|
The stock market hit a 5 year high
yesterday. Across the street from where I work, a Ferrari dealership recently
opened up. Throughout America,
families are eating out more often, digital cable has become a basic
household necessity, and flat screen televisions are flying off the shelves. At
first glance, all of these signs point to a robust economy. Consumers are
spending money, corporations have record profits, and relative to the other
citizens of this world, Americans are living lifestyles of the rich and
famous.
As picturesque as the above scenario
seems, it is no wonder why your average investor is not buying into the recessionary scenario. The
stock market is heading higher, their home prices have appreciated, and the
Fed is continually asserting that we have minimal inflation. As a result,
investors are content on focusing their current lifestyles while ignoring the
much larger global economic picture that is unfolding before their eyes.
In truth, the larger global economic
picture does not look good for the overall US economy. Whereas the United States
was once a great manufacturing economy, we have now become the greatest
debtor nation in the world. Whereas the US dollar was once the safe haven of
wealth, it is now be divested from Central Banks around the globe. Whereas
the average US
consumer had income and savings to continually purchase goods, they are now
in debt. There is no question that these major fundamental factors have to be
acknowledged. Focusing solely on your immediate lifestyle is hopelessly
optimistic and shortsighted.
In his testimony before Congress, Ben Bernanke stated that he will rely heavily on data to
determine how the economy is fairing. It is no wonder why your average
investor is complacent about the long term outlook for our economy. Bernanke's comment in itself, reaffirmed that he will
likely follow in the footsteps of Alan Greenspan. Relying mostly on data is
like waiting for your kid's report card to determine if he needs help on his
studies. Instead of noticing that he is not doing his homework and often
misses class, you decide to take a "wait and see" outlook on the
economy. This "wait and see" outlook will seem blissful in the
short term, but will add greater damage to the US economy in the long-term. For
example, instead of working on ways to combat inflation, Bernanke
will spend time touting the overall strength of the US economy
and the minimal Core CPI numbers. Until inflation is blatantly obvious and we
are in the midst of a recession, he will likely be in denial of the true
economic state of affairs.
In the last several months, we have seen
a pullback in the commodity markets. As a result, the question of whether we
are in a commodity bubble has risen more often. Investors that ask this
question do not really understand the reason why we have had a multi year run
in the commodity markets. First and foremost, there has never been a time in
history where commodity bull markets have lasted less than 15 years. At this
rate, we have at least another 10 years to go. Secondly, we are living in
unprecedented times. If the average investor would stop and think about what
is going on around them, they would likely come to the same conclusion.
Although the US consumer is living beyond
their means, one third of the world's population is industrializing. And not
only are they industrializing, but they are industrializing at a record pace.
With industrialization, comes the need for raw materials and commodities. With
industrialization comes the creation of an educated and wealthier working
class. With the creation of a wealthier class, comes more discretionary
income that will be spent on consumer products and food. This, however, will
not happen overnight. But it will happen. You can either jump on the
commodity bull market now, or regret that you did not participate in
potentially the greatest bull market in history. I am offering a free
brochure titled "The Case for Commodities" to anyone who asks. You
can request one here.
Palladium Update
As many of my clients and newsletter
readers know, I have been extremely bullish on Palladium. My bullishness can
be summed up by the opening paragraph of a commentary that I wrote seven
months ago:
Whenever an asset falls in value by 80%,
it has to be examined for its potential as a contrarian, value-oriented
investment. Such is the case with Palladium. In a commodity bull market,
where substantial run- ups have occurred in oil, copper, precious metals, and
other raw materials, palladium has escaped the notice of most investors. Even
more interesting, is that the price of palladium has declined in the midst of
rising demand. I believe that this trend is about to reverse, as the
manufacturing community is taking notice of the substantial spread between
the two metals that are similar in their industrial use. (Full Article)
Since I wrote my initial commentary,
Palladium has definitely reversed its downward trend. In fact, Palladium has
risen 37% in value. Although this move up might not be surprising to some,
since precious metals in general have hit multiyear highs, it does represent
a reversal in a metal that has lagged behind its precious metals
counterparts.
 
Furthermore, the spread between platinum
and palladium has narrowed over the last several months. When I first talked
about the spread, Platinum was 4.66 times more expensive than Palladium. Today,
Platinum is only 3.28 times more expensive than Palladium. Another way of
looking at this is that since my initial recommendation, Palladium has moved
up 37% in value, while Platinum has only moved up 10% in value.
In either case, price differentials
between these industrially similar metals are still enormous. Take a look at
the updated Platinum versus Palladium chart below:
In the intermediate term, I expect
Palladium prices to make a quick run towards the 340 level where it will
likely encounter strong resistance. In the long term, I expect the demand for
Palladium to increase exponentially. It is interesting to note, that from
1996 to 2000, Palladium was the primary metal of choice for autocatalytic convertors. After Palladium prices hit a record high in
2001, the demand for platinum increased. I see this trend reversing in the
next several years.
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.
| 
