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I’m currently on holiday in beautiful Phuket, Thailand, enjoying a few days off. The weather is fantastic, the Thai people wonderful, and I see no evidence of the terrible tsunami that hit the seaside resort in 2004. The town has been rebuilt and is bustling.
But since I’m on holiday, I’m sure you understand why this is an abbreviated column. Not to worry though; even when I’m on holiday I watch the markets like a hawk.
This week I’d like to answer some subscriber questions. A Q&A forum can cut right to the chase, as I directly respond to the most popular questions I’m receiving. So let’s get right to it …
Q: Steve asks me why gold has sold off: “What gives with gold, Larry?”
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A: Gold slid last week in reaction to fears that the International Monetary Fund (IMF) will be selling some gold. But it’s nothing more than a short-term decline and a reaction to the news.
First, the IMF gold that will be sold is a mere 400 tons, not enough to have any effect on the long-term trend. Second, the gold was already slated to be sold next year. The IMF is simply attempting to move up the sales to this year. Third, the sales aren’t even approved yet. So it’s entirely possible the IMF may not sell the gold at all this year.
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| Gold will eventually hit at least $2,200 an ounce. And long-term investors should consider using dips to add to positions. |
Regardless, it’s important to note that no matter what the IMF or any central bank does, gold remains in a very bullish long-term uptrend. I have absolutely no doubt whatsoever that gold will eventually hit at least $2,200 an ounce, and probably much higher.
Long-term investors should consider using pullbacks to add to positions.
Q: Bob writes: “Wow Larry, you nailed the Dow rally on the head. Are you still expecting Dow 10,000 for this rally?”
A: Absolutely! This rally should continue for up to three or four months, and all of my indicators suggest we will see Dow 10,000.
If you took on any long positions based on my forecast on March 19, you’re sitting with nice gains of as much as 21 percent — or more if you used leverage. Not bad for only four weeks.
Consider placing stops on those positions at breakeven, or slightly into profit territory. That way, no matter what the Dow does over the next few weeks, your risk is cut to the bone, or, you might even lock in a profit if the rally fizzles out prematurely.
Otherwise, let the positions ride and follow the Dow higher. If the Dow gets to 10,000 before I can reach you via my Money and Markets column, then take profits!
Q: Nang from Bangkok asks: “Larry, there are those who advocate deflationist policies to clear out all the rot. Then there are those who advocate inflationist methods to solve the financial crisis. Which camp are you in and why?”
A: I’m 100 percent in the latter camp, an inflationist if you will. Chief reason: Deflationist policies have been applied in past financial crises, namely the Great Depression and Japan’s recession, and they have failed miserably.
Few people realize this or have studied history enough to understand it: But the Great Depression was largely the result of deflationary policies. The Federal Reserve did everything it could to keep the dollar strong — from raising interest rates at the wrong time … to protecting the gold standard … to openly calling for companies to cut prices and lay off employees.
The prevailing view during the Great Depression was simply that we had to pay for the excesses of the roaring 1920s, so whatever pain was incurred was worth it.
Obviously, the deflationist policies back then failed miserably and made the contraction worse, many times over.
In the 1990s, Japan did largely the same thing. Namely, they defended the Japanese yen at all costs and openly advocated deflation, which is the chief reason the Japanese economy went into such a severe, protracted slump.
The inflationist view is not without its pitfalls, to be sure. But I do believe that it’s by far the lesser of the two evils.
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Q: Sue writes in: “Larry, I read a recent article that states oil and gas companies are spending less than 1 percent of their budgets on alternative energy development. Is that true? And if so, how will we ever become energy independent?”
A: Unfortunately, my own research indicates the same: Oil and gas companies are spending almost nothing on alternative energy development.
That’s also one of the reasons I remain long-term bullish on oil prices. Even if much more were spent on alternative energy development, it will be decades before oil is ever replaced.
Right now, oil prices are showing strong signs of having bottomed. If oil closes at any time above $68 a barrel, odds are the bull market has resumed. Longer-term, I still believe oil will reach $200 a barrel, not only because of demand/supply issues, but also because of eventual currency depreciation.
Q: Sammy asks: “Larry, what are your latest thoughts on Asia?”
A. Asia is much more vibrant than it was on my last trip here in the fall. In fact, a friend of mine who’s the manager of the Tumi factory in Bangkok has just rehired all his second shift employees. What’s more, the factory has resumed operating seven days a week, with two eight-hour shifts per day. If that’s not a sign things are picking up, I don’t know what is.
Meanwhile, as you’ve seen, China’s stock market is now up 50 percent from its November low. That’s a huge move! Plus, China’s new lending has surged more than 600 percent from a year ago, with March lending exceeding $277 billion. Money supply in China is also soaring — jumping 25.5 percent in March, the fastest pace on record.
Fixed-asset investment in China is also on a tear, jumping 26.5 percent in January and February.
A few months ago in Money and Markets I wrote that …
“In my opinion, western analysts are most notably wrong about China. Yes, thousands of factories have shut down in China. But those western analysts totally underestimate the Chinese and their ability to handle hard times, as well as their extremely proud heritage and nationalism.
“Not to mention the fact that the Chinese banking system is now the strongest in the world … and that Beijing now has almost $2 trillion in cash on hand and hardly any foreign debt. There is no doubt in my mind that China is going to turn back to the upside, before the U.S.”
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| Western analysts fail to recognize that the Chinese banking system is now the strongest in the world. |
From what I can see, looks like that forecast is right on the money!
Q: Lastly, Richard asks a question I frequently get: “Why don’t you give out more recommendations in your Money and Markets column? We sure could use them!”
A: My answer is simple: It would not be fair to paying subscribers to my Real Wealth Report.
Put yourself in their shoes for a minute: I don’t think you’d be too happy if the timely recommendations I gave you, I also gave out for free.
Having said that, I often do give general suggestions in this column, and ideas about what is and is not on my radar screen.
Nevertheless, the best way to get all of my thoughts, writings, specific entry and exit recommendations, and more is by becoming a subscriber to Real Wealth Report. At $99 a year, it’s a bargain.
Best wishes,
Larry
P.S. Reminder: At the end of this month, I’ll be focusing all my efforts solely on UncommonWisdomDaily.com, where you’ll find in depth analysis of natural resources and international investment opportunities — straight from the front lines during my travels around the world.
The complimentary e-zine includes a video update from me every Thursday and a new column every Monday, and more. Be sure to sign up for it at UncommonWisdomDaily.com.
About Money and Markets
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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