This is not the Great DepressionWritten by Dock Treece | | firstname.lastname@example.org
After months and years of waiting, it appears that the pinnacle of this inflation cycle is finally about to arrive, and it’s coming with a vengeance. The January wholesale prices were released earlier this month, seeing their highest levels since July.
And right on cue, since the beginning of 2009 commodities seem to be resuming an upward trend — ahead of any other sector.
Many may have noticed that lately gold has made headlines as it continues to push higher against resistance at the $1,000 level. Recently gold has seen a surge in worldwide demand as investors flock to traditional safe havens and inflation-hedges.
Since touching $1,000, it has pulled back slightly in what we consider to be a healthy correction, while still maintaining its overall upward trend, and we are confident it will continue higher still due to continuing demand.
We also see developing a particularly interesting phenomenon in currency markets known as “competitive devaluations,” where every major country systematically reduces the value of its currency in order to increase the value of its exports in order to increase its GDP. While this means that currency exchange rates may fluctuate wildly, every major currency will ultimately lose value relative to hard assets like gold and natural resources. With this in mind, and also considering the geopolitical events occurring in the world today (Iran, North Korea, Israel, Greece, Russia), we remain confident that oil will follow gold significantly higher. In fact, in just the past week crude has begun to show elevated strength, due in part to unexpectedly lower inventory numbers.
Based on our analysis, these opportunities that we see in hard assets including gold and oil look the best going forward. While we know that so far this year news on the economy hasn’t been good, we talk to a lot of people and have lately seen significant evidence that a bottom seems to be building in the market. Even though lately the market seems to have started a building a base, this doesn’t mean that it can’t go lower. However, our belief that the market is at or near a long-term bottom has further contributed to our continued belief that oil is underpriced. We have reason to believe the negative news in the economy is being overplayed for political reasons and that once oil starts up it will be hard to stop. While it is unlikely that oil will be returning to $140/barrel anytime soon, $40/barrel is simply too low to sustain.
We have argued before, and we maintain that today’s economic conditions, however dire, aren’t unprecedented. Furthermore, this is not even close to being a repeat of the 1930s. If you think otherwise, take a half hour to speak with someone who grew up in that period and I assure you that you will experience a change in perspective.
As we have said before, there are many more similarities between this period and 1973-’74 or 1981-’82. This recession, despite the headlines, is about as bad as the recession of ’81-’82, while the socioeconomic and geopolitical similarities with the mid ’70s are striking.
Yet another aspect of this crisis that is surprisingly unoriginal is the number of fraud cases that are coming to light. Unfortunately these too, are not anything new. In every financial crisis over the last century, mistakes (both criminal and otherwise) that were covered during good times were often exposed on the way down. We are reminded of the saying by Will Rogers: “I am not so concerned with the return on capital as I am with the return of capital.” The wave of criminal cases emerging is precisely why we urge investors, clients or not, to work with advisors that never take physical possession of their assets, as this is the easiest way to protect against criminal wrongdoing. In light of recent market turmoil, we also suggest that investors give serious thought about where they go to have questions answered. In looking at financial professionals comparatively, give careful consideration to who conducts economic research and who relies on glossy paper.
Dock David Treece and Dock Treece are stockbrokers licensed with FINRA. They work for Treece Financial Services Corp., www.TreeceInvestments.com. The above information is the express opinions of Dock David Treece and Dock Treece and should not be used without outside verification. At the time this article was written, both Dock David Treece and Dock Treece owned interests in companies that produce both oil and precious metals, or service companies that do.