For readers who have been following my forecasts this year, there wasn’t very much that came as a surprise.
But that doesn’t mean it was boring. Far from it. The profit opportunities made it one of the most exciting years I’ve seen since the late 1970s.
Throughout the year, I pounded my fist on the table on two major fronts.
First, I Unambiguously Declared
That U.S. Inflation Would Surge.
I told you that prices were rising despite the Fed’s so-called “vigilance” … despite spin-doctor reassurances from the government … and regardless of the soothing mantra of Wall Street economists.
End result: Consumer price inflation jumped by as much as 46% – from a 12-month rate of 2.97% at the beginning of 2005 to as high as 4.3% .
A 4.3% inflation rate is not yet crushing. But the rate of change should already be very alarming.
More important, the surge in inflation is hardly over: By this time next year, I expect the Consumer Price Index to be hopping along at nearly a 7% clip.
And that’s using the government’s understated measure of inflation! We know it’s understated because it excludes or adjusts many of the items that happen to be among the most sensitive to inflation: real estate taxes, housing costs, and more.
This time next year, inflation will be all over the headlines. It’s not quite there yet, but rest assured, it will be.
The chief reasons:
A. The Federal Reserve. They will continue to fall behind the curve on fighting inflation, and will do so intentionally.
They’ll raise rates, but not enough. They’ll talk up a big storm about inflation-fighting, but do little to stop it. Behind the scenes, they have no choice but to continue to inflate. It’s the only way to possibly handle debt problems in the U.S.
B. White House and Congress. The Fed is supposedly independent. But don’t think for a minute that means the Fed’s agenda can be substantially different than the government’s. My main point: There isn’t a politician in the White House or Congress today that would prefer tight money and a recession over more easy money and inflation.
So they will spend, and keep on spending. It doesn’t matter how big the budget gets. The mandate to spend is virtually written in stone. These two basic forces explain why inflation is rising rapidly and set to rise still further. It’s also why, all year long, I have shouted from the rooftops about the best inflation hedge I know of: Gold.
Gold’s performance in 2005: Up 17%.
The average gold stock in 2005: Up 29%.
The Real Wealth Report open recommendations in gold: Up an average of 30%!
Total value of the Real Wealth Report open and closed recommendations in gold in 2005: Over $6,200.
Second, I Forecast That the Rise of
China and India Would Be Relentless.
I warned that both Wall Street and Washington were underestimating the growth of these two countries.
Sure enough, the fastest-growing big economies in the world fully lived up to my vision – and then some.
China’s economy charged ahead at a sizzling 9.4% for 2005, in line with the 9.5% growth posted in 2004. India sprinted close behind China at nearly 8% GDP growth.
And both countries are set to soar at an equivalent pace in 2006. The chief reasons …
Reason #1. The Sheer Size of Asia’s Population.
The burgeoning desires and demands of 2.3 billion people cannot be held down in today’s era of Internet and email. No way.
That’s the same kind of irrepressible people power that brought down the Berlin Wall and gave rise to the vibrant economies of Eastern Europe.
It’s also the kind of power that’s now driving the growth of India and China at record rates. And with just these two nations alone, we’re talking about one-third of the world’s population.
This is also where the consequences of the technology revolution of the 1990s are playing themselves out in a big way – by helping to unleash the buying power of 2.3 billion people.
Reason #2. The Tremendous Wealth Now Accumulating in Asia.
Rather than give you statistics, let me tell you about my own recent experience.
I just got back from a 4-day holiday in Las Vegas with my wife Sharon and the kids, and I noticed an interesting change: More so than ever before, the town has become the favorite destination of Asians.
Indeed, the number of Asian tourists visiting Las Vegas is estimated to have nearly tripled just in the last five years.
Chinatown in Las Vegas has quadrupled its square footage of retail and office space.
And look at what I learned from a blackjack dealer while playing some cards …
“There are three ways to recognize a major Asian gambler: The size of the bet ranges from $50,000 to about $375,000. The line of credit is $4 to $5 million for a weekend. And the hotels routinely comp them with fine dining, luxury accommodations, private jet transportation, expensive gifts, even bodyguards.”
This is just one indicator of the wealth that’s rapidly building up in Asia – from rapid industrial growth, nearly instantaneous modernization, and the great boom in exports.
Reason #3. China’s Tight Control Over Its Currency.
Although China did grant the U.S. a token currency revaluation this year, it was merely a political gesture, representing an increase of barely more than 2%. That’s hardly enough to make a dent in the trade deficit between the two countries.
But try as they may, Washington will not be able to coax a further revaluation out of Beijing any time soon. China will keep its currency pegged to the US dollar. It has no reason under the sun to further increase the value of its currency.
Why? Because China has corralled a cash cow and will not let it go. It can produce goods more cheaply than any other major country, and has a vast pool of built-in labor. China will continue doing precisely what it has been – raking it in.
As a result, China’s foreign currency and gold reserves will continue to strengthen. They’re already at over $740 billion, second only to Japan’s.
And while China’s reserves grow like a mountain, China’s per-capita income is growing like a hundred volcanoes.
The consequences:
- Asia’s rising needs for natural resources will continue to drive key natural resource prices – and inflation – higher.
- It will also lift the economies of other emerging Asian countries, such as Thailand, Myanmar, Vietnam, Indonesia, Singapore, and Taiwan.
- My Real Wealth Report should continue to rack up more profits for subscribers. Closed out and current open recommendations in natural resources: Up as much as 44%.
Total dollar value of the 2005 Real Wealth Report open and closed recommendations in natural resources: Over $6,900.
Total closed and open gains for all of Real Wealth Report for 2005, as of yesterday: Up over $26,000!
That’s FIFTY times better than the Dow’s performance, three times better than the S&P 500, and five times better than the Nasdaq.
Gold Headed for $740!
I can vividly remember the startled looks which greeted my announcement four years ago that gold was headed for $500 and beyond.
Little wonder. At the time, gold was at $260 an ounce, the cheapest it had been in over two decades. And up until then, I had been an intractable grizzly bear on gold.
But in 2001, my proprietary trading model made it unmistakably clear: We were seeing the early stages of a massive shift from paper assets to tangible assets. The numbers virtually screamed out, “Buy gold now!”
It was hard to get anybody to believe me then. But those who did made a lot of money.
Now, here we are on gold’s final day of trading for 2005, and the yellow metal is set to close well above an important signal that confirms what I’ve been saying all along: There’s much more upside to come.
My Real Wealth subscribers already know what to expect next. They have their positions in place and will be adding more in 2006. My next targets for gold are …
Target #1: $540
Target #2: $618
Target #3: $740
What You Should
Be Doing Now.
First, have a healthy and happy New Year! 2006 promises to be full of excitement. I expect even more dramatic moves in the natural resource markets, helping to generate still more profits.
Second, you’ll want to keep a large portion of your money in short-term money market funds. That’s where your keep-safe money should be. They let you sleep at night. Safest of all: Treasury-only money market funds.
Third, don’t expect much more upside out of the major stock indexes such as the Dow, Nasdaq or S&P 500. The broad market is going to be pretty much like a roulette wheel. Pick a stock, and if you’re lucky, you might win. But odds are you will lose.
It’s far better to have the “house odds” on your side. And in the markets, I think you’ll get those in the natural resource sector – now and for several years to come.
By far the best performing sectors should continue to be those driven by the two major all-encompassing forces that must not be underestimated – central bankers’ mandate to inflate economies … and Asia’s unprecedented, dynamic growth.
Fourth, for your core investing money, keep 5% in gold bullion or equivalent, 40% in gold and other natural resource stocks, and another 30% in income generating natural resource opportunities such as energy trusts, etc. The remaining 25% can be used for more speculative natural resource picks. For all current recommendations, please see the current issue of my Real Wealth Report.
Important: If you subscribe by midnight tomorrow, you’ll be able to take advantage of the current low subscription rates before they go up on January 1, 2006. Click here to subscribe using our secure website.
Best wishes for a healthy and wealthy 2006!
Larry Edelson
Editor, Real Wealth Report
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Christine Johnston, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
