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ASSET CLASSES IN 2011
Asset classes like precious metals, base metals, agricultural
commodities, stock market,real estate and others; the performance
of each asset classes will be directly linked to the
movement of US dollar currency. Stock Markets and Real Estate
always have their merit
of their own to determine the realistic price level, whereas
hard and soft commodities arestrongly correlated to money supply.
It is the same situation where we experienced it
from 1967 to 1980. The world economy is linked to US economy
where it has the
maximum say in world money supply since US dollar is the most
adopted currency bymajor counties in the world. Since last few
years, say 7 years earlier to 2011, US adopted
the strategy of money printing of US dollar for financing to
fill up the gap of fiscal
deficit.
One way or the other US government is increasing money supply by
the means of
quantitative easing and money printing which leads to inflation
across the world. When
the fundamentals of US economy is weak so the money will flow to
some real assets like
gold, silver, copper, crude oil, sugar, rice etc. The real crack
in the US economy is due tocollapse of real estate and further
results into sub-prime mortgage crisis. So money
moving towards real estate within USA seems bleak and stock
market shall underperformfrom its peak made as the real economy is
weak. Choice left for investors and money
managers is to invest in assets like treasury bonds, commodities
and emerging stock
markets. Eventually, increase of money supply leads higher
prices of assets which lead toa bubble level, then another
crisis.
The upward rally in emerging stock markets from 2008 to 2009
gave high returns in short
span of within 12 months, as on last week of October09, where
the returns areapproximately 90 to 110% across all emerging markets
like Brazil, China, Taiwan, India,
Hong Kong, Singapore and few more countries. China, Hong Kong,
Singapore, Braziland India gave almost 100% returns within 5 months
whereas Shanghai Composite(China) fell sharply by 25% during the
month of August09. After the long consolidation
of 9 to 12 months, some of the emerging markets rallied further
inching towards all time
high.
US and other European markets are currently outperforming other
stock markets of the
world where they are in 3rd intermediate upward wave and which
could be the final up
wave of primary downward trend. DJIA should peak out in near
future and shouldcomplete at upward rally at 13000 to 13500 levels.
In 2011, emerging markets could
witness a correction between 15 to 20% and at the same time till
early February11 gold
and silver corrected their respective rise. Gold has behaved as
per the expectation of ourearlier article where it breached upwards
at 1030 and achieved out target set for 1450 in
November10. US Dollar Index also behaved as per our expectations
and it never crossed
around 89 levels, since the bottom out as on June08. The year
2011 shall be the year ofvolatility and mixed trend in all asset
classes where precious metals, base metals,
agricultural commodities should give exceedingly good returns
and simultaneously US
Dollar Index should end the year with negative returns and
developed stock marketsshould end up with almost no returns.
Commodities should see a build up of early bubble
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in the year 2011. Gold and silver shall lead the rally followed
by copper, crude oil and
other base metals. Crisis in Europe will also add money supply
because Euro currency
money printing is resort to finance the European PIIGS
(Portugal, Ireland, Italy, Greeceand Spain) nations. Eventually all
bull markets have to end after the bubble so will be the
case with commodities which happened twice in last century.
The current financial year shall be with flush of money and
limited opportunities which
results into inflating commodity prices, eventually leading to
hyper inflation in most of
the economies of the world, hence revolution in many countries
just like Egypt, Algeria,Tunisia, Jordan, Ivory Coast and others.
Hyper inflation shall bring unrest in many
countries where current rulers shall be toppled down either by
force or voting out in
democracy. Situation will be vulnerable where adverse news shall
keep on flowing
during the year as well as bull-run in commodities. Such result
is only due to failure ofUS economy and devaluation of US Dollar.
In such a situation, rich can hedge or may
become richer while poor shall have no option but to struggle
and perish. Coming 2 to 3
years would bring more political crisis, geo-political problems
would arise, high interest
rates, collapse of US treasury bonds, burst of real estate
bubble in China, nation debtcrisis, may be war and any other new
crisis in a form which shall emerge as the time shall
pass. In scenario like this once again safe haven is Gold and
other physical hard assets.
Technically speaking:
Dow Jones Industrial Average (DJIA)
Current Level 12250
DJIA has broken all the major resistances and it could surprise
by going upto 13500thereafter it could fall upto 10200. It is
passing the stage of third intermediate wave of
long bear market.
Buy is recommended with medium term target is at 13500.
Straits Times Index (STI)Current Level 3100
STI moved up from the bottom of 1456 to 2810 where it corrected
and consolidated for
long period thereafter surging towards all time high.
Sell is recommended at current level with fall of 10% from
current level.
Hang Sang Index (HSI)Current Level 23100
HSI moved up from the bottom of 11350 to 22250 where it has
achieved our May09
article which states 20800 levels. So index levels of 15600
become the strong support forHSI.
Negative bias recommended at current level.
