A Quick Update on “A Crash In Progress”

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Dear Investor

On 4th Feb, I wrote to you in detail on A crash In Progress expecting correction in virtually every market except dollar and china.

Yes, Commodities have continued rally and Dow too remained in bull zone since then.

But, as I had said the deciding factors will be currency movement coupled with resurfacing fundamental woes.

And, In fact that movement is very much in action and should cast dark shadows on markets next week.

As I pen this article, Dollar index is at 78.62 up against all currencies.

Swiss Franc is down close to 4% against dollar in this week. Japanese Yen is down close to 3%, Euro is down 2.5%, Australian Dollar went down 1% yesterday.

I believe this is the beginning of short term cycle, where in all currencies will come down heavily against dollar forming significant base for long term rally in next 2-3 years.

Dollar will continue its up move targeting 80 first and then 84 level in short to midterm causing significant correction in commodities and developed markets.

Hence, if you are still in commodities and stocks or long on any other currency against dollar, come out now.

On the other hand, China has remained sideways with upside bias. I expect China to continue upside along with dollar.

For China, dollar’s up move and correction in commodities will be like God gift.

Dollar’s up move will reduce pressure of currency revaluation in short term. Correction in commodity prices will be huge comfort for china being world’s largest exporter.

Even investors will seek shelter in Chinese stocks as markets in other nation correct as China market is still cheap in valuation.

Though, I expect China to revalue its currency any time in this year. I will update at length later.

Regards

Dhaval

Blog: https://investmentacademy.wordpress.com/

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2 responses »

  1. Dear Dhaval

    Let me tell you my views though I may be wrong as anybody else can be in this casino economy.

    If things go on their natural course then I am very bullish on commodities specially crude, gold and silver and other precious metals atleast till July-Aug after which I expect serious troubles for the global economy. In short term i am expecting some corrections around 2nd march (ADP Release). I am expecting a higher than forcasted ADP figures and other indicators leading to minor surge in dollar index and correction in commodities. But I don’t think there will be a crash. The worst may be deeper swings.

    The governments across the worlds are printing money while the commodities can not be produced at the same rate and that will lead to inflation without any doubt. I would cite a few reasons in my support.

    1. Recent statements from Montek Singh Ahluvalia (inflation shows prosperity), Prime Minister (I m not an astrologer) and govt’s statements on bullish growth targets reflects the mind of strategists who seems to be unwilling to compromise on growth and even believe inflation is a symbol of prosperity. This is also evident in just .25 bps raise in interest rates when there is so much public pressure against inflation.

    2. India’s debt requirements are also increasing and as goes the debt so goes the interest liability which has gone upto 25% of revenue reciepts (2009-10)

    3. The total Money M3 created over last financial year has been increased by 6,39,623 as on 11Feb 2011 and YOY increase in currency with public has been 1,45,902, 19.7% up from last year. Clearly a higher inflation than the rate of interest offered by banks discourage savings.

    4. I am expecting a QE3 announced by Bernanke in May-June or may be earlier. It can come in the form of Bernanke saying we will continue bond buying for x, y z or infinite period.

    5. Please note that recent Chinese policy statements from both communist party mouthpeice and Central bank report has cleary blamed US QE for their inflation.

    Therefore more dollars will make dollar falling and Indian government will print more money to save exports. Crude will shoot up and so as the prices overall until we see a Egypt in India and many other emerging economies when people will rise against inflation. This will be the threshold point when governments will look for drastic steps to control inflation. They may even choose to punish commodities markets by blaming the messanger since commodity markets reflects inflation in the economy. Increase in leverage, closing the markets, forcing Max Retail Prices etc should be expected. Unless artificially controlled and some corrections apart, commodities will go up until all asset classes collapse when the money bubble collapses (which will eventually happen but when I don’t know).

    • Dear Amitabh

      I agree with you that easy money pilicies are here to stay for long. I do agree with commidities and crude prices to skyrocket in time to come.

      What I am expecting is a healthy pullback of 20% in commodities and metals including bullions before they resume their final powerful sharp leg up.

      In 2009-10, Emerging markets recovered and with that commodities recovered and now, in 2011 ,developed markets are recovering and that is giving further leg up to commodities.

      Hence, I believe commodities will correct along with equity markets of the developed markets in not too distant future.

      To me, Dow and European markets are at best 200-350 points away from tipping point.

      So long as India’s fiscal policies are concerned, we are heading towards disaster. If 2008 repeats because of any reason and our GDP growth slumps for a year or two, we are completely doomed bacause our Debt to GDP will reach to close to 90-95% from current 85%. That will lead to higher borrowing cost and sovereign risk.

      Any way keep commenting…

      Dhaval

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