Larry Jeddeloh has been bullish on both gold and oil for a long time. In fact, the founder and chief investment officer of Minnesota-based TIS Group, which acts as sub-advisor for the Omega Global Opportunities Fund, says bullion will likely rise to US$3,878 per ounce -- but it might take eight or nine years to get there.
Nonetheless, Jeddeloh felt the gold price overshot a bit when it got to US$1,226 recently. He looks for gold exposure primarily through equities and his current global research model targets a tactical weight of more than 10%. Jeddeloh has been looking for gold to come down to about US$1,030 before adding to his position, and the manager is seeing buy signals again.
"It looks to us like the correction is over," he says. "The deterioration in the U.S. dollar that took place last year, we thought we'd get a hiatus and see some dollar strengthening. We're not getting it right now."
Jeddeloh, whose Market Intelligence Report is distributed to advisors and institutions with approximately $360-billion in assets under management, thinks the re-acceleration of the downward dollar trade is beginning.
One reason he cites is the U.S. Treasury's recent decision to lift the US$400-billion cap off losses it would take on Fannie Macand Freddie Mac, which was established when they were put into conservatorship last year. The manager feels this opens up the Treasury to almost unlimited losses for several years.
"I don't think they would have done that unless they're anticipating putting a lot more money out to cover those losses," he says.
"We think there is a big money print coming here. This is another example of the fiscal deterioration in the United States."
Either they print the money or raise it in the capital markets. Regardless, it is very bearish for the U.S. dollar, the manager notes. And with U.S. midterm elections coming in November, Jeddeloh expects the government will put more money in the hands of voters. So while the current discussion centres around tightening credit, he wonders if circumstances will force U.S. monetary authorities to go back to quantitative easing.
"They might have to go back and actually start reflating again, well before anybody thought," the manager says. "When the market gets a hold of that, then I think the U.S. dollar starts down again and you get commodity prices across the board, including gold and oil, starting to run."
Jeddeloh expects oil to rise above US$100 per barrel in 2010, partly because of the global economic recovery and also due to geopolitical issues.
"We wouldn't be surprised at all if some of the Western countries were involved, for instance, in trying to destabilize Iran and turn over the regime -- which by the way is not bearish for oil. This is going to be the year when Iran is going to come to a head."
jratner@nationalpost.com---
- The positions discussed above and the weights used for the global research model may not be those of the Omega Global Opportunities Fund.
BUYS
CHAODA MODERN AGRICULTURE (HOLDINGS) LTD. (0682/HKG)
Jeddeloh recently added this Chinese company to the portfolio, which is growing at 20% with a P/E ratio of just 4x. The Hong Kong-based organic farming company controls the entire process in fruit and vegetable production, from seeds to marketing.
"A lot of Chinese land has been under cultivation for centuries and is tired," he says. "The nutrients aren't there, so in a way, they are trying to replenish the land."
Chaoda is also actively working with the government to introduce vaccines directly into plants. Jeddeloh notes that its effort to do this with the H1N1 vaccine has won the support of authorities, who say it won't be regulated as a drug.
"Although I don't know if they can export that kind of product, they've got a billion potential customers inside China for it."YS
ISHARES FTSE/XINHUA CHINA 25 INDEX ETF (FXI/NYSE)
Asian equities and ETFs represent the largest position in fund.
"If the U.S. economy continues to recover, that helps their export markets dramatically," says Jeddeloh.
"So Asia is really a warrant on recovery in the rest of the world in terms of growth."
He notes that the Chinese economy is going to grow at least 10% this year and stocks appear to be reversing upwards again.
"They are going to have probably the best growth rate of all the major developed or developing markets again this year," the manager says.
He also notes that according to the Big Macindex, China's currency is undervalued by 48%. Someday, Jeddeloh is confident that will change.
"Basically, I'm buying very high growth in a currency that appears to be very undervalued."
IPATH MSCI INDIA INDEX ETN (INP/NYSE)
This exchange-traded note represents about 8% of the fund and reflects Jeddeloh's view that India is a better story than China in some respects. He notes that the country uses British law and structures, offers strong accounting systems, and has a very large population that is becoming very well educated.
"I think India is very unique situated in-between the Middle East and the Chinese," the manager says. He also notes that it should grow well in excess of 5% annually for several years and will likely demonstrate better fiscal discipline than China. "It is kind of a unique situation in that they are building up internally, but they are also becoming a preferred exporter for 21st century knowledge products."
Jeddeloh also notes that the fastest-growing area on the globe for inter-country trade is the India- China border.
"It is absolutely booming."
SELL
U.S. TREASURIES
Jeddeloh began playing this bearish view on U.S. government bonds through the ProShares UltraShort 20+ Year Treasury ETF (TBT/NYSE) about a month ago. The position represents about 10% of the fund. "The problem comes back to supply," he says. "Rates will likely start to rise, not just in the United States but just about everywhere else as investors start demanding more for putting their money in the government bond markets.
"The balance sheets of these governments are deteriorating almost across the board." Jeddeloh also notes that bubbles such as this (involving low interest rates) tend to pop early in zero years such as 2010. The manager plans to keep buying this ETF until 10-year bonds climb to about 4%, while he expects they will climb to 5% or 5.5% this year.
Manager Larry Jeddeloh, TIS Group Fund Omega Global Opportunities Fund Description Global, go-anywhere equity fund Style & Process Primarily top-down, focus on global geopolitics themes Portfolio distribution Cash 38%, International equity 27%, U.S. equity 22%, Canadian equity 10%.
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