Weekly update by Puru

Global stock markets had become overbought and a near-term correction is now underway. Based on sentiment and technical indicators, our guess is that the overbought conditions will be alleviated via a sideways consolidation or shallow correction. At this stage, we do not expect a significant collapse in stock prices and our suggestion is that you should be buying the pull-back. It is worth noting that despite the disbelief and skepticism surrounding this rally, the markets are staying firm. When it comes to investing, sometimes the minority view is the correct one. Today, we do not know of many people who are forecasting a sustainable rally or a strong economic recovery and this bearish sentiment should keep a floor under stock prices. Furthermore, despite the strong multi-month advance, assets in money-market funds are still unusually high when compared to America's stock market capitalisation. So, if an autumn crash does not materialise, we suspect eager buyers will look for a higher return on their invested capital. In our view, emerging Asia will be the prime beneficiary of this asset reflation and we continue to like China, India and Vietnam. All these nations are fundamentally sound, their economies are growing rapidly and we expect long-term investors to benefit.

For a bigger perspective, it is worth keeping in mind that over the past decade, stock markets in the West have been a loss making proposition. Back in March 2000, the S&P500 peaked at 1,527 and almost a decade later, it is trading at 1,050. Today, the largest American businesses are trading roughly 32% below their decade-ago level and for the first time in years, they are fairly priced. For sure, during the most recent bear-market, stock valuations did not plunge to lows seen during the 1974 or 1982 recessions but this can be credited to the current near-zero interest-rates. Remember, in 1974 and 1982, interest-rates were significantly higher, therefore cash and fixed income securities offered stiff competition to stocks. Back then, this is what caused stock valuations to plummet below 10 times reported earnings. Today, interest-rates are much lower, which explains the relatively higher valuations in global equities. So, our advice is that you ignore the near-term economic uncertainty and buy into solid companies which are trading at attractive valuations. Currently, we have exposure to businesses in energy, mining, steel, agriculture, Asian retail, US healthcare, heavy construction, telecom and computer hardware.

Over in the commodites world, the price of crude oil is still caught in a trading range and we recommend that you keep your positions in upstream energy companies and energy services businesses. Whether you like it or not; the era of cheap oil is over and we will experience ugly energy shocks within the next 4-5 years. Given the grim reality of 'Peak Oil', our biggest exposure is to the energy sector and we suggest that you hold on to your long-term investments in this sector.

As far as metals are concerned, base metals have corrected over the past few days and this should continue for another few weeks. Diversified mining companies have sold off in sympathy but they should perform well as long as the equity bull-market is intact. So, we suggest that you keep your positions in dominant mining companies. In the precious metals sector, gold is still trading below its all-time high and it seems that the central bankers are trying their best to knock down the price of the yellow metal. It is our observation that over the past few days, whenever gold has rallied to challenge its all-time high of $1,030 per ounce, central banks have threatened to remove 'liquidity' from the system. The reality is that the economic condition is still fragile and central banks will not be able to tighten monetary policy anytime soon. It is our contention that short-term interest-rates will remain low for at least another year and this should be a big positive for gold and silver. If the bull-market is still intact, then gold should rise above $1,030 within the next few weeks. Otherwise, we will have to question the bull-market hypothesis. For now, we are holding on to our positions in precious metals mining stocks but if gold's price action deteriorates, we will consider selling our holdings.

Finally, in the currencies department, the US Dollar remains weak. Make no mistake, America is running a mind-boggling budget deficit and spending money it does not have. Under this scenario, short-term rallies notwithstanding, we expect the US Dollar to slide further over the medium to long-term. Our preferred currencies (Australian and Canadian Dollars) are amongst the strongest in the world and we suggest that you keep your positions.

My Comments: He is making lots of predictions and "For the record" I agree with him. BUT when someone make such bold statements as "this will happen" or " this is going to happen" they better have a very good exit strategy or process to protect themselves if they are proven incorrect. When you are so certain that an event is happening or is going to happen you can fall victim to being blindsided by the unknown.