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Forbes Financial Round Table: Commodities DOUG COHEN: Byron, since you asked a question for the table, I'll ask one for you and everyone else can join in. It seems to me the two things that you have to have a point of view on in the market right now are financials, for a fairly obvious reasons, and then commodities because, on the bullish side, that's where a lot of the action has been. You talked a lot about commodities. You're bullish on energy. You're bullish on gold. You're bullish on cotton and presumably a lot of other things.
If you're that concerned about the economy, and I realize you're probably more concerned about the U.S. economy than you are about the global economy, isn’t there a bit of a disconnection there? I'll actually take it one step further, as an ex-gold analyst who wrote a report about 10 years ago entitled “100 Reasons to Buy Gold” when gold was about $300/oz. If I were to write a report on gold today, I could probably give you 100 reasons to sell gold -- though not for the next year or so. The momentum right now is a phenomenon propelled by the weak dollar and all the hedge fund activity that is formidable in a small market. That's driving gold and I certainly wouldn't bet against $1,000/oz. But ultimately commodities, and gold is still largely a commodity, do tend to revert to the average cost of production. For gold, that would probably dictate a price closer to $350 or $400. That's a long way from where we are today.
That’s a long way of saying, Byron, if you're that concerned about the economy, how can you really be that aggressive on some of these commodities?
BYRON WIEN: I think that you're underestimating the importance of the developing world. The developing world is the big consumer of commodities and it's growing -- in the case of China, at close to 10 percent per year, in the case of the Middle East at six percent -- and that's where the incremental demand for commodities is coming from.
DOUG COHEN: But you're essentially making an argument for decoupling.
BYRON WIEN: I believe that the United States is in a position of erosion and the rest of the world is still in a period of growth. Don't get me wrong. I don't disagree with your point that the developing world is going to grow more slowly as a result of the U.S. slowing down. But, it's still going to grow at a much faster rate and I'm predicting a recession and a severe market correction in the United States.
My feeling is that you're still going to see fairly substantial growth in China, fairly substantial growth in India, South Korea. Maybe Japan will slow down in sympathy but I don't think it's a player. The key thing is that the three largest economies in the world, Europe, the United States and Japan, are probably going to be slowing down. But the rest of the world is going to be growing at a pretty respectable rate and that's where the demand for commodities is going to come from.
Let me throw out a couple of other things. I think we've all been hit by the wave, as it's now being referred to, of Barack Obama's ascension. I think we have to assess the investment implications of that. It's pretty clear to me that the Democrats are in a good position to take the White House and, if they do, and particularly if they gain some seats in the Senate and the House of Representatives, the Bush tax cuts, particularly those that related to dividends and capital gains, are very likely to be rolled back. So that's an investment implication of this change in political chemistry that I think we all have to assess. Do you all agree with that?
Next: Forbes Financial Round Table: Infrastructure Improvement
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