Tuesday, May 19, 2009

Market Puts on Inflation Trade Because of Mumbai Mamba

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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If you were watching the U.S. market this morning, you saw sudden moves up in natural resource stocks, materials, and commodities. Emerging markets are the key to global demand for materials and the meltup in the Indian stock market is bullish for this sector as well as the usual inflation hedges gold and silver. While one mainstream stock market 'expert' after another has continually warned about the punk U.S. economy and encouraged bearishness on the part of investors, the New York Investing meetup has been telling the public that commodities bottomed this winter and to get in on the action. The place to watch isn't the U.S or Europe, it's the developing economies and unless you keep your eye on the right ball, you'll never make any money in the markets (and the mainstream press will be there to insure you don't).

The Sensex in Mumbai opened up another 3% last night and after a volatile session managed to close up with a slight gain after more than a 17% rise the day before. Along with China and Brazil, India is one of the major growth stories of the world. Currently, it's use of natural resources is minuscule compared to the U.S., per capital oil consumption was only one twenty-fifth of the U.S. as recently as 2005. Like China, oil use in India is growing rapidly and has plenty of room for expansion for many, many years. India is the world leader in the use of one commodity however - gold. It is estimated that Indian consumers hold 20% of all the world's gold, putting the world's central banks to shame. Gold is the traditional form of savings there as it is in a number of developing countries. Will a richer India buy even more gold? If so, how much will this effect gold's price?

The one exception to bullishness from India showing up in hard asset stocks today is oil. Oil is struggling to get above its $60 a barrel resistance (it was as high as $60.99 in London before U.S. trading began, but fell back to the 59 level after our markets opened). I have no doubts it will break 60 soon, on its way to 70. The Memorial Day holiday in late May to Independence Day in early July is a particularly bullish one for oil. The manipulation of oil news (mentioned many times in this blog) also seems to know no bounds. What is happening in Nigeria is much worse than most mainstream media reports indicate. Why is the bad news being under reported? News reports last week were filled with bearish prognostications for oil as well, even though the weekly storage report indicated a major drop in oil on hand.

Gold and silver were weak on the open this morning, but turned around shortly thereafter. It is only a matter of time before they have significant breakouts. I was quite amused when I read a report this morning from an 'expert' who was warning that prices in the U.S. could double in the next decade. We will be lucky if they don't double in some 10 month periods in the next decade, let alone in 10 years.

NEXT: More Oil Disappears; Gold Investment Demand Skyrockets

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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