What has caught our eye here in the US market is the fact that so many indices have topped out after the massive rally of last week right under their respective 200 day moving averages. – Dennis Gartman July 20th

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Warren Buffet: US Economy only Halfway Back

President Barack Obama heard a sobering message from Warren Buffett when he asked for the investment guru’s views about the economic recovery, according to an interview Obama gave NBC News on Thursday.

“I’ll tell you exactly what Warren Buffett said. He said, ‘We went through a wrenching recession. And so we have not fully recovered. We’re about 40, 50 percent back. But we’ve still got a long way to go’,” Obama told NBC during a visit to Holland, Michigan, to promote his job creation policies.

Obama chatted with Buffett in the Oval office on Wednesday as he sought ideas on how to translate higher U.S. growth into stronger hiring. This would help him deliver on an election year promise to tackle unemployment currently at 9.5 percent.

Buffett, who built an estimated $47 billion fortune running his insurance and investment company Berkshire Hathaway Inc, warned Obama the recession created a huge overhang of excess capacity in the economy that would simply take time to mop up.

Obama said Buffett specifically used the example of the U.S. housing market, noting 1.2 million new homes were built on average per year in the United States, according to historic trends. That number soared above 2 million during the property bubble, but construction activity has since collapsed.

“What Warren pointed out was, look, we’re gonna get back to 1.2 (million). But right now we’re soaking up a whole bunch of inventory. So a lot of — the challenge is to work our way through this recession,” Obama said.

High unemployment is another type of excess economic capacity. Obama’s Democrats risk severe punishment by voters in midterm congressional elections on November 2 if he fails to convince them stronger U.S. growth means better times ahead.

In this issue of Breakfast with Dave

– An interview with the Bear: Gregory Zuckerman at the Wall Street Journal just published a Q&A on the market and the macro outlook, featuring me alongside James Paulsen, at Wells Capital Management, whom I like a lot, but basically disagree with 99% of his views

– How will the U.S. mid-term election affect stocks, if at all? Tax rates on income and capital are going up next year, and gridlock will not give us strong leadership — hardly positives for the economic or market outlook

– What could happen that would turn you into a bear/bull?

– The U.S. equity market is still overvalued, according to the latest Shiller P/E ratio reading

– The roof collapses on U.S. housing: the NAHB housing market index caved in again in July

– A meat-grinder market: typically, what happens after a once-in-a-generation-type decline are powerful rebounds, but it never moves in a straight line

– Tough slog for employment: a survey by Accenture showed that businesses in the U.S. do not plan to restore their workforce to pre-recession levels anytime soon

Read the Summary HERE

Holy Grail-ism

Just arrived back home in Vancouver.

Sixteen hours on airplanes yesterday gave me the chance to finish reviewing a lot of uranium material. (For those of you finding the uranium theme long-in-the-tooth, we will get back to regularly scheduled programming this week, I promise.)

Most of my latest research focused on uranium’s big prize. Unconformity-style (sometimes half-truthfully called basin-style) deposits.

The mining business often falls victim to “Holy Grail-ism”. We get fixated on the largest, richest and most valuable deposits. What if we found the next Carlin Trend? Or the next Voisey’s Bay?

But for most metals, the chances of finding another super-giant look-alike are slim. There’s simply too big a bell-curve out in nature to hope you will land on the upper tail. And too many people who’ve been looking for “the mother lode” for a long time.

But in uranium, focusing on the top deposits is more defensible.

….read more Holy Grailism

From my home base in Bangkok, Thailand, I can tell you — in no uncertain terms — that Asia’s economies are as vibrant as ever, if not more so.

Just consider the following list of recent economic stats coming out of Asia, the world’s most populous corner of the globe, home to fully 50% of the world’s population …

• China’s gross domestic product (GDP) expanded 11.1% in the first half of this year.

• China’s June exports soared 43.9% compared to last June, the second biggest jump in six years.

• China’s crude oil imports hit a record 22.27 million metric tonnes in June, to a daily import volume of 5.44 million barrels!

For the first half of this year, China’s crude oil imports soared 30.2% over the comparable six months in 2009.

• China’s industrial profits soared 81.6% through May. The combined sales of 39 industrial sectors soared to RMB 25.4 trillion ($3.7 trillion USD) in the first five months, a 38% increase over the same period last year.

Nonferrous-metal mining profits soared 330%, while the coal mining industry saw profits rise 81%.

• China’s urban fixed asset investment soared 25.5% in the January through June period.

Central government and local government projects climbed 14.1% and 27.0% from a year earlier … industrial investments increased as much as 28.8% year on year and investment in the railway transportation sector rose 20.4%.

• China’s retail sales soared 18.3% in June, and are up 18.2% for the January through June period, year on year.

• Singapore’s economy is roaring even more, expanding at a stunning 19.3% in the second quarter, the biggest rise since records began in 1975. Full year 2010 growth is now expected in the 15% range.

The main growth areas: Manufacturing, up 58.6% year-to-year in May, the fastest growth since records began in 1980. The service sector grew 11.4%. Construction, 13.5%.

• Malaysia: Latest data, first-quarter GDP jumped 10.1%, the highest growth rate recorded since the first quarter of 2000.

• Indonesia: At least 5.7% GDP in the second quarter.

• Taiwan: On track for at least 7.7% growth this year, and probably higher, now that a major trade deal has been struck between Beijing and Taipei.

• Thailand: 6% GDP expected for the full year, despite a nearly two month long mini-Civil War in Bangkok!

• India: Full year growth should come in at 8.5% GDP; India’s Sensex stock market is already at two and a half year highs!

All This Vibrant Growth in Asia
Has Vast Implications AND
Repercussions for Your Portfolio …

1. Asian stock markets, while also a bit more volatile right now, are in strong long-term bull markets. So unlike the U.S., I continue to recommend investors concentrate on Asian stock markets.

2. Most of the natural resource bull markets are also very much intact. I’m talking about oil, gold, base metals, and foods.

Huge demand for natural resources — mostly coming from Asia — virtually guarantees higher prices to come for the world’s most precious resources. No matter what the economies of Europe or the U.S. do.

Indeed, just look at the price of oil, which despite the worse economic disaster in the western world since the Great Depression — continues to trade in the $70 to $80 per barrel range, nearly 500% more than it cost just over ten years ago.

Or consider gold, up more than 400%. Or copper, up more than 500%! The same can be said for virtually every natural resource under the sun.

But natural resources are not my main point today. Asia’s growth isn’t either. My main point today instead, is …

Although the U.S. Stock Market
Has Rallied Back Strongly, Don’t Be Fooled

With rare exceptions, nearly all of my indicators on the U.S. markets are turning south.

Even though U.S. stocks appear strong, bouncing back from their early July lows, I don’t like the downside risk.

At best, I think the Dow can get as high as 11,000, for an additional 700-point gain. On the other hand, I put the downside at 8,700, a whopping 2,700-point fall.

Put another way, the Dow’s downside risk is now almost four times greater than the upside potential. That’s not the kind of market you want to be in!

In my opinion, most U.S. stocks are overvalued right now. They have not yet factored into the equation that Washington is as broke as Greece … Portugal … and Spain.

And, they have not factored in two other HUGE problems …

First, the U.S. dollar’s prospects are horrible. What happened to the big rally in the dollar? Fact is, it’s already peaked, and in just five short weeks, the dollar has now lost 6.4% of its value against the euro.

It’s even lost about 1% of its value against the Thai baht, a country that is still largely under emergency rule from the recent civil war there.

As I’ve forecast all along and have been dead right on, longer-term, other than a temporary bounce here and there, the dollar is toast.

That’s because the U.S. government is completely broke, with massive debts of more than $136 TRILLION!

And that’s just on the Federal level: It doesn’t include the debts and liabilities of the 46 out of 50 states that are now technically bankrupt too!

Plus, our Federal Reserve is caught between a rock and a hard place. They can’t raise rates for fear of causing the U.S. economy to completely collapse. So the dollar will find no support there.

And the Fed can’t push rates down, either. They’re already effectively at zero.

Bottom line: The U.S. dollar is in for a long-term decline that could see its value fall much more against nearly all other currencies. The only questions that remain are how much and how fast?

I can’t answer those two questions. But I can say that the dollar’s poor outlook is one more reason to stay away from most U.S. stocks.

At least in the short-term, until the devaluation of the dollar starts to reflate U.S. equity markets — which it will do — but not for a couple more years.

Meanwhile, I believe you simply MUST opt for investing in gold, foreign markets and natural resources. If you don’t, you’ll in essence be committing financial suicide.

Second, Ben Bernanke is prepared to print trillions more worthless paper dollars. My sources tell me he’s already received approval from other Board members to print as much as another $5 TRILLION in the event the economy turns back down, which it is already doing.

But if he needs more than that, rest assured, he’ll print $10 trillion if that’s what he thinks it will take to turn things around.

The problem is that any and all money printing by the Fed will do nothing more than send the value and purchasing power of the U.S. dollar even lower.

It also virtually guarantees that eventually, inflation in the U.S. will rear its ugly head, in a surprising leap that will catch almost everyone off guard.

Bottom line: I actually have quite a few. Chief among them …

A. Stay OUT of the U.S. broad stock markets. With the exception of gold mining shares and funds, and the natural resource picks in my Real Wealth Report.

B. Look East, to Asia, for additional real growth in your portfolio.

C. No matter what, don’t expect the U.S. economy to come roaring back at any time in the next five years.

At best, you will see 1 or 2% nominal growth. I say nominal growth because it won’t be real growth. It will NOT take into account the falling purchasing power of the dollar.

D. Don’t fall for anything the talking heads on major media shows are spewing. All too often, they do not have a clue what the markets are doing, or why.

I guarantee that if you listen to them and act on their recommendations, you stand to lose virtually ALL of your money.

E. Last, but not least, realize this: The big-wigs in Washington are truly Emperors with no clothes.

Listen to anyone in Washington, and it’s akin to managing your wealth and financial security with your pants down: You are sure to get screwed.

Best wishes, as always,

Larry

P.S. With natural resources consolidating for their next big move up … with Asian economies leading the charge higher and where the action is — I can’t think of a better time to become a member of my Real Wealth Report.

If not already a member, join now for just $99 a year. It truly is a bargain that can pay for itself hundreds of times over. Click here to join now.

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