Commodities are still the best bet against financial market chaos.
I am cautiously bullish on commodities. Last year, I predicted that the market would move higher on Fed liquidity and remain “cautiously bullish” on stocks. But I recommended that gold and silver will do well going forward and is especially positive on oil [ will stay over $100/barrel in 2011].
It’s not clear that the Federal Reserve can continue to keep interest rates low and QE2 and now QE3 is ready. Add to that the burden of new regulations on healthcare and labor from the White House, and the path forward for equities is less clear than a year ago.
Stocks have doubled off the March 2009 low but seem to have hit a wall on Middle East unrest and fears of a double-dip in the U.S. economy as oil shot higher. Gasoline prices now average $3.54 a gallon nationwide.
I think liquidity is slowing down a little bit. The market is having a harder time moving higher. It might even move lower here. Confidence is getting lower which is the main driver of the economy. How long can the Fed maintain these low interest rates? Are they going to another quantitative easing to stimulate the economy? While I remain cautiously bullish, I do think there are a lot of dangers there.
Nevertheless, I should advice my investors. Investors shouldn't fight the Fed by presuming that liquidity will end soon. There’s no indication that interest rates will rise, nor that the Fed’s bond-buying strategy has run its course. I think investors should take long position in oil, gold and silver. Agriculture is one aread where I feel that remained depressed for the last 27 years and would rish as weather patterns and population go up. I fully recommend my clients and investors to go into real assets and hold significant portfolio in gold and silver to get insurance of their wealth.
Regarding Oil, ExxonMobil recently announced that it would expand its production operations. Considering the continuing turmoil in the Middle East and the Obama administration’s unwillingness to expand drilling at home, investors would do well to focus on crude. Uncertainity would remain high and FEAR PREMIUM would average $30/barrel in 2011. I’m quite bullish on oil, gold is a great investment right now but oil is a better play.
As for inflation, while current inflation is around 5% and there are clear signs of inflation to keep rising as prices of precious metals go out of the roof. Inflation is still not that relevant. The fact that gold and silver are moving to new highs is a great indicator of future inflation. Current inflation is very strong which US government is ignoring. FED cannot fix the economy by printing money. US dollar will remain weak against major currencies by 9-10% in 2011.
Businesses are sitting on record amounts of cash but they are likely to continue to grow mostly by keeping costs in line with demand and taking advantage of rising productivity. There will be an eventual uptick in hiring, but expect plenty of mergers and acquisition activity this year. I do think employment is going to get better, but it’s going to be slow process. Unemployment in February fell to 8.9 percent from 9 percent, the lowest point since April 2009. In November, just three months ago, the jobless rate had been 9.8 percent. The Federal Reserve projects unemployment to stay at about its current level for the rest of 2011 and then fall to between 7.5 percent and 8 percent in 2012. But I think unemployment rate to stay over 10% as projected by Gallup.
Disclaimer: This is just a research piece and not an investment advice. Investors are encouraged to execute their own due diligence before making an strategic investment or strategy implemmentation.