Global Market Commentary

What Are Digital Currencies — And What Do They Mean For Gold? 

What Are Digital Currencies — And What Do They Mean For Gold? Bitcoin is in the news, once again driven by a price spike that makes speculators and would-be speculators start counting their unhatched chickens.  This time, the granddaddy digital currency has competitors — “altcoins” — which are also attracting attention.  Ripple, ether, dash, monero, and hundreds of other currencies have sprung up (as of this writing, a total of 888, with a combined market capitalization of about $115 billion).  Some promise technical refinements and improvements to the bitcoin system; others offer institutionally friendly features that leverage bitcoin-derived technologies for...
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Chip Wars and the Race for Artificial Intelligence

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Chip Wars and the Race for Artificial Intelligence Radical transformation is coming in many fields of human culture and endeavor.  No, this is not just boilerplate praise of ongoing incremental technological innovation.  The only way to grasp the magnitude and significance of these incipient changes is to imagine yourself living during the time when steam and then electricity opened continents, shrank the world, destroyed and rebuilt entire societies and ways of life.  With that imaginative endeavor we can at least get a glimpse of the transformation that has already begun, but has not yet become fully apparent. We’ve written about...
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Saudi Arabia’s Bid for Transformation: Can It Work?

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Saudi Arabia’s Bid for Transformation:  Can It Work? Saudi Arabia has troubles.  Our regular readers have heard us discuss them often, especially in the wake of the dramatic decline in the price of oil between mid-2014 and the beginning of 2016. Countries whose economy relies predominantly on oil and other hydrocarbons are often said to suffer from “the resource curse” — a tendency for that reliance to stunt the development of other productive sectors of the economy.  This leads to an economy which is highly vulnerable to price shocks in the commodity on which it depends.  It also tends to...
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Social Commerce, Live Streaming, and Virtual Goods: Chinese E-Commerce Innovation Pulls Ahead

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Social Commerce, Live Streaming, and Virtual Goods: Chinese E-Commerce Innovation Pulls Ahead Since its economy began to be opened in earnest in the 1990s, China has undergone a transformation so radical that it defies easy description — one we’ve often written about in these pages. From many perspectives, the Chinese achievement is astonishing: China’s embrace of major elements of market-based economics has lifted hundreds of millions of people out of poverty, even though it has been accompanied by a political regime that shuns Western notions of democratic governance. (Economic and political liberty don’t always occur together as they have in...
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Video Games Rocket Ahead in 2017

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Video Games Rocket Ahead in 2017 The four largest “pure-play” video game companies have been star stock-market performers in 2017: Activision Blizzard [NASDAQ: ATVI], Electronic Arts [NASDAQ: EA], Take Two Interactive [NASDAQ:  TTWO], and Tencent [Hong Kong: 700HK].  (Tencent is not technically a pure play, but does earn about half its revenue from gaming, and uses its social communication platforms to drive business to that segment.)  For the moment, we’re leaving out other larger companies with significant video game components to their business, such as console-makers Microsoft [NASDAQ: MSFT] and Sony [Tokyo: 6758JP]).   To some investors, outperformance by this...
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Money Keeps Flowing Into European and Emerging-Market Stocks — Here’s Why

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Money Keeps Flowing Into European and Emerging-Market Stocks — Here’s Why We began to get bullish on European and emerging-market stocks a few months ago.  Now major financial media are joining us, citing the same data we’ve observed: a broad uptick in global growth and economic vitality is suggesting that markets which have lagged the U.S. for years may begin to close the gap.  Analysts continue to debate whether or not there is a disconnect between “soft data” (sentiment indicators) and the “hard data” (economic indicators), but from our perspective, earnings are the proof of the pudding, and both earnings...
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They Want to Be the Greatest World Power

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China Has a Grand Strategy — They Want to Be the Greatest World Power China Has a Grand Strategy — They Want to Be the Greatest World Power Next week, the Chinese government will host 28 heads of state, as well as many senior government and NGO officials, at the 2017 “Belt and Road Forum.”   Western countries will be underrepresented; the only Western head of state present will be Italy’s Prime Minister.  Vladimir Putin will be there, as will Christine Lagarde, head of the International Monetary Fund.  In spite of the thin presence from the developed West, the event...
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The Biggest Transformation of the Next Decade: Disrupting Global Transportation

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The Biggest Transformation of the Next Decade: Disrupting Global Transportation Gridlock in Washington, whether real or apparent, has slowed the “Trump trade.” Market enthusiasm in the election’s wake focused on the beneficiaries of tax reform, regulatory relief, and infrastructure development, and with progress on those fronts in question, enthusiasm has turned to the other irrepressible stalwarts: the U.S.’ big, disruptive tech companies. The chief suspects here are the likes of Alphabet [NASDAQ: GOOG], Amazon [NASDAQ: AMZN], Facebook [NASDAQ: FB], and Apple [NASDAQ: AAPL]; but there are many others. [Note: Guild owns each of these stocks for some clients; please see...
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Emerging Markets Look Good: An Update

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Emerging Markets Look Good: An Update   We wrote last week on the potential for emerging markets to regain their mojo after years of relative underperformance.  During the week, positive data have continued to come in.  Some data points: South Koreans will go to the polls on May 9 in the wake of their president’s arrest and impeachment.  There is a feeling that the new government will need to implement pro-growth, reforming policies in order to restore public trust in the rule of law.  Candidates are proposing plans to expand the country’s high-tech manufacturing strength more deeply into artificial intelligence,...
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Market Summary

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Market Summary   In the last few weeks, U.S. and world equity markets have exhibited the greatest period of weakness since January because of concerns that President Trump’s tax cuts and infrastructure spending will be delayed or abandoned — and at the same time, the arrival of fears due to rising geopolitical risks. Have these events caused the buying opportunity that investors have wanted?  Within three days, the first phase of the French elections will have occurred; the final round will conclude on May 7.  The U.K. has scheduled an election, but they have already agreed on Brexit, and this...
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India Makes Progress Under Modi’s Steady Hand

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India Makes Progress Under Modi’s Steady Hand Back in September, we gave readers a rundown of the big digital strategy of India’s Prime Minister, Narendra Modi — an effort which will be critical in the unleashing of Indian economic growth and India’s rise on the world economic stage in coming years.   It is difficult to describe the depth and intractability of the problems Modi is confronting.  Though India and China are both developing Asian economies with powerful economic growth trends, they are completely different beasts.  One major difference is the nature of central power. How India Differs From China...
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Elon Musk On Our New Robot Overlords: If You Can’t Beat ‘Em, Join ‘Em

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Elon Musk On Our New Robot Overlords:  If You Can’t Beat ‘Em, Join ‘Em Elon Musk is a larger-than-life titan of industry — the modern equivalent of Gilded Age figures such as Carnegie, Vanderbilt, and Rockefeller.  The style may have changed, but the essence is the same: bold innovators and visionaries who identify epochal technological and social trends and position their enterprises to ride the wave.  While the barons of the Gilded Age were known for industries typical of the first industrial age (e.g., railroads) or the second industrial age (e.g., electrification), entrepreneurs like Elon Musk (and Steve Jobs, and...
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March 30, 2017

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We See Opportunities Across the Atlantic Our basic view on the U.S. market remains positive.  As we’ve written in recent letters, we believe that the post-election rally doesn’t just reflect the optimism of businesspeople and consumers about positive developments in U.S. tax and fiscal policy.  Midway through last year, markets were already beginning to reflect the passing of the dollar and oil shocks of 2014 and 2015 — the impacts of a large and sudden rise in the value of the U.S. dollar, and of a large and sudden fall in the price of oil.  The arrival of a new...
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March 23, 2017

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What the Fed Means For Your Portfolio World markets are facing a major change, as interest rates have begun a multi-year uptrend. U.S. and foreign economic data continues to improve.  On many fronts, including employment, capital spending, salary increases, backlogs of orders, housing demand, retail sales of home-related items, and many others, the economic outlook for the U.S., Asia, Europe, and the world continues to improve. U.S. and foreign interest rates are in a rising trend, and will continue to rise for several more years as higher economic growth, higher employment, and higher incomes continue to support business and consumer...
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March 16, 2017

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Is Your Portfolio Prepared For the New Market Environment? The change that is underway in U.S. markets is no run-of-the-mill, short-term shift.  This is a sea-change — not business as usual.  We’re referring to the end of a thirty-year period during which interest rates were falling — a thirty-year bull market for bonds.  We believe that looking back, we’ll see that long-term U.S. government bonds peaked in July, 2016 — the end of an epic rally. Bear in mind that the bull market in bonds was generational.  That means that many money managers and many money management firms have spent...
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March 09, 2017

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The U.S. Growth Comeback Is In Its Early Innings Here’s why we’re bullish on U.S. economic growth for the rest of 2017, and probably longer. The Great Recession was not a standard textbook economic contraction, and the recovery has not been an ordinary recovery — neither in its structure, nor in its strength, nor in its length. The recovery has been weak and prolonged, partly because the downturn was driven by a severe financial crisis rather than the dynamics of a typical economic cycle; and partly because the policy response to the crisis put significant additional tax and regulatory burdens...
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March 02, 2017

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Global Stocks Stocks are attractive in the U.S. and several other countries, driven by improvements in economic performance. Since the third quarter of 2016, U.S. corporate profits have begun to rise after a six-quarter stint of sideways earnings. Since the end of the first half of 2016, manufacturing PMIs have been inflecting up around the world. (The Purchasing Managers’ Indices survey samples of business managers about their perceived prospects for new orders, inventory levels, production, supplier deliveries, and the employment environment.) Combine this with higher export statistics and expectations for continuing corporate profit growth globally, the advent of modest inflation...
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February 23, 2017

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Running On Empty: Crumbling U.S. Infrastructure Will Take Trillions To Fix, Creating Big Opportunities An unfolding crisis in northern California has brought unexpected attention to the infrastructure push that was one of the campaign planks of the new administration. The Oroville Dam is, in a sense, a crowning achievement of California’s 20th-century growth and the politicians and hydrological engineers who made it possible. The years after World War 2 saw a boom in California’s economy and its urban population, and by the 1950s, plans were being made to construct a system of dams, levees, and aqueducts that would control devastating...
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February 16, 2017

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Looking Back on 2017 Let’s take a step back and imagine that 2017 is almost over — and that we’re looking back from a standpoint in late December. What will we see has happened in the U.S. market during the remainder of 2017? First, we think we’ll be reviewing a volatile year. (The current lack of market volatility is a sign that investors should be prepared for volatility after the current rally slows down.) In summary, as regular readers probably know, we think that from the perspective of the year’s end, our current bullish view of U.S. stocks will be...
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Febuary 09, 2017

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Market Summary We are bullish on the U.S. but cautious in most other markets. At any time, a correction may begin in the U.S. market as political battles slow down the agenda of tax cuts and deregulation proposed by the new administration. As mentioned above, any failure to have tax cuts by September 2017 could create a negative psychology for U.S. stocks. By the end of 2017, the visibility of tax cuts and diminished regulation will be greater and the market will be on a positive footing. Certain market sectors such as financials, domestic industrials, and metals will benefit greatly...
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February 02, 2017

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Trump’s Plans Are Not Mysterious… He’s Fulfilling Campaign Pledges The new administration’s whirlwind first days in office have led some observers to wonder what they’re up to. Regardless of what we think about the political or economic ramifications of new policies, it’s important for investors to orient themselves and have a grasp of what’s going on. Mr. Trump is acting quickly to reward his voting base and fulfill promises he made during the campaign. If his business history is an indication — and we think it is — he will be working hard to get “huge,” visible results as quickly...
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January 26, 2017

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Tailwinds Still Strong For U.S. Materials Industries Back in early 2016, when Donald Trump’s victory in a contentious Republican Party primary still looked unlikely, the global commodity complex reached the bottom of the decline that had begun in mid-2014. From that bottom, commodities rose unevenly through the rest of the year.  Then they got another powerful impetus after the presidential election in November.  Sentiment took a decisive turn to the positive among businesses and market participants.  Many investors, consumers, and analysts seemed finally to break through the fear that the global economy was stalled in a prolonged disinflationary trend.  Growth...
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January 19, 2017

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The Markets In 2017:  Inflation, Stocks, Bonds, and Gold   Despite headlines declaring that the post-election rally is running out of steam as we head towards Inauguration Day, we continue to be optimistic about the prospects for the U.S. stock market for over the next several months.  Later in the year there is more potential for corrections from a few sources, which we will note below. Watch Inflation and Treasuries — Don’t Just Count the Rate Rises We believe that U.S. headline inflation will reach 3% in the first half of 2017.  As the Economist observed this week: “Headline inflation...
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January 12, 2017

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How China Could Boost Commodities In mid-2014, China’s foreign exchange reserves peaked at nearly $4 trillion.  Since then they have been declining as China defends its targeted exchange rate against the U.S. dollar, and increasingly against a trade-weighted basket of its trading partners’ currencies.  Reserves now stand at slightly more than $3 trillion. China Spends Down Its Foreign Reserves to Defend the Yuan Source:  Bloomberg At some point, the Chinese government’s economic calculus will shift, and it will decide that allowing the yuan to decline further or faster is preferable to a continued bleed of reserves.   If a lower...
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