Nouriel Roubini, known by the investing world as Doctor Doom for his constant negative stance on US equities and the economy, recently pulled a 180. This past week, in a shocking change of heart, Roubini endorsed US stock markets, bonds and global stocks for the next 2 years.
Roubini, an economics professor at NYU, has become famous for his constant bearish outlook and ability to foresee economic contractions, including the US housing collapse 6 years ago.
Speaking at the Milken Institute Global Conference on Monday, April 30th, Roubini finally capitulated to the awesome power of the Federal Reserve and central banks around the world. Although bearish on equities and global economies for some time, he is now convinced central banks are powerful enough to keep the markets strong - at least for another 2 years.
As an example of the power of a central bank and complicit government, take one look at the Nikkei exchange in Japan which is up over 40% in 6 months (since new Prime Minister and stimulus crazed Shinzo Abe took power).
6 Month Chart of the Nikkei
image source: Yahoo Finance
Roubini's change of heart came 24 hours prior to Ben Bernanke reaffirming his stimulus program, effectively assuring the markets that the Fed remains committed to low interest rates and massive, monthly bond and mortgage buying programs. US equities broke out to an all-time high on Thursday, the day after Bernanke's comments.
However, in his bullish comments, Roubini included one caveat by noting, "At some point, there's a levitational problem."
Roubini believes that when global stimulus and easing runs out of influence (likely a couple years down the road), a recession is probable, with the possibility of a depression. When slowing global growth eventually overruns policy makers, "The global growth scare would imply that commodity prices should be lower, bond yields should be lower, and equities should be lower," exclaimed Roubini.
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Stay Nimble
Despite mixed economic data surfacing, including the fewest private sector jobs created last month since September of 2012, US equities continue to trade at or within striking distance of all-time nominal highs.
Given the current economic environment, a higher degree of awareness and agility needs to be honed by the investor.
Global economies have not been responding as well as expected to unprecedented monetary stimulus and the lowest interest rates in history. While stock markets have benefited from the stimulus and printing programs, 'Main Street' and much of the economy has floundered. This has negatively impacted public perception of the Fed's power which, for Bernanke, is very worrisome.
The Gold Connection
Many believe gold is being manipulated or held down by government and central bank intervention.
However, despite a battered gold price in 2013, it continues to rebound from its incredible intra-day low of $1,322.06, hit in mid-April. Bull or bear, one critical fact which can't be argued is the record demand that seized gold's plunge as a great buying opportunity.
In mid-April, following gold's crash, Dubai's gold market experienced its best 10 days of trading in 12 years, with sales volume up three-fold.
Gold retailers in Dubai, one of the strongest gold consuming markets in the world, are paying record premiums to restock (click here for story).
HSBC's James Steel recently noted that, Indian retailers are now charging premiums of $8-10 per ounce over the international gold price, which can be attributed to the recent price drop coupled with buying ahead of the wedding and festival season.
In the US, consumers are buying gold at an alarming pace since its drop. U.S. Mint figures released May 1st show American Eagle gold coin sales hit a three-year high of 209,500 ounces in April, the highest since December 2009 sales of 231,500 ounces. This is compared to just 20,000 ounces sold in April 2012.
Are central banks buying gold?
We are likely to find out that central banks also took advantage of this most recent sell off and bought gold. According to the World Gold Council, in 2012, as many of us know, central banks added 534.6 tonnes of metal to their vaults. This is the highest figure since 1964. The WGC expects purchases of between 450 and 550 tonnes in 2013 (we believe the final figure will be closer to 600 tonnes).
More Expensive to Produce than Ever Before
As the cost of production continues to increase, erasing profit margins for the largest gold companies on earth, a substantial rise in the price of gold will likely occur. In the gold market today, we have increased demand, rising production costs and a falling price. That type of environment can't last and something has to give.
Gold will likely be revalued upwards to meet demand and to make it profitable for miners to produce. Either that or companies stop producing, resulting in a significant supply shortage and the price will then go through the roof.
Of the top 5 gold producers, on average, from Q3 2011 to Q3 2012 the most important financial and cost metrics have turned negative. Revenues are down, net income is way down, production is lower, margins have shrunken considerably and net production is off substantially.
Click chart to enlarge
image source: silverdoctors.com
Insider Buying on TSX Venture Hits All-Time Record
INK Research provides the Canadian Insider Alert (CIA) Interactive service, which is built on the legally reported buying and selling of Canadian public company executives and institutional investors.
It was reported on Wednesday, May 1st, that the 30-day Venture indicator is at 1,229% after reaching a record high on Monday of 1,305%.
What that means, is for every stock with insider selling, there are more than 10 stocks with key insider buying.
According to Mr. Ted Dixon, the CEO of INK Research, The INK Gold Stock Indicator - which tracks insider buying on all Canadian-listed gold stocks and is heavily influenced by junior miners, has now surpassed its March high and is over 1,000%.
He also added that such a high level of buying interest among officers and directors within their own businesses in the resource sector has correctly foreshadowed a recovery in share prices in the past. Click here for the full story.
All the best with your investments,
Kaiser describes the opportunity in this latest mining downturn and a new gold narrative expected to take hold by the end of 2013.
Click on the image below to listen to our exclusive interview.