IS PLATINUM CHEAP RELATIVE TO GOLD ?

Here's a great article from Willem Weytjens of www.profitimes.com   on the ongoing discount of Platinum vs Gold.

As the author mentions in the article, platinum may not be cheap at the moment but it certainly appears to be undervalued vs Gold

http://profitimes.blogspot.com/2011/11/platinum-cheapest-precious-metal.html
Here's an excerpt from his article.

"""These days, gold is trading near all-time highs, while platinum is trading about $700 below its all-time high reached in 2008.
Since 1972, Platinum traded at about 1.35 times the price of Gold on average. Right now, Platinum is even cheaper than gold, trading at only 0.92 times the price of Gold. As we can see in the chart below, this is a rather “rare” situation. It only happened in the early 80′s and for a short time in 1974. In 1972, 2000 and 2008, it even traded as much as 2.30 times the price of Gold (monthly basis).

Based on this ratio over the last 40 years, we can say that Platinum is “cheap” relative to Gold.""""

Watch this space!

INDIAN RUPEE : FOREX FLUCTUATION & INDIAN POLICY REFORMS

Here is a good article from today's Business Standard Newspaper in Mumbai.
Rupee fall pares India Inc's profit by a fourth in Q2

If the weakness in the INR continues, upcoming FCCB redemptions, USD denominated foreign Currency borrowings and the rising cost of imported raw materials will continue to add to the woes of Indian Corporates in the results of the third quarter.

Many blame the INR weakness on FII selling in the Indian Equity markets.
While FII selling has played its part, I feel the ongoing Government policy malaise and concerns over the Government's Fiscal Deficit continue to weigh down the INR.
Currency downgrades by the Rating Agencies will add to the downward pressure on the INR.

Also, it's about time that the Indian Government gets down to implementing many long delayed reforms.

Some sectors in dire need of reforms
POWER SECTOR - Poor financial health of State Electricity Boards (SEBs) is forcing them to resort to  load shedding of power even as Power producers are left with surplus power that they are unable to sell. These SEB's must move towards a market determined pricing of power sold by them to distribution companies.
Merchant Power sales and Power trading are also facing many unresolved policy issues.
Under construction Ultra Mega Power Projects also face uncertainities due to fuel linkages (read: Coal allocation issues and royalty issues on Coal imported from Indonesia).
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MINING SECTOR - Confusion over a proposed Mining Tax, profit sharing with locals displaced by Mining projects, Land acquisition delays and mining scams and corruption have delayed many Mining & Smelter projects.
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FERTILIZER SECTOR - Partial implementation of the Nutrient Based Subsidy Scheme (NBS) and the delays in decontrol of Urea pricing have compounded the problems of the sector. Heavily subsidised Urea fertilizer has resulted in farmers opting to use Urea over DAP fertilizer. Excessive use of Urea has upset the balance of soil nutrients and has thus resulted in lower crop yields.
Any further delay in decontrolling Urea fertilizer pricing will add to government subsidies as the government continues to import Urea shortfall from overseas. A weak INR will add to the cost of imported Urea fertilizer.
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TELECOM SECTOR - The ongoing 2G scandal and corruption cases continue to dominate news in the telecom sector. What the government must take a look at is reforming regulations that will promote consolidation in the Telecom sector. Recent issues of 3G roaming should also be clarified by the TRAI and the government, to avoid any further uncertainty in this sector.
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AVIATION SECTOR - A combination of ''below cost '' fares by Air India,  record high ATF prices, ultra competitive air ticket prices, and record high debt of the airlines themselves has resulted in some serious structural problems in the Indian Aviation sector. FDI limits in Indian Aviation will have to be liberalised and a more viable tax structure on ATF will have to be worked out, if the existing carriers are to survive as going concerns. Perhaps the government will have to look at the development of "Low cost airports'' from which the Low Cost Carriers can operate, given the expensive Landing and Parking Costs at the country's main airports.
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OIL SECTOR - Massive delays in implementation of a clear and viable Gas Pricing policy is delaying further development of Oil and Gas Blocks in the KG Basin. Until this vital issue is resolved, Fuel Linkage issues of Power & Fertilizer Plants will not be resolved. The longer it takes for this Gas to reach the market, the more will be the delays of construction of new Power and Fertilizer Plants.
Also the" retail fuel pricing - under recovery problem" of the Oil Marketing companies (OMCs) remains unresolved. Massive subsidies on retail fuels sold by the OMCs have weakened their finances over the last decade.
A weak INR+ high Crude Oil price is adding to the under recovery burden of the OMCs.
If the government fails to move to a market determined pricing mechanism for Retail fuels soon, these OMCs will soon need to be bailed out by the government.
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All in all, it's about time that the government takes a step forward, and gets downto resolving these 'bottle neck' issues that are plaguing the Indian Economy at the moment.

If some of the supply side issues are worked upon, then perhaps the subsequent drop in inflation and an improvement in the government's fiscal deficit targets, will help the INR to regain some lost ground.

THE INDIAN RUPEE - WEAKNESS CONTINUES.....

The continuing weakness of the INR vs the USD is starting to worry both investors and regulators alike. Negative FII fundflows in the Equity markets is adding to the weakness of the INR.

At a time when inflation continues to be persistantly high, a weak INR will add to India's already increasing Crude Oil import costs.

The Equity Markets in India are preparing themselves for forex loss announcements from companies that import their raw materials and those that have large Foreign Currency borrowings.

We are now surpassing levels last reached during the heights of the financial crisis in the first quarter of CY 2009, just after the Lehman Crisis!

Energy and commodity prices were far lower in March 2009 than they are right now; so the Government and especially the Central Bank (R.B.I) will have to come up with some strategy to stabilize if not support the INR at current levels.

WATCH THIS SPACE!

PIIGS 10 YEAR GOVERNMENT BOND SPREAD vs BUND

The Crisis in the Eurozone continues with the markets rallying and then selling off to the twists and turns of ''political'' newsflow.

Its too early to know what the final writedowns will be or who will be the ultimate counterparty that must bear the losses of an era of  ''imprudent'' lending.

Its going to take a whole lot of political will and large writedowns  + bailouts in the financial srctor before we are back to any kind of 'normal' again.

In the meantime rallies in the markets should be rented, not owned!

ps: I will get back to regular posting soon.

INDIAN RUPEE - WEAK ASIAN CURRENCY

The Indian Rupee has joined its Asian peers and has weakened against the USD over the last few  months.

A weak Indian Rupee will make India's Crude Oil imports more expensive and thus add to inflationary pressures.
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A weak Indian Rupee will also hurt the profitability of Indian Corporates with large USD denominated borrowings.
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On the other hand, a weak Indian Rupee will boost the profitability of Indian IT exporters and export oriented Crude Oil Refineries

Watch this space!!

EURO : UNDER PRESSURE

COPPER - --CORRECTION

Copper prices have sold off in recent weeks.

A slowdown in the developed world  is resulting in slowing chinese demand.

The recent rebound in the oversold USD has been accompanied with a sell off across asset classes, and Copper has been no exception.

Question is, are we headed into a global recession and is Copper just flashing a warning sign?

GOLD : VOLATILITY AND HOW!

As expected, Gold prices finally corrected from recent highs.

Many Gold bugs are panicking and as prices plunge, & investors are wondering if Gold's mega rally has finally run out of steam.

Firstly, I continue to believe that Gold's long term fundamental story is still intact.
The current state of govenment finances  combined with the ongoing post bubble debt deleveraging will mean that Gold will continue to retain its safe haven status.
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Secondly, Gold has not suffered any serious technical damage on its long term chart.
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Thirdly, a pullback in prices was long overdue after gold's monster rally from a sub $1500 price level.

Below is a link with some interesting charts.
Bull and Bear case for Gold, Silver and Stocks -- Looking at the chart below, gold prices have pulled back after testing the upper price band (Red line) of the chart.

Could we see a pullback to the green trendline like the 2008 correction?
As someone rightly said--Never say never!

Lastly, I would advise Goldbugs not to panic, but to just hold on patiently for now.
The troubles of the US Housing & Financial sector of 2008 have now morphed into stressed government finances and Sovereign debt crises of 2011.

In 2008 many corporates (especially in the financial sector) were downgraded by the rating agencies.
In 2011 several governments have had their Sovereign Credit ratings downgraded.
Once again the Credit rating agencies are raising red flags rather late in the day!!!!
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As David Rosenberg recently pointed out, the aftermath of a post bubble debt deleveraging saga is no 'garden variety' recession.

Gold is still the last refuge in this storm, but investors will have to learn to ride out some mega volatility and corrections along the way.

GOLD : TIME TO TAKE A STEP BACK NOW

Gold continues it's fantastic run.

Just a word of caution to the permabull gold bugs.

The 50 day ma is at $1675.80 & the 200 day ma is at $1495.30.

After rallying by almost 47% over the last year, we could see a sizeable pullback without doing any technical damage on the charts.

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In the meantime, continuing concerns of the sovereign debt of Club Med , Central bank interventions in the currency markets (like the SNB yesterday)and debt and deficit worries in the U.S.A. will continue to support gold prices. Expect more volatility ahead of President Obama's Speech on ''job creation'' and Ben Bernanke's speech this week!

GOLD - LONG TERM CHART

GOLD : Overextended after a massive run : more volatility to come

After testing $1900, gold prices have corrected sharply. In the near term prices continue to remain overextended, well above supporting trendlines at $1640.

I continue to remain a long term bull, but would once again remind readers that in the short term, gold prices will continue to be volatile and reacting to options expiration and the FED's Jackson Hole meeting at the weekend.

Here is a fantastic chart from Jesse's Café Américain - a super site for all gold related news and excellent unbiased market analysis.

Thomas Friedman - on a Theory of Everything (sort of)

A precise article by Thomas Friedman about the current state of unemployment, credit and strained government finances.

A Theory of Everything (Sort Of) - NYTimes.com

You +1'd this publicly. Undo

You +1'd this publicly. Undo

MARKET UPDATE: THESE ARE CRAZY DAYS

Just a quick post today before I put up some detailed analysis soon.

There's so much happening in markets these days - Debt Ceiling, US AAA downgrade, Equity Market crashes, a really manic VIX (Volatility S&P500 ^VIX), UK Riots and all the ongoing discussion of the ''fragile'' global economic recovery!!

Below is a snapshot of todays wildly gyrating markets! For the ''goldbugs'' out there, Gold has been riding high, driven upwards by all the uncertainty & it is overbought in the near term!

The FED has signalled that it wishes to keep rates at record lows well into 2013!----the recovery must be more fragile than they first thought.

Overall, I would refrain from any risk taking at the moment and would look to hedge gold positions. In the medium term, I expect gold to continue to be volatile in a price range of $1550 to $1780(New all time high as of today).

Will come back with some market specific ideas soon.

THE ONGOING RECOVERY - NOT!

As the US Government is negotiating to raise the US Debt Ceiling, Central Bank Governors around the world are struggling to keep the fragile economic recovery intact while tackling inflation concerns at the same time.

Below are some magazine covers, that you would not expect to see at this stage of a economic recovery!

US ADJUSTED MONETARY BASE - Chart from St Louis FED

Clearly there's more stimulus to come, as the never ending recovery from those dark days in 2008 continues. The FED really has a tough job on its hands.
..
Talks of a possible QE3 could add more fuel to rising commodity prices, while a cancellation of a proposed plan for QE3, will not go down well in these jittery markets!

Below are two Charts of the Adjusted US Monetary Base. (5year + Long Term)
2011 has seen the graph spike sharply updards, a trend that is clearly not sustainale !












Meanwhile the Precious Metals sector has had quite a rally over the past week, with Gold prices topping $1600, and Silver just about getting over the $40 level. Perhaps, the Gold market is pricing in a possible QE3 further down the line.
I continue to be cautiously optimistic on the precious metals sector over the next month and a half; i.e. until the end of August 2011. These summer months have traditionally been seasonally weak for the PM sector.

INDIAN EQUITIES - AN UPDATE

Here's an article titled - 'A Two - Tier Market' by Akash Prakash from the Business Standard Newspaper dated 8th of July 2011 - Mumbai edition..

He addresses the issue overvaluation of the consumer-staples sector and highlights the difficulties of buying high-quality companies at a reasonable price in the Indian Stock Market.

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Currently, many consumer staple stock trade with PE ratios of 30-35!

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On the other hand, investors continue to shy away from industries that are in need of capital, mainly due to concerns of poor earning visibility. Many infrastructure companies are facing great difficulty in raising capital.

The article is a fantastic read.

INDIAN PETROLEUM SECTOR SUBSIDY CONUNDRUM

The Government of india finally implemented a long overdue price hike in diesel, LPG & Kerosene.

Even as inflation statistics continue to remain uncomfortably high, the government had to finally bite the bullet!
The government must come up with a long term viable pricing policy for petroleum products.
The Oil Marketing companies like BPCL, HPCL & Indian Oil cannot afford to keep subsidizing retail fuel prices. Currently their profitability is dependent on Oil bonds - a government handout!
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Upstream marketing companies like ONGC & GAIL are helping the government to bear the losses from under recoveries, and this is preventing them from investing in Oil Assets and building Oil & Gas infrastructure like gas pipelines etc
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The government will also have to step up investment in public transport infrastructure like metro rail projects & urban bus transport networks. Perhaps such a move will help reduce traffic congestion and in the long run reduce our heavy dependence on petrol and diesel.
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Lastly I would like to point out that a large chunk of the levied retail fuel price on fuels like petrol and diesel, consists of govenment taxes that does not go to the oil companies, but is a major source of government revenue!
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It's time that a truly sustainable long term fuel pricing policy is formulated.
With Crude Oil prices that continue to trade around $100/barrel, the government must come up with such a policy as soon as possible.
Below is an announcement by the Govt of India in the Economic Times on the 27th of June 2011.

GOLD CHART UPDATE

The months of June to early September have traditionally been months when Gold has witnessed sell offs.

Below is an excellent chart prepared by Mr P. Radomski of Sunshine Profits.
Do stop by his Sunshine profits site for some really insightful analysis on precious metals.
LINK:Sunshine Profits Tools for Effective GOLD & SILVER INVESTMENTS ...

Gold is testing the upper resistance line in the chart below.

I would avoid buying in at the current juncture but would instead await better opportunities over the coming months. An equity market sell off is likely to trigger a big correction in precious metals.

DJIA - THE RALLY GOES ON

As the rally in the US equity market continues, even the most ardent ''bear'' is probably just about ready to throw in the towel.

Can this rally be explained in light of deteriorating fundamental news such as rising unemployment and government debt levels ?

Perhaps now is the time for the prudent investor to re-assess his risk reward matrix.
Does waiting for a possible upside from current levels justify the risk at this stage?
Some analysts are saying that the current rally since 2009 has started to form a bearish ascending wedge formation on the charts, and that it's time to book profits.

The Bullish Bear Blog's view:

• The risk reward ratio is clearly not in favour of the long only investor.



• After a monster rally from the lows back in March 2009, potential downside risk clearly outweighs any possible upside.



• The mega rally has exhausted a large percentage of short positions in the market. This in turn means that the market has much less support on the downside if a correction ensues.



• Meanwhile the market continues to ignore serious issues like the Club med debt crisis, unemployment issues in the US & steadily rising government debt levels in the developed world.

RISING GASOLINE PRICES

A chart from http://www.chartoftheday.com/.

A weak USD and high Crude Oil prices has resulted in rapidly rising gasoline prices.

USD - WHERE TO NEXT ?

Here is a USD update from Graham Summers of Gains Pains & Capital.com

April 25, 2011: Graham Summers’ Free Weekly Market Forecast (China Dumping Dollars edition)

His analysis is always insightful and he is always willing to tell it like it is.

The USD has clearly been under pressure recently. It is oversold at the moment and even though the Bullish Bear has a long term bearish view on the USD, I continue to believe that the current rally in the EURO and the GBP will soon see a reversal.

The Euro and the GBP have their own issues as well! ...facts that the market is currently ignoring!

Will the USD take out the 2008 lows? Watch this space!

Gold and Silver have had a fantastic run, although Silver prices pulled back quite sharply this week after almost reaching $50.

As you can see from the third chart, Silver had a lot of catching up to do, and since mid 2010, it has caught up with Gold quite swiftly.

I continue to advise caution on Silver prices, as prices have already risen significantly and a further pullback over the near term can be expected.

SILVER - SOARING PRICE & RISK !

Here is a fantastic Silver chart from Carl Swenlin of Decision point.com.

Here is the link:Silver Still Soaring

Clearly, silver has had a fantastic rally, and could possibly rise still further as speculators rush in. The Bullish Bear Blog has been bullish on Silver ever since the inception of the blog.

However, the almost vertical rise prices makes me wary of a sudden selloff ! Buying in at this stage is ''HIGHLY RISKY''.

For those already long the white metal, I think it's time to start booking profit in stages and sticking to stop losses, to lock in profits.

Wait for a pull back to invest, and yes it's time to take some chips off the table for now.

ROBERT PRECHTER : 6 TRENDS ABOUT TO REVERSE

Here's an article I came across in 'The Business Insider' > Robert Prechter: These 6 Trends Are About To Reverse‎

"

Prechter argues there are several themes out there right now that investors, economists, and markets all believe to be true just like they did with interest rates in the 1980s.

• 
  
  The dollar - everyone is bearish.


• 
  
  Interest rates - everyone thinks they're going to rise.


• 
  
  The stock market - everyone is bullish but corporate insiders.


• 
  
  Inflation expectations - everyone thinks it is going to go higher.


• 
  
  Economy - everyone is confident in 2011.


• 
  
  Oil - everyone thinks it is heading higher.

"

He makes some really valid points. Ignore the principles of 'Madness of crowds' and 'mean reversion' at your own risk.

GOLD : RALLYING IN ALL CURRENCIES

EURO RALLY - SUSTAINABLE....NOT

A positive rate outlook for the Euro and the continuing downtrend in the USD has resulted in quite a sustained uptrend in the EUR USD exchange rate. As the Club Med nations come to the table asking for handouts, the ECB has gone ahead with the first of many proposed rate hikes. Rising inflationary pressures as a result of booming commodity prices led by Crude Oil could have forced the ECB's hand at this point.

But is this rally in the EURO justified?

Is the USD in much worse shape than the Euro?

Here's my analysis:

• The Euro has considerable exposure to Club Med and is by no means out of the woods.
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• The USD too has many structural weaknesses - rapidly expanding Federal debt levels, terrible finances at the state and municipal government level, a slumping housing market and uncomfortably high unemployment.
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• But the fact remains that the USD is oversold at the moment.
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• The CBOE VIX is currently trading well under 20, at 18 currently. A warning sign for perma bulls.
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• Equity markets are far too complacent at the moment, totally ignoring the headwinds of $113 Crude Oil and all the negative geo -political newsflow. The risk reward ratio is clearly against the prudent investor. .


• Just like 2008, an equity market sell off will once again be accompanied by risk aversion and a rebound in the USD as investors shun other risky asset classes ( emerging market equities and hot commodities) for the relative safety of the USD and the US Bond Market. The USD always benefits from the flight to safety during market panics.

Sadly,most fiat currencies are seriously flawed as governments continue to ignore structural problems of their economies, preferring to ''kick the can further down the road''.

This is reflected in the fact that Gold and Silver continue to rally in most currencies.

Commodity currencies like the CAD, Swedish Krona & the Australian Dollar remain vulnerable to a sell off in the commodity markets. The Swiss Franc and the Japanese Yen have also shown sustained strength vs the USD.

To conclude, I expect the USD to recover when the stock market starts to sell off & I expect further negative newsflow from Club Med in coming months to weaken the ''overbought'' EURO.

SILVER FEVER !!

Most fans of the precious metals sector will obviously be over the moon after the monstrous rally in Silver in 2011 so far.

The USD continues its sell off, while the Euro rally continues despite all the trouble with Club Med.

With all the momentum in Siver bullion, prices could rise still further.

Personally, I would advise against any opportunistic buying at the moment, as the risk reward ratio is clearly against the long only trader for now.

For those investors with access to hedging strategies, perhaps they can use put options to protect long positions, given the overbought position in Silver.

Mr P. Radomski of Sunshine Profits has some excellent analysis in his latest free update.

VIX & COMPLACENCY & the UNPREDICTABILITY of MARKETS

Despite all the news on Libya, Japan, the EU Debt crisis and the discussions of raising the US Federal debt ceiling, global stock markets continue to trend upwards.

Are we overdue for a spike in the VIX ?

THE FED & the US ADJUSTED MONETARY BASE

Here is a follow up post to my March 15, 2011 post on the correlation of the S&P 500 with the size of the FED Balance Sheet.

Graham Summers of ''Gains Pains Capital'' has also put up a detailed note on the US Monetary Base.

LINK:

http://www.gainspainscapital.com/index.php?option=com_content&view=article&id=244:graham-summers-free-weekly-market-forecast-the-fed-is-terrified-edition&catid=39:stocks&Itemid=58

Below is a chart from the above mentioned article.

EVENT RISK FOR MARKETS - CAVEAT EMPTOR

Global equity markets these days seem to be totally unaffected by all the geopolitical turmoil and natural disasters of the last few months.

Once again the ever cautious David Rosenberg chips in with words of wisdom, alerting investors to the many risks that the market is currently ignoring. (Note to readers - David Rosenberg's Newsletter ends its free trial period this month, so this will be the last of his charts on this blog)

S&P 500 vs The FED's BALANCE SHEET

Investment Guru David Rosenberg in recent writings has commented on the positive correlation of the rally in the US Equity Markets and the size of the Balance Sheet of the US FED.

Here is yet another article from Jim Sinclair's Mineset website that supports Rosenberg's view.
This is some excellent research by Trader Dan Norcini and is worth a read.

S&P 500 Versus The Fed’s Balance Sheet

(LINK FOR CHART FROM JIM SINCLAIRS WEBSITE)

GEOPOLITICAL NEWS IMPACTING MARKETS

The last couple of months have really been a roller coaster ride for the world economy.

Whether its the unrest in the Middle East leading to surging Crude Oil prices, or rising food prices or EU Sovereign debt troubles, or the recent Japanese Quake and resulting Tsunamis...... a lot has been going on.
The incredible damage to property and the loss of innocent lives in case of the Japanese quake is really tragic.

There was another important bit of news that went by unnoticed.
"" Wisconsin Gov. Scott Walker on Friday signed into law the controversial bill that eliminates most union rights for public employees""
Wisconsin governor signs anti-union rights bill World DAWN.COM
Wisconsin governor signs into law union curbs Reuters
Clearly the crisis on Main Street is not over yet. As David Rosenberg recently said, the impact of cost cutting and downsizing at the state and local government level will really undermine the '''ongoing consumer recovery'''
So I think that it's time that the guys on Wall Street sit up and take notice.
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The Dow Jones may continue to brush off the impact of rising gasoline & food prices and the discontent on Main Street for now, but the prudent investor must realise that its now too late to join the equity market bandwagon. The risk reward ratio is not in favour of the ''long only'' investor and his margin of safety is far too inadequate at the current time.

IS THE USD OVERSOLD ?

Even as the EURO continues to rally, the USD is breaking down through some critical levels.

While regular readers know my long term view on the USD, let's not forget that the USD appears to be oversold at the moment.

Below is a screenshot of the CNBC website-7th March 2011 - A classic contrarian indicator! As traders get caught up in the surge in Silver prices, everyone is bearish on the USD all of a sudden.

Turmoil in the middle east and North Africa continues to dominate news headlines, easily crowding out news of dissatisfied government workers' unions and the ongoing austerity measures being implemented by state and local governments in the USA.

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Discerning readers will realise that the troubles with Club Med and the 'PIIGS' are far from over.

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Meanwhile the price of Crude Oil continue to trend upwards, and with the US unemployment rate near 10%; this will add further stress to the recovery on main street.

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The stock markets may continue their upward rally for now, but a toxic combination of high unemployment and rising food & energy prices may be just as detrimental to the US Equity market rally as they proved to be for the ''dictators'' of North Africa.

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A sell off in the overbought equity markets could trigger a counter trend rally in the oversold USD.

US HOUSING MARKET & the 30 YEAR FIXED RATE MORTGAGE

Home prices in the U.S. will continue to face headwinds as the 30 year fixed rate mortgage rate continues to climb despite the FED's best efforts in QE2.

A combination of declining home prices, rising food and energy prices and persistantly high levels of unemployment will continue to weigh down on the economic recovery.

THE SOFT COMMODITY BOOM CONTINUES

Some call it the Bernanke effect, some blame the BRIC nations, while others blame rising soft commodity prices on the weakening USD.

JIM ROGERS clearly has been spot on as far as the boom in soft commodities goes. Food inflation is making headlines again!

Clearly some of the commodities may be rather overpriced at the moment. Meanwhile speculators and commodity hedge funds continue to build positions in this rather overbought sector. Caveat emptor - Watch this space!

Source : Commodity Prices / Quotes & Commodity Charts - Free - A fantastic site for commodity charts.

IT'S NOT OVER YET !

Here's David Rosenberg with more words of caution.

It's not over yet!

Kick the can down the road, as far as it will go, buy as much time as possible!

As the ongoing bull run in the equity markets continues, I thought that it was appropriate to post some charts from Breakfast with Dave - 18th Jan, 2011.

Complacency and exuberance and ''bullishness'' is blinding speculators and investors to the many structural problems of today's global economy.

Job creation and food security ( in both the developed world and emerging markets) are going to be crucial issues going forward, and unfortunately the ongoing policies of governments worldwide are continuing to fuel asset price inflation and stock market rallies rather than addressing the real problems we have at hand.

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C.R.B. vs. B.D.I.

Below is a rather curious chart of the CRB Commodity Index vs the Baltic Dry Index.

It's interesting to note, that as commodity prices continued to trend upwards in recent weeks, the Baltic Dry Index has continued to drift downwards.

The ongoing activities of global Central bankers are once again boosting asset prices, including prices of USD denominated commodities. As speculators and hedge funds latch on to rising prices, it's quite possible that prices could rise still further.

Longer term however, this diversion in the CRB & the BDI will have to correct itself.

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Given that the rise in the CRB is not purely end user driven, CRB prices could see a sell off if the global economy faces a double dip.

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As Central Banks in Asia continue to raise interest rates to combat food & energy inflation, Asian economic growth could slowdown in the second half of 2011.

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Also, let's not forget the troubles with Club Med, unemployment issues in the developed world, the troubles with state/municipal finances in the USA and the Debt and Fiscal issues of the US government.

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If the world economy slows, the CRB Index is going to turn downwards.

Investors and speculators in the commodity markets must realise that at current prices, most commodities are trading in 'overbought' territory and leave the investor with little or no margin of safety at all

Caveat Emptor!

PRECIOUS METALS - CONSOLIDATION OR FURTHER CORRECTION ?

Over the past fortnight, the ongoing correction in the precious metals sector has caused quite a bit of heartburn for the 'goldbug' community.

While the recent troubles in Egypt have provided support to PM prices, the ongoing equity market correction could drag prices down further.

Take a look at Silver prices over the last month! That's quite a sell-off.

Mr Radomski of Sunshine Profits has an excellent chart on Gold.

I'm not buying anything yet, and will wait and watch to see how the markets open next week. Meanwhile, the USD & the Swiss Franc continued to benefit from increased market volatility.

INVESTING WITH THE HERD

I came across this article via David Rosenberg's article on the 24th of Jan 2011.
Here is the permalink to the NY Times article.
http://bucks.blogs.nytimes.com/2011/01/17/investing-with-the-herd/
It's an excellent article for investors to read right now, given the complacency that has crept into stock market valuations.

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog, and other drawings are available on his personal Web site, BehaviorGap.com.

Since March 2009, we’ve watched the market rebound by 80 percent. Whether you’ve sat it out on the sidelines or think you can predict what comes next, I recommend you take a step back and remember a few things.

You are not as smart as you think. Overconfidence is a huge behavior
problem for investors. Overconfidence is what happens precisely because we think we know a lot about the subject, but overconfidence can lead us to make mistakes that in hindsight will be glaringly obvious (but the tricky part is that we didn’t know it at the time).

Following the herd doesn’t make it safe. I know it’s exciting and fun to be an investor in Apple or Google right now. Then there’s the talk about getting access to the private initial public offering of Facebook through Goldman Sachs. Buying because everyone else is buying is not an investment strategy. These companies may be great investments, but not just because everyone else is buying their stock.

We’re social animals who feel safer in numbers, but so do sheep. We take comfort in doing what everyone else is doing, and in the back of our minds we know that even if we’re wrong, at least we’ll be wrong with a bunch of other people. But it was the same line of thinking that led us to do very stupid things in high school just because “everyone else was doing it.”

Investing is about behavior, not skill. Maybe you’ll accuse me of beating a dead horse, but successful investing is about how you behave. Buying high and selling low is dumb, but it’s worth repeating given what I’m seeing in the market today. It’s important to remember that you could own a “mediocre” mutual fund, and if you behave correctly you can outperform 99 percent of your neighbors. On the other hand, if you spend your whole life searching for the “best” investment, you’ll ruin your entire lifetime return in one single behavioral mistake.

I know that what I’ve outlined sounds obvious and easy to scoff at, but the fact that it’s obvious didn’t keep investors from loading up on tech stocks in the late 1990s, bonds in 2002, and real estate in 2006. As we enter 2011, and the excitement of our financial New Year’s resolution starts to wear off, please remember that it’s worth taking the time to stop and think before you invest.

DAVID ROSENBERG on US UNEMPLOYMENT

The graphs below come from 'Lunch with Dave' - January 7, 2011.

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SILVER - OFF TO THE RACES !

Silver has been a star performer over the last year.

While prices have corrected slightly from a level of just over $31/oz, the overbought condition in silver means that there could be further downside in the near term if lasts week's weakness in the commodity markets persists.

Below is a chart from some excellent analysis from Adam Hamilton of www.ZealLLC.com