Don't Buy The Hype and Palladium
The stock market hit a 5 year high yesterday.
Across the street from where I work, a Ferrari dealership
recently opened up. Throughout America, families are eating
out more often, digital cable has become a basic household
necessity, and flat screen televisions are flying off the
shelves. At first glance, all of these signs point to a robust
economy. Consumers are spending money, corporations have record
profits, and relative to the other citizens of this world,
Americans are living lifestyles of the rich and famous.
As picturesque as the above scenario seems,
it is no wonder why your average investor is not buying into
scenario. The stock market is heading higher, their home
prices have appreciated, and the Fed is continually asserting
that we have minimal inflation. As a result, investors are
content on focusing their current lifestyles while ignoring
the much larger global economic picture that is unfolding
before their eyes.
In truth, the larger global economic picture
does not look good for the overall US economy. Whereas the
United States was once a great manufacturing economy, we have
now become the greatest debtor nation in the world. Whereas
the US dollar was once the safe haven of wealth, it is now
be divested from Central Banks around the globe. Whereas the
average US consumer had income and savings to continually
purchase goods, they are now in debt. There is no question
that these major fundamental factors have to be acknowledged.
Focusing solely on your immediate lifestyle is hopelessly
optimistic and shortsighted.
In his testimony before Congress, Ben Bernanke
stated that he will rely heavily on data to determine how
the economy is fairing. It is no wonder why your average investor
is complacent about the long term outlook for our economy.
Bernanke’s comment in itself, reaffirmed that he will
likely follow in the footsteps of Alan Greenspan. Relying
mostly on data is like waiting for your kid’s report
card to determine if he needs help on his studies. Instead
of noticing that he is not doing his homework and often misses
class, you decide to take a “wait and see” outlook
on the economy. This “wait and see” outlook will
seem blissful in the short term, but will add greater damage
to the US economy in the long-term. For example, instead of
working on ways to combat inflation, Bernanke will spend time
touting the overall strength of the US economy and the minimal
Core CPI numbers. Until inflation is blatantly obvious and
we are in the midst of a recession, he will likely be in denial
of the true economic state of affairs.
In the last several months, we have seen a pullback
in the commodity markets. As a result, the question of whether
we are in a commodity bubble has risen more often. Investors
that ask this question do not really understand the reason
why we have had a multi year run in the commodity markets.
First and foremost, there has never been a time in history
where commodity bull markets have lasted less than 15 years.
At this rate, we have at least another 10 years to go. Secondly,
we are living in unprecedented times. If the average investor
would stop and think about what is going on around them, they
would likely come to the same conclusion.
Although the US consumer is living beyond their
means, one third of the world’s population is industrializing.
And not only are they industrializing, but they are industrializing
at a record pace. With industrialization, comes the need for
raw materials and commodities. With industrialization comes
the creation of an educated and wealthier working class. With
the creation of a wealthier class, comes more discretionary
income that will be spent on consumer products and food. This,
however, will not happen overnight. But it will happen. You
can either jump on the commodity bull market now, or regret
that you did not participate in potentially the greatest bull
market in history. I am offering a free brochure titled “The
Case for Commodities” to anyone who asks. You can request
As many of my clients and newsletter readers
know, I have been extremely bullish on Palladium. My bullishness
can be summed up by the opening paragraph of a commentary
that I wrote seven months ago:
Whenever an asset falls in value by 80%, it
has to be examined for its potential as a contrarian, value-oriented
investment. Such is the case with Palladium. In a commodity
bull market, where substantial run- ups have occurred in oil,
copper, precious metals, and other raw materials, palladium
has escaped the notice of most investors. Even more interesting,
is that the price of palladium has declined in the midst of
rising demand. I believe that this trend is about to reverse,
as the manufacturing community is taking notice of the substantial
spread between the two metals that are similar in their industrial
Since I wrote my initial commentary, Palladium
has definitely reversed its downward trend. In fact, Palladium
has risen 37% in value. Although this move up might not be
surprising to some, since precious metals in general have
hit multiyear highs, it does represent a reversal in a metal
that has lagged behind its precious metals counterparts.
Furthermore, the spread between platinum
and palladium has narrowed over the last several months. When
I first talked about the spread, Platinum was 4.66 times more
expensive than Palladium. Today, Platinum is only 3.28 times
more expensive than Palladium. Another way of looking at this
is that since my initial recommendation, Palladium has moved
up 37% in value, while Platinum has only moved up 10 % in
In either case, price differentials between
these industrially similar metals are still enormous. Take
a look at the updated Platinum versus Palladium chart below:
In the intermediate term, I expect Palladium
prices to make a quick run towards the 340 level where it
will likely encounter strong resistance. In the long term,
I expect the demand for Palladium to increase exponentially.
It is interesting to note, that from 1996 to 2000, Palladium
was the primary metal of choice for autocatalytic convertors.
After Palladium prices hit a record high in 2001, the demand
for platinum increased. I see this trend reversing in the
next several years.
If you are interested in participating
in the Palladium Bull Market please contact me here
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Senior Market Strategist
Emanuel Balarie is the Senior Market Strategist at Wisdom Financial. As an expert on foreign markets, foreign currencies, and the precious metals industry, Mr. Balarie often speaks at public engagements and his research is regularly published in investment newsletters. You can find out more about Mr. Balarie and his services at Wisdom
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