2008 IS BEHIND US…MANY ARE THANKFUL
We would like to take this opportunity to wish you a very happy, healthy, prosperous New Year.
OUR OUTLOOK FOR 2009
A) The U.S. dollar will decline in 2009. This is a lynchpin for several investments.
B) Precious metals and grain commodities have bottomed. These are priced in dollars…as the dollar declines their prices will rise.
The above predictions are strongly held views. The next prediction depends upon events that are still unfolding, therefore we are waiting to establish the timing for this prediction.
C) Many stock markets will bottom in 2009, due to the fact that they have become very cheap. We will watch them and gauge their attractiveness based upon a number of fundamental and technical variables. We believe that when the bottoms do occur, they will be followed by rallies, which will carry many markets much higher. We do not believe that the time has arrived for most markets, but some markets may soon be ready for purchase. We plan to keep our readers updated on our views about the proper time to buy.
A) WHY THE U.S. DOLLAR WILL DECLINE IN 2009
We have been pointing out in our recent letters that a huge increase in the supply of U.S. bonds is necessary to finance the U.S. budget deficits, the bail out of world banking system, and president elect Obama’s plan to create jobs for three million people within two years. If the dollar weakens as we predict, foreign currency bonds denominated in strong currencies will be good investments.
Argument 1: THE U.S. NEEDS TO ATTRACT BUYERS FOR THEIR BONDS.
To attract buyers for the huge supply of bonds, the U.S. will have to either cut the value of the dollar, or raise the interest rates the bonds pay. Because the Federal Reserve and Treasury Department’s plan to bailout the banking system relies on low interest rates, rates will stay low. Thus, the U.S. dollar will again be under pressure.
Argument 2: THE CHINESE ARE SENDING A STRONG SIGNAL …THEY BELIEVE THAT THE U.S. DOLLAR WILL DECLINE.
Recently, we have been hearing general disbelief in the future value of the U.S. dollar from China, the holder of the largest amount of U.S. bonds (and the expected buyer for most of the new bonds to be sold). In recent weeks, several key Chinese officials have made negative comments about the U.S. dollar. The first official comments were that China will not make new investments in U.S. banks, because they wanted to spend the money on growth within China. A second senior official said that the U.S. should not get complacent, and continue to believe that dollar would stay high just because it had been rising for a few months. The third comment was made this past week in Hong Kong’s largest newspaper, the South China Morning Post. It was made by Chinese Central Bank governor Zhou Ziaochuan. He said, "The U.S. dollar is unlikely to be stable next year and later…and the likelihood of the United States issuing more money in the near future adds to the depreciation risk in the U.S.-dollar-denominated assets and trade settlement."
This is typical Chinese behavior. They repeat the message in different media through different senior officials. China obviously believes that the recent rally in the U.S. dollar will not continue, probably because they will be buying less U.S. dollar debt. I believe all investors should face the fact that China, who has been the largest buyer of U.S. debt, will be buying less of it in the future. If they do buy U.S. debt, they will want a cheaper dollar before making any commitment. This adds strength to our view that the U.S. dollar will fall in 2009.
Argument 3. RESTARTING THE ECONOMY IN THE U.S. WILL STRESS THE U.S. BUDGET FURTHER
A suggestion for President elect Obama:
If you want your program of revitalization to have quicker effects…employ tax cuts. Cuts in withholding taxes will immediately stimulate economic growth. Of course, tax cuts will mean more bonds will have to be floated to cover budget deficits, but many new bonds are being floated anyway. In our opinion, tax cuts will work better. Business will recover more quickly, and people will get more productive jobs.
Although infrastructure projects would fill a national need, they have historically been slow to effect economic growth. Much of Japan’s "lost decade" of stagnant economic growth (which really lasted over 13 years), has been blamed on placing too much dependence on infrastructure projects to stimulate the economy. By our estimation, it will take at least three years to employ three million people with steady paychecks. It will probably take one year just to identify and begin implementing the truly good projects, and to avoid the useless projects proposed by local officials. It could take two additional years to plan and ramp up employment for those projects that are approved. Every state, county, and city will have their own pet projects. Each must be vetted to avoid pork barrel projects such as building golf courses, and local swimming pools, instead of roads, schools, energy infrastructure, and information superhighways.
B) PRECIOUS METALS AND GRAINS HAVE BOTTOMED IN PRICE
PRECIOUS METALS-Precious metals provide some security in periods of war, economic hardship, and financial folly. Currently, all three are part of the landscape.
· War: Israel, Palestine, Iraq, Pakistan, Afghanistan, maybe Iran, and…India?
· Economic Hardship: Currently, we are experiencing the worst economy since the Great Depression in the developed world.
· Financial Folly: Here are a few candidates; the banking system collapse, the mortgage loan scandals, the mortgage derivatives crisis…we could go on and on.
In addition, the U.S. dollar will weaken, which raises the price of gold in U.S. dollar terms even if the gold remains constant in price against other currencies. Gold acts as a currency.
GRAINS-The world’s growing population needs to eat, and grain stockpiles are low. Expected global grain production will be moderate this year, and grain stockpiles will be even lower in a few months. Grains are also priced in U.S. dollars and will benefit as the dollar falls in buying power.
C) STOCKS ARE GETTING CHEAPER ALL OVER THE GLOBE
The long bear market that global stocks have been experiencing, have made them much cheaper and more attractive for long term investment. Based solely on current valuation, many are good values. However, the backdrop of a weak world banking system, and a severe global economic slowdown makes judging value and timing purchases more difficult.
We must be sure that companies and countries have adequate capital and access to liquidity to continue to finance their ongoing activities. The managements of the companies must be capable of operating in a challenging environment, and their products or services must have visible and enduring markets. Fundamental economic variables, technical, and psychological variables will also enter into the valuation/timing question. Some opportunities will be identified; we will wait patiently and review the evidence frequently.
In our opinion, 2009 could be regarded by history as a wonderful time to buy, certainly the psychology of fear today is the same psychology found at all major market bottoms. We plan to continue our active portfolio management style; looking for and evaluating opportunities, investing when we find acceptable reward/risk, and managing the portfolios’ exposure.
Guild Investment Management is a service business. We encourage our readers to contact us if you have questions about your investment portfolio, we will be happy to perform a portfolio evaluation for you at no cost.
Thanks for listening.
Monty Guild and Tony Danaher
Marty’s thought for 2009
"Doing more than is expected is what makes the difference between the exhilaration of achievement, and the acceptance of mediocrity."
Jim Sinclair’s Commentary
The "M" word has no place in the CIGA dictionary.
Jim Sinclair’s Commentary
Compliments of CIGA Ken:
Busted and Bloated Paradigms and New Paradigms to come, thoughts from Ciga Ken Drees with certs in hand
The stock market is where you need to be for the long term.
Just use an Index Fund.
Housing always goes up.
Get as much house as you can afford.
Just put that on the Home Equity Loan.
Big gas hog vehicles.
Flip this house.
Bloated and Soon to Bust
Just toss it out, it’s cheaper to buy a new one.
Just get a divorce.
I can’t move back in with Mom and Dad.
I can’t move in with my kids and burden them.
I thought money markets were safe.
You can always trust cash.
At least I can use my credit card if things get bad.
Gold, what’s that?
Don’t worry, Washington will fix it.
Driving habits, eg., people driving to and from work with no riders.
High Paid athletes.
The Pro Sports revenue model itself.
I eat what I want, when I want.
If you don’t like it, just toss it.
Undecided majors in college.
College affordability/high priced schools.
Just charge it.
My job is safe.
Our country can fight a war anywhere, anytime.
Just Bail em out.
NEW Paradigms to come
Understanding money and economic basics.
You cannot trust Wall Street (well underway)
Political scrutiny from the people.
I talk with my congressman at least once a month.
Taking an interest and getting involved in Government.
Caring about your Government.
Anger/frustration about the state of the nation.
The dollar is not worth very much.
Gold is where you want to be or should have been.
Prices are going up all the time (underway)
Shortages of food, gasoline, etc.
Spend the dollar quick before the price of that item goes even higher.
I never eat fast food.
Eating out is a luxury.
Wasting food is a no-no.
Making homemade bread.
Frugal is in.
Bling is out.
Owning a home is not smart.
Renting is the way to go.
No, we don’t have cable TV.
Small Local newspapers make a comeback.
Who can afford college?
I am lucky and blessed to be employed.
Going to church/temple is good to do for many reasons.
Gardening. (well underway)
Saving money in a safe medium.
3 meals a day, snacks anytime — those were the good old days.
Save the money first, then buy it.
We cannot afford to keep troops all over the globe.
It’s hard to get a credit card.
Yes, I know my neighbors, don’t you know yours?
Able to make basic plumbing and electrical repairs.
Going to the library.
Mechanical knowledge is very handy.
At least baseball is cheap again.
Gold closed out the year here in the US on an impressive note recouping nearly all of its intraday losses as trading neared the 11:00 AM hour. From that point on, it moved steadily higher. It should be noted that volume was so low you could have swung the turret of an Abrams tank around the trading floor and not hit a soul. Granted, that is a bit of an exaggeration but much of the usual crowd was not even on the floor today and were probably not even looking at the screens.
With the Dollar stronger and crude oil tending to the downside, it was pretty much a given that selling pressure was going to show up – that plus the fact that a particular well known newsletter writer decided to buy gold yesterday – alas for the bulls, that is generally good for a sell off as it occurs with predictable regularity. Dip buyers, who were watching the price action near the 10 day moving average, saw it hold and then moved in driving prices up nearly $30.00 off that level! The intraday recovery shows that buyers are in control of the gold pit for now. It did not hurt matters any that crude oil began moving higher pushing well off its session lows.
Looking back over the past year gold performed remarkably well. With the exception of the bonds, it was one of the few if only markets that showed a gain. So much for the dire predictions of the gold bears including one warning about the feds knocking it all the way down to $400 based on some cockeyed entrails reading of Federal Reserve data. Such seem to forget or are unaware of gold’s role as a currency. When the de-leveraging trade and dollar repatriation that occurred as a result of that began to subside, the Dollar immediately ran out of steam and with that downward pressure on gold subsided. While gold can move independently of the US Dollar, it is still a given that the two are inseparably tied to one another in an inverse fashion.
By the way, on the continuous gold chart it closed out 2007 at $838.00 and ended 2008 at $883.60. Once again another up year for ol’ yeller. The mining shares did not fare as well – the HIU closed last year (2007) at 409.37. As I write this it is trading near the 302 level. The XAU closed 2007 at 173.32. It is near 124 right now.
On the delivery front – we began the delivery process for the thinly traded January contract. While not as impressive as how December started off, (it should not be expected to be) a respectable 1,138 deliveries were assigned. The Bank of Nova Scotia was the big seller with 1,067 while J P Morgan Futures was the big buyer taking 1,072.
Open interest nudged back above the 300,000 level yesterday which is a good sign of returning speculative interest. Keep in mind that unless enough of these paper buyers will actually stand for delivery and take the gold out of the warehouse, the bullion banks will continue to plague the Comex market.
Technically gold is consolidating its last leg up while it waits for a full contingent of traders to return on Monday of next week. Resistance near the $880 level gave way right before the pit session closed with the next level of resistance above that near $888-$890. The breach of $880 was no mean feat. Support surfaced at today’s low near $860. Below that is $850 and then $838 – $835. Downsloping trendline resistance on the monthly chart comes in near the $910 level which gold will have to best in order to convince sideline sitters that a trending move to the upside is going to occur. If this month’s performance is any clue to gold’s price action as the calendar changes to 2009, it should start off on a solid footing with the technicals favoring the bulls especially with it being able to muster a close above $880.
I think it safe to say that those of us who have been trading 2008 will not forget this one. Memorable is an understatement. I do not ever recall seeing price swings and volatility of such extreme magnitude in my entire trading career. More than a few hedge funds are now history and they will not be back to plague the markets as they have done for so long. Some of the players involved in that industry seem to more closely resemble the famous Hydra of Greek mythology. Cut off one of its heads and two of them grow from the wound so it would not be unexpected to see them surface running another fund under a different name.
Bonds actually got whacked pretty good today. It is hard to say whether it is just longs booking gains for 2008 or a definitive top has formed. It is generally not a safe bet to make too many assumptions based on price action in these thinly-traded holiday markets. I watched the pork belly pit hit limit up today on a measly 10 lot buy order so take that as a bit of a caveat when looking at price action today.
I hope all our readers have a Happy, Healthy and Prosperous New Year in 2009.
Jim Sinclair’s Commentary
A hint for the market "Wise Guys."
We are so very close to the geopolitical event that will not be faded into the marketplace.
Definition: To "Fade" is to trade counter-trend.
1. Israel makes a miscalculation.
2. Pakistan goes nuclear.
3. Both of the above are 5th column operations, not in control of those in control.
Jim Sinclair’s Commentary
In a generic sense, and under no circumstances referring to the company below:
Is it paper gold, OTC derivatives written on gold by Lehman, Bear, UBS, or Gold as in the stuff that is heavy, shiny and .9995 pure or better?
Have you read the prospectus? If not, please do.
Only the Shadow knows!
Biggest Gold ETF Holds Its Weight
‘Positive Sign That Demand Is Firm’
By ALLEN SYKORA
Holdings in the world’s largest gold exchange-traded fund are at a record level as 2008 winds down, providing some healthy optimism for the market in coming months.
Metal held by SPDR Gold Shares (trading symbol GLD) climbed to 705.90 metric tons on July 11, before backing down to 614.35 in mid-September amid a liquidation selloff throughout the commodities complex. Since then, holdings are on the rise again.
The SPDR Web site shows the holdings at a record 775.33 metric tons each business day since Dec. 17. This represents an increase of 23.5% from 627.88 metric tons at the end of 2007.
Holdings in the world’s main silver ETF, iShares Silver Trust (SLV), are near their all-time high. They stand at 6,792.99 metric tons, not far below the peak of 6,901.41 in late September.
Rising ETF holdings are generally described as supportive for a commodity such as gold or silver, because it generates actual physical demand, analysts say.
Jim Sinclair’s Commentary
Hamas is a side show compared to Pakistan. A fresh offensive against the militants? Who are you kidding?
India to Pakistan: Shut down terror camps
Tue, 30 Dec 2008 18:41:17 GMT
India calls on Pakistan to dismantle terror infrastructures on its soil and take an immediate action against those behind the Mumbai siege.
Foreign Minister Pranab Mukherjee on Tuesday demanded Pakistan to dismantle about 30 terrorist camps situated on the Line of Control in divided Kashmir.
Mukherjee also rejected Islamabad’s claim that New Delhi had mobilized its army and air force in the aftermath of November’s attacks, saying Indian forces had only conducted a routine annual winter exercise.
The minister also emphasized that India and Pakistan will exchange information and take confidence-building measures over the two neighbors’ nuclear capability on January 1.
Mukherjee insisted that India would continue to put pressure on Pakistan through diplomacy.
Pakistan kills 3 in Afghan supply route operation
By RIAZ KHAN Associated Press Writer © 2008 The Associated Press
Dec. 31, 2008, 8:56AM
PESHAWAR, Pakistan — Pakistani troops killed three militants in an operation to secure the major supply route to U.S. and NATO troops in Afghanistan, an official said Wednesday.
The route through the famed Khyber Pass remained closed for a second day because of the operation but will hopefully reopen soon, said Fazal Mahmood, a local official.
The U.S. military has praised the campaign and said the temporary closure of the road was not a problem.
Western forces in landlocked Afghanistan rely on the winding, mountainous road for delivery of up to 75 percent of their fuel, food and other goods, which arrive in Pakistan via the port city of Karachi.
Militants have staged repeated attacks on supply convoys heading along the pass across Pakistan’s western border to Afghanistan, where fighting is escalating seven years after a U.S.-led invasion toppled the Taliban regime.
Jim Sinclair’s Commentary
Beanno works. Happy New Year. Maybe I should say good night, and stop posting?
Russia-Ukraine gas talks ‘fail’
Talks to resolve a gas supply row between Ukraine and Russia have failed, the chief executive of Russian gas giant Gazprom has said.
Alexei Miller said gas supplies to Ukraine would be cut on Thursday but that Russia would do its best to guarantee supplies to Europe.
Russian PM Vladimir Putin earlier claimed that Ukraine would block supplies to Europe if no deal was done.
Ukraine denies owing money to Gazprom, and says it has guaranteed gas transit.
Russia said they would "fully, 100%" cut Ukraine’s supply from 0700 GMT.
There was no immediate comment from Ukrainian state energy firm Naftogaz.
Jim Sinclair’s Commentary
The revenge of the blue collar backbone of nations.
Power to the people.
Vote NO to unbridled greed and white collar CRIME.
Buy ONE Gold coin, and take it home!
Investors dumping dollars, going for gold
by Max Marbut
British poet George Gordon Noel Byron included that line in “Don Juan” early in the 17th century. That same sentiment is ringing true today for investors all over the world. As currency markets become unstable and projections head for the cellar, gold — one of the oldest measurements of wealth — is heading up in all forms.
The devaluation of the U.S. dollar has had a significant impact on the demand for, and therefore the price of, gold. A common way to invest in gold is to buy solid gold coins, which are struck by the U.S. Mint (part ot the U.S. Treasury Department) in West Point, N.Y. The Mint manufactures a variety of platinum, gold and silver coins in various denominations and weights up to the one-ounce American Eagle coins.
Each coin weighs 34.1 grams, with 32 grams (or 1 Troy ounce) of pure gold and an alloy metal which allows the metal to be durable enough to manufacture the coin.
The demand for the coins reached such a point in 2008 that those who sell gold coins were notified in November by the Mint that with the exception of the American Eagle Gold One-ounce and American Eagle Silver One-ounce bullion coins, all 2008-dated bullion coins have been depleted. Introduction of some new 2009 coins has also been pushed back.
The Mint can’t currently get enough of the “blanks” which are used to “strike” the coins, said U.S. Mint spokesperson Michael White. He described the 2008 demand for precious metal coins as “unprecedented.” In fact, after years of decreasing demand for the coins, demand tripled in 2008 compared to 2007 (see chart).
Jim Sinclair’s Commentary
White collar crime is not the only cancer that GOLD fights.
Gold Nanoparticles Don’t Just Look Pretty, They Fight Cancer
Jason Mick (Blog) December 31, 2008 1:20 PM
Gold has fast become one of the most promising materials for building devices on a nanoscale level thanks to a number of favorable properties. Among the applications of gold nanodevices is the use of gold particles to deliver drugs. Gold nanoparticles range from small nanoclusters up to larger, more complex nanostructures.
MIT researchers used the latter to create one of the first examples of atwo-drug delivery system.
Frequently, medical problems such as AIDS or cancer are best combated by a mix of drugs; however, drugs typically have different intervals they have to be taken on. Thus, merely injecting a mix of nanoparticles coated in or containing drugs would not be sufficient. A more complex delivery system was needed.
The MIT researchers decided to make use of an important property of gold nanoparticles. Gold nanoparticles, based on their size and shape melt when exposed to certain wavelengths of infrared light. In the case of drug-carrying hollow gold nanoparticles, the melting process can release drugs at specific locations in the body.
To implement a two drug delivery, researchers used two types of large hollow nanoparticles — longer ones, which they nicknamed "nanobones", and shorter ones, which they nicknamed "nanocapsules".
As I watch from Africa, I see the gold market set to open down $20 from what was the trading high a few moments prior to the Comex gang’s morning coffee and first computer entry. This happens between 1:30 and 2:30pm (5:30 to 6:30am in NYC).
How long are you going to remain the price property of the Comex as their “Pleasure Slaves,” getting your daily price raping before you bring in Bruce Willis in the pawn shop scene of the cult classic movie, “Pulp Fiction.” Remember, the visual theme of "Pulp Fiction" was the briefcase of unseen gold.
I have had it. Haven’t you? Where is your rage?
I do not support BUSTING anything. Any such statement is a blatant misunderstanding.
The Comex holds the rights to their game until you join me financially in the Final Challenge before the Golden Bull roars. Let the better players win!
I do support the reduction of the Comex warehouse by 50%. That is all we need to do to level the playing field.
Is there no Sheik or Scrapper out there tired of seeing the apple tree shaken, as I am? Poli-Poli and there will be no notice.
As long as you do not do your part then you are just leaning back and enjoying their having their way with you, day after day.
Will you not fight the good fight with me?
Click chart to enlarge today’s hourly action in Gold with commentary from Trader Dan Norcini
Once again you’ve given us vital information months before there are whispers of it in the mainstream press. I give the AP a lot of credit for this unblinking look at the Taliban’s rise in Pakistan, several passages of which frankly gave me chills.
A good candidate for understatement of the year: "the regional government made a mistake in May when it struck a peace deal with the militants."
God help them (and us).
CIGA Richard B.
Scenic Pakistani valley falls to Taliban militants
By NAHAL TOOSI, Associated Press Writer
(Key paragraphs excerpted from article)
ISLAMABAD, Pakistan – Taliban militants are beheading and burning their way through Pakistan’s picturesque Swat Valley, and residents say the insurgents now control most of the mountainous region far from the lawless tribal areas where jihadists thrive…
The 3,500-square-mile Swat Valley lies less than 100 miles from the capital, Islamabad…
Most of the insurgents are easy to spot with long hair, beards, rifles, camouflage vests and running shoes. They number at most 2,000, according to people who were interviewed.
In some places, just a handful of insurgents can control a village. They rule by fear: beheading government sympathizers, blowing up bridges and demanding women wear all-encompassing burqas…
Several people interviewed said the regional government made a mistake in May when it struck a peace deal with the militants. The agreement fell apart within two months but let the insurgents regroup…
On Friday, Pakistani intelligence officials said thousands of troops were being shifted toward the border with India, which blames Pakistani militants for terrorist attacks in Mumbai last month that killed 164 people. But there has been no sign yet of a major buildup near India.
"The terrorists’ aim in Mumbai was precisely this — to get the Pakistani army to withdraw from the western border and mount operations on the east," said Ahmed Rashid, a journalist and author who has written extensively about militancy in the region.
"The terrorists are not going to be sitting still. They are not going to be adhering to any sort of cease-fire while the army takes on the Indian threat. They are going to occupy the vacuum the army will create."