China Stocks, Gold and Commodities - Where to next? Answer Inside ...
Commodities / Resources Investing Nov 16, 2007 - 12:44 AM GMT
Larry Edelson writes: If you think you've seen high prices for gold, oil, or any other natural resource, think again.
In a minute I'll show you why natural resource prices have much more to go on the upside and why the most important driver behind them — Asia — does too.
But first, take a look at my table. It shows the performance of the 13 Asian and natural resource based stocks I mentioned here in Money and Markets in June 2006 .
As you can see, these markets have been red hot!
| Company | Symbol | Total Return (06/15/2006 - 11/13/2007) |
| Sinopec Shanghai | SHI | 45.0% |
| CNOOC, Ltd. | CEO | 122.6% |
| Petrochina | PTR | 93.3% |
| Santos Ltd. | STOSY | 38.6% |
| China Pet. & Chem. | SNP | 160.1% |
| Alumina Ltd. | AWC | 22.9% |
| Aluminum Corp. | ACH | 217.8% |
| Posco | PKX | 159.2% |
| Amcor Ltd. | AMCR | 23.1%* |
| Kubota Corp. | KUB | -12.8% |
| Korea Electric Power | KEP | 10.5% |
| Huaneng Power Intl. | HNP | 62.5% |
| Mitsui & Co. | MITSY | 70.5% |
| * - acquired on 6/15/07 | ||
I'm sure you want to know what to do now — both short-term and longer-term. So let's get to it ...
Expect a Pullback In the Short Term!
A normal pullback at this stage is healthy, even necessary. After all, we've just witnessed some of the wildest moves ever!
In just the past three months ...
- Oil has surged from $70.74 to as high as $98.62 — an amazing 39.4% gain!
- Gold has gone ballistic, jumping from $679.70 to its recent high of $848 — a stunning 24.7% gain!
- The Commodities Research Bureau (CRB Index), which covers 16 commodities, has leapt from 735.68 to as high as 863.92, a 17.4% move higher!
- China's Shanghai A index has rocketed higher, up over 92% so far this year!
Those are huge gains, all the way around. And while it's very difficult to pinpoint pullbacks, all of my indicators suggest one is starting now.
Gold appears to want to test support at the $800 level, perhaps even a tad lower.
Oil may push down to the $88 area.
When looking at the CRB Index, I see a decline to about the 790 — 801 level.
And China is going to let off some steam, likely declining as much as 25%, in a quick, sharp correction. The rest of Asia will likely follow suit.
Important note: I think U.S. stock markets will fall much more, because of the subprime mortgage crisis, and for the very real reason that the U.S. economy — unlike the rest of the word — is WEAK. My target on the Dow remains 11,800 for the decline.
So what should you do? Try to sidestep the pullback? Dump your Asian stocks? Sell your natural resource shares and take profits now? Go stand on the sidelines?
My answer: NOT ON YOUR LIFE!
Stick to Your Guns Because Any Pullback Will Be Very Short Lived ...
It's impossible to say for sure how long they'd last. But I wouldn't be surprised if they were over in a few weeks.
Very sharp corrections can be sudden, swift, and severe, but often serve as the foundation for the next leg up. That's how bull markets tend to act. They have a life of their own.
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| Bull markets will try to throw you, but that's when it's time to hang on tight! |
In fact, riding bull markets to glory isn't that much different than riding a real bull in a rodeo.In both cases, the bull wants to throw you off its back as quickly as possible!
If you let it buck you, not only will you get hurt, you're also not likely to get back on anytime soon.
Sure, there are times to get off the bull ... but this isn't one of them. Instead, you should hang on and ride out the violent bumps. Courage will pay off handsomely.
Remember, pullbacks are BUYING opportunities to add to your holdings and to pick up new positions!
Especially in this case, since ...
In the Longer Term, Natural Resources And Asian Shares Have Much More Upside
In past issues, I've shown you how the very weak U.S. dollar has much more to go on the downside, and how virtually all natural resources are actually UNDERPRICED based on inflation-adjusted dollars.
Look ...
- For gold to equal its 1980 high in today's dollars, it would have to soar to more than $2,200 an ounce.
- Platinum would have to spike to almost $3,000 an ounce.
- Sugar would have to multiply twenty times over and rocket to over $2.30 a pound.
I have no doubt whatsoever that we will eventually see every natural resource under the sun rise to its inflation-adjusted price level to compensate for the plunging value of the dollar.
According to my indicators, that also means the bull market in natural resources will be with us for AT LEAST ANOTHER FOUR YEARS and possibly much longer.
What about China, India, and other emerging economies? How much more upside do they have?
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| China's market could correct in the short term, but I see more upside ahead. |
In my opinion, a seismic economic shift is underway that will stun investors from Beijing to Baltimore.
Consider the following ...
In China, the market value of freely traded shares is $643 billion, just 20% of China's gross domestic product (GDP).
Compare that to the U.S. where the market cap of all stocks in the U.S. is a whopping 152% of GDP!
As you can see, China — and by definition pretty much the rest of Asia — has much more to go on the upside. And that fully supports my rationale that natural resources do, too.
As I've said all along, you have three billion new consumers in Asia — nearly half the world's population — modernizing and being ushered into free markets.
Here Are Three Steps to Consider Right Now ...
1. Stay out of the U.S. stock markets, except for my select natural resource stocks. The U.S. markets are the most vulnerable to the downside, in my opinion.
2. Avoid Treasury and corporate bonds. Bonds are sitting ducks, and the declining dollar only compounds the problem.
3. Hang on to your gold (and other natural resource positions)! On August 2, and again on September 6, I suggested you effectively DOUBLE your gold holdings. Today, gold is almost 20% higher!
Soon, I might even suggest adding more of the precious yellow metal because as I've told you many times before — the Fed is dead set on printing more funny money. That's another major reason to protect yourself with tangible, real assets that create real wealth!
Best wishes,
Larry
P.S. If you're interested in getting all of my recommendations as soon as I release them (including flash alerts), plus 12 monthly hard-hitting issues of Real Wealth Report that will keep you fully informed on the natural resource and international markets, subscribe now for just $99 a year .
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