Boom!
Governments are being brought to their knees with startling speed. I spent this past Saturday in Bangkok watching the Asian news channels showing the demonstrations and various news feeds from Al Jazerra, CNN, and the BBC. I saw rioting all over the Middle East in at least six or seven countries, and the demonstrators seem intent on removing long-term, multi-decade governments from power.
The dominoes have started to topple. Tunisia, Egypt (two countries where change at the top has already happened), Libya (where change at the top is being fought for in the streets as we write this letter), Bahrain (where the Shia majority has started protesting against the Sunni royalty), Morocco, Algeria, Jordan, Yemen, Kuwait have all seen public protests against leadership. We have also seen smaller protests in Iran, Albania, Thailand, China, and Bolivia.
Many rulers overstay their welcome and try to make a type of kingship out of their regime. The days are numbered for dictatorial or oppressive leaders who have ruled for decades.
Boiling Discontent
We go on record predicting that there will be more changes in governments at the top over the next two years than in any decade in the last 100 years. We predict that there will be dozens of countries following the Egyptian, Tunisian, Bahraini and Libyan examples. There will be some of these changes in Asia, but many more in the Middle East, Africa, and several in South America. We are aware that this claim sounds extraordinary, but we can see the writing on the wall.
Global Hot Spots: Some Are Just Simmering, Some Boiling Over
Systems of oppression that keep people in the dark are being riotously expelled and replaced by information-sharing. The two will prove mutually exclusive. In our opinion, history will hold that Google, Facebook, Apple, Twitter, and many companies that supply the Internet, especially the mobile Internet, with software and hardware will be among the midwives of this revolution.
The electronic revolution is not just about new technology; it’s about technology’s impact on society. Just as television and radio helped to bring down the iron curtain and the Berlin wall, so today a more modern and more powerful force is rooting out corruption and autocracy.
This revolution will bring down governments, but it does not have to bring anarchy. These changes eventually can give a voice to many millions who have been kept silent. However, the power vacuums are often exploited by radical, fringe elements who seem to thrive on disruption. Long-term, we expect that more open societies will generate positive effects, but the near term could be pretty rough.
The Guild Guide
What This Means for Investors
Technology
There are hundreds, in fact thousands of companies benefitting from this technological revolution. Many of them are U.S. companies, but some are from Japan, India, Europe, Taiwan, and South Korea, among other technology-centric economies. Many countries will benefit greatly from this revolution. The mobile Internet with all of its devices and modes of expression will be remembered by history as the force that made the difference.
Oil
Kuwait and Libya are major world oil producers, and Kuwait, along with Bahrain and Yemen share part of Saudi Arabia’s 1,100 mile border. Saudi Arabia has a relatively small population with a large immigrant worker community, many from Pakistan which has become the current home to much of the Taliban.
Many questions surround the geopolitical changes taking place in the oil producing region. Will the straits of Hormuz or the Suez Canal be closed? Will governments not sympathetic to western oil consuming interests take charge? It is hard to say, but we do know that the risk of disruption to oil flows to Europe, Asia , and to the U.S. have escalated sharply.
Geopolitics reminds us once again why we are recommending that investors own substantial positions in oil and gold.
If oil quickly moves to $150 per barrel, it can be good for oil related stocks, but it is definitely not good for the world’s stock markets, so we recommend that investors monitor oil prices closely, looking to raise some cash or put out some hedges on stock market positions.
Global Investment Watch
Every fortnight we will focus on the investment climate in an individual country. Two weeks ago, we discussed Canada. An upcoming letter will discuss the investment opportunity in Japan.
Summary
Investors in this environment should continue to own oil, gold and silver. Japan is looking like a great long-term play if oil and gas prices don’t skyrocket.
We expect big consumers of oil and food to start hoarding at this juncture as fears about the continued availability of oil escalate. Libya has already declared force majeure with respect to its oil delivery obligations. Which domino is next? We have said recently that investors should own energy investments now, and this bears repeating. We recommend owning them and owning them in size.
Our Recommendations—In Review
Bonds
Intermediate and long-term bonds are still presenting risk of falling, and we still recommend avoiding them entirely.
Gold
Continue to own gold. We have been bullish since June 25, 2002, when gold was selling at about $325 per ounce. We see gold moving to $1,500 and then higher. Traders should sell spikes and buy dips.
Food and Farm-Related Stocks
These continue as a favorite investment target of ours. We have been bullish on grains and farm-related shares since late 2008. Continue to hold and acquire investments in food and grain related industries on dips. The possibility of food crises in Africa, Asia and Latin America is very real.
Oil
Since February 11, 2009, when oil was trading at $35.94 per barrel, we have recommended that investors own oil investments in their portfolios…and the reasons for owning it are increasing each day.
Currencies
Since September 14, 2010, we have favored the Singaporean, Thai, Canadian, Swiss, Brazilian, Chinese, and Australian currencies. Use pullbacks in these currencies as an opportunity to establish long-term positions. For long-term investment, we do not like the U.S. dollar, Japanese yen, British pound, or the Euro.
Global Stock Selections
For stock investments throughout the world we base our recommendations on careful studying of individual companies and industries, always keeping in mind that companies and sectors are at differing stages of growth. In developed countries, technology, precious metals, and commodity producers (food, oil, and base metals) will all benefit from an improving economy and a developing back-to-work trend in the U.S. and Europe.
Since September 9, 2010, we have thought U.S. stocks will go up as money flows into them and out of bonds. We recommend investors use corrections, which can occur at any time, as buying opportunities.
Japan and Australia were added last week to our list of favored countries. We are also still maintaining our bullish position on Canada, South Korea, and are keeping half of our original position in Colombia.
We continue to monitor world events closely, and encourage readers keep an eye out for changes to our recommendations. A summary of our current recommendations can be found in the table below:
|
Investment |
Date Recommended |
Appreciation/Depreciation in U.S. Dollars |
|
Commodities |
|
|
|
Gold |
6/25/2002 |
335.1% |
|
Corn |
12/31/2008 |
69.9% |
|
Soybeans |
12/31/2008 |
34.7% |
|
Wheat |
12/31/2008 |
25.1% |
|
Oil |
2/11/2009 |
173.0% |
|
|
|
|
|
Currencies Singapore Dollar |
9/13/2010 |
4.7% |
|
Thai Baht |
9/13/2010 |
5.6% |
|
Canadian Dollar |
9/13/2010 |
4.1% |
|
Swiss Franc |
9/13/2010 |
8.5% |
|
Brazilian Real |
9/13/2010 |
2.2% |
|
Chinese Yuan |
9/13/2010 |
2.6% |
|
Australian Dollar |
9/13/2010 |
7.5% |
|
Countries |
|
|
|
U.S. |
9/09/2010 |
18.4% |
|
Colombia (half of our original position) |
9/13/2010 |
-1.6% |
|
Canada |
12/16/2010 |
8.4% |
|
South Korea |
01/06/2011 |
-5.6% |
|
Australia |
02/15/2011 |
-1.1% |
|
Japan |
02/15/2011 |
-2.0% |
To view current and past recommendations, and see how we have performed, please go to our Commentary Archive and Recommendation Tracker at www.guildinvestment.com.
