Mark Mobius: Q&A on Emerging Markets

Thursday, March 11th, 2010

A recent Q&A with Mark Mobius, Templeton Asset Management’s emerging markets guru, follows below, courtesy of the company’s Market Views newsletter.

What are the pros and cons of investing directly in emerging market equities and bonds as opposed to companies based in developed markets with emerging markets operations?

By directly investing in emerging market equities you obtain full exposure to emerging markets while with investing in developed market companies with emerging market operations, you don’t get that full exposure and you also get slow moving markets with lower growth potential mixed in. One advantage of some developed market companies is that they could have a global coverage thus giving the investor a more diversified coverage. Of course, there are also some emerging market companies that have that kind of coverage as well.

How probable is further tightening of monetary policy in China within the near future - and what would that step look like?

It is highly probable that there will be tightening of monetary policy in specific areas and not as a general policy. The Chinese have made it clear that they want to ensure that economic growth continues at a high pace and that means that they would want to keep liquidity and money supply at a high level with the proviso that if inflation increases then they would restrict lending and money supply to some degree. They will try their best to avoid taking any measures which would jeopardize the country’s growth and therefore any tightening will be specific and targeted to inflation in certain areas.

What is your outlook for Africa?

We believe that the outlook for Africa is very good for three main reasons: (1) abundant natural resources, (2) a young population, and (3) heightened interest from rich emerging market countries. Africa has some of the world’s greatest deposits of natural resources, and only a fraction of those resources have been tapped. In addition, it has a young and growing population who could improve their education and skills to become a major asset to expanded manufacturing and mining enterprises. These factors have stimulated the interest of countries like China and India, who require more natural resources for their growing economies, as well as countries like Russia and Brazil, who look to expand their enterprises into global operations. Countries around the world are showing growing interest in manufacturing within Africa for the African market, particularly emerging countries that have the capabilities to operate in challenging political and economic environments.

Africa is an interesting region. In South Africa, efforts by local companies to expand their international market share, as well as the presence of capable management teams, can assure investors of finding bargains here. Higher global demand for commodities, a recovery in domestic demand and the preparations for and hosting of the 2010 World Cup should further support economic growth this year.

In addition to South Africa, we have been taking a look at the lesser-known frontier markets in Africa, some of which are very large countries, such as Nigeria. Regional markets such as Egypt and Kenya are also beginning to look attractive, and we are seeing the growth of new markets in this region. Libya, for example, already has a stock market and is encouraging the privatization of state-owned enterprises - a development being repeated in a number of African countries.

Some commentators are saying that frontier markets represent some of the best contrarian investments at the moment - do you agree with this and why?

Yes, that is certainly the case. For example, many people would never invest in Nigeria or even might not even visit the country for fear of confronting violence but actually there are excellent investment opportunities. So there are opportunities simply because those opportunities are not attractive to other investors since they are not familiar with the possibilities.

Qatar, Kazakhstan and Nigeria are among those countries being cited as ones to watch this year - why do you think this is?

Those are some countries that are citied as being watched but we should add a number of others such as Vietnam, Romania and a number of others. Qatar, Kazakhstan and Nigeria are all being watched because of their natural resources: Qatar - gas, Kazakhstan - oil, and Nigeria - oil.

Are there any particular sectors within frontier markets that you think will perform better than others?

We employ a bottom-up, value oriented, long-term approach. As we look for investments, we focus on specific companies rather than sectors or regions. However, during our analysis, we also consider the company’s position in its sector, the economic framework and the political environment.

Our focus continues to be on two key themes: consumers and commodities. With rising per capita income and strong demand for consumer goods, the earnings growth outlook for these stocks is positive. Commodity stocks also look good because we believe commodity prices will trend upwards, partly because of weakness in the U.S. dollar, and also because we expect the global demand for commodities to outgrow supply over the long term.

Source: Mark Mobius, Franklin Templeton Investments - Emerging Markets Overview, March 10, 2010.

Tags: Abundant Natural Resources, Bonds, BRIC, Diversified Coverage, Economic Growth, Emerging Market Companies, Emerging Market Countries, Emerging Markets, Full Exposure, Global Coverage, Guru, inflation, liquidity, Mark Mobius, Market Operations, Monetary Policy, Money Supply, Pros And Cons, Proviso, S Market, Templeton Asset Management
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Technical Talk: View pullback as buying opportunity

Tuesday, March 9th, 2010

The comments below were provided by Kevin Lane of Fusion IQ.

We said several weeks back that it was hard to see the market top when bullish sentiment surveys were so neutral. Additionally we stated that tops were usually met with exuberant buyers not traders salivating to put on shorts. So here we are several weeks later and two indices - the Nasdaq Composite and the Russell 2000 - are both at new post-market low highs. When the Nasdaq and Russell 2000 are both making highs it again is hard not to maintain a bullish bias.

[Graphs inserted by PduP.]

Source: StockCharts.com

Source: StockCharts.com

Given that the market has rallied nearly 10% in the last few weeks, expect a shallow to moderate pullback to occur; however, we believe this pullback will present a buying opportunity.

The economic calendar will remain volatile as investors overinterpret every release; however, by and large we believe the economic recovery will continue on its course and this will cause the last reluctant sideline monies  to finally join the party. Only when all liquidity is exhausted and all the buyers are in will this move likely end. Our guess is this will occur somewhere in the range of S&P 500 1,200 to 1,300.

So for now weakness appears to be an opportunity to buy stocks, especially in the areas that are working, i.e. technology and small caps.

Source: Kevin Lane, Fusion IQ, March 8, 2010.

Tags: Advertisement, Amp, Bias, Bullish Sentiment, Buy Stocks, Economic Calendar, Economic Recovery, Fusion, Graphs, Guess, Investors, Iq, liquidity, Market Sentiment, Monies, Nasdaq Composite, Pullback, Russell 2000, Shallow, Sideline, Small Caps, Tops
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Warren Buffett’s Letter to Shareholders 2009

Sunday, February 28th, 2010

Warren Buffett shares his letter to shareholders just ahead of this year’s Annual General Meeting of Berkshire Hathaway.

Berkshire Hathaway Annual Report - via BRK
Warren Buffett’s Letters to Shareholders - via BRK

Here are some of this year’s nuggets. Buffett discusses how he and Charlie Munger, apply Charlie’s thinking to investing.

• Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding.

• Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean we can judge what its profit margins and returns on capital will be as a host of competitors battle for supremacy. At Berkshire we will stick with businesses whose profit picture for decades to come seems reasonably predictable. Even then, we will make plenty of mistakes.

• We will never become dependent on the kindness of strangers. Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses.

• When the financial system went into cardiac arrest in September 2008, Berkshire was a supplier of liquidity and capital to the system, not a supplicant. At the very peak of the crisis, we poured $15.5 billion into a business world that could otherwise look only to the federal government for help. Of that, $9 billion went to bolster capital at three highly-regarded and previously-secure American businesses that needed - without delay - our tangible vote of confidence. The remaining $6.5 billion satisfied our commitment to help fund the purchase of Wrigley, a deal that was completed without pause while, elsewhere, panic reigned.

• We pay a steep price to maintain our premier financial strength. The $20 billion-plus of cash- equivalent assets that we customarily hold is earning a pittance at present. But we sleep well.

• We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. That means we are sometimes late in spotting management problems and that both operating and capital decisions are occasionally made with which Charlie and I would have disagreed had we been consulted. Most of our managers, however, use the independence we grant them magnificently, rewarding our confidence by maintaining an owner- oriented attitude that is invaluable and too seldom found in huge organizations. We would rather suffer the visible costs of a few bad decisions than incur the many invisible costs that come from decisions made too slowly - or not at all - because of a stifling bureaucracy.

• With our acquisition of BNSF, we now have about 257,000 employees and literally hundreds of different operating units. We hope to have many more of each. But we will never allow Berkshire to become some monolith that is overrun with committees, budget presentations and multiple layers of management. Instead, we plan to operate as a collection of separately-managed medium- sized and large businesses, most of whose decision-making occurs at the operating level. Charlie and I will limit ourselves to allocating capital, controlling enterprise risk, choosing managers and setting their compensation.

• We make no attempt to woo Wall Street. Investors who buy and sell based upon media or analyst commentary are not for us. Instead we want partners who join us at Berkshire because they wish to make a long-term investment in a business they themselves understand and because it’s one that follows policies with which they concur. If Charlie and I were to go into a small venture with a few partners, we would seek individuals in sync with us, knowing that common goals and a shared destiny make for a happy business “marriage” between owners and managers. Scaling up to giant size doesn’t change that truth.

• To build a compatible shareholder population, we try to communicate with our owners directly and informatively. Our goal is to tell you what we would like to know if our positions were reversed. Additionally, we try to post our quarterly and annual financial information on the Internet early on weekends, thereby giving you and other investors plenty of time during a non-trading period to digest just what has happened at our multi-faceted enterprise. (Occasionally, SEC deadlines force a non-Friday disclosure.) These matters simply can’t be adequately summarized in a few paragraphs, nor do they lend themselves to the kind of catchy headline that journalists sometimes seek.

• Last year we saw, in one instance, how sound-bite reporting can go wrong. Among the 12,830 words in the annual letter was this sentence: “We are certain, for example, that the economy will be in shambles throughout 2009 - and probably well beyond - but that conclusion does not tell us whether the market will rise or fall.” Many news organizations reported - indeed, blared - the first part of the sentence while making no mention whatsoever of its ending. I regard this as terrible journalism: Misinformed readers or viewers may well have thought that Charlie and I were forecasting bad things for the stock market, though we had not only in that sentence, but also elsewhere, made it clear we weren’t predicting the market at all. Any investors who were misled by the sensationalists paid a big price: The Dow closed the day of the letter at 7,063 and finished the year at 10,428.

• Given a few experiences we’ve had like that, you can understand why I prefer that our communications with you remain as direct and unabridged as possible.

The complete letter is available here.

Tags: American Businesses, Annual General Meeting, Berkshire Hathaway, Brilliance, Brk, Business World, Cardiac Arrest, Charlie Munger, Competitive Dynamics, Competitors Battle, Dramatic Growth, Fallback Position, Gusher, Img Src, Kindness Of Strangers, Letter To Shareholders, liquidity, Nuggets, Openx, Profit Margins, Random Number, Supplicant, Television Sets, Warren Buffett
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How China’s Tightening Could Affect Other Currencies

Monday, February 15th, 2010

It is the Year of the Tiger and to celebrate, Chinese markets are closed for the entire week. Here in the U.S., markets are also closed in observation of Presidents Day. As a result, it is expected to be an exceedingly quite trading day, which gives us the opportunity to contemplate the recent actions by the Chinese government. Unlike the U.S. and other economies in Europe for example, growth in China has been piping hot. So hot that the Chinese government has felt compelled to step in and start tightening their economy in fear of developing an asset bubble. China’s economy is expected to grow by as much as 10 percent this year. On Friday, China’s central bank increased the reserve requirement ratio (RRR) of large commercial banks, which basically restricts the amount of money that these banks have available to lend to companies and individuals. This is the third action in 5 weeks and the second time that the PBOC has increased the RRR, which indicates how serious they are about cooling lending growth. Most articles written about these actions center on the consequences that it may have on the global economy. We all know that China is the dominant engine of growth for the world right now and a dramatic slowdown could cause economic unrest in many parts of the world. On Friday, we mentioned how this decision may be related to seasonal flows because the PBOC tends to increase liquidity ahead of the Chinese New Year and extract it shortly after. However given that loan growth failed to slow significantly after the first reserve requirement hike last month, they have felt the need to apply the brakes again sooner rather than later. Lending surged to 1.3 trillion Yuan in January while property prices rose to the highest level in 21 months.

It is no secret that China’s actions move markets and for the purposes of this article, we want to examine how the major currency pairs have traded after China’s prior announcements. This is an isolated sample set since we only have 2 prior and recent developments in China and there y have been other factors impacting the trend in the forex market. Nonetheless, it is still an interesting exercise to see how the dollar has traded since then against the major currencies so we can extrapolate how it could possibly trade following Friday’s announcement.

Based upon the following charts of the EUR/USD, USD/JPY and the AUD/USD, we can see that in all 3 cases, China’s announcement to increase their reserve requirement ratio on January 12th and reports that they have pressed some banks to restrict lending around January 20th have been followed by a wave of risk aversion that has taken all 3 currency pairs lower. This price action is not surprising considering that China’s decision to tighten their economy has negative implications for the global economy. Therefore barring any external factors, the latest announcement from China should have negative implications for the forex markets and keep pressure on the EUR/USD.

EUR/USD Daily Chart

USDJPY Daily Chart

AUDUSD Daily Chart

Tags: 21 Months, Amount Of Money, Chinese Government, Chinese Markets, Chinese New Year, Commercial Banks, Dramatic Slowdown, Economic Unrest, Global Economy, liquidity, Loan Growth, Major Currency Pairs, Move Markets, Pboc, Piping, Presidents Day, Rrr, S Central, Samp, Year Of The Tiger
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Technical Talk: Where Will the S&P 500 Find Support?

Tuesday, February 2nd, 2010

The comments below were provided by Kevin Lane of Fusion IQ.

As shown on the graph below, the last two weeks have seen the S&P 500 Index break its lower channel line (orange lines), intact since the March 2009 lows. Clearly the turndown is still well, well off the lows and thus we still believe this is a correction and not another major market implosion. While a minor bounce may occur after the last few days of selling, given the magnitude of the previous advance, a correction in the order of 8%-12% is likely. This correction would help wipe out some of the price excess and remaining bullishness.

That said, sentiment, which in our opinion has been the best way to call this market over the last six months, still remains far too skeptical and negative for this to be anything more than a correction. So, although the selling has been broad based of late and internals such as momentum and breadth have weakened slightly, they still appear to reflect correction conditions and not something greater. The question we are now trying to answer is where can the S&P 500 find some support and stabilize?

Unlike the previous six months where dips were bought, rallies are now being sold. With sellers more aggressive and buyer interest waning at these levels, we believe equity prices need to go lower before they ultimately go higher. There are two levels that are on our radar for potential support: 1,036, followed by 1,000. Both represent retracement levels from the previous up-move. The lower level in a perfect world would create a larger pool of negative sentiment (a bullish condition), a more favorable entry point from a valuation standpoint and give investors with sideline liquidity a new opportunity to buy into the market.

The one thing we continue to watch very closely is 30-year bond yields, which are just below a key multi-year downtrend line near 4.83 %. A move above that could cause more havoc for equities. Stay tuned for further updates. For now the defensive team remains on the field. We suggest during this period you honor your risk management plans as sometimes these corrections can be very painful for individual holdings.

Source: Kevin Lane, Fusion IQ, February 1, 2010.

Tags: Bond Yields, Breadth, Buyer Interest, Dips, Graph, Havoc, Implosion, Iq, liquidity, Lows, Magnitude, Momentum, Negative Sentiment, Orange Lines, Perfect World, Rallies, Sideline, Six Months, Standpoint, Turndown
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Technical Talk: Buying Power Argues for Contained Correction

Friday, January 29th, 2010

The comments below were provided by Kevin Lane of Fusion IQ.

As seen in the chart below, individual investor allocations to equities have only recently moved back above its 21-year mean allocation of 60%. The massive under-allocation to equities in late 2008 into the 2009 low was one of the major reasons we became so bullish on stocks since it suggested that selling was washed out of the market and massive liquidity (aka - buying power) was built up ready to buy back into stocks.

That said we have seen assets rotate back to equities over the last 10 months and the market, being a liquidity driven animal, has responded accordingly. Currently investors have only a slight overweight to equities at 4.0% above the 21-year mean or stated another way investors are now 64.0% allocated to equities versus the 21-year mean of 60.0%. This is one reason why we continue to believe that after a bit of a correction stocks can move higher as investor liquidity is not tapped out yet.

While not as ample as near the lows buying power remains adequate to power/move stocks higher and keep corrections fairly well contained.

Source: Kevin Lane, Fusion IQ, January 28, 2009.

Tags: 10 Months, Allocations, Assets, Fusion, Individual Investor, Investors, Iq, Kevin Lane, liquidity, Lows, Market Driven, Move Stocks, Overweight, Power Move
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Technical Talk: A Correction - not a Top

Thursday, January 28th, 2010

The comments below were provided by Kevin Lane of Fusion IQ.

A few days before the correction began, we stated:

“Now that said, can we have a correction of five to ten per cent? Of course!! However, we continue to find it hard to believe the ‘top’ is in play when everyone continues to call for it! After all, tops are formed when everyone becomes so comfortable with stocks they invest all their available liquidity without hesitation or a care in the world. And clearly that is not the current sentiment.”

We further stated, “Again it is very likely we will have some semblance of a decent size pullback soon, seeing the S&P 500 has run up 10% from just November 2009, 31% since July 2009 and 64% from the March 2009 lows.”

However, do we think a major top is in? The answer again remains no.

But regarding the protection of capital from a drawdown or the risk of putting new money to work today, a different answer is required. The answer in this scenario is the run-up in equities puts investors at risk to a correction, not a top, but a correction. Our guess is that the correction would be similar in size and scope to the June/July 2009 correction that saw the S&P fall 9.0%.

All that said, we still believe this is a correction. Corrections tend to be fast and furious and down 5+% on the S&P 500 in five days would meet the definition of fast and furious. We do believe this corrective wave will go lower still, likely another 5% before we see a more sustainable bounce.

At this stage we are of the opinion that stop losses should be honoured and risk disciplines adhered to as corrections (even though they may not be tops) can be very painful if one just watches like a dear in the headlights. A 10% correction would take the S&P 500 down to its first Fibonacci retracement (support) level near 1,035. Near that level we would expect the market to stabilise.

Our faith that this is not a major top lies in several observations: First, many industry groups still remain in positive price trends (even with the current sell-off taken into account). Second, sentiment remains too negative and disaffectionate towards stocks for this to be a top. Tops are formed on excessive optimism, complacency and a lust for stocks (none which presently exists). Last but not least, investor liquidity remains more than adequate as most asset allocation surveys still have equities underweight relative to their historical norms.

So for now the tape remains defensive and the sellers for the first time in a while are in control of that tape. While this condition exists it will be hard to see anything but shallow bounces.

However, at lower levels we believe buyers will re-emerge. When they do, along with the negative sentiment and trading strategies that are currently in place, equities are likely to surge once more.

Source: Kevin Lane, Fusion IQ, January 27, 2010.

Tags: Amp, Corrective Wave, Dear In The Headlights, Decent Size, Disciplines, Drawdown, Few Days, Fibonacci Retracement, Guess, Hesitation, Indu, Iq, liquidity, Losses, Lows, New Money, Pullback, Scope, Semblance, Sentiment
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China Holds the Trump Card?

Monday, January 25th, 2010

China is trouncing its economic competition when it comes to manufacturing exports. In 2008, China decided to hitch its trailer to the U.S. dollar, fixing its exchange rate at 6.83 yuan. This was a wise move on China’s part considering at the time, its export sector got destroyed by the global credit meltdown, and the shipping business all but died, following the bust at Lehman Brothers.

At the same time, China embarked on a bold $586-billion (U.S.) stimulus in the fourth quarter of 2008 to spend its way domestically out of the credit crisis, and loosened bank lending (which added $1.3-trillion in new domestic bank credit). This initiative on its part meant that China was able to stockpile cheaper commodities, buying them ahead of demand, and pump liquidity into its real estate and equity markets, while waiting patiently for its coveted export sector to return to prominence.

Read the whole article…

Pierre Daillie, (AdvisorAnalyst.com), GlobeAdvisor.com, January 25, 2010.

Tags: Bust, China, Commodities, Credit Crisis, Economic Competition, Emerging Markets, Exchange Rate, Export Sector, Fourth Quarter, Global Credit, Globeadvisor, Initiative, Lehman Brothers, liquidity, Meltdown, Prominence, Shipping Business, Stimulus, Time China, Trillion, Trump Card, Wise Move, Yuan
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Keep Your Eyes on the Yield Curve

Thursday, December 24th, 2009

Stocks are trading at or close to 2009 highs, being helped along by a record steepening of the yield curve. Put simply, on Tuesday the gap between 10- and 2-year US government bond yields hit its widest spread ever – 286 basis points, beating last week’s 276 basis points and the previous record set in August 2003 of 274 basis points.

From across the pond, David Fuller (Fullermoney) said: “Veteran subscribers will recall a remark often used on this site [Fullermoney]: Bull markets do not die of old age - to which I will add warnings by Roubiniesque economists. Instead, they are assassinated - usually by central banks. So how many rate bullets does it take to fell a bull? You may not be surprised to hear that there is no precise answer, because it depends mainly on sentiment and liquidity. We know when central banks start to reduce liquidity, or at least increase its price, but we do not know precisely when that will affect sentiment adversely.

“Note the still widening spread between US 10-year yields over 2-year yields, otherwise known as the yield curve, on this historical. It is still rising, indicating to me that quantitative easing continues. The time to start thinking about closing long portfolios in anticipation of the next bear market, I suggest, will be when the yield curve next inverts by moving below zero. However, the lead was so early last time (early 2006) that some of us became complacent about it.”

Source: Fullermoney

Tags: Anticipation, Basis Points, Bear Market, Bond Yields, Bull Markets, Bullets, Central Banks, David Fuller, Economists, Fullermoney, Gap, Government Bond, Inverts, Last Time, liquidity, Portfolios, Precise Answer, Quantitative Easing, Sentiment, Yield Curve
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The Fed Agenda

Tuesday, December 22nd, 2009

In this video clip, CNBC’s Steve Liesman talks to Chicago Federal Reserve President Charlie Evans. This is an excellent interview about the Fed’s policies and preparedness for withdrawing liquidity from the economy.

Source: CNBC, December 21, 2009 (hat tip: Paul Sandison).

Tags: Advertisement, Agenda, Cnbc, Economy, Federal Reserve, Hat Tip, liquidity, Preparedness, Steve Liesman, Video Clip
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Technical Talk: Sentiment Still Not Overly Bullish

Thursday, December 17th, 2009

The comments below were provided by Kevin Lane of Fusion IQ.

As seen in the graphs below, sentiment is still not overly bullish. While sentiment remains more neutral than bullish we expect prices to keep working higher (and corrections to be shallow) as it suggests investors still have more sideline liquidity available to purchase equities.

Source: Kevin Lane, Fusion IQ, December 15, 2009.

Tags: Fusion, Graphs, Investors, Iq, Kevin Lane, liquidity, Sentiment
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Richard Russell: 6 Reasons to Invest in Gold

Friday, November 13th, 2009

The paragraphs below are excerpts from Richard Russell’s latest Dow Theory Letters, arguing the case for gold bullion.

“Today I ask myself, where would I rather have my subscribers be - loaded up in the Dow Jones Industrial Average or loaded up with gold?. And in all honesty, I believe they are better off in gold than in the stock market with DIA.

“There are a number of items favoring higher gold now.

(1) Interest rates are at zero, which means the ‘opportunity cost’ of owning gold now is highly favorable. You sacrifice no yield in owning gold vs. Treasury bills. T-bills pay you nothing, so you might as well have your money in gold.

(2) The Bernanke Fed will evidently stop at nothing in its all-out attempt to ‘jump start’ the wobbly US economy. This means spending and building debt at a never-seen-before rate. This will result in inflation. The Fed can create fiat money - any quantity at will, but it cannot direct where that money will go. So far, the money is not going into the economy, banks remain reluctant to lend and consumers are reluctant to spend. The newly-created money has been going into bank reserves and into the stock market. Stocks have been rising on an ocean of liquidity. The sinking dollar has been a huge help to the big Dow-type stocks which benefit from their ability to export. This is resulting in world-wide central bank inflation as the banks seek to devalue their money in an effort to keep the dollar strong.

(3) The world’s central banks are now seeking to protect themselves from a falling dollar by buying gold. After years of selling gold, ironically, the central banks are now buying gold. In today’s Wall Street Journal we see the headline, ‘Central Banks Join A New Gold Rush’. This is indeed ironic. In swapping their own paper for gold, many central banks are admitting that gold is superior to the very paper they are creating out of thin air.

(4) Many nations are now seeking to boost the ratio of gold to paper in their reserves. The US has the largest ratio of gold to junk fiat paper, 77.4%. But the US stupidly only places the value of our gold at $42.22 an ounce. If the US marked our gold to market, it would be a tremendous help to our government’s balance sheet. But the US prefers to live in a fantasy world where gold is worth less than $50 an ounce!

Germany has 69.2% of its reserves in gold.
Italy has 66.6%.
France has 70.6%.
UK has 17.6% (after idiotically selling most of its gold near the low below $300 an ounce).

Japan has 2.3% of its reserves in gold.
India has 4.0%.
Russia has 4.3%.
China has 1.9%.

It’s easy to see that Russia, India and China are low on gold. All three would like to at least double the percentage of gold in their reserves. The race is on for these central banks to accumulate gold without running the price of gold sky-high.

(5) In the US, literally no one owns gold. Rather, US citizens are selling their gold (jewelry) to companies who are advertising that they’ll buy ‘your overpriced’ gold for cash.

(6) A few nations are actively promoting the ownership of gold. China, the world’s biggest miner of gold, has been encouraging its people to buy gold. In London, Harrod’s department store is now selling gold coins and bars to anyone who has the paper to buy gold. Within a year or so, I expect public buying of gold to reach a crescendo. Interestingly, most Americans have never seen a gold coin.”

Although gold certainly looks bullish on a medium- to longer-term horizon, one must be cognizant of the precious metal perhaps having risen too much too soon for the moment. David Fuller (Fullermoney) said: “On a very short-term technical basis, gold is temporarily overbought following its steady march higher ever since the market was surprised by India’s purchase. Today’s small key day reversal suggests that a pause and consolidation may now occur, possibly similar to the small reactions and trading ranges seen in September and October. However, we may also see a briefer and shallower consolidation, as is often the case when a trend becomes more widely recognised and therefore attracts participation.”

Sources: Richard Russell, Dow Theory Letters and David Fuller, Fullermoney, November 12, 2009.

Tags: Bank Reserves, Bernanke, Central Banks, China, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, Dow Stocks, Dow Theory Letters, Emerging Markets, Fiat Money, Gold, Gold Bullion, Gold Rush, India, liquidity, New Gold, Opportunity Cost, Richard Russell, S Central, Stock Market, T Bills, Thin Air, Treasury Bills, Wall Street Journal
Posted in Emerging Markets, Gold, India, Markets | 1 Comment »