Tuesday, June 28, 2011

Global economic outlook for 2011-2012 by Shan Saeed

The market looks shaky and investors nervous. I still remember working for a British bank and clients seeking my investment insight globally esp about US/ European/ME markets, precious metals, industrial and agriculture when the boom was happening...

In 2006, when the Dow was at 10,800, I called for it to go to 14,500. It hit 14,200. In the spring of 2008, I pulled our clients out of the market and called for a crazy year ahead, with several wild swings. I also called for collapse of Lehman Brothers to fall from 35 to near zero and AIG would require a bail out.....

I have made some nice currency calls recently. I called the 2009 dollar low to the day. I called the high in the euro at 151 – months before the first Greek crisis – as well as the drop to near 118. Both these times I hit the mark.

Some of the commodities calls include buying long-dated calls on gold stocks in October 2009, and exiting them when gold hit around $1,225. I went long again and held until around $1,440 months ago. Caught crude oil both ways... up into the $147.23 barrel high on july 11, 2008... And then I called the downside with a $97 target. However, it was $34/barrel in 2008. I shared about natural gas target of $2.40 when natural gas was trading around $7.

I have also made some interesting "non-market" calls. I predicted for the Fed Funds rate to go from 6% to under 1%. FED loose monetary policy of zero interest rate would continue till 2013. In the difficult fall of 2008, I called for economic strength to pick up beginning in March 2009. Commodities prices upsurge got the global economy out of recession.

Analysis about GOLD & SILVER.

I have caught many of the runs up and down, and I am standing aside now. I expect both to rally substantially over the next few years, following more weakness in the short term. My research currently shows a target for gold of $1700- 1800 or higher within two to two and a half years. Silver can return to $59 or higher.

Analysis about Stocks --Big Picture

I am looking for a turn down in the major indices. I initially thought last summer's decline was the start of this turn. But when the short-term cycles turned up last fall, I received a buy signal and went long stocks again in September.

I am looking at some of the weakness into the second half of the year 2011, followed by a rally before year end in 2011. I am looking for a much bigger decline over the next 24- to 30-month period in the major indices. The cycles show a major downturn going out about 2.5 years. The low I have calculated is 5,000 on the Dow Jones Industrial Average... indeed a significant low. This move to 5,000 will be interrupted by small bull and bear markets... But the trend is clearly down.

Forecast for Major Commodities like OIL, NATURAL GAS, COPPER AND AGRICULTURE

The longer-term picture for commodities is mixed. Many are up, but not all. However, I am bullish on agriculture commodities. In March of this year, I was interviewed in one of the TV Channels after oil charged over $100 per barrel. As I said then, I'm not in the camp of $150 to $200 per barrel for oil, as many people thought. My strategic analysis and research illustrate significantly higher targets for oil this year. IEA recent moves to supply oil in the market to kick start the global recovery make the oil outlook bearish and continue to be negative on crude as shared on the long term cycle I have shared with my clients recently. Crude is a commodity I have covered many times in the year, so keeping following my blog closely.

Natural gas is seen rising over the short-term. But longer term, I still see a move down to $1.70, which would be a significant low. I m bullish on copper and might touch $11,000/ton. I think copper is at a significant long-term top.

The agricultural grains are set for a multi-year up move in a few months. My research indicates that the bull market in grains/rice/soybean/corn will last into 2014.

Strategic Analysis about Dollar and Euro.

I recently predicted the recent rise for the euro, despite the conventional logic. So I don't view it as a short-term crisis. But over the long-term, I question the continued existence of the euro. Which country would exit Euro zone first remains to be seen. Greece is a big litmus test for European policy makers.

In the dollar, I see a bottom coming, which could hold for several years. US Dollar would stay weak bu 9-10% in 2011. US dollar is a bubble that would eventually bust.

Outlook for US Treasury

I actually see bond futures rallying into the third quarter. I recently caught the bond price rise by selling puts on 30-year Treasurys. And I intend to go long bonds soon until the fall. But over the longer term, I see a major rise in rates and a fall in bond prices until 2040. This is based on the cycle, which demonstrates that interest rates bottomed in 2010, topped in 1980, bottomed around 1950, topped around 1920, bottomed around 1890, and topped around 1860.

The bottoming of the cycle, which I am still experiencing now, is associated with deflation... And deflation is associated with low interest rates. But over the next 30 years of the cycle, rates will likely climb to a double-digit high like US economy had in the early 1980s.

IS QE3 imminent?

I do believe that QE3 would enter the financial landscape in 2011. There is still a problem with deflation, since already a double dip recession has emerged in the housing market, unemployment is rising again and even worse for the economy.


I have read economic history and we also do war and peace cycles. Cycles project the start of a major war around 2013, which is one of the reasons I am expecting the markets to come down. Civilizations move in predictable patterns, in a pendulum from one extreme to the other.

One interesting point is children will often vote right wing when their parents are left wing, and vice versa. This also happens in mass movements. Movements of violence alternate with movements of pacifism.

When governments cannot find answers for their problems, they often look for outside enemies to unite their people. These patterns are predictable by using the economic cycle analysis. I have studied these occurrences in history, am amazed at how things recur. I don't believe everything happens at random. So I analyzed the patterns in the cycles of war and peace. Once you identify them, you can predict the next time of conflict. Obviously, the system does not say where or how these will occur.

There is an interesting connection between this concept of predicting war and peace and the economic cycle I mentioned earlier. Therefore, we have no one to learn from, and history repeats itself.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

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