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Rothman Securities Inc. -Special Report (October 4, 2010)
As the world is still going through uncertain times, investors are strongly focusing on commodities this year, regardless of what commodity it is.
This is really brought on by the weak dollar and just generally kind of lackluster conditions in the US and Europe.
It’s obviously noted that oil is priced in dollars and OPEC decided a few months ago to not make any changes in its output, which means the dollar will only fall to a point, but we’d caution that the US Federal Reserve is again talking about "quantitative easing" _ which is simply fancy central bankers' jargon for printing more money.
We don't believe that's a good idea, we really don't believe that is the solution in US.
Although markets seem to have recovered recently with the Dow Jones charging ahead on a bull run, it is worthy to point out that just four weeks ago the sentiment was extremely negative. We don't believe there is going to be a double-dip recession, although that was very nearly the case a few weeks ago. However, we think this was due mostly to what the market commentators were saying, and not necessarily what the market makers were doing.
These factors have led to investors turning their attention to commodities this year, especially as they eye the huge demand in China and India for more products regardless of what they are.
Let’s look at cotton for example, last month, for the first time since 1995, it went over $1 a pound [.45kg] because there is demand for cotton in India and China. And one of the big producers of cotton is Pakistan, but with all the flooding in Pakistan it completely ruined the cotton harvest.
And as cotton is only harvested once a year, so what have certain hedge funds been doing in the last month? Buying cotton. And what has that done? Pushed the price of cotton up.
All types of commodities are in demand in the Asian emerging markets, whether it be precious metals or basic metals such as copper for semi-conductors produced in China.
Investors also feel reassured that the commodities they are investing in are tangible assets and not intangible ones, such as sophisticated investment paper. It is also true that some commodities are only produced in certain countries and, when it comes to agricultural goods, they are affected by the weather.
For example, Russia which is the world's largest supplier of wheat, announced last month after being heavily hit by storms and flooding that it was not going to export grain until the situation is resolved.
It wasn't the economic climate that caused that, it was the weather. Nevertheless, it pushes the price of grain up. So we think there are a lot of components. But if a commodity becomes scarce and it is a tangible commodity then the price must go up. It also becomes more difficult to price a product is when you have certain hedge funds buying that product to deliberately push the price up.
For the next six months or so having exposure to commodities is going to be a good thing, and as we always say, gold is also a good investment.
There are "physical" gold funds in the market, as well as the derivatives and futures varieties, and that there is not enough gold in the world to cover all the investments.
If you sold all the money in gold funds today you couldn't buy that much gold, there isn't enough gold to supply. Now with physical gold that couldn't happen, could it? Because in that case you are buying physical gold. But the biggest gold fund in the world is not a physical gold fund, it's a derivatives gold fund."
We predict that with the continuing weak dollar people would keep buying gold and it could reach $1,500 an ounce by the new year.
Gold hasn't finished its growth. Whether or not it goes to $1,500, it's still a good place to hold part of your portfolio. One has to look at the situation. Cash is getting virtually no return on investment. If you have money in a bank account, whether you are in the West or whether you are in the East, you are getting 1% or 2% or you are getting nothing.
So on that basis, why wouldn't you move some of that money into a secure commodity such as gold, or other commodities?
A lot of people are starting to understand gold as an alternative not just to a weak dollar but also to cash, because even if they make just 5, 6 or 7%, that's still more than if they were holding cash.
We think Southeast Asia is a good place to be, investment-wise, in the next 12 months. Specifically we think Indonesia is certainly a place that is going to continue to grow. As perhaps China, Singapore and Hong Kong flatten out, I think you are going to see emerging Asian countries such as Taiwan and Indonesia becoming good places to be, along with Thailand.
Though Thailand has already had an exceedingly good run in the markets and one has to say the Thai market is probably due for a correction soon.
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Since 1990, Rothman Securities Inc. has guided traders worldwide to achieve their goals in the futures, commodities, metals, currencies, energies and forex markets. Custom services for all levels of traders