Global Markets Up, Up, And Away

The world markets moved like Superman last week.  They lifted off and moved higher in a decisive manner.  In the ongoing contest between bulls and bears, the bulls have had the upper hand in many markets.  Wall Street also moved firmly into the bullish camp with U.S. stocks eclipsing their April 2010 peaks.  To us this means that the technical short-sellers who had been bearish on U.S. stocks and expecting a correction bought back their short positions and took their losses. 

Pullbacks will come, but the trend is up for: emerging markets in Asian and Latin American, commodities, including precious metals, base metals, oil, and foods.  This upward trend can also be seen in the strong Asian currencies and for U.S. stocks.

The trends are up for 3 reasons:

1.         The U.S. Fed and other central banks are creating money.

2.         The weak U.S. dollar is causing dollar holders to move into non-dollar assets.

3.         Bond-holders who are worried about the low-yields are moving into stocks and commodities to improve their returns.


The Fed Fuels This Lift-Off

Rather than boring you by repeating our thesis that the Fed has no choice but to inflate, I will share an excerpt of an op-ed piece written by Federal Reserve Chairman Ben Bernanke.  The article was published the day after the Fed announced that they will be buying 600 billion dollars in treasuries over the coming months. If anyone had any doubts that the Fed action is focused on increasing the price of assets like stocks, commodities, and in the long-term real estate, this op-ed piece should put those doubts to rest.

Mr. Bernanke begins the article by giving a history of the Fed intervention in 2008 to reduce short-term interest rates and to buy over $1 trillion in bonds and other assets.  He states, “These steps helped end the economic freefall and set the stage for a resumption of economic growth in 2009.”

The Fed has a dual mandate to promote a high level of employment and low stable inflation.  Bernanke goes on to say that unemployment is too high, and continues, saying: “Today, most measures of underlying inflation are running somewhat below 2% and a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run.  Although low inflation is generally good, inflation that is too low comprises risks to the economy—especially when the economy is struggling.  In the most extreme case, very low inflation can morph into deflation [falling prices and wages], which can contribute to long periods of economic stagnation.”

He goes on to point out that that spare capacity in the economy can be used to increase employment and growth, and that we should not worry about inflation being caused by these policies.

As our readers know, we believe that the Fed sees the potential for a Japanese type of long-term deflation in the U.S., and that they will do whatever they can to avoid such a politically unpalatable outcome.  Their strategy is to try and get confidence up, spending up and investing up.  Toward this end, they have been printing money, buying bonds and thus creating liquidity.  This liquidity has flowed and will continue to flow into U.S. and foreign stock markets (especially the fast growing markets of the emerging world), as well as commodities, and eventually real estate.

Many of you may remember my recent conversation with Jim Sinclair where we discussed the Fed’s expected action which has now taken place.  Jim pointed out that the Fed officials would continue and expand their campaign of talking up the expected inflation rate so that savers would see the need to become investors, investing in new company formation as well as increasing their stock, commodity and real estate purchases.


There Is No Doubt That Gold Has Plenty of Buyers

The three reasons for upward market trends listed above are part of the explanation for why gold has a large number of buyers; another part is that the world monetary system needs to be revamped.

Robert Zoellick, who has been the president of the World Bank since 2007 came out in the Financial Times and said that the new monetary system he envisioned should “involve the dollar, the euro, the yen, the pound, and a renminbi that moved toward internationalization…” Zoellick goes on to say, “the system should also consider employing gold as an international reference point of market expectations about inflation, deflation, and future currency values”.

In our opinion, Zoellick has part of the right idea…gold could and should be an excellent component of the system.  Zoellick understands that the world will have a hard time without a better monetary system, yet the new system (when such a system is implemented) must be based upon a reserve currency.  The parent country of that currency must have a conservatively managed, well-capitalized banking system, and prudent monetary and fiscal policies.  Ideally, they will employ some connection to gold in valuing their currency.

The U.S. dollar is the world’s reserve currency today.  A currency crisis exists because developed country bankers took on too much leverage and too much risk.  Further, U.S. and other developed country politicians have been employing irresponsible fiscal policies for decades.  Now, there is a debate about the monetary policy of many nations and we can expect this debate to get louder in January 2011.  In the meantime, we expect that demand for gold and other precious metals will continue to rise.


Summary and Recommendations

We still adhere to the same themes and investments that we have been discussing:

Investors should continue to hold gold for long-term investment.  We have been bullish on gold since June 25, 2002 when it was selling at about $325 per ounce.  In our opinion, it will move to $1,500 and then higher.  Traders should sell spikes and buy dips.  The appreciation in the price of gold since June 2002 has been about 330%.

Investors should continue to hold oil-related investments. There has been some recent oil-related news that has driven oil to over $87.00 per barrel.  A negative news event is that there will be an increasing supply from Iraq.  We have been bullish on oil since February 11, 2009, at which time oil was trading at $35.94 per barrel.  The price of oil since February 11, 2009 is up about 140%.

Currencies:  For long-term investment, we do not like the U.S. dollar, Japanese yen, British pound, or the euro.  As we mentioned in our September 14th letter, we like the Singapore, Thai, Canadian, Swiss, Brazilian, Chinese, and Australian currencies.  We would use any pull-backs in these currencies as an opportunity to establish long-term positions.  Since September 14, 2010, these currencies have appreciated versus the U.S. dollar by the following amount: Singapore dollar +3.3%, Thai baht +8.2%, Canadian dollar +2.0%, Swiss franc +2.9%, Brazilian Real +0.5%, Chinese Yuan +1.2%, and Australian dollar +6.7%

Investors should continue to hold shares of growing companies in India, China, Singapore, Malaysia, Thailand, Indonesia, Colombia, Chile, and Peru.  We have been recommending these markets in these commentaries since September 14, 2010, and we would use any pullbacks as an opportunity to add or initiate positions for long-term investors.  Stocks in these countries have appreciated in U.S. dollar terms by the following percentages since September 14, 2010:



Stock Index Appreciation 




















We believe long-term investors should continue to hold food-related shares such as grains, wheat, corn, soybeans, and farm suppliers.  Since we said the grains had bottomed on December 31, 2008, these have all appreciated substantially.  We see more price rises ahead.  Since December 31, 2008 in the price of corn is up about 41%, wheat is up about 18%, and soybeans are up about 35%.

We believe U.S. stocks can rally further.  Our reason for becoming more bullish on U.S. stocks on September 9, 2010 is that over the longer term, liquidity formation through QE will create demand for many assets, including U.S. stocks.  In the short-term, U.S. stock market indices could pull back as the indices are near resistance areas.  Traders may want to take some profits, but stocks are assets that can grow, so liquidity finds its way into them.  Since September 9, 2010, the S&P 500 Index is up about 9.8%.

Thanks for listening.




General Disclosures about this Newsletter
The publisher of this newsletter is Guild Investment Management, Inc. (GIM or Guild), an investment advisor registered with the Securities and Exchange Commission. GIM manages the accounts of high net worth individuals, investment partnerships, trusts and estates, pension and profit sharing plans, and corporations, among other clients.
Your receipt of this newsletter does not create a personal advisory relationship with GIM although some recipients may also be advisory clients of GIM.  GIM has written advisory agreements with all its personal advisory clients, which sets forth the nature of that relationship.
The newsletter makes general observations about markets and business and financial trends and may provide advice about specific companies and specific investments. It does not give personal advice tailored to the needs, objectives, and circumstances of individual readers.  Whether investment ideas and recommendations are suitable for individual readers depends substantially on the personal and financial situation of that reader, which GIM, as the publisher of the newsletter, makes no effort to investigate.
GIM attempts to provide accurate content in its newsletters to the extent such content is factual rather than analysis and opinion, but GIM relies primarily on information compiled or reported by third parties and does not generally attempt to independently verify or investigate such information.  GIM does not guarantee the accuracy of such information.  Moreover, some content and some of the assumptions, formulas, algorithms and other data that affect the content may be inaccurate, outdated, or otherwise flawed.
Please note that investing in stocks, other securities, and commodities is inherently risky, and you should rely on your personal financial advisors and conduct your own due diligence in connection with any investment decision.
A Special Comment for Guild’s Clients
If you are an investment advisory client of GIM who is receiving this newsletter, please note that the fact that a general recommendation is made of a particular security, commodity, or investment area to its newsletter subscribers does not mean that investment is suitable for you or should be purchased by you. For example, GIM may already have purchased such securities on your behalf or purchased securities in the same industry (and an increase in the position for you may represent too much concentration in one security or industry), or GIM may believe the investment is not suitable for you based on your risk tolerance or other factors.  If you have questions about the recommendations in this newsletter in relation to your account at GIM, please contact Monty Guild or Tony Danaher.
Conflicts of Interest
As of the date of this newsletter, GIM’s investment advisory clients or GIM’s principals owned positions in equities and etfs in areas that are the subject of the commentary, analysis, opinions, advice, or recommendations contained in this newsletter.  These positions are equities and etfs of the following countries: U.S., Canada, India, China, Singapore, Thailand, Malaysia, Indonesia, Brazil, Chile, Colombia, and Peru, as well as other countries not mentioned in this newsletter.  In addition, GIM’s investment advisory clients or GIM’s principals owned equities and etfs related to the following commodity markets: gold, silver, oil, copper, and agriculture.
GIM and its principals have certain conflicts of interest in its relations with its investment advisory clients and its newsletter subscribers resulting from GIM or its principals holding positions for its clients or themselves which are also recommended to its clients. GIM may change the positions of its clients or GIM’s principals may change their positions (increasing, decreasing, and eliminating them) based on GIM’s best judgment at any given time, including the time of publication of the newsletter. Factors that lead GIM to change or eliminate its positions may include general market developments, factors specific to the issuer, or the needs of GIM or its advisory clients. From time to time GIM’s investing goals on behalf of its investment advisory clients or the personal investing goals of GIM’s principals and their risk tolerance may be different from those discussed in the newsletter, and the investment decisions made by GIM for its advisory clients or the investment decisions of its principals may vary from (and may even be contrary to) the advice and recommendations in the newsletter.
In addition, GIM or its principals may reduce or eliminate their positions in an investment that is recommended in the newsletter prior to notifying the newsletter subscribers of such a reduction or elimination. The publication by GIM of a “target price” or “stop loss” for a particular security or other asset does not necessarily represent the price at which  GIM intends to sell or will sell any such assets for its advisory clients or the price at which GIM’s principals intend to sell any such assets.
As a consequence of the conflict of interest, GIM’s clients or principals may benefit if newsletter subscribers purchase assets recommended by GIM since it could increase the value of the assets already held by GIM’s investment advisory clients or GIM’s principals. On the other hand, GIM’s principals and clients may suffer a detriment if they seek to acquire additional shares in securities that have been recommended and the price of the securities has increased as a result of purchases by newsletter subscribers.
To help mitigate these conflicts, GIM seeks to avoid recommending the securities of individual companies where GIM or its principals have an ownership position and where the issuer is small or its securities are thinly traded−that way sales by GIM in advance of possible sales by newsletter subscribers would not be likely to cause any significant decrease in the sale price to newsletter subscribers. GIM has a fiduciary relationship with its investment advisory clients and cannot agree on behalf of such clients to refrain from purchases or sales of a security mentioned in the newsletter for a period of time before or after recommendations for purchases or sales are made to its newsletter subscribers.
GIM encourages you to do independent research on the securities or other assets discussed or recommended in the newsletter prior to making any investment decisions and to be especially cautious of investments in small, thinly-traded companies, which are usually the most risky investments that you can make.
Disclaimer of Liability
GIM disclaims any liability for investment decisions based upon information or opinions in its newsletters.  GIM is not soliciting you to execute any trade. Nothing contained in GIM’s newsletters is intended to be, nor shall it be construed as an offer to buy or sell securities or to give individual investment advice.  The information in the newsletter is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject GIM to any registration requirement within such jurisdiction or country.
NOTICE TO RECIPIENT: Guild’s current and past market commentaries are protected by copyright.  Apart from any use permitted under the Copyright Act, you must not copy, frame, modify, transmit or distribute the market commentaries, without seeking the prior consent of Guild. This E-Mail is meant for only the intended recipient of the transmission, and may be a communication privileged by law. If you received this e-mail in error, any review, use, dissemination, distribution, or copying of this e-mail is strictly prohibited. Please notify us immediately of the error by return e-mail and please delete this message from your system. although this email and any attachments are believed to be free of any virus or other defect that might affect any computer system into which it is received and opened it is the responsibility of the recipient to ensure that it is virus free and no responsibility is accepted by Guild Investment Management for any loss or damage arising in any way from its use. Thank You.