sky-rocket and upstream oil companies and oil servicing stocks will make a fortune. We recommend exposure to them along with physical crude oil. Apart from crude oil, natural gas seems to have formed a low and should now play catch up with oil. Recently, we bought physical natural gas and it is our belief that the price of this commodity will be much higher in the future. Finally, the price of uranium has also perked up and uranium stocks are on fire. So, after a near-term correction, investors may consider buying into some of the uranium miners.

My Comments: I really like the Natural gas recommendation here. It should flatten out, and pull back some but it is forming a rounded reversal pattern. Try UNG the Nat Gas ETF...Peak oil is a truth and will impact oil prices if it plays out the way he says. However what if during late 2008 we experienced Peak Demand? This could curtail oil prices even in a Peak Oil scenario. I'm not sure what will happen and I'm not making a prediction or a call, I just want to me prepared to protect my capital in either scenario. As of right now the timing is right and for Puru's call and its safe to buy oil and natural gas.

In the metals department, the action is choppy. Silver and copper have firmed in the past week but we are now entering the seasonally weak time of the year. Accordingly, we suggest that you wait for the usual summer pull-back before adding to your positions in this sector.

Over in the fixed income markets, US government bonds are weakening. The 10-year yield has now risen to 3.29% and the 30-year yield has gone up to 4.26%. For many months, we've been warning about the bubble in US Treasuries and it seems that our assessment is proving to be correct. Although US government bonds may rally in the near-term, their long-term outlook is pathetic at best. Courtesy of the global policy response, a wall of money is now here and an inflation tsunami is headed this way. Best to get out of cash and fixed income assets.

Finally, in the world of currencies, the US Dollar is rolling over and major world currencies are now rising. Our preferred currencies (Aussie and Canadian) have rallied nicely and they should go up some more. The European currencies are also benefiting from the US Dollar weakness and any further strength in the Euro and Sterling would be a good opportunity to exit.