Explosive Moves Expected for 2011 Commodities
"Crystal ball gazing is a dangerous game. When things do not go as you predict then doubtless people will throw your forecasts back at you - the only comfort being, perhaps, that most predictions eventually come true - it is only the timing that is wrong. But then that timing could be out by a few years as has been the case with some of the best analysts in the past, but doesn't stop them saying I told you so when whatever it is eventually happens.
So why bother? I suppose partly because the New Year is traditionally a time to set targets - and what better targets to set than one's views of what may indeed happen in the coming year. This can of course be totally turned on its head by external events. A new major conflagration in the Middle East, or Korea drawing in the superpowers could occur, although one very much hopes not. A really major natural disaster affecting the U.S. or China - as the largest contributors to global economic growth - could have a dramatic effect and create mayhem in the markets. One cannot seriously allow for these in one's guesswork, but nevertheless it is interesting to set out what one thinks could happen over the next 12-months and then see how accurate one's predictions are next Christmas. Here follows one hypothesis of what could happen in the year ahead."
"Global investing legend Marc Faber says exposure of investors to gold and silver compared to other commodities is very low. Therefore, price of gold and silver can go to higher levels in 2011 thanks to the low investor base for these precious metals.
Faber who is the publisher and editor of the famous Gloom, Boom, and Doom report, says gold and silver continue to be under-owned, despite the fact that the prices of these two precious metals have been zooming in the last one year.
Here is Faber’s outlook for 2011 on gold, silver, other commodities, emerging markets, bonds and equity markets:
Commodities: Faber likes energy companies since the long-term trend in oil is up, as supply fails to keep up with surging demand from emerging markets. Notes that emerging markets have surpassed the developed world in oil consumption and that this trend should keep demand strong for the foreseeable future. Faber likes the majors like Exxon, Hess, and even Chesapeake as natural gas is too cheap on an inflation adjusted basis. Continuing the energy theme, coal and uranium stocks should be gradually accumulated on weakness as the world looks for alternative sources of reliable energy. Peabody on the coal side and Cameco for uranium should outperform over the next few years.
Gold and Silver: Faber reiterates his favorable opinion on gold and silver. Doubts they are currently in a bubble as some analysts postulate. Faber notes that investor exposure is very low when you look you compare it to the world’s financial wealth, meaning that gold and silver are still under-owned and have room to run.
Equity Markets: Faber believes a correction is imminent for the stock market as bullish sentiment (AAII sentiment) nears record levels and mutual fund cash positions remain very low. Furthermore, the latest upward move in stocks has occurred on declining volume, which is usually bearish from a technical point of view. The correction should occur in January. That being said, you should be buying into the correction as it represents a good buying opportunity. Faber prefers energy companies and speculative stocks such as home builders and even AIG. He goes on to say that the third year of a Presidential cycle is very good for speculative stocks versus traditional blue chip value plays.
Emerging Markets: While he is very bullish long-term on emerging markets, investors should avoid (or at least lighten up on) emerging market stocks right now. They should only be bought on corrections which would represent favorable entry levels. Overall, Faber thinks the SP 500 will outperform emerging markets in 2011. The only emerging market that looks attractive right now is Vietnam (VNM).
Bond Market: Reiterates his bearish long-term view on US Treasuries, but notes that they are currently oversold and could be a good trade at this point (TLT). But this would only be a short-term bounce as rates have likely bottomed and higher inflation will erode future returns.
Japan Equities: While everyone is still bearish on Japan, Faber likes Japanese equities and thinks they have the potential for more upside. In particular, he likes Japanese financials such as Nomura and Mizuho Financial."