I like no-fat eggnog with lots of Barbados Rum. It makes me reflect on the curiosities of the market and the world in general. Three beakers of this and I realize that never in my lifetime has the world been more interesting. Nor has this eggnog been more delicious or potent.
When you get old like me you realize that every market indicator is wrong at some point and usually at an important turning point. The bulls of the bullish sentiment you refer to are correct right now, I think. It is time to be very bullish as there’s a period of growth coming that is going to shock people.
If we are going to be wrong about anything it will be probably be underestimating the Chinese factor and its effect on the demand for basic raw materials. You see, they are trying something novel in a communist economy-like trying to move 700 million people from poverty. This is even a novel idea in a country that has a middle class but there are things that get in the way of moving people through the society’s strata, such as the Catholic Church, who try to maintain power by the order of poverty, thus ordered and stagnant, not explosive. Not China, apparently. We are at the explosive stage and will be for some time as the next leg of world trade is about to kick in. The Muslim world may not want to participate, at its peril.
I was in a store in Dublin recently and things were busy. Was it low interest rates? I leaned up against a new refrigerator (I was buying for my inherited cottage) and realized that it wasn’t steel but plastic. I looked around and all the consumer durables were steel and plastic their utility beautifully hidden by the packaging.
If China forces its poor to get rich, where is all that steel and oil going to come from? And, where is the source of the supply of copper for the cars and electric stuff? Where is that going to come from and how is the level of supply going to be increased? If the demand is there won’t that create a lot of basic industrial activity and maybe even a huge number of manufacturing jobs everywhere? And if the demand is there, won’t that create a capital investment boom? Is this a period of basic industrial growth, perhaps? Money with a big multiplier?
Did you read the article that allows Chinese banks to charge more for interest on loans? That move means an incredible increase in the access to capital for investment purposes to companies that didn’t qualify earlier. The government is telling the banks to take more risk to accelerate growth. More risk capital usually means more creativity and lower costs by way of the increase in productivity. This is very bullish for the Chinese case for growth. They are serious about reducing poverty levels for their people. That’s why I’m bullish as the communist government is subsidizing the growth, possibility as a means to maintain its power. But so what of its politics? Being richer is good and being out of poverty is better.
Will it be good for gold? Maybe not for now, so the secular rise of all the juniors may be at hiatus and the ones to focus on are the ones with discovery potential, firstly and then the deposit rich companies. The major gold producers have a huge reserve replacement problem, which is also converging at this time.
An industrial boom for the USA is good for the dollar and the trade balance. So, the dollar gold equation may change or flatten here and other basic commodities and the related stocks may out perform gold and its equities for the next while, in my view. Banks, however, are poised for major growth as loan demand is going to explode and then inflation and then gold and then…so, overweight banks, oil, lumber, nickel, and the copper part of your portfolio and maybe steels?
Maybe we are too focused on the terrorist stuff distracting the brain from what’s happening. Travel if you can. It is busy out there. Oh, and one more thing. The real estate crash is a figment of sensationalist market journalism. It has no basis in fact because there’s no scenario that I can believe that gets interest rates to double digits.
People want to be out of poverty and leaders, whatever they are called, do this. That is the bullish case and I’m onside with it. |
