Profit Review, and More!

Posted on 02/08/2010, 14:41
By Larry Edelson

If you followed my recommendations in last week's column, then you grabbed some pretty luscious gains off the table, including up to ...

40.8% gains on Dow Jones Diamonds (DIA)

34.0% on Energy Select Sector SPDR (XLE)

8.0% on PowerShares DB U.S. Dollar Bearish Fund (UDN)

62.7% on Korea Electric Power Corp. (KEP)

Well done. Especially considering the market tanked just after you grabbed your gains, with the Dow Industrial plummeting 312 points from last Tuesday's high.

Now is not the time to sit back and enjoy the profits, or become complacent. Instead it's time to think about how you can keep the profits rolling in!

But first, let me address the now widely-held mainstream view that the natural resource sector looks like it may have topped out.

My view: That's hogwash. Indeed, if you think the great bull markets in natural resources are over, think again.

And do so by asking yourself the following very important questions ...

Question #1: Do you think the Federal Reserve will tighten monetary policy anytime soon, or that it will truly exit its recent policies of propping up institutions or the economy?

My answer: Absolutely not. The Federal Reserve will not raise interest rates anytime soon, no matter what.

Nor will the Fed truly exit any of its recent market and lender of last resort policies either.

If push comes to shove and there's another big financial institution that teeters on the brink, the Fed will be there right by its side to bail it out. So will all of Washington.

If another big company like General Motors needs to be saved down the road, ditto. The Fed will be there to prop it up ... and so will Washington.

Mind you, it may not be the right thing to do, but those in power will do anything and everything to try and save the financial system, at any and all costs.

They will sweet talk you till the cows come home telling you they know what they're doing, that even they hate it, but that it all must be done.

The problem though, is not what they do tell you.

It's what they don't tell you.

Washington will never admit that its hidden agenda is to inflate away the country's debt problems by devaluing the U.S. dollar.

To rob from Peter (you) ... to pay Paul (every creditor who's lent this country money).

They won't tell you that even though almost every country on the planet has done so and devalued its currency at one time or another in its history. From debasing silver coins to outright devaluations.

There has never been a modern society that has not effectively defaulted on its debts either publicly, or on the sly, through a currency devaluation.

That is the number one reason why I remain bullish on the best assets to own when government is diluting the value of your money: Tangible assets. Natural resources. With a heavy emphasis on the ultimate store of value, gold.

Gold and other tangible assets are the best investment when government dilutes the value of your money.

Question #2: Do you think the authorities in Beijing will overly tighten credit in their country?

My answer: Much has been made about Beijing's recent attempts to slow loan growth in China and cool off the economy.

I, for one, applaud Beijing's efforts. But I'm also a realist. And when push comes to shove - politicians and central bankers in Beijing are no different than they are anywhere else. There is simply no way a Chinese politician is going to do anything to squash an economic recovery. Period.

Why? Because it would cost them their jobs. And because, even if, for some crazy reason, Beijing tried to choke the economy - there are 1.3 billion souls in China that are powering that economy forward.

1.3 billion people demanding new, better lifestyles for themselves and their children.

So don't bet on the Chinese economy taking a tumble here. Or, its stock markets.

Indeed, as I showed you just last week, it could actually be a very good time to add to your positions in China, via the iShares/FTSE Xinhua China 25 Index ETF (FXI). My recommendation: Consider adding to that position now!

But all this is just another reason I remain long-term bullish on natural resources. China's gobbling them up at an unprecedented pace that is not going to stop, or even slow down much, anytime soon.

Question #3: Will the severe supply restrictions that now exist in several natural resources suddenly disappear, creating an oversupply instead?

My answer: I don't think so. Not by a long shot. We have shortages in gold, oil, aluminum, rare earth metals, potable water, just to name a few.

What's more is that with less capital and credit available - courtesy of the financial crisis - the supply constraints in many natural resources are bound to get worse, not better.

Many mines have been shuttered. Oil companies have put dozens of important exploration projects on hold.

Going forward, all of this will undoubtedly cause a setback in new discoveries and new supply sources, crimp production levels, and ultimately create even more upside price pressure on natural resource prices.

So What Can You Do
To Protect Your Wealth And To Profit?

My recommendations: Hold all open positions I've suggested in this column, which you can see in this table to the right.

Also consider ...

Select foreign currencies, which rise in value against the dollar, and where you can also get a nice return. Two of my favorites are still the New Zealand and Australian dollars.

Select foreign stock markets, especially those that are rich in natural resources and where billions of new consumers are driving their economies upward. Examples: China, India, and most of Southeast Asia.

Additional select natural resources stocks, companies that control commodities. The list includes gold ... oil ... gas ... iron ... steel ... aluminum ... zinc ... nickel ... uranium ... wheat ... corn ... soybeans ... sugar ... coffee ... even water!

Best wishes,

Larry

P.S. For more of my insights, analysis, all of my recommendations, and flash alerts - consider a subscription to Real Wealth Report. At just $99 a year, it's the best investment you'll make. I guarantee it. To join, click here now.

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