Weekly Update from Puru

We want all our readers to remember that nasty bear-markets are usually followed by powerful bull-markets and business conditions never remain the same. When it comes to investing, the truth is that the financial markets always lead the economy and this is why the vast majority of economists aren't good investors. And this is precisely the reason why we don't pay too much attention to the econonic data. Remember; the economic news is always very bullish at major market tops and it is always negative near market bottoms.

For example, consider the ongoing rally in global equities. Now, nobody can disagree that we are seven months into a powerful market advance, yet most people continue to view this bull-market with skepticism. In fact, not a single day goes by without an apocalyptic forecast explaining why this 'bear-market rally' won't last! It is interesting to note that despite a huge advance in prices and extremely strong market breadth, the bears continue to call this a sucker's rally! We tend to disagree with their assessment and maintain our view that we are in a bull-market. Of course, this bull-market will be punctuated by intermediate-term corrections (reversion back to the 200-day moving averages) but the overall trend is up. Over the past few weeks, China's stock market has been immersed in such a routine correction and at some point, the other markets will also experience a healthy pullback. However, given the ultra-loose monetary policy all over the world, we have no reason to doubt our bull-market hypothesis. Our advice remains the same - hold on to your positions in the emerging markets and after a pullback, acquire more holdings in China, India and Vietnam.

Over in the resources complex, the price of crude oil has climbed to a new recovery high. This morning in Asia, crude oil is trading around US$78 per barrel and we expect this rally to continue for several weeks. Our initial target is US$100 per barrel, however, over the longer-term, we expect a new all-time high. If we don't discover gigantic oil-fields very quickly, then the price of crude oil may reach US$200-US$250 per barrel within the next few years. Whether you like it or not, 'Peak Oil' is real and it is here. Accordingly, we suggest that you maintain your exposure to upstream energy companies and the energy services stocks. Yesterday, the vast majority of our energy holdings broke out to a new recovery high and we expect much bigger gains over the course of this bull-market.

In the precious metals sector, gold and silver are consolidating their recent gains. The longer the price of gold stays above US$1,030 per ounce, the higher the probability of an explosive move over the next 5-6 months. It is our contention that the price of gold will rally to US$1,300-1,400 per ounce by next spring and the price of silver will go past its high recorded last year. During the upcoming rally, precious metals mining stocks will perform well and we are holding on to our positions. Remember, given the recent surge in gold and silver, the mining companies have become very profitable and this is why we suggest that you allocate some capital to dominant, unhedged miners.

In the world of 'monopoly' or fantasy money, the American currency is taking a serious bashing. It is noteworthy that the US Dollar Index has recently fallen below an important support level and this suggests further weakness. Our preferred currencies (Aussie and Canadian Dollars) are performing exceptionally well and we suggest that you hold on to your positions. Finally, over in the US bond market, the yields on the 10-year and 30-year maturities are rising again and we expect higher interest-rates over the following days. Therefore, we suggest that you cover your 'long' positions in US Treasuries.