ASSET CLASSES IN 2018

As stated earlier and in continuation to my article after a long gap; Asset classes in 2017
performed well, I would restate that asset classes like precious metals, base metals,
agricultural commodities, stock market and others; the performance of each asset classes
will be directly linked to the movement of US dollar (USD) currency. USD Index
reached a high of 103 levels during first week of January’17 and also declined during the
year 2017 where every other asset classes performed with good returns simultaneously.
Along with mid-year volatility, mostly asset classes like gold, silver, base metals, crude
oil, emerging stock markets and currencies; remained with upward bias in the range of
+/- 5% on annual basis except base metals which did very well. Stock Markets in USA
remained good whereas few Emerging stock markets performed very well by the year
end of 2017. Hard and soft commodities are strongly correlated to money supply by way
of money printing is adopted by most of the nations in the world and Quantitative easing
which promise a strong price gain in the year 2017. USD Index is still under pressure
from long term point of view but recently it topped at 103 (early of January’17) and fell
to 91. USD Index should break the level of 87 before it could stabilize and at the same
time Gold and other precious metals should start an upward rally and should reach
historic high in coming years. Crypto currency like BITCOIN is special feature in this
article where it can be compared to Tulip Bubble and NASDAQ Bubble, and it is the
classic example for the world in current scenario how things can be still managed by the
knowledge resourced human beings.

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 the investors and the money managers, they
shall shift to invest in assets like commodities and emerging stock markets. Since last 11
months USD Index did not perform well due to money flowing into hard assets.
Eventually, increase of money supply by US government and inherit weakness of US
economy by way of huge debts 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 support at
87 levels thereafter at 73 levels. It is very likely that USD index can cross 87 levels
downwards before settling at tad below 87 levels where it could rest for a long haul.
Recently, US Congress passed a revised tax system which shall increase the deficit of US
but at the same time boosting the corporate profits, still it is the perception of the bulls
and the bears how to look at it, but currently the sentiment is in favor of the bulls.
Problem still persists and it is not yet addressed that how the governments of developed
nations would reduce the huge debt, so turmoil in future is obvious, hence rally in
precious metals and commodities. Make hay while the sun shines because the new bubble
to unfold and burst shall take 3 more years (say by 2020) as the 1st intermediate upward
got completed along with the 2nd wave of correction in crude oil, base metals and such
other commodities where at the same time precious metals like Gold, Silver and others
have not yet participated with any kind of up move.
The upward bias performance in emerging stock markets since more than one year, gave
a foundation of stronger rally ahead. From 1st quarter of the year 2016 to the end of 2017,
the performance of most of the stock markets remained upwards with least volatility as
well as for base metals and crude oil. After the long up move with periodic corrections
for 12 to 18 months, majority of stock markets remained sideways with upward bias since
middle of 2016. The year 2017 was thoroughly sideways for Gold, Silver and other
precious metals. Gold looks like completing its final time correction and shall be ready
for strongest historical rally which is justified to back the currencies in the world
especially Germany and USA, where the worth of currency shall be backed by strong
Gold value and all the investors and hedge funds would have no choice but to invest in
gold. Correction in Gold price from historical peak of USD 1940 in 2011, after 9 year
bull rally from the level of 280, has completed its price and time correction. Base metals
shall move upward gradually in comparison to precious metals so would be emerging
stock markets. US treasury bonds have gone to historical low levels where bubble can
burst at the time when there shall be no confidence in powerful currencies as well as
increase of interest rates from mid-2018 as indicted by US Fed Reserve. Interest rates in
US are kept artificially low as well as increase in money supply which shall help inflation
to go up by the means of higher commodity prices. US government would be left with no
choice but to increase interest rates for curbing inflation which may happen in coming
months.

The financial year 2018, shall be flushed with money and limited opportunities to invest,
which would result into inflating commodity prices, eventually leading to hyper inflation
in most of the economies of the world. Situation will be vulnerable where adverse news
shall keep on flowing during the year as well as bull-run in commodities. Coming 2 years
would bring more political crisis, geo-political problems would arise, change to high
interest rates, collapse of US treasury bonds, nation debt crisis, may be war and any other
new crisis in a new form shall emerge where the time shall tell. In scenario like this once
again safe haven would be Gold, other physical hard assets and commodity stocks.

THE new digital currency called as Crypto Currency like BITCOIN exists since 2009
where the mechanism of supply and demand is still a known knowledge to few only or
term like mining which is like an automated puzzle. The concentration is on price
inflation and not to know the fundamental of such new asset class. Bitcoin was hovering
around USD 1000 during 1st quarter of 2017 thereafter it rallied to USD 19200 at the end
of December 2017 resulting into 20 times return in 12 months which is a bubble in crypto
currency by any standards. There is a mad rush to buy crypto currency as there is word of
mouth publicity and people all over the world are hoarding to it. Price inflation by 20
times and fall upto 40% from peak is itself an indication of bubble burst but difficult to
accept in reality as irrational exuberance shall never let it believe until the price crashes
to further low when investors are left “stranded decision-less”. It is very strongly
recommended to sell Bitcoin. It is a biggest bubble ever and shall be a case study in
college syllabus how irrational exuberance persists even after learning from the past as
behavioral pattern of human psychology never change where it can be seen from
economics and medical perspective.
Technically speaking:

Dow Jones Industrial Average (DJIA)

Current Level 24700 (as on 31-12-2017)
DJIA broke all the major resistances and it remained at a high of 24700 thereafter it is
hovering around same levels. On monthly and weekly charts, DJIA is at extremely
overbought position where sudden steep correction is expected anytime before the new
rally begins. The view remains the same that the bull market is still intact with volatility
to increase in coming months. It is passing the stage of intermediate wave of long bull
market. There shall be volatility with downward bias for short term.
Commodities based equities shall outperform the other sectors of the market.
Avoid is recommended for long term investment and buy at dip with speculative range of
full year volatility between levels from 22000 to 32000 where DJIA can hit new highs
but with a caution above 30000 level rather with a recommendation to SELL at level
above 30000.

BSE Sensex (BSE - India)

Current Level 34050 (as on 31-12-2012)
BSE is moving up with many intermediate corrections after forming a bottom at 16000 as
on May 2012. Early 2016 at the level of 23000 BSE after completing the deep correction,
is right now on upward move to 44000.
Buy was recommended at 16000 levels in the last article on “Asset Classes in 2012” with
target of 20000 which proved to be correct.
Buy is recommended at current level for target of 44000.

By Ankur Sharda

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

www.myspace.com/ankursharda