QE2 will be followed by QE3 until we see "the end of the U.S. dollar standard," a leading gold enthusiast and emerging markets expert, declared yesterday. No one can predict the timing, but the signal to sell all your gold will be an emergency economic meeting to create a new global currency, says Asia-based investment analyst Christopher Wood, who has been recommending gold as an investment since 2002.
Wood is on record as predicting that gold will sell more than $3,000 an ounce someday. His portfolio allocation for U.S. pension funds includes 25 percent gold bullion and 15 percent gold-mining shares.
Another signal that gold is in danger of big price slippage is when Ben Bernanke raises interest rates by 1/4 of 1 percent, but he sees no reasonable chance that would happen anytime in the near future -- and certainly not unless there is inflationary growth in the U.S. economy.
"The biggest beneficiary of QE2 will be the Asian emerging markets," says Christopher Wood, emerging markets analyst at CLSA. "Investors must be overweight these Asian markets, because that's where Bernanke's buying of Treasuries will end up. Or investors can buy U.S. multinationals with major operations in the emerging markets."
Wood says the stock market in China sells at the same market multiple as the U.S., and he believes Chinese banks and insurance stocks are especially cheap right now and due for a move. His biggest weighting is in India. Wood's Asian portfolio of 25 stocks has gained 671 percent in value since late 2002, compared to the MSCI index, which has risen 217 percent. Wood's portfolio picks have turned in an annual return rate of 28.9 percent.
Wood told a small group of journalists he did not believe that QE2 would work and that it will lead on to QE3, just as QE1 led to QE2. Because of expected weakness in the dollar, Wood recommended buying strong Asian currencies like the Singapore dollar, his favorite. He flatly predicted the Singapore dollar would rise in relationship to the dollar. One way to play Singapore is to own high dividend yielding stocks there, or to get a slice via the iShares MSCI Singapore ETF that trades under "EWS."
He believes the economy will continue to be soft because of the foreclosure troubles facing the housing industry. Housing can't recover until there is a clearing of all the homes in trouble, and this possibility is being held up by all the legal snafus and litigation. He also predicted that Portugal "would blow up" and believes the French banking industry faces an enormous problem in the $495 billion of loans they have outstanding with Greece, Ireland, Portugal and Spain.