ASSET CLASSES IN 2011

Asset classes like precious metals, base metals, agricultural commodities, stock market, real estate and others; the performance of each asset classes will be directly linked to the movement of US dollar currency. Stock Markets and Real Estate always have their merit of their own to determine the realistic price level, whereas hard and soft commodities are strongly correlated to money supply. It is the same situation where we experienced it from 1967 to 1980. The world economy is linked to US economy where it has the maximum say in world money supply since US dollar is the most adopted currency by major counties in the world. Since last few years, say 7 years earlier to 2011, US adopted the strategy of money printing of US dollar for financing to fill up the gap of fiscal deficit. One way or the other US government is increasing money supply by the means of quantitative easing and money printing which leads to inflation across the world. When the fundamentals of US economy is weak so the money will flow to some real assets like gold, silver, copper, crude oil, sugar, rice etc. The real crack in the US economy is due to collapse of real estate and further results into sub-prime mortgage crisis. So money moving towards real estate within USA seems bleak and stock market shall underperform from its peak made as the real economy is weak. Choice left for investors and money managers is to invest in assets like treasury bonds, commodities and emerging stock markets. Eventually, increase of money supply leads higher prices of assets which lead to a bubble level, then another crisis. The upward rally in emerging stock markets from 2008 to 2009 gave high returns in short span of within 12 months, as on last week of October’09, where the returns are approximately 90 to 110% across all emerging markets like Brazil, China, Taiwan, India, Hong Kong, Singapore and few more countries. China, Hong Kong, Singapore, Brazil and India gave almost 100% returns within 5 months whereas Shanghai Composite (China) fell sharply by 25% during the month of August’09. After the long consolidation of 9 to 12 months, some of the emerging markets rallied further inching towards all time high. US and other European markets are currently outperforming other stock markets of the world where they are in 3rd intermediate upward wave and which could be the final up wave of primary downward trend. DJIA should peak out in near future and should complete at upward rally at 13000 to 13500 levels. In 2011, emerging markets could witness a correction between 15 to 20% and at the same time till early February’11 gold and silver corrected their respective rise. Gold has behaved as per the expectation of our earlier article where it breached upwards at 1030 and achieved out target set for 1450 in November’10. US Dollar Index also behaved as per our expectations and it never crossed around 89 levels, since the bottom out as on June’08. The year 2011 shall be the year of volatility and mixed trend in all asset classes where precious metals, base metals, agricultural commodities should give exceedingly good returns and simultaneously US Dollar Index should end the year with negative returns and developed stock markets should end up with almost no returns. Commodities should see a build up of early bubble

in the year 2011. Gold and silver shall lead the rally followed by copper, crude oil and other base metals. Crisis in Europe will also add money supply because Euro currency money printing is resort to finance the European PIIGS (Portugal, Ireland, Italy, Greece and Spain) nations. Eventually all bull markets have to end after the bubble so will be the case with commodities which happened twice in last century. The current financial year shall be with flush of money and limited opportunities which results into inflating commodity prices, eventually leading to hyper inflation in most of the economies of the world, hence revolution in many countries just like Egypt, Algeria, Tunisia, Jordan, Ivory Coast and others. Hyper inflation shall bring unrest in many countries where current rulers shall be toppled down either by force or voting out in democracy. Situation will be vulnerable where adverse news shall keep on flowing during the year as well as bull-run in commodities. Such result is only due to failure of US economy and devaluation of US Dollar. In such a situation, rich can hedge or may become richer while poor shall have no option but to struggle and perish. Coming 2 to 3 years would bring more political crisis, geo-political problems would arise, high interest rates, collapse of US treasury bonds, burst of real estate bubble in China, nation debt crisis, may be war and any other new crisis in a form which shall emerge as the time shall pass. In scenario like this once again safe haven is Gold and other physical hard assets. Technically speaking: Dow Jones Industrial Average (DJIA) Current Level 12250 DJIA has broken all the major resistances and it could surprise by going upto 13500 thereafter it could fall upto 10200. It is passing the stage of third intermediate wave of long bear market. Buy is recommended with medium term target is at 13500. Straits Times Index (STI) Current Level 3100 STI moved up from the bottom of 1456 to 2810 where it corrected and consolidated for long period thereafter surging towards all time high. Sell is recommended at current level with fall of 10% from current level. Hang Sang Index (HSI) Current Level 23100 HSI moved up from the bottom of 11350 to 22250 where it has achieved our May’09 article which states 20800 levels. So index levels of 15600 become the strong support for HSI. Negative bias recommended at current level.

BSE Sensex (BSE) Current Level 17700 BSE moved up from the bottom of 8150 to 17400 and consolidated for a year between 15500 and 18000 thereafter it broke the major resistances and touched 21000. Buy is recommended at current level with major support at around 16000 levels.

By Ankur Sharda
http://www.scribd.com/doc/6014281/A-Guide-For-Discerning-Investor

www.myspace.com/ankursharda