ASSET CLASSES IN 2012

In further continuation to my article; Asset classes in 2011, I would restate that asset classes like precious metals, base metals, agricultural commodities, stock market, real estate and others; the performance of each asset classes will be directly linked to the movement of US dollar (USD) currency. Recently USD Index reached 81 levels during first week of January12 where every other asset classes performed badly. Once again to restate that Stock Markets and Real Estate always have their merit of their own to determine the realistic price level, whereas hard and soft commodities are strongly correlated to money supply. It is the same situation what we experienced it in 2008. USD Index is still under pressure from long term point of view but recently it rallied from 73.50 (end of August11) to 81. Euro zone crisis is just another financial turmoil where 3 leading countries dominate the political decisions and strong austerity plan implementation by weak countries should take place or else there could be break up of Euro nations. Eventually uncertainty about future of Euro currency would lead to weakening of Euro and strengthening of USD, hence USD Index is appreciating. Euro Nations might not resort to money printing every time because Germany and France has major holding of Gold backing-to-currency where they have to contribute for depreciation of currency for weak nations with no strong austerity implementation. One way or the other, US government and other developed nations are increasing money supply by the means of quantitative easing and money printing which leads to inflation across the world. With no choice left for investors and money managers, they stop to invest in assets like commodities and emerging stock markets; they are shifting to USD and US Treasury bonds. Since last 6 months USD Index performed well due to indecisiveness on investments. Eventually, increase of money supply by US government and inherit weakness of US economy cannot be neglected, hence the tide would once again turn towards weakness of USD index and higher prices of other assets classes like stock markets, commodities and precious metals. USD index face a strong technical resistance at 81 levels thereafter at 89 levels. It is very unlikely that USD index can cross 89 levels before settling at 65 levels where it could face a long haul. The upward rally in emerging stock markets from mid 2009 gave exponential high returns in short span of within 12 months. From last week of October09 to October10 upward rally continued across stock markets and precious metals. After the long consolidation of 12 to 15 months, majority of stock markets remained sideways with downward bias since October10. The year 2011 was thoroughly down and Gold peaked during August11, since then down. Gold looks like completing its fourth wave down since last 10 years when the rally started from 280. Fourth wave is correction of rally from 740 to 1940 where considering one third correction would result into the price of US$ 1540 as strong long term support. Gold fell 420 points from 1940 where it found support at US$ 1520 (30th December11) and rebound strongly. It is in final bull phase where fifth wave up developing would be very strong and powerful. In 2012, Gold shall consolidate for a long period upto 3rd quarter then building of bubble shall begin where the results can be seen in 2013. Yearend target of gold is US$1950. Parallel to gold, there are other precious metals which shall outshine as well as build up of positions in crude

oil, copper, rice, sugar, natural gas, zinc etc. Base metals shall move upward gradually in comparison to precious metals so would be stock markets. US treasury bonds have gone to historical low levels where bubble can burst at the time when there shall be no confidence on USD as well as increase of interest rates from mid 2013 as indicted by Ben Bernanke. The current financial year 2012, shall be flushed with money and limited opportunities which would result into inflating commodity prices, eventually leading to hyper inflation in most of the economies of the world. Hyper inflation shall bring unrest in many countries where current rulers shall be toppled down either by force or voting out in democracy. Situation will be vulnerable where adverse news shall keep on flowing during the year as well as bull-run in commodities. Such result is only due to failure of US economy and devaluation of US Dollar. In such a situation, rich can hedge or may become richer while poor shall have no option but to struggle and perish. Coming 2 to 3 years would bring more political crisis, geo-political problems would arise, high interest rates, collapse of US treasury bonds, burst of real estate bubble in China, nation debt crisis, may be war and any other new crisis in a form which shall emerge as the time shall pass. In scenario like this once again safe haven would be Gold and other physical hard assets.

Technically speaking: Dow Jones Industrial Average (DJIA) Current Level 12450 DJIA has broken all the major resistances and it could surprise by going upto 13500 thereafter it could fall upto 10200. It is passing the stage of intermediate wave of long bear market. There shall be volatility and mostly speculation driven market. Commodities based equities shall outperform the other sectors of the market. The last article on Asset Classes in 2011 proved to be correct on DJIA where it touched the low of 10600 and high of 12900. Avoid is recommended for investment and speculative range with full year volatility between levels of 10500 to 13500.

Straits Times Index (STI) Current Level 2750 STI moved up from the bottom of 1450 (March09) to 3250 (December10) where it corrected to 2650 (November11) and consolidating sideways. The last article on Asset Classes in 2011 proved to be correct on STI. Sell was recommended at 3100 level with fall of 10% which is evident in 2011. STI completed its correction and shall consolidate for 2 quarters before meaningful rally begins. Buy is recommended for marginal gains of 15%.

Hang Sang Index (HSI) Current Level 19100 HSI moved up from the bottom of 11350 (March09) to 25000 (November10) where it has achieved our May09 article which states 20800 levels. Sell was recommended for index levels support of 15600 which is strong support for HSI. The last article on Asset Classes in 2011 proved to be correct on HSI. Sell was recommended at 23100 levels with support at 15600 which proved to be partially correct in 2011 as it touched the low of 17400 levels. Buy is recommended at current level for limited gains of 20%.

BSE Sensex (BSE) Current Level 16000 BSE moved up from the bottom of 8150 (March09) to 17500 (January10) and then after consolidation from 15700 to 21000 (November10) in matter of 2 years. It consolidated for 9 months between 15500 and 18000 thereafter it broke the major resistances and touched 21000 as on 5th November10. Buy was recommended at 16000 levels in the last article on Asset Classes in 2011. So BSE came down to 15200 levels thereafter recovering to 16000 as on 12th January12. Strong Buy is recommended with yearend target of 20000.

By Ankur Sharda
http://www.scribd.com/doc/6014281/A-Guide-For-Discerning-Investor

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