 | |
| Leeb's Market Forecast | |
| April 1, 2008 | |
 | |
| Dear Investor, Market Update ------------------------------------- In this week's update... ***** Why slowing demand won't hurt the commodities bull. ***** House affordability grows . . . and recession seems ever more distant. ***** Our favorite long-term and short-term sectors remain so. ***** Good news for stocks over the next six months. ------------------------------------- This weekend's papers made for interesting reading. Our two favorite financial rags, Barron's and the Wall Street Journal, published articles with diametrically opposed takes on the commodities boom, a subject which we follow quite closely in TCI. The Barron's story took the position that the commodities boom was nothing but a bubble led by large and small speculators, and not by fundamentals. The biggest commodities speculators, according to Barron's, are the index funds. Therefore, the article predicts the bubble may burst to the degree of 30% or more. The opposite point of view was taken by an op. ed. piece in the Saturday WSJ, which features an interview with Marius Kloppers, the CEO of BHP Billiton -- one of the world's largest diversified natural resource companies. One would expect Kloppers, a Fulbright scholar, to know something about the commodities business, although not everyone agrees. BHP is attempting to acquire its rival, Rio Tinto, at the moment, and Kloppers has been accused by some of buying at the top of the market. During the interview, Kloppers was asked for his view on the weakeningU.S. economy and how it might affect China and the rest of the world's demand for commodities. He felt it could have an impact. However, he added that that the commodities uptrend is not primarily based on demand but is a supply side phenomenon. What's more, this is the first time the world has ever seen a commodities boom driven by supply shortfalls. Kloppers then gives several examples to back up his position. For instance, he notes that, in the face of economic weakness both in the U.S. and Europe, Brazil's giant iron ore company, Vale, recently negotiated a nearly 70% hike in the price of the iron ore it sells to China. How was it able to do so, despite the slowdown in demand? Because the world is facing shortages of the stuff. Returning to the Barron's article, something about its argument doesn't make sense. If there really was a bubble in commodities, then it would have been short-lived. Bubbles, by their nature, are self-destructive. Inflated prices, driven by speculators, lead to new levels of supply that far surpass demand. We saw that in the stock bubble of 2000-2 and more recently in home prices (more on that below). So where are the copious new supplies of commodities? Meanwhile, demand statistics back up Kloppers' argument. Over the past 10 years, the demand growth for certain commodities, such as oil, wheat, and sugar, has been less than in the previous decade. If supply growth had stayed the same or improved, the prices of these commodities should have plummeted. Yet the opposite has happened. Of course, demand plays a role in commodity prices, and there are plenty of commodities whose demand has risen strongly over the past ten years, creating a demand problem. But clearly, it is the supply shortfalls, not rampant speculation, that are driving up prices. If the index funds have had any effect, it should have been a beneficial one. For if oil prices had gotten ahead of themselves (very doubtful), then they should have encouraged the development of greater supplies that eventually lead to lower oil prices. However, after ten years of sharply rising oil prices, supplies of oil are far from plentiful. We therefore remain convinced that commodity production shortfalls are the real cause of the boom, and will continue to drive prices higher. Turning now to our economy, we believe we see some light ahead of us. . . Advertisement Still A Few Spaces Left In The Special Live Teleconference. . . "Profiting from Today's Financial Crisis" Join Dr. Stephen Leeb, Dr. Patrick J. DeSouza, and Greg Dorsey, on April 10, 2008, at 5 PM, as they present timely information on some of the unique money-making opportunities available in today's market. In this 40-minute, live presentation, you'll discover...
As a special bonus, all attendees will receive a FREE 3-month introductory membership to Leeb's Aggressive Trader. To register, click on this link . . . ------------------------------------- THE HOUSING BUST MAY SOON BE OVER The slowing U.S economy has caused a lot of angst and fear that commodity prices are about to collapse. Yet, recent statistics suggests to us that the slowdown may be nearly over -- which is good news for many investments, commodities included. One such figure released last week (though underreported by the media) was a sharp jump in housing affordability. According to the National Association of Realtors, the house affordability index stands at 40, not far from a 10-year high. In fact, it's close to where it was in the early 1990s, when the market was pulling out of a major funk. We note that this figure was released before the recent sharp drop in housing prices. Therefore, we expect homes will become even more affordable in the months ahead, since home prices are coming down. Mortgage rates have already fallen 50 basis points and will likely fall further as the credit crunch winds down. And while the spread between mortgage rates and other interest rates remains huge, it is lessening and should continue to decline. That should make homes even more affordable. We pointed out last week that many housing stocks have risen sharply and are leading the market, which is the last thing we would expect if the housing crunch was deteriorating with no end in sight. Clearly, the end is in sight, so much so that real estate looks increasingly like a good investment opportunity. It may soon be time to begin scouting your neighborhood for the best deals. With houses becoming more affordable, you should keep in mind that real estate has the ability to retain its value despite rising inflation. Gold and other commodities may be better inflation hedges, but real estate can hold its own as well. Since we expect inflation to grow much higher in the future, real estate probably has a bright future. Home prices and the real estate industry are probable close to a bottom. And there's more good news. . . Advertisement A Trading Advisory Service For Active Investors Designed for well-capitalized investors with high risk tolerance seeking ... The potentially higher capital gains consistent with short-term trading. A better way to target sectors experiencing above average growth. A way to seek positive returns even in flat or sideways markets. Leeb's ETF Trader offers investors a sophisticated short-term trading strategy that is easy to follow, requires only a few minutes a week, and features on-going support from a team of professional analysts. Are You Ready For The Next Level Of Active Investing? ------------------------------------- LOOKS LIKE WE DODGED THE RECESSION BULLET The bottoming of real estate may be one reason why the major market indicators look pretty good right now. All three dials of our Recession Indicator remain in the green. Industrial commodity prices are near their highs. Unemployment insurance claims, while a little higher than in the past, are nowhere near recession levels. And the broad market made a terrific showing last week, outshining the major cap weighted averages. STAY THE COURSE -- THINGS ARE LOOKING UP As far as our view on stocks, we remain committed to the same positions, boring as they may seem. We expect long-term leadership will belong to the commodity sector, especially oil and gold. (Though in the near term, further volatility would not surprise us.) In the short-term, we wouldn't be surprised if financials stocks finally get their act together and stage a spiffy rally. Going into this week, things appear to be as cheerful as Spring flowers. The worst of the credit crunch may be over. If the stock market hasn't made a bottom, it looks to be in the process of doing so. The downside over the next six months is relatively small compared to the upside. This is a time to be bullish.
Until next week, If you cannot view this mailing click here. This email was sent to LEMMETRY@GMAIL.COM. You are receiving this email because you have requested a free subscription to Dr. Stephen Leeb's Market Forecast. Click here to be removed from this mailing list. Click here to be removed from all of our promotional offers. TCI Enterprises, LLC 500 5th Ave., 57th Floor New York, NY 10110 Disclaimer TCI Enterprises LLC, The Complete Investor, Emerging Investments, Leeb ETF Trader, Leeb IPO Insight, Leeb's Aggressive Trader and their affiliated companies and publications ("TCI" or "Letters" or "Publications") are not registered as a broker dealer or investment advisers with the U.S. Securities and Exchange Commission or any state securities authority. Letters and their information and content providers make no representations or warranties of any kind in connection with the subject matter, performance or the suitability of the information contained in publications for any purpose and are not liable for the timeliness, accuracy, or completeness of the information contained herein. The information contained in publications is provided for general informational purposes, and is not a substitute for obtaining professional advice from a qualified person, firm or corporation familiar with your personal circumstances. Please seek the advice of professionals, as appropriate, regarding the evaluations of any specific security, report, opinion, advice or other content. TCI is not responsible for any trades placed by the recipients of TCI based on the information included therein. There can be no assurance that your portfolio or positions can achieve the indicated performance and therefore, the sample performance information should not be relied upon. Investment recommendations are not intended to be construed to be personalized advice, or recommendations to buy, hold, or sell mentioned securities and readers should consider their personal situation before making any investment. All opinions expressed and information and data provided therein are subject to change without notice. TCI, its officers, directors, employees, and/or associated entities may have positions in and from time to time make purchases, or sales of the securities discussed or mentioned in TCI. TCI shall have no liability for any e-newsletter that is lost, intercepted or not received by you in a timely manner, or at all, for any reason.  |
