A New Decade A Changed World:

As we start a new decade investors should take some time to reflect on the previous ten years and how those years of economic turmoil are likely to impact on this new decade. It seems to me there will be two long term economic trends that carry over in to this new decade and will have a profound impact going forward.


The first and likely the most powerful trend is the continuing economic growth in Asia. China and India are starting off the decade in a position of economic strength that will give these countries a huge advantage over the next ten years. The development of a strong and diverse middle class will generate enormous internal economic activity that will power the expansion through any short term softness in western growth. By the end of the decade China and India will be global economic powerhouses set to rival the US economically. The entire Asian region will be big winners going forward as the middle class expands and demands more and more modern and diverse consumer goods.

The second trend (concern) is the unprecedented expansion of debt by the Western Industrialized nations. In an effort to relieve the financial stress of the credit meltdown Governments have issued debt at an unprecedented rate, the rush to stop the economic meltdown regardless of cost will have extremely negative long term effects on the economy. I believe that Governments have set in motion the potential for rapid and debilitating inflation that will cause extensive and devastating economic damage across the entire economic spectrum.

As a long term strategy I would stay away from debt issues by all Western Nations, consumer, communications, transportation and financial stocks. I would be long gold, energy, industrial commodities, agricultural suppliers and Asian industrials.

A LOOK AHEAD TO 2010:

The next 12 months will be full of surprises due to the continued global economic uncertainty. The year ahead will not be nearly as consistently positive as this year. We are not likely to see the same double digit returns of 2009. The global economic recovery is not as robust as many have forecast. Global growth is not being driven by the North American consumer as has been the case for the past couple of decades. The lack of consumer growth will make this expansion much slower than those seen historically.


The only reason the economy is growing at all is due to the enormous stimulus spending by Government and this can not continue at the current pace for all that much longer. Government debt levels are growing at a record pace causing some Countries such as Greece to implement draconian economic measures in an effort to bring the fiscal hemorrhaging under control. North America is not immune to this escalation in debt which is causing extreme pressure in other regions.



Global central banks are going to be under pressure to keep money flowing freely, but the reality is that this cannot continue and when the taps are being turned down it will be a very unpleasant economic environment for the vast majority of people in the industrialize world. The pain will be nearly as disruptive as the financial meltdown was.



The excesses have been far too extreme for the next stage to be anything but a slow painful climb out of the current situation.



Uncertainty tends to breed contempt and I am certain there will be a substantial amount of contempt as both the central banks and governments change course. Be prepared for very uncertain and unpredictable markets later in 2010. The uncertainty will be centered in North America and Europe, with the only glimmer of economic growth showing up in Asia.



Areas of opportunity are likely to be seen in precious metals as investor’s hedge turmoil, base metals as the Asian economies move forward and the agricultural sector as the emerging economies continue to expand the middle class creating increased demand for a more diversified diet.



Have a safe and profitable New Year, but be careful out there.

Bank bonuses hard to justify!!

An announcement by the major Canadian Banks regarding bonus payouts should come as no surprise. The bonuses this year are expected to set a new record for the industry totalling $8.3 BILLION. This after these same institutions who came crying to the government a little over a year ago that they needed to be bailed out to the tune of $25 billion in order to stay competitive. This is nothing short of thumbing your nose at the Canadian Taxpayer and rubbing in the fact, that the entire industry is manipulating the Politicians with talk of all the dire consequences if they are not appeased. Tax payers globally should be out raged by the arrogance of the management in this industry.




The banking industry in Canada is one of the most stable globally but it has very little to do with the industry itself but everything to do with the protective environment they operate in. There is very little competition due to legislated restrictions on foreign operations in the country. This has insulated the Canadian financial services sector from the turmoil seen in other countries. These legislated restrictions have an inordinate positive impact on the profitability of Canadian financial institutions. By the same token Canadian companies trying to raise capital are limited by this legislation as well.



The lack of foreign competition in Canadian Capital markets has allowed for a very stable and profitable financial services industry to develop. For shareholders to allow bank management to take all the credit and pay themselves as though they alone were the reason for the dramatic turn around in profitability seems to me to be a bit far fetched and stretches the credibility of the industry.

Rates stay low

The Bank of Canada has sent a bold message to the global financial markets by leaving the bank rate at 0.25% and indicating a commitment to keeping rates at or near zero for a considerable time in to the future.




The lack of consumer confidence is keeping the Bank of Canada on hold much longer than expected. This low interest rate environment could be in place till well into next year.



My concern going forward is that the real estate market could become substantially over valued due to historically low interest rates. If low rates are available over a long period of time it becomes ingrained in the price and creates a false pricing model that will have to be deflated at some time. The Bank of Canada has to walk a very fine line and be ready to act quickly in order to avoid a made in Canada real estate collapse.



The relatively low Government budget deficits will give the Bank of Canada slightly more flexibility relative to other central banks. Deficits at all levels of Government in Canada are low when compared to other industrialized nations offering more economic resilience going forward.



Now is not the time to be making bold investment moves as the global economy is still not showing consistent signs of growth. Central Banks are offering accommodating economic policy but the financial services companies globally are not following through with access to capital. This lack of cooperation by the major banks is going to delay a strong economic recovery and puts all of the stimulus measures at risk of failure.



This near term economic uncertainty will be supportive of gold and will keep currency markets volatile over the coming weeks or possibly months.

Food inflation is gaining strength:

A combination of factors is driving the price of basic foods up and this trend is not a reaction to seasonal factors or changes in crop yields due to drought as has been the case in the past. In the past food prices tended to move up due to crop failures from droughts and other weather related factors. The current trend is partially a reaction to lower crop yields in Australia and Brazil, with a considerable influence from the ridiculous push to produce ethanol as an alternative to gasoline in the US. But these factors can only account for a portion of the increase in prices, the main force behind the increase in basic foods such as wheat, corn, soybeans, sugar, coffee etc. is the added demand for these commodities from an expanding middle class in Asia.

In Asia millions of middle class families are being created annually as the average income increases so does the ability to diversify their diet from the previous subsistence diet of rice, fish and poultry to start to include beef, pork and additional meals over poultry. All of this additional meat is creating a huge demand for feed grains such as corn and soybeans. One thing is certain once the diet is diversified it is highly unlikely that those consumers will go back to the old subsistence diet regardless of the additional cost, it has been proven that a diversified well rounded diet can increase the size, strength and mental ability of children it also adds to the longevity of a population so going back is not going to happen.

As Asia continues to create new middle class families by the millions the upward pressure on the price of food will continue, likely for decades. This new trend will create opportunities for companies supplying to this sector such as fertilizer companies, seed suppliers, transportation and equipment suppliers.

PetroChina now the world’s largest:

If you needed confirmation that the Chinese stock market is over valued look no further. PetroChina tripled in value on its first day of trading in Shanghai. The company now has a market value of over $1 Trillion, the first company in history to do so making it the largest company in the world when ranked by market capitalization, larger than the market value of Exxon and GE combined.

The risk in the Chinese equity markets has gone through the roof and this latest example of extreme valuation is just another indication of the excesses in the market. As I have been saying for months, stay away for direct Chinese investments but continue to invest in companies that supply the materials required to build the industrial infrastructure and complete the modernization of the Country.

For more information go to www.campbellreport.com

Citibank cleans house:

The largest bank in United States has just accepted the resignation from CEO, Charles (Chuck) Prince, after announcing that the firm will be taking a write down of approximately $11 billion (that’s billion) due to exposure to the subprime mortgage sector. Investors are getting out in a big way as indicated by the share price decline of $2.20 or 5.85% today.

The question for all investors is have the financial companies such as Citibank and Merrill Lynch come clean on their exposure to the subprime slime they helped create? I would suggest that is not likely and that we will be seeing additional substantial write downs going forward as well. When the new CEO is appointed at Citi and Merrill you can bet there will be another write down, that has just come to light, just like a new President or Prime Minister does when taking over power, blame the last guy with as much as you can get away with.

I would stay away from financial shares until the real final number is out and that won’t happen for months.

For more information go to www.campbellreport.com

Copper new uptrend?

The price of copper has been on a tear over the past few weeks as inventory levels worldwide fall. China which consumes about 20% of global production remains on a very robust growth trend and continues to be the main force in the copper market. The global inventory levels have fallen for eight weeks in a row and there appears to be the potential for further declines as the building season in many parts of the world is just starting to pick up momentum.

Over the past few years there has not been a dramatic increase in copper production and the opening of new mines has been a slow process. The current producers have been unable to expand production sufficiently to meet the increase in demand. New mines are going to come on stream but the time frame to get approvals and complete the permitting process can extend out to ten years in some regions. Do not be surprised when the price of copper rallies back to last years high of just over $4.00 a pound from the current level of $3.32 per pound.

I continue to be bullish on copper and would continue to hold Northern Orion Resources (NNO-T, $4.85) which is held in the Aggressive Model Portfolio originally purchased in January 2007 @ $4.33 (12% return to date or 56% annualized) initial 18 month target $8.00 and Aur Resources (AUR-T, $25.00) which has been held in the Growth Model Portfolio since March 15 2005, original cost was $8.45. (total return to date 195% or 135% annualized) 18 month target price increased to $32.00.

For more information go to www.campbellreport.com