Let us review last year’s recommendations first.
I recommended new year investments, on 31st December, 2008 for Year 2009, were Gold and Sugar.(Link: https://investmentacademy.wordpress.com/2008/12/ ) You are aware of the How high prices of these two commodities have soared..
Gold has given 56 % return and recommended Shreee Renuka Sugar gave whopping 400% returns in a year.
I also timely informed you about the Stealth Bear Market Rally in march( Link: https://investmentacademy.wordpress.com/2009/03/ ) from where market got doubled.
2009 turned out very profitable year for my investors..
How the Year 2010 would be from the investment perspective?
If, I am sure about something to happen in 2010.
There are 2 things 1. Dollar will fall and 2. Gold(Bullion), Agricultural Commodities will go up.
Central theme of 2010 would be Dollar’s fall and later all central banks will intervene to devalue their currencies to support exports. In short, all currencies would lose value, but against what? Against Gold, the Real Money, against natural resources, against tangible assets.
Risk would be redefined – holding dollar would become RISK. Yes, some emerging currencies would rise against dollar but they all will continue to fall against Gold. I have given detailed explanation and evidences on this topic in this letter.
I have also shown in detail about looming food crisis in 2010 across the world. With all probabilities, we will face severe hyperinflation in 2010.
George Soros is expecting double dip recession. Mobius is expecting 20% correction because of large money raising by companies through IPOs in Asian Markets.
I believe, correction may come for short period and may not come. But, as long as , Governments and Central banks are committed to flood the world markets with Cheap currencies and large fiscal deficits, party should continue.
Like Citi bank CEO Charles Prince said before 2008 crisis—, … “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. …We’re still dancing”
Governments and Central Banks are committed to take all steps to keep stimulating economy at any cost. Their primary objective is to avoid deflation and recession. They will continue to take all aggressive and unprecedented steps to ensure that.
Forecasts for 2010:
1. US Dollar will continue to fall through out a year
2. Gold will continue upside, reaching a high of at least $1500 in 2010
3. A year 2010 will be remembered for hyperinflation
4. Looming risk of Interest rate futures
5. Treasuries and Bond market may fall badly in 2010 in US
6. Eastern European nations to face debt crisis
7. Easy money can drive markets higher unless interrupted by central banks
Now, let’s understand all forecasts in details
US Dollar will continue to fall through out a year
Some statements from eminent personalities
America’s debts are unsustainable.
“The long-term deficit and debt that we have accumulated is … unsustainable. We can’t keep on just borrowing from China or borrowing from other countries. We have to pay interest on that debt … and that means we’re mortgaging our children’s future.”
— President Barack Obama
Washington’s favorite solution is to pay its debt with cheaper dollars.
“One way to solve the debt problem is to … devalue the dollar and … inflate the currency. That’s the cruelest tax of all.”
—Senator Judd Gregg
U.S. federal reserve chief Benjamin Bernanke has declared war on the dollar.
“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.”
— Benjamin S. Bernanke,
Chairman, U.S. Federal Reserve
The entire U.S. government has declared war on the dollar.
“It’s the … official policy of the central bank and the United States and to … debase the currency.”
— Jim Rogers,
Co-Founder of the Quantum Fund
Foreign investors are declaring war on the dollar.
“The current crisis is not only the bust that follows the housing boom … it’s basically the end … of a 60-year period of continuing credit expansion based on the dollar as the reserve currency.”
— George Soros,
The world’s #1 global investor
“Holding dollars today represents risk … without … reward!
— Joseph Stiglitz,
Nobel Prize-winning economist
Global leaders are declaring war on the dollar.
“The costs of a dollar-dominated system to the world may have exceeded its benefits. The dollar should be replaced by a new global reserve currency.”
— Zhou Xiaochuan,
Governor, China Central Bank
“The rise of emerging economies such as China and Russia will prevent the U.S. dollar from remaining the world’s only reserve currency.”
— Nicolas Sarkozy,
President of France
The united nations has declared war on the dollar.
The United Nations has now issued a game-changing report that recommends a new … artificial reserve currency
Let us understand it in real economic terms: Why dollar will fall?
An explosive rise in debt
just in the last 12 months, the U.S. federal deficit has exploded from $454.8 billion in fiscal 2008 to $1.58 trillion in fiscal 2009 …
This year’s deficit is nearly 350 percent larger, three and one half times last year’s level, and last year’s deficit was already the largest in history, in dollar terms.
Power Shift from west to East
which is now being reflected in the all-critical shift out of the dollar as the world’s reserve currency. Put yourself in the shoes of an international investor. Even if you can choose the right dollar investment, the falling dollar is slashing your returns. You’re fed up. You’re anxious to diversify out of the dollar. But you’re not the only one.
Central banks are doing the same. Remember: The U.S. dollar is not only the money we keep in our bank accounts or carry around in our pockets … it has also been the money foreign central banks keep in their reserves.
Study of Cycles, based on centuries of data, leads to the conclusion that the dollar won’t hit bottom until the end of 2012. That’s three more years of potentially traumatic declines..
(Larry of Uncommonwisdomdaily writes)
Everyone talks about US debts to Japan or to China. But US foreign debts go far beyond that. According to the U.S. Treasury Department, US’ total liabilities to foreigners are now 7.9 trillion dollars. Not just to countries like China and Japan, but also to eurozone countries, to countries in Latin America … not just to central banks … but also to private companies and individuals. It’s a massive mountain of foreign debts that everyone just takes for granted.
Another, even larger example of hidden debts are the true obligations of the U.S. government
But there again, the problem goes far beyond that. In addition to the gargantuan funded debts you see on the government’s balance sheet, Washington has another $104 trillion in unfunded obligations like Social Security, Medicare, Medicaid, Veteran’s benefits, government pensions.
That means that, for every dollar of debt on the government’s balance sheet, there are another nine dollars in debts that are not formally accounted for. And to make matters worse, the first wave of Baby Boomers are turning 63 this year. The trillions owed to those 76 million people are no longer just a balance sheet entry.
Washington is going to have to begin paying out that money starting now!
It all comes down to what President Obama himself admitted: The debts our country has racked up are gargantuan and unsustainable. Or more to the point, they are patently unpayable. It will simply be impossible for our government to ever get out of debt by any conventional means.
They have taken radical steps: Look at how they bailed out Bank of America, Citigroup, Merrill Lynch, and AIG. Look at the trillions they poured out in loans, investments, and credit guarantees. Look how they’ve given the Fed new superpowers
They have indeed eased the debt crisis, but only by creating still another crisis, the dollar crisis, which is just beginning
In other words, they’ve transformed the Wall Street debt crisis into Washington’s debt crisis.
All told, each and every household in America is now indirectly responsible for over 1 million dollars in government debts and obligations.
US’s got …
— The officially recognized national debt at $11.8 trillion.
— Unfunded national obligations of $104 trillion.
— Another $9 trillion in cumulative deficits over the next ten years.
— Plus, another trillion dollars for health care reform, no matter what bill finally makes it through Congress.
Grand total: $125.8 trillion.
Even the White House admits we’re looking down the barrel of one-trillion-dollar deficits for years to come. That’s why I say that, no matter how you look at it, this debt mountain is patently un-payable. It will never be paid off, other than through some form of default
There are two ways a government can default on its obligations:
The first way is simply to stop paying its bills and obligations. That’s highly unlikely, for obvious reasons.
The second is to default on the sly, by paying off creditors with something of cheaper value.
With cheaper dollars, dollars that are worth less … have less buying power than today’s dollars.
But this is not just theory. It’s practice. And the idea of debasing the currency in order to delay a debt collapse certainly was not invented by Washington. Default by devaluation is a recurring pattern of history.
Since the dawn of civilization, every major nation that has been saddled with un-payable debts and obligations has ultimately resorted to currency devaluations in some form.
In ancient Rome, the Roman denarius was the dominant currency not only of the Roman Empire but even beyond its borders. But when Rome began to fall so did its currency.
From its heights in the fourth century A.D., the Roman denarius plunged to 1/50 of its former value — in just 13 short years … and then ceased to exist.
More recently, the fate of the British Empire and the fate of the British pound were also intertwined. In the late 19th century, London devalued pound sterling and then did it again in the early 20th century. From its heyday at the height of the Empire to its low point in recent years, the pound ultimately gave up 80 percent of its value.
So you can see this is a well chartered path: The rise and fall of empires; the rise and fall of their currencies. What is most alarming, though, is what happens when countries lose all semblance of discipline and when they are ultimately punished by market panics.
In Germany after World War I, the government printed money in massive quantities to repay war loans and reparations with worthless currency, and to help industrialists to pay back their own loans. The Reich mark plunged from 4.2 to the US dollar at the outbreak of World War I to 1 million per dollar by August 1923 … and then to as low as three trillion to 1 in the final panic before the rise of the Nazi regime.
In the past 10 years, the dollar has progressively lost 36 percent of its value against other major currencies and 75 percent of its value against gold. And in the years to come, it’s bound to lose much more.
I repeat: A wholesale currency devaluation is the only politically expedient way to address a debt crisis as massive as we face today. Bush, Obama and Bernanke have already committed us to this path
Look at last year, when the U.S. economy was threatened by systemic risk from the credit crisis. Bush and Bernanke were faced with two simple choices: Either to step aside and allow a sudden, savage depression, or … to spend countless sums that the government didn’t have — that it would have to borrow and print and that would almost surely lead to a future erosion in the value of our money. They chose the latter. They chose to sacrifice our future for the expedience of the present.
And this year, when faced with similar choices, the Obama team did the same. They spent hundreds of billions of TARP money. They passed a second stimulus bill AND a $300 billion omnibus spending bill. And then, just for good measure, they bailed out the automakers.
There’s your evidence: Two very different presidents — one, Republican, one Democrat — chose the same path, the only politically viable path. The easy way out: Both presidents chose to fight the impending depression by borrowing and printing money … while both knew full well that this has set us up for an even more devastating future crisis, the crisis of the dollar, the crisis of inflation.
This isn’t just an economic discussion we’re having here. It has real and dramatic consequences for everybody right now. When the value of a nation’s currency falls by half, its people’s money goes only half as far; their cost of living doubles.
When a currency falls 70 percent … 80 percent … 90 percent or more as in the examples we just looked at, the people who earn it and spend it have to pay up to ten times more for many of life’s necessities. Food, energy and more.
The saddest victims are folks on fixed incomes — who worked scrimped and saved for a lifetime to ensure they’d have enough to live on in retirement, for instance. Suddenly, the nest egg they thought would provide a comfortable life for the rest of their lives is barely enough to keep body and soul together.
Any way you look at it, this kind of currency devaluation is like government-sponsored theft
Unfortunately, the majority of savers and investors don’t have a clue. They don’t believe it can happen … that it is happening right now.
John Maynard Keynes said it all 79 years ago …
“By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.”
And this is precisely what I believe they’re doing.
Absolutely! In public, Washington will never admit to it, but both President Obama and Fed Chairman Bernanke are actively waging their secret war on the dollar right now as we speak.
And as an investor, you have no choice but to take defensive steps starting immediately.
at a bare minimum, I believe that everyone should own a bare bones minimum of gold… I’d say 10 percent of your investment portfolio
Even if you want to be aggressive, I would not go beyond 25 percent. There are too many other contra-dollar opportunities you’d be missing.
How high do you think gold could go?
I have three gold price scenarios:
I believe that, no matter what, gold is going to hit its inflation-adjusted high of $2,300 an ounce — at a minimum. But that assumes an orderly decline in the dollar, and an orderly process of phasing in a new world reserve currency of some kind
In scenario two,
that process is more chaotic and muddied, with rising global uncertainty regarding the outcome. In that scenario, despite sharp pullbacks, you could see gold reaching $3,000 an ounce.
In scenario three,
markets take over, panic sets in and investors lose any semblance of trust in process of transitioning to a new reserve currency.
In that scenario, all bets are off! The dollar could overshoot dramatically to the downside, while gold and other natural resources could overshoot dramatically to the upside. But I wouldn’t be shocked to see $5,000 an ounce for gold.
So in my lowest scenario for gold prices, I think your bullion has the potential to double; probably more. And in a worst case scenario for the dollar, you could be looking at a 500 percent return on your bullion positions.
Is to diversify beyond gold to other natural resources. Washington’s war on the dollar will drive up a wide range of tangible assets and companies backed by those assets, assets that have intrinsic value and assets where the dollar crisis is manifesting itself.
Look! Over the last decade we’ve seen tech companies go bust … we’ve seen the leveraged mortgage markets go bust … and we’ve seen the financial sector collapse. So savvy money now wants tangible assets and resources that provide the world with the basic necessities of life. It’s where people like Jimmy Rogers are investing. It’s where the surviving hedge funds are going. And most importantly in my opinion, it’s where the giant sovereign wealth funds are shifting a lot of their money, especially China
Just look at the pace of China’s acquisitions of natural resource companies:
In 2002, it made only one deal. 2003, 3 deals. 2004, another 3 deals. 2005, 11 deals. It doubled again in 2006, more than doubled, to 25 deals. 2007, 33 deals. 2008, 53 deals.
And not only are there more deals, the average value of each deal is growing by leaps and bounds. These figures also include related companies, like railroads that ship resources.
These deals are being done all over the world, in Brazil, Peru, Venezuela, Australia, Africa — you name it … and in virtually all commodities — from oil … to soybeans … copper … to lumber, to rubber, wheat, corn, timber, you name it. Make no mistake about this. The combination of the disappearing dollar and the huge demand for natural resources from Asia is unlike anything this planet has ever seen before.
And it is a key reason copper has surged 94.6 percent this year … oil has roughly doubled from its lows in January of this year … sugar has exploded higher, up over 105 percent … even cocoa is jumping, up over 30 percent this year.
Forecast # 2
Gold will continue upside, reaching a high of at least $1500 in 2010
As I said in Brief, every nation is in process to cheapen its currency to sustain the exports. And, this is not the post crisis phenomenon. It has been in process since decades.
At any given time in the last few years, whichever currencies have been strongest have screamed about it. A year ago, with the euro at $1.60, Germany – a huge exporting country – basically said it wanted a cheaper euro. It got it: The euro fell to $1.23 within months. The UK wanted its highflying pound, then $2.10, to fall to boost domestic and foreign demand for its goods. It got its wish: Within months, the pound had plunged to $1.45. And on it has gone for a few years now.
As all the countries with unwanted strong currencies move to cheapen them by printing more money, slashing interest rates, or just “talking” it down, the question remains, just what are those high currencies declining against?
If you answer, “against the currencies of their main trading partners,” well, yes, this is true. But it is only temporary. If they are successful in this, then the trading partners don’t want their own currencies to go too high, so at some point they try to cheapen them.
It has become an endless round-table game, except to call it a “game” is a little perverse. All holders of currencies suffer in the decline of the purchasing power of their money. You go lower, but then your partners go even lower, and then you have to cheapen your money yet more… It’s an endless cycle that really doesn’t help the world economy in the long run.
But there has been one money that has benefited from this huge trend. Moreover, it has benefited by giving profits of hundreds of percent –minimum – to anyone on Earth who has owned it since 2000. It is the oldest money of all, a money that has been used long before any of the other currencies were even dreamed about and will be used long after all of them are memories in history books. It is a money that cannot be printed at will and artificially cheapened. And even though all central banks own it, it is the creature of none of them
Let us check, How Gold has performed in different currencies, strong and weak?
The South African rand has been the strongest currency so far this year. It is a big gold producer. Yet look the price of an ounce of gold since 2000 in terms of the rand.
Now let’s go to another currency which has risen sharply this year, the Aussie dollar.
You see the pattern. Now, gold has not gone up in value against the Chinese yuan (+200%) as much as it has against the U.S. dollar (+260%). Still as great as the Chinese economy has been over the past decade, as powerful as it has become, gold has still soared in terms of the yuan.
It has soared against the Canadian dollar (+178%), the Russian ruble (+360%), the Mexican peso (+417%), and even the Swiss franc (+155%), a currency that has long been regarded as the strongest on Earth.
In case of India
|Gold rate in US $||280||1100||392.8571|
|Gold 1 gram Rate in INR||323||1620||501.548|
Look at the above table, Gold has given the best return in last 9 years and still you have few believers. At the same time,this is an evidence of our currency devaluation efforts.
You can talk about or trade the merits of one paper currency against the other, but they’ve all been falling against gold.
Put another way, every person on Earth over the past decade, regardless of where they live, would have made hundreds of percent in terms of their own currency had they just owned gold.
Most people do not hold mostly gold and silver in their portfolios. With this fact, I believe that both have much more to rise before their bull markets are finished. Well into the future we’ll see the phenomena of the average person piling in, as happens towards the end of every bull market… We’ll see the same action in gold; it’s just a matter of time
A year 2010 will be remembered for hyperinflation
India is facing severe draught situation. We had 22% less rain in 2009. Govt declared 252 districts draught hit out of 600. Our reservoirs are only at the 59% level of the capacity.
The kharif, or summer monsoon, crop output – mostly paddy – is projected to be down by 20%.
Our food inflation index is on 19.7% rise.
The rains have not been playing truant in India alone. Seven other countries have been severely hit by drought and are staring helplessly at the resultant agriculture crisis.
Parts of the United States, China, Australia, Cambodia, Argentina, Kenya and Somalia are reeling under its effects – the difference being only in their ability to cope. Even in Europe, television pictures show townspeople, driven to distress by temperatures in the 40s Celsius, using public fountains to cool down.
In September, Before the crisis management plan rolled out, even the economist and Prime Minister Manmohan Singh had shown signs of alarm. “No one can control drought and it is a severe drought,” he said in a public speech.
DNA india reports about India’s worst drought since 1918.
Worst drought, worse to come
Rajesh Sinha / DNA
Monday, September 28, 2009 2:10 IST
New Delhi: The monsoon season leaves India not just with the worst drought in decades but a sombre forecast for future.
In terms of affected area, this year’s drought is the worst since 1918. Conditions surpass the one in 1972, considered the worst post-independence drought year.
The Indian Meteorological Department (IMD) reported deficient monsoon, with rain shortfall at 22%.Moreover, the area under deficient rainfall covers 56% of the country’s districts,the IMD said.
When there is more than 10% rainfall deficiency, and more than 20% of the area is under dry weather, it is an “all-India drought”. A “widespread drought” is when there is more than 10% deficiency, affecting more than 20% of the geographical area of the country. This year, there’s 20% rainfall deficiency which has affected more than 50% of the area.
In the past 123 years, there have been 25 years of widespread drought. In terms of spread, the one in 1918 was the most severe, affecting more than 70% of the area, followed by 1899 (68.4%), 1877 (59.4%), 1972 (52.6%) and 1987 (47.7%). In 2002, rainfall deficiency was 19%, and 29% of India was under drought.
Recent studies predict that rainfall will deteriorate in the coming years. The melting of glaciers in the Arctic circle seems too far away to cause concern to Indians, but according to BN Goswami, director of the Indian Institute of Tropical Meteorology (IITM), Pune, freshwater melting from Greenland’s ice sheet could weaken the monsoon to the extent of threatening perpetual drought.The Greenland ice melt will add more freshwater to the north Atlantic Ocean, making it less saline. This could weaken the circulation of ocean waters and temperature variations over the Indian subcontinent — two key factors that could also weaken the summer monsoon, says Goswami.
Another study recently published in Nature said global warming may increase the frequency of a new breed of El Nino weather events, called El Nino Modoki, which would lead to rise in the frequency and intensity of droughts in India.
A study by Centre for Atmospheric Research at Indian Institute of Technology Delhi in May says the monsoon is weakening. Researchers found that long rainy spells — more than 2.5 millimetres of rain daily for more than four consecutive days — decreased across the country over the last 50 years while short and dry spells — less than 2.5 mm rain daily increased.
In March, an article in Down to Earth magazine said while parts of the country are receiving extreme rainfall, overall moderate rainfall that benefit crops, is decreasing. Another study in Current Science said the number of days of more than 12 mm rainfall have decreased by 78% in the past 53 years.
In March, a Purdue University found that climate change could influence monsoon dynamics and cause less summer precipitation, a delay in the start of monsoon season and longer breaks between rainy periods. The South Asian summer monsoon — critical to agriculture in Bangladesh, India, Nepal and Pakistan — could be weakened and delayed due to rising temperatures, it said.
Govts world across are showing reports of higher crops than expected. But, reality would put world in deep pain this year.
When i wrote last year about Agri commodity prices would soar and recommended was before the worst drought India, US, China and Australia faced. We had further worst snow fall and blizzards to make agricultural situation worse.
Drought situation across the World
The worst drought in half a century has turned Argentina’s once-fertile soil to dust
Australia is suffering the longest running and most severe drought on the planet
|September 16, 2008|
|USDA said in a report: MIDDLE EAST & CENTRAL ASIA: Continued Drought in 2009/10 Threatens Greater Food Grain Shortages|
Droughts put north China on red alert
No bumper wheat harvest in Punjab
Food shortages loom in India
There are many more reports and facts showcasing looming food crisis across the world. Even UN has reported that if proper plans and financial allocations not made, we will face food crisis for decades to come.
UN’s Food and Agriculture Department said Food crisis not yet over, warns top UN rights official
I will write about my last 4 forecasts in Forecasts 2010 – Part-2, shortly.