Global Market Commentary

All Aboard! The Train is Leaving the Station


It’s time to make money! Get on the train and invest while the market is in an uptrend.


Guild Investment Management strives to provide the best institutional-grade analysis. In order to fulfill our objective, we constantly scan the globe for political, social, and economic trends, events — and especially changes, as they occur.


The first important skill of a successful investor is to clearly see de-velopments and trends before others get on the bandwagon. Secondly, it’s about timing sales getting off the bandwagon in time to take good profits.

Observing the global markets is like sitting atop a moun-tain and viewing the terrain below. From the top of the peak, there is a 360-degree vista; it’s possible to see all the investment opportunities, their causal factors, their risks and potential rewards with expanded clarity.


Most of the time the view is partly cloudy; some of the


terrain is clear, but other parts are shrouded in clouds. Infrequently, a blanket of fog covers just about every-thing. But sometimes, a sunny and cloudless vista of all investment areas stretches for miles around. This is one of those sunny, cloudless occasions.


We believe that we see clearly the investment opportunities today which are a function of current economic policy worldwide. It is a rare occasion when events are aligned to provide the fuel for a continuing rally in numerous markets, but as a result of these events, we are bullish for the next few months.


This does not mean that we don’t think markets will correct. We know they will. We know that markets fluc-tuate, and we expect fluctuations. What we believe is that the powerful trend is up, and that investors should be invested. Also, those who like to trade should use the downward fluctuations that will come as opportuni-ties to buy, and then use the upward fluctuations to take partial profits. We suggest that all you investors leave the core of your investments untouched. If you don’t want to labor over picking investments, buy what and when we recommend buying and sell what and when we suggest doing so.

Where are We Bullish?



It is a long list! We are bullish on:


  • S. stocks. We own S&P 500 index shares for clients and have recommended the U.S. market to our Gold Subscribers


  • Gold and gold shares. Be careful and buy ones with strong fundamentals and good reserves


  • Emerging markets stocks


  • Wheat


  • Foreign currencies, especially Canadian and Singaporean dollars


  • Energy-related investments. Income-paying oil producers and growth-oriented oil producers in North America, for example


  • Special situations in the following areas: technology, food (agriculture), certain currencies and other commodity industries

What Makes Us Say it is a Clear and Cloudless Investment Day?


The answers are many, but can be summed up in one word: Opportunity!

Governments are providing liquidity on a massive scale. Many governments globally are taking action to pro-vide unparalleled liquidity to the world’s banking system and investment markets. Both in their own nations and sometimes jointly, these governments are working to provide liquidity to banks and businesses. Their hope is that this added liquidity will inflate asset prices, coax businesses to expand and hire more, and increase mer-chandise sales, which will, in turn, generate more tax revenues. This new liquidity is ultimately an attempt to recover the economic growth that has been frittered away by unwise politicians since the end of World War II.


Governments are being forced to shrink due to lack of income, and even politicians realize that they have reached the end of their spending rope and are now trying to provide an impetus for more growth from non-governmental circles. All of this liquidity is being created to counteract the deflation being experienced within the world’s banking systems.


And what it’s creating is an environment full of opportunity, here and now. “Make hay while the sun shines” is the adage that comes to mind today.


What this Means to You


We believe that investments that benefit from declining currencies will do well. These include: gold, oil, stocks in the U.S. and emerging markets, and food commodities. All of the currently recommended investments re-main in play with one exception. See below for our new recommendations.


Remember the Big Rally that Lasted from March 2009 into 2010?


At that, time U.S. stocks, gold, currencies, oil, grains, and foreign stocks all rose rapidly in price after steep 2008 declines. We think a similar rally is underway. As we said above, it will be driven by money cre-




Since Investing Skies are Still Clear, Remember: Don’t Listen to the Pessimists or the Terrified


Certainly, problems abound. As of today, some are panicking about Portugal and its ability to finance its econ-omy. The Portuguese problem will be handled in the same manner: new cash infusions. Europe will be getting one trillion Euros (1.3 trillion dollars) from the European Central Bank in February 2012.


Just remember that the continuing liquidity pumping will send stocks and commodities up as investors seek to put the money to work. Longer term, the problems will reappear. But before they do, there will be sufficient time to make money.


Reasons for Our Confidence


  1. The most recent confidence-builder was last week’s ultra-dovish announcement from U.S. Federal Reserve: that interest rates will stay low until late 2014. This announcement leaves no doubt that the Fed’s Federal Open Market Committee (FOMC) now buys into the view that the U.S. the economy is facing major headwinds for years to come. It took some time to convince them, but it appears now that they are on board with more Quan-titative Easing (QE). Money printing and currency debasement is the order of the day. “QE to infinity” as our buddy Jim Sinclair says…and he couldn’t be more correct.

The members of the FOMC see the deflationary specter hanging over the world economy, and they know that the wrong advice could accelerate us into a major depression. They fear deflation, and they are combating it with a strong dose of inflation through QE. In 1937, the Fed made the mistake of raising interest rates, as the market clawed its way out of the depression. It was the wrong move; economic activity took a nosedive. Ber-nanke & Co. are loath to make the same mistake.


Interestingly, the Fed quietly raised their inflation target, alongside their dovish comments last week. They now admit to targeting an inflation rate of two percent. Slowly but surely, they have inched it up — first the target in-flation rate was 1-2 percent, then 1.5-2, and now a base of 2 percent is acceptable. This isn’t the first time we’ve said this, but it’s obvious that the Fed is trying to manufacture some inflation, which tells us that they still fear deflation in the future. And clearly, the voters on the FOMC got the message that the economy is likely to be weaker for longer and that it needs some added and continuous stimulus. And you can guess what that means: consistent doses of QE for years to come.


As most participants in the global market know, some sort of QE or easy money is always being created in some part of the world. Yet, much of this is ignored by the global markets. Where it is not ignored is in three regions: the U.S., China, and Europe. The first two of these are the first and second largest economies in the world, and the last is where the current problems lie. But the reality is that easier money is nearly a worldwide phenom-enon right now; emerging markets outside these big three are also on board with QE.


That leads us to the second reason for our confidence.


  1. All seven of the world’s major central banks are printing money at an unprecedented rate. We have been monitoring the rate of the balance sheet growth of these countries. As you know, balance sheet growth takes place by increasing banking reserves. Not surprisingly, bank reserves have been rocketing ahead at a pretty stunning rate.


When we look at the balance sheets of seven of the largest central banks – the European Central Bank, China, Japan, England, Switzerland, India and Brazil, we are WOWED by the ballooning of the central bank balance sheets since December 2010.


Effects of the Ballooning of Central Bank Balance Sheets


One effect is more liquidity for world stock and commodity markets. We predict these will be instrumental in driving prices of many stocks and commodities much higher worldwide. Within a few years, it will create bubbles, and those bubbles will create another 2008-style crash. But for now, there is money to be made.


All of this provides a rare opportunity to increase the value of stock and commodity assets while the cash is flowing. We will be closely monitoring the effects, and once they start to diminish, watch our sales recommen-dations. Through the next few months to a year, we see an environment much like the period between 2009 and 2010, where many stock rose 50 percent or more in value from very depressed levels.


We’re not sitting this one out.


Recommendation Changes – Taking Profits in One Stock & Three New Buys



  • We are recommending another fertilizer stock to replace Potash of Saskatchewan (NYSE: POT).


Instead, we like CF Industries (NYSE: CF), a large manufacturer and distributor of nitrogen and phosphate fertilizer products for purchase. CF is in a volatile industry, and we may sell quickly.


  • For investors, we recommend buying Brazilian stocks. We favor the Brazilian market ETF and suggest purchasing I Shares MSCI Brazil ETF (NYSE: EWZ).


  • We also recommend the technology sector for a continued rally. There are several ETFs for technology, including some broad tech and area-specific funds and technology is ready for a continued rally. We recommend Technology Select Sector SPDR Fund (NYSE: XLK).


Feel free to revisit our previous recommendations using the recommendation tracker below.

Our Recommendation to Take Profits on POT



We are recommending taking profits in Potash Corporation of Saskatchewan (POT). While the company is cur-rently well-positioned to help the world meet its growing food needs, we see problems ahead. The fact is that higher potash prices are causing several new mines from Brazil, Canada, Russia, and the Middle East to enter the potash supply market. Some of these new mines could begin shipping potash in late 2012. We believe that in 2013 there could be a glut of potash as production from the new mines enters the marketplace. We prefer to sell in advance of the announcements of the new supply.


As a replacement, we are recommending investors buy CF Industries. CF makes nitrogen and phosphate fer-tilizers and is well-situated to grow as demand for their products increases. Large new capacity additions of nitrogen and phosphate fertilizers are not anticipated in the short run.


Brazilian Banks: Facilitating the Party


It’s been a hard ending to the credit party for the American consumer. The U.S. government’s profligacy continues unabated, thanks to the paralyzing self-interest of Beltway mandarins whose continued employment


depends on the smoke and mirrors of partisan polarization.


But the American people themselves are making sound progress at deleveraging their personal debt burdens; debt relative to disposable income is on track to return to sustainable levels within the next two years. Cleaning up the mess from a party can be painful, but reality came calling; quantitative easing and misjudged Keynesian-ism can shield the defenders of the status quo, and may ultimately swamp our best efforts, but many of us have been picking up the broken glass, rearranging the furniture, mopping the floor, and generally getting our own house in order even though the hangover is giving us a pounding.


Meanwhile, though, off campus, other parties are just getting started and promise some good entertainment for kids smart enough to find them. In Brazil, the night is young for new consumers who are among the most flush with optimism in the emerging markets. The job-creation picture is bright, and has been highly resilient dur-ing the downturn. Unemployment is enviably low, and income expectations are high. Inflation is not on the

consumer’s mind, and neither is saving — while income grows, a survey showed that wealthier Brazilians were saving only about 7 percent, and many said they have no extra money to save. No deleveraging hangover here.


The enormously popular President Luiz Inácio da Silva (Lula) knew how to throw a party. He made a safe and orderly environment for business and attracted investment with stability and friendly, sane policy. He also man-aged to keep the left happy with measures such as Bolsa Família, a popular and efficient cash transfer program for poor Brazilian families whose conditions seek to break cycles of poverty by requiring that children remain in school. It remains to be seen if his successor, Dilma Roussef, who cut her political teeth in the company of Marxist guerrillas during Brazil’s military dictatorship in the 70s, can match her predecessor and benevolently preside over a party of growth. So far, she seems determined to try. There are a few items in her toolkit to keep the party humming as her administration targets 5 percent GDP growth and 4.5 percent inflation in 2012. There is plenty of room to cut interest rates, and 2012 h as seen cuts already. A minimum wage hike of more than 14 percent went through at the beginning of January. There will be little inflationary impact on consumers. While consumers in the U.S. have been cleaning house, Brazilian consumers are arriving at their party with cachaça and attitude.


Some of the real facilitators for the Brazilian consumers’ festa as they take advantage of loosened credit restric-tions, lower interest rates, income security–and all-around good feeling–will be the banks and the processors of debit and credit card transactions. The accessibility and attractiveness of credit and debit cards to low and middle income Brazilian consumers has skyrocketed: debit card usage has more than doubled in the past five years and continues to grow vigorously. All signs point to the determination of the Roussef administration to keep the party-goers happily stimulated with purchasing power that will increasingly express itself through credit and debit card transactions.


Even if Brazilian consumers travel to make purchases abroad, as we noted in our Market Commentary on De-cember 29, Brazilian banks and credit card issuers will be profiting. In the new year there is potential for some shakeups in this market; new players may enter at a time when contracts are being renegotiated. But as Brazil-ian consumers gear up for a good time, Brazilian banks which both lend and issue credit cards are worth watch-ing closely.


We are recommending the large Brazilian market ETF, and as we mentioned above, we like I Shares MSCI Brazil ETF (NYSE: EWZ). For more details see our recommended section below.


What’s New from the Tech Genies & Geniuses


In May of 2010, a team from the University of Hamburg reported the ability to perform computer logic opera-tions on an atomic level. However, just last week, an article in the journal Science discussed a group at IBM’s

Almaden Research Center in Silicon Valley that has created a magnetic memory bit that uses an array of only 12 atoms. This pushes the bound-aries of what many in the data storage world thought was possible, as current advanced magnetic storage systems need a million atoms to store digital data.


The IBM team has created this device at a very small size, making it the smallest unit of electronic storage, according to the IBM team leader, An-dreas Heinrich. The laboratory’s retired founder, Don Eigler, focused the lab on nano materials some years ago, and his work is paying off. There are some impracticalities of a 12-atom device, because the temperatures required for it to function are too low. Yet, experts in the field believe

that a device of 150 atoms would be able to function at room temperature.


Many more remarkable technological devices will undoubtedly come from the tech wizards of the world, both in and out of Silicon Valley. In the grand scheme of our evolution, humans are still on the precipice of what might be possible in technology, and it’s always exciting to see what new inventions will come next.


The Recipe for a Rally is also the Recipe for a Pricier Dinner


Decelerating prices in 2011 inspired the world’s monetary ‘cooks’ to mix the following ingredients:

  • Trillions in Cheap, Easy Money


  • Expanding Central Bank Balance Sheets


  • Increasing Inflation Targets


  • Interest Rate Cuts


  • Easing Bank Reserve Requirements


The rally should taste good to hungry investors, but some will have a lingering aftertaste.


Yesterday’s inflation data does not create inflation. Tomorrow’s expectations, however, can drive prices higher. A recent article in the Hindu Business Line highlighted a concept we have written about many times — that fear of inflation perpetuates more inflation. The article parallels Franklin D. Roosevelt’s famous quote “The only thing we have to fear is fear itself” to inflation. “Once (inflation) crosses a certain threshold,” the article states, “it generates expectations of further inflation, and the two feed into each other viciously, just as fear does.”


In 2011, the Guild Basic Needs Index TM (GBNI) reflected a deceleration in the prices of basic needs. But at some point, the rising costs of basic needs will reach that threshold mentioned in the quote above. When that happens, people take notice and change their purchasing behavior. Instead of buying what they need, they start stockpiling or hoarding — thus creating more inflation by reacting to their fear of inflation.


We’ve created the GBNI to continually monitor the price increases of basic needs. We believe that relying on the more commonly used and much manipulated inflation measure, the Consumer Price Index (CPI) is a mis-take. The CPI masks the impact of inflation on your quality of life, and we want you to be aware of that impact.





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 part-nerships, trusts and estates, pension and profit sharing plans, and corporations, among other clients.


Your receipt of this newsletter does not create a personal investment advisory relationship with GIM although some recipi-ents may also be advisory clients of GIM. GIM has written investment 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 investment 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. Moreover, some content and some of the assumptions, formulas, algo-rithms and other data that affect the content may be inaccurate, outdated, or otherwise flawed. GIM does not guarantee or take responsibility for the accuracy of such information.


Please note that investing in stocks, other securities, and commodities is inherently risky, and you should rely on your per-sonal 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 areas that are the subject of current recommendations, commentary, analysis, opinions, or advice, contained in this newsletter. GIM’s advisory clients or principals are currently long U.S. and foreign equities. Guild Investment Management (acting for its clients) and/or Guild’s principals, purchased 84,050 shares of Potash Corp. of Saskatchewan (NYSE: POT) from January 3, 2012 to January 17, 2012, at prices between $43.11 and $45.53. Guild sold 84,050 shares of POT on January 31st, 2011 at prices between $46.35 and $46.4415. Guild Investment Management (acting for its clients) and/or Guild’s principals, purchased 116,530 shares of Golar LNG (NYSE: GLNG) between December 2, 2011 and January 11, 2012 at prices be-tween $43.5017 and $46.1674. Guild also sold 15,000 shares of GLNG on January 11, 2012 at $44.1006. Guild Investment Management (acting for its clients) and/or Guild’s principals, purchased 66,990 shares of iShares MSCI Brazil Index Fund (NYSE: EWZ) on February 1, 2012 at prices between $67.089 and $67.2083. They also hold positions in U.S. and foreign market ETFs, emerging market ETFs, gold ETFs and gold mining ETFs, precious metal mining shares, and foreign curren-cies.


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 news-letter 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 newslet-ter 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 recommendations, information, or opinions in its newslet-ters. 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.




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