The rebound of risk assets occured last week. High yield credit spreads start to fall. It is not back to normal levels but the trend has just been broken. I am loading up on BNP Russia / Blackrock Emerging Europe, Aberdeen Indonesia and Templeton Latin American funds. I'm also loading up on commodity funds like DB Platinum Agriculture, Barclays Commodities.
As for gold, I think the headwinds are increasingly stronger. The end of QE2 meant that USD may rebound and inflationary pressure may ease for 6 months. at least. Gold may fall to USD1450/oz before being supported. The factors that continue to support gold prices are: central banks buying, debasing of EUR and USD, negative interest rates in the west. Gold may hover between 1450 - 1550 for another 1 month before shooting up to 1650 by the end of 2011. It may even reach 1750 by mid 2012 until the US Fed starts to hike rates. Then it will hover between 1750 - 1600 for a while because western governments will start to address inflation. The final stage is towards the second half of 2012 when inflation starts to spiral despite the rate hikes. Gold will muster a final push to 1850 before it peaks. In 2013, as the global economy slows rapidly, gold will fall around 30% quickly. It could reach 1200 - 1300 oz .
I expect the global economy to peak at the end of 2012 because of the chronically weak economy in the US. Stocks will peak by the middle of 2012. Consumers who have been saving too little and spending too much for the last 3 decades will continue to deleverage. The EU will be in an even worse state because one of the PIIGS countries will default. I have not even mentioned Belgium as the possibility but it is financially stressed as well. Greece will plunge deeper into recession due to the austerity measures that does nothing to reform the economy.
The BRIIC countries' consumption cannot cover the gap left behind by EU and the US. China may have a hard landing. So much of its economy is based on infrastructure spending that is unnecessary. 30% of the banks' loans may turn bad because they lent to provincial governments who use it to pun stocks, line the officials' pockets and invest in real estate. If the Chinese stop or slow down in their building of infrastructure and at the same time the western economies do not recover, China's GDP may hit 5%. China needs 8% GDP growth to maintain unemployment at around 5 - 10%. A 5% growth is disastrous.
The recession in 2013 will be almost as bad as 2008's. This time, it may last longer because inflation may chronically hit 3 - 4% in the US and the EU. The 2 largest economies will not have the option of embarking in QE to pull themselves out. We could see a shallower recession but a longer lasting one.
2013 - 2015 will be a transition period where the western countries cut back on spending and the emerging countries struggle to fill the gap in consumption. It will be a fantastic opportunity for me and my followers to bring in more wealth. Every 5 years there is a massive wealth transfer from the ignorant and unfortunate to the intelligent and fortunate. Stick with me.
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