by Steve McDonald, Bond Strategist, The Oxford Club
Monday, May 14, 2012
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In focus this week: gold at $6,000 by 2015 and $2,100 by the end of this year, natural gas and oil producers, home builders are for real and the SITFA.
Jurg Keiner of Swiss Asia Capital Singapore said this week in a CNBC interview that gold could hit $2,100 this year and $6,000 by 2015, all due to money printing and more crises in banking and debt issues.
Keiner sighted the weakening of the western democracies and the inevitable money printing to try to spur growth that has to occur as the major reasons we will see a further run in gold.
The money printing will lead to weaker currencies, especially the dollar, which will further erode buying power, which is just another way of saying inflation.
Keiner described the dollar as being very weak and can only weaken further, which he says will add significantly to the gold trade. He sees no upside for the dollar and sighted the fact that the dollar has been unable to rally against the euro despite the horrible news that has been coming out of the EU for over a year.
The weak dollar combined with accelerated money printing is what Keiner believes will drive gold this year and for the next three.
Keiner said the big buy now is in the gold mining stocks. There are small miners trading at PEs of 2. That’s cheap!
Gold has and will continue to trade against the dollar and with inflation. Both look to be very good bets for the next few years. The recent sell-off is an opportunity.
Natural Gas and Energy
If you’re a regular viewer of this segment, the recent run-up in natural gas prices shouldn’t be a surprise. I’ve been talking about it here for the last few months.
Analysts I’ve been reading see $3 nat gas by the end of the summer and $6 by the end of the year.
Pushing prices now is the hope for a normal cooling season after a very warm winter, increased demand by LNG exporters, decreasing amounts of gas being injected into storage and increasing demand from electric utilities.
PIMCO, one of the best names in the industry, sees all gas and oil as the biggest plays in the market with huge upside.
They like pipelines, specifically Plains Pipeline, and other names we have heard before: Anadarko, EOG, Pioneer and Continental.
PIMCO is focusing on low cost-producing companies in the shale gas areas and describes what’s happening now in energy as revolutionary and is reshaping the whole U.S. economy.
According to Mark Keisel, manager of PIMCO’s five star-rated corporate bond fund, the United States could be energy independent in as little as 10 years.
The United States is currently the lowest-cost energy producer in the world. EOG, for example, can produce a barrel of oil for as little as $32 and sell it in the 90s and low 100s.
That’s how big the opportunities are in the current energy market. You have to be a part of this.
Natural gas and oil producers!
Here’s another industry I’ve been banging the table about for two years and it’s finally showing movement.
Recent numbers are pointing to a firm turn around in new home sales.
The S&P’s home builders’ index is up 43% this year and up a whopping 125% since the low last October. Home builders’ shares are 23% higher than last year and in the first quarter there were 337,000 homes sold compared to 299,000 last year. But the 337,000 number is below the same period for 2010, so there may still be reason for hesitation.
The Journal reported that the three large home builders, Beazer (NYSE: BZH), MDC Holdings (NYSE: MDC) and Standard Pacific (NYSE: SPF), reported selling 2,115 homes in the first quarter up from 1,556 last year and up form 1,912 in 2010. Net new orders were up, as well.
Share prices are up a lot, so look for some weakness before you jump in with both feet, but barring any serious dumping in the economic numbers, this industry should finally see a slow but solid climb out of the abyss.
And the SITFA
France gets the cheek smacker this week, again. They did in fact elect a socialist who says he will dump the plan to save the EU that Sarkozy struck with the Germans.
I’ve just returned from two weeks in France and had a front row seat for their presidential elections last Sunday. It was something to watch.
Based on the people I spoke to and what I saw at the Bastille, which was the gathering place for Hollande’s supporters, that’s the socialist who won, I wouldn’t bet on any real improvement in the EU situation, at least not from France’s end.
But the Journal’s Joseph Joffe thinks otherwise.
He said watch the new French president in the coming weeks. He’s betting he will take a page out of “Casablanca” and sputter: “I am shocked, shocked to find out about the mess Mr. Sarkozy has left.” Then he will blame Mrs. Merkel’s brutishness for forcing him to deliver a “blood, toil, tears and sweat” speech in which he breaks all his campaign promises.
Sounds like the “Blame Bush” strategy our own president has been using, hmm?
And Joffe’s position is consistent with a conversation I had the night before the election with two bankers from Society Generale.
First off, they were bankers who described themselves as socialists. How do you work in investment banking and claim to be a socialist? I’m stumped!
But here’s the killer. Both of these bankers agreed that Hollande’s ideas are too far left for France’s current situation, but they believed his ministers would force the reality of France’s situation into his decision making.
My question for them and Joffe from the Journal, what if they don’t? What happens if this life long, committed socialist runs amok and forces more spending and government hiring?
Stay tuned. It looks like the next few years are going to be a real hoot.Gold Mining Stocks: A Screaming Buy?,