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April Fool MoneyNews
Dear MoneyNews Reader: What an exciting week that was! Tech stocks traded at their highest in over FIVE years, gold jumped 4.1% to its highest point in 26-years. But check out the 7.3% surge in the silver market this week, which printed its highest price in 21-years leaving other precious metals eating dirt! Closing the week at $11.52 silver EASILY surpassed my predicted $11 per ounce target from March 11. In my Edge dated March 11, I told you that it was the time to buy silver, and recommended the May 2006 future. If you had bought the May 2006 silver future on Monday morning when the market opened using $4,689 in margin, you would have $7,900 in open profits as I write this issue. That's a 168% gain in just 20 days.
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That is just one example of the type of trades that I'm aiming for in my new Hedge Fund Investing service. And great news -- it's due to launch this week -- no kidding! For those of you who have already expressed interest, you'll be the first to receive information on how to join. I'm opening it up on a first come, first served basis, so for those of you who haven't emailed me, make sure you do so this week and I'll rush you the information straight away. To join the VIP list, email me. Oil Addiction Imagine the scene. A regular customer sits at the bar making small talk with the barman. He comes in several times a week, drinks beer and exchanges stories with his server, who in turn is waiting for fresh faces to show up at his establishment. It's not that the barman and the customer don't get along. After all, the customer pays his wages and leaves him a decent tip. And he's good for regular business week in, week out. Addicted or otherwise, the customer visits the bar and keeps on drinking. And the barman keeps on serving. But one day the customer tells his bartender that he's going to find a hobby - something that will keep him out of the watering hole and fill his evenings. Would it still be OK to remain friends, the customer asks? The situation is not dissimilar to what's going on with OPEC and the Western world. The oil cartel plays the role of the barman, serving up endless amounts of crude oil to the customer (portrayed by - you guessed it - the rest of the world.) In the real world, the demand for oil has been increasing and we have all speculated about the point in time or price at which it will slip as it inevitably forces a brake on growth. [Editor's Note: SectorTrade, Andrew's ETF service, bagged 70% profits in just 16 days as oil prices skyrocketed. Find out what sector he's aiming at now. Go here now.] The International Energy Agency's Oil Market Report recently cut its estimate of world oil demand for 2006 by almost 300,000 barrels per day. That is a result of the fact that prices are rising, which we fear will slow demand. But the warning comes at a time when oil-exporting nations are encouraging one another to strap on extra capacity to boost output. I'm not sure that taking the costly measure of hiring expertise and equipment to produce more oil today will sit well with producers who have been told by President Bush that America wants to end its addiction to oil. Where would that leave producers then? That's like asking the barman to take up fire-eating using the brandy on the shelf, just to provide some entertainment for the guy sitting at the bar. Consumer Confidence
There have been few signs that demand does weaken when oil rises. After all, domestically the economy is growing well enough, thank you. But take a look at today's chart, which shows a record high for consumer confidence in the very face of rising oil prices once again. With the labor market strengthening, more and more consumers are flexing their chests and predicting better times ahead.
 Fed Chairman Ben Bernanke has pointed out that households have done a great job of rebuilding their personal balance sheets during the recent housing bubble. He said that they'd refinanced higher-interest-bearing personal loans for less expensive equity financing. While that makes consumers perhaps less sensitive to a fresh round of interest rate rises, the recent highs witnessed in the domestic equity markets serve to bolster the asset side of the balance sheet too. Perhaps the rising price of oil is in part offset by the added gains to wealth from stocks. While I admit that my feelings about my investments don't offset the agony of paying $40 to fill my gas tank, in the aggregate something is driving consumers to feel better about the future. Japan In a recent MoneyNews column, I suggested that the rejuvenation of the Japanese economy would mean that Japanese stocks would trade to fresh highs anytime soon. Since then, the Nikkei has risen 5.75% or 930 points. In recent radio interviews, one of the most commonly questions asked of me has been: Which region would you invest in? I have long answered that question with the same answer: The United States. The reason is that I'm still not sure that American investors have done away with a myopic or shortsighted view of investing in the stock markets. Once bitten, twice shy, as goes the expression. So it did not surprise me to see one of the world's largest investment houses this week advocate buying or overweighting the American stock indices. UBS AG of Switzerland, which swallowed up former U.S. broker Paine Webber around seven years ago, has advised clients to "sell Japan and buy U.S." Following a 40% surge last year, UBS now says that on a valuation basis, and based on the outlook for corporate profits, Japan is outright expensive. I see the Japanese market trading at 44 times earnings right now, which does look rich compared to the 15 times that the S&P 500 index trades at. Yet, fund managers are not trampling one another to get out of the Japanese market. Germany's Allianz Dresdner Global Investors, which oversees $1.3 trillion worldwide, still calls Japan its favorite market. Merrill Lynch's monthly fund manager survey for March cited Japan as managers' favorite destination for the twelfth time in 13 months, leaving the UBS observation out in the cold.
It may be that they turn out to be right over the next few months, but I stand by my call that these core markets at least will continue to trade fresh highs in the near-term. [Editor's Note: The Japan ETF (EWJ) just hit a 5½-year high this week. Find out how you can profit with sector ETFs.] Emerging Markets While investors in the core global equity markets test the oxygen at five-and-a-half-year highs, I want to draw your attention to a potential warning sign in some of the world's emerging markets. Regular readers will remember my recent commentary regarding a slide in Middle Eastern stocks a few weeks ago (available in the MoneyNews archives). This week I want to serve up a technical warning sign – one that, if it plays out, could lead global equities lower. As ever, referring to the technical toolbox is a wake-up call for those who tend to wear blinders. Emerging markets are renowned for their volatility. That's because they are illiquid and share prices can easily be pushed around. However, investors are often rewarded by higher-than-average gains since shares and bonds tend to rally hard in response to vigorous growth rates in these economies. I'm talking about countries such as Brazil, Turkey and Thailand. Strong growth tends to underpin currencies, which makes the stock market that little bit safer and serves to create a self-fulfilling prophecy that these economies are investment safe havens. Slowly but surely, more money is attracted, sending the currency up and reinforcing the appeal of equities. Stock prices rise steadily. However, the time comes when investors flock for the exit all at once. It could be caused by fears that the growth rate will mellow. Currently, investors are getting nervous over currency strength in these countries. As you'll already know, the Federal Reserve continues to raise rates at home, reducing the appeal of emerging currencies. Investors have been piling out of these three markets during March. Perhaps they are deciding that at this stage of the growth cycle, the easy pickings of raging overseas markets are behind them and it's time to gravitate toward core markets such as London, Frankfurt, New York and Tokyo.
 Above is the Brazilian key Bovespa index over the last seven months. It appears to be carving out what technical analysts call a ‘head-and-shoulders top formation.' At the very least this pattern makes me wary and indicates that prices will move sideways. If the pattern triggers a decline, we could be in for a slide in Rio. Looking at the price action in 2006, prices rose to a peak (left shoulder) in late January, before pushing up to an all-time high in early March (head). Finally, the advance in late March failed to punch through the clouds. What investors don't need to see here is that prices penetrate the "neckline" as drawn in the chart. If that does happen, the formation calls for a 3,400-point decline to as far as 32,600. From where we are currently trading, that would erase the 2006 gains and herald a 9% fall. The pattern is similar in several other markets, and if we did see a meltdown in emerging markets based on global growth slowdown fears, I dare say that many analysts would be pointing out similar patterns in core equity indices and calling for freefall. In order to get through this sticky patch, Brazilian and other emerging-market shares need to print new highs in order to negate the pattern. It's not time to panic and sell these markets yet. But, I'm watching these markets very closely. German Consumer Confidence
 When the European Central Bank next meets on April 6, few economists anticipate a rate hike from them. More expect them to await further data and then move rates up in May. This week both Italian and German business sentiment soared. In Germany, business owners feel more confident than at any time since around German unification in 1991. Germany's major stock index, the Dax, is already up 12% for 2006, while the bullish news lifted the euro appreciably against the dollar. Still, the dollar was boosted by news from the Fed this week that it will likely raise rates at least once more. But the message out of Europe is that confidence in a growing economy is increasing. Recently the IMF upped its 2006 GDP forecast from 0.9% to 1.6%. That's meager by U.S. standards but punchy as far as the lackluster Europeans are concerned. The IFO survey was expected to decline but surprisingly surged to a 15-year high this week, sending bond prices plummeting in anticipation of higher inflation and interest rates. It appears that growth is largely being driven by exports, which in turn are fueling consumer spending. Should the euro currency actually weaken against the dollar, that could further stimulate growth in the Eurozone this year. Ironically that would speed up the monetary tightening process from the ECB, which in turn would boost the appeal of the 12-nation currency.
The pace at which the money supply has been growing across Europe has added impetus to the mission at the central bank, which has traditionally
Have a great week!
Andrew Wilkinson P.S. Join my Triple Edge Alert Option Service today and save $400! Don't miss out on a great-and most profitable 2006. Call our Triple Edge Alert representative Aaron DeHoog today at 888-766-7542, ext. 253 or Go here now.
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