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There
has never been a better time to take advantage of the commodity markets. China's
economy continues to grow at a record pace, commodity prices are still cheap,
and the nomination of Ben Bernanke as the next
Federal Reserve Chairman solidifies the fact that we are heading towards an inflationary
period.
In
November 2002, Ben Bernanke stated the following:
"The
U.S.
government has a technology, called a printing press (or, today, its
electronic equivalent), that allows it to produce as many U.S. dollars as it
wishes at essentially no cost. By increasing the number of U.S. dollars in
circulation, or even by credibly threatening to do so, the U.S.
government can also reduce the value of a dollar in terms of goods and
services, which is equivalent to raising the prices in dollars of those goods
and services. We conclude that, under a paper-money system, a determined
government can always generate higher spending and hence positive
inflation." (Full
Speech)
Even
if Mr. Bernanke did not have such strong views on
inflation, the markets are dictating that in fact we are heading towards an
inflationary period. In the past 2 weeks we have seen the CPI index jump the
highest it has in 23 years, as well as seeing the PPI index jump the highest
in 15 years. Inflation, my friend, is here.
San Francisco Money Show Thoughts
I
just came back from the Money Show in San
Francisco, where I spoke about the bull market that
we are experiencing in commodities. During the show, I came to a couple of
conclusions. First, more people are paying attention to the commodity markets
than they have in previous years. Of course, this isn't shocking, since we
have seen oil hit $70/barrel, gold hit an 18 year high, and a slew of other
raw materials consistently moving higher. What is shocking, however, is that
few of these people are doing anything about it. They seem to be either on
the sidelines ( in cash) or still hoping for a rally
in the stock market. To me, this is another contrarian indicator which
reiterates the fact that we are still in the early stages of a 10+ years bull market in commodities.
If
you are on the sidelines, there is no better time than to act now. I am
offering an educational brochure on commodities to anyone who requests one
from me, just send an email to ebalarie@wisdomfinancialinc.com or click here:
If Demand Is Greater Than Supply, Buy
Commodities!
There
are a number of fundamental reasons that point to why commodity prices will
rise. None other is more powerful than supply/demand economics. One of the
best things that I like about the commodity/futures markets is that long term
price of a commodity is most purely based on supply and demand. If we have a
dwindling amount of supply, and an increase of demand, then chances are, the price will rise accordingly. With stocks, you have a
lot of white noise associated with it- What about management? Accounting
irregularities? Earning Seasons? Even natural resource stocks are sometimes
affected by this white noise.
And
so, when we look at the current level of supply we know a couple of things. First,
most raw materials are self-depleting by nature. I cannot go and produce
copper at the local factory or manufacture gold in my back yard. The reality
is that over a period of time, the supply of these materials will dwindle. In
addition, since we are coming off a Bear Market that lasted for 18+ years,
there has been an inactivity of exploration and mining of some of these raw
materials. It was not in the best interest for oil companies to spend money
on exploration, when oil was trading at $20/barrel. Of course, now oil
companies are scrambling to find new oil deposits. However, this does not
happen overnight. The immediate impact of this is that there is even less
supply in the markets.
The
demand side of this equation can be most evidently seen from Asia (especially
China and India). As China
continues to industrialize their economy, there will be a continued need for
raw commodities. They sill have more factories to build, more roads to pave,
and the 2008 Beijing Olympics. In the 3rd Quarter this year, China's GDP
rose 9.4%. And yet another eye-popping statistic occurred in 2004 when China
was responsible for the following consumption percentages of worldwide raw
materials: Cement( 40%); Iron Ore( 30%); Cotton( 30%); Raw Steel(30%);
Stainless Steel(25%); Aluminum(23%); Zinc(21%);
Refined Copper(20%); Soybeans(20%); Crude Oil(8%).
I
expect the demand for commodities out of China to continue for years to
come, as their standard of living increases. With an educated workforce and
an increase in standard of living, the average Chinese citizen will now be
able to afford buying the basic material goods that citizens of an
industrialized nation are accustomed to. They will now be able to trade in
their bicycles for a car, buy a new television, a washer and dryer, etc. Again,
to meet this demand, China
will continue to import raw materials.
Palladium Break Out
A
couple months ago, I wrote an article stating that I believe that Palladium
was cheap at this level. I also stated that over the last couple of years,
Palladium has dropped 80% in value, while other metals have hit multi-year
highs. More importantly, however, was that the spread between Palladium and
Platinum, which is similar in their industrial use, was substantial.
I
believe we are now seeing a break out in Palladium. In the last couple
months, we have seen Palladium prices rise over 15%. With the price of
palladium at $220 currently, I see some initial resistance at this level. If
it can break through this level, it has some slight resistance at the $240
mark. After that, expect a quick move up to $300. As I mentioned in my
previous article, I believe that palladium will likely be the most
high-flying ( and speculative) metal in this bull
market.
 
If
you would like my recommendations on how to participate from the expected
bull market in palladium please send an email to ebalarie@wisdomfinancialinc.com.
If you are interested in learning more about the
commodity bull market, I urge to pre-order my forthcoming book, "Commodities for Every
Portfolio: How To Profit from the Long-Term Commodity Boom".
Emanuel Balarie
Senior Market Strategist
Wisdom Financial, Inc.
Direct toll free: 866-465-0017
International: 949-548-2021
Emanuel Balarie is the Senior Market Strategist at Wisdom
Financial. As an expert on foreign markets, foreign currencies, and the
precious metals industry, Mr. Balarie often speaks
at public engagements and his research is regularly published in investment
newsletters. You can find out more about Mr. Balarie
and his services at www.wisdomfinancilinc.com
The risk
of loss in trading commodity futures contracts can be substantial. You should
therefore carefully consider whether such trading is suitable for you in
light of your financial condition.
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