The mid-term elections are over. As predicted, the Republicans took over the House. It’s no surprise that the markets are rallying stronger than they have ever been in the last two years.
Job numbers in the US are looking better and supports that a double dip is no longer in the picture. The Bush tax cuts are going to be extended. And the Bernanke crew is about to pump another trillion dollars into our markets.
The Federal Open Market Committee (FOMC) now intends to buy $600 billion of longer-term Treasuries through the end of the second quarter of 2011. It also plans to continue reinvesting principal payments from its current securities holdings, resulting in a package that could total $900 billion.
This near trillion dollar stimulus is the central bank’s latest attempt at lowering interest rates and creating inflation in order to bolster the country’s sluggish economy.
So while many believe this is detrimental to the US in the long term and devaluing the Greenback (which it is), we couldn’t be happier.
You see, two of the most important factors that causes a rise in the price of commodities has occurred again, and in full force: Inducing inflation and printing money.
The Number One Asset Class
The announcement by the FOMC not only sent the S&P/TSX composite back to the levels right before the collapse of Lehman Brothers, but it sent practically every commodity’s price up. Oil, gas, coffee, wheat, sugar, soybeans, lumber, oat, rice, copper, gold, and our favourite commodity of this year, silver (see newsletter), have all been climbing since the new trillion dollar plan.
With real estate in the US in shambles (see Get Ready for Another US Scandal) and overpriced in Canada, commodities are now the number one asset class to provide a hedge against future inflation.
For all of those contrarian gold and silver investors who continue to say that precious metals will not continue its climb, gold is now almost at $1400/oz and silver is about to crack the $27/oz barrier. Still need more evidence to change your mind?
Even Bernanke admits that commodity prices are rising and will continue to rise due to emerging markets with big players like China. While the stock market is a zero-sum game, the global economy is not and Bernanke and the US hopes that these markets do well, saying, “There’s no doubt a healthy Chinese economy is a good thing for the United States.”
China continues to push out numbers that show they’re not slowing down. The HSBC China manufacturing PMI (purchasing managers’ index) from this past Monday, made one of the biggest month-on-month rises since the data began back in 2004.
When you think of China, you immediately think of commodity prices and the PMI for China is the most closely followed index for its ability to judge metals and commodity prices. A strong Chinese PMI generally adds to a continued commodities bull market.
The Big Bang
The events of this past week is making our prediction of a strong junior resource sector bull market come true (see The Next Big Boom). The stocks in our Equedia portfolio have been flying. Minco Silver (TSX: MSV) shot past $5 this past week – a near double for those involved since our first Special Report Edition on the Company (see Brink of Milestone).
The fact is, Bernanke and the US government is spending to stimulate the stock market. They know that higher stock prices will encourage people to spend more and businesses to invest more. Combine that with low interest rates and a weak Greenback that makes U.S. exports more attractive to foreigners, they’re spending to rebuild the US.
Whether they are doing it the right way or not, it doesn’t matter.
Like it or not, capital markets exists so that investors can create capital for corporations. The lowered interest rates and higher equity prices as a result of stimulus, quantitative easing, government spending, or whatever you want to call it, ultimately generates more capital for corporate investments which leads to economic growth through job creation and innovation.
Real estate won’t get us out of this jam like it did in 2005…the stock market will.
As Mr. Bernanke said himself, “This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth…”
We can’t predict the future, but we do know the US won’t let the world see the trillions of dollars in stimulus go to waste. That means they’re not going to let the markets fall and will do whatever they can to protect it. They proved it again this week.
There’s no arguing that the stock market is the modern way of life for our global economy. If the N. American stock market collapses again, it means the US has failed.
The US won’t let that happen.
So is the stock market overvalued? Maybe. But that doesn’t mean it’s a bad thing.
While we have been investing heavily in the junior resource space and have made some incredibly happy profits with companies featured in our Special Report Editions, we’re not going to let this commodities boom go by without doubling down.
We may sound like a broken record, but we have entered the stages of an amazing bull market run for the junior resource sector (see The Breakout).
Companies featured in our Special Report Editions have all hit new 52-week highs and increased dramatically in trading volume since our coverage.
We’re going to be aggressively looking for more winners to add to our portfolio and introduce them to you as we find them.
If you know of a company we should look at, let us know by emailing us with the name of the company and why we should feature them. You can email us at firstname.lastname@example.org with the subject line, “Junior Resource Candidate.”
Public Company Inquiries
Better yet, if you’re part of a junior company in the resource sector and feel that your company should be featured in our next Special Edition Report, let us know by emailing us at email@example.com with subject line: Special Report Edition Inquiry.
You can also call us at 1-888-EQUEDIA.
In addition, we will be attending the San Francisco Hard Assets Conference in a few weeks and we’d love to meet your team and hear your story. This conference is a great time for us to meet with your management so that we can better understand your story to see if it fits our investment criteria.
*please note that due to the high number of emails we receive and inquiries from public companies, it may take time for us to respond.
If you’re an investor, the next 12 months has the potential to yield some very significant results.
If you’re a public company, there’s no better time than now to tell your story.
The Time is Now
Institutions and funds that were once sitting on the sidelines (The Retail Advantage), are now coming back into the markets (see The Next Big Boom). As mentioned in past newsletters, when this happens, the junior resource sector will thrive and we will see a strong junior bull market.
Get ready, money is on its way…
Until next time,
Managing Director, Equedia Weekly
Equedia Network Corporation
Call Us Toll Free: 1-888-EQUEDIA (378-3342)
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