Market Commentary From Monty Guild

Posted at 4:05 PM (CST) by & filed under Guild Investment.


Does the Obama Administration want the U.S. dollar to decline?  We believe it does.  On November 5th, the U.S. Federal Reserve announced that they intend to keep “interest rates exceptionally low” for an “extended period of time.”  Given that the U.S. Dollar is already under pressure due to low interest rates, the Fed’s announcement is the equivalent of saying: “go ahead and short the dollar”.  In our opinion, it is clear that this announcement ushers in a period of extreme volatility and a continued downward bias for the U.S. Dollar.

During the Clinton and GW Bush administrations, it was common for U.S. Treasury officials to make statements about the need for a strong dollar.  Historically, financial leaders have been circumspect about declaring that their currency is overvalued.  This is especially true for countries like the U.S. where the government is trying to sell trillions of dollars of debt to investors to finance the immense current and expected future budget deficits.  We therefore find it shocking that the world’s most important central bank has made statements that strongly encourage a decline in its currency.

However, an examination of the current administration’s economic approach provides a possible reason.  On November 2nd 2009, President Obama called for a new “post bubble growth model” with a greater focus on exports, and referenced the fact that Germany, which he called “a wealthy, highly unionized industrial nation,” has been a very successful exporter.  It does not take a rocket scientist to understand that his goals include more unionization and more exports.  And because U.S. union workers are in general much more generously compensated than non-union workers, we believe that the only way that the U.S. can achieve higher exports is to devalue the dollar.  We therefore believe that it is a goal of the Obama administration to see the dollar decline.

These events add credence to our view that one should avoid the U.S. dollar for major cash balances and instead hold the Australian, Canadian, Norwegian and Brazilian currencies.  We also continue to believe that investors should continue to hold oil, gold, and foreign stocks for the long term.  In our opinion, the profits in these areas may be just beginning to occur.


November 5, 1999 was the 10 year anniversary of the removal of Glass Steagall.  We believe as do many others that the removal of Glass Steagall directly led to the financial melt down of the last two years.  Please see below for the New York Times article about the subject. 

By Stephen Labaton
Published: Friday, November 5, 1999

Congress approved landmark legislation today that opens the door for a new era on Wall Street in which commercial banks, securities houses and insurers will find it easier and cheaper to enter one another’s businesses.

The measure, considered by many the most important banking legislation in 66 years, was approved in the Senate by a vote of 90 to 8 and in the House tonight by 362 to 57. The bill will now be sent to the president, who is expected to sign it, aides said. It would become one of the most significant achievements this year by the White House and the Republicans leading the 106th Congress.

”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”

The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation’s financial system. The original idea behind Glass-Steagall was that separation between bankers and brokers would reduce the potential conflicts of interest that were thought to have contributed to the speculative stock frenzy before the Depression.

To read the full article, please visit our website:

This week we are celebrating the 20 year anniversary of the fall of the Berlin Wall.  As an international power Russia seemed quiescent 20 years ago.  Today, there is no doubt that the relative harmony of the Gorbachev years has given way to the militarism and bullying of the Putin years.


Maria Bartiromo of CNBC interviewed Paul Volcker on November 3, 2009. She entitled her interview with Mr. Volcker  “The Silencing of Paul Volcker.”

Ms. Bartiromo evidently believes that Mr. Volcker is unable to speak his mind about the need for separation of the banking activities of major banks from their trading activities.  As we stated in last week’s letter, Mr. Volcker has voiced the opinion that banks and their lending functions should be regulated by the Federal Reserve and that trading institutions should be separate from the bank lending system.

In GIM’s opinion, these trading activities, which employ immense leverage, are dangerous.  We believe that trading excesses could cause immense losses and instability to the entire banking system at any time.  And it is not hard to imagine that such a crisis would require further taxpayer bailouts for institutions that are “too big to fail.”


In effect, the G-20 said all systems are go for economic expansion globally.  The G-20 said in their news release, “Economic and financial conditions have improved following our coordinated response to the crisis.  However, the recovery is uneven and remains dependent on policy support. We agree to maintain support for the recovery until it is assured”

May we translate?  All systems are go for global economic expansion.  When this news became public the U.S. dollar fell and gold rose substantially.



U.S. money supply is rising rapidly and this is another indicator of coming inflation and higher commodity prices in years ahead.  When combined with a lower dollar, this type of indicator has quite frequently led to inflation.  It is for this reason among others that we call for a resurgence of inflation in 2011.


Many had feared that the IMF’s pre announced sales of 400 tons of gold would hit the market and cause the gold price to plummet.  We have long held that this decade, as in past decades, IMF gold sales are always taken by central banks that want to diversify out of currencies and into gold for part of their reserves.

Currently, the central banks of many emerging countries hold only about 3.5 percent of their assets in gold while developed countries have about 35 percent of their reserves in gold.  It is no secret that many emerging countries want to buy the IMF gold in order to raise their status in the community of nations and diversify their holdings out of the declining dollar.

India bought half the gold one month after it went on the market (a record quick sale) and Sri Lanka bought gold for their reserves in the open market.  Both purchases were at prices above $1,000 per ounce.  The purchase raises India’s gold holdings to 6 percent of their reserves from 4 percent. China’s gold percentage to total reserves is lower than India’s.  It seems obvious to us that many other nations will buy up any gold offered by the IMF or other central banks at market prices.  If they do, we expect the price of gold to rise much higher to accommodate a rise to 10 percent in India and China’s gold reserves.  China mines a great deal of gold internally.  If they decide to hold their domestic production to add to their reserves as Chinese financial figures have suggested they do, we could see gold move to much higher prices.


China’s next President will probably be the current Vice President, Xi Jinping.  He will inherit a number of problems that are developing in China such as public dissatisfaction with high home prices and public irritation with corruption and favoritism.  We anticipate he will favor the current policy of growing the economy with a well-planned series of goals to develop infrastructure, consumer spending and to provide new jobs in healthcare, consumer areas, education and construction to complement the existing factory job growth.


This week’s pronouncements by President Obama and by the Federal Reserve add further conviction to our long held view that the U.S. Dollar will continue to slide in value. The GD-20 indifference to a declining dollar just raises the bearish thermometer. We remain bullish on oil, gold, non-U.S. currencies and foreign stock markets in fast growing parts of the world.

Thanks for listening!

Monty Guild and Tony Danaher