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December 6, 2003

December 6, 2003

Happy holidays and best wishes for a happy, healthy and prosperous New Year.

OUTLOOK FOR THE NEW YEAR
Some of our opinions for 2004 are as follows:

1. Global stock currency and commodity markets will experience increasing volatility.

2. Inflation, a word which is almost never heard today, will be on everyone’s lips by the end of 2004.

3. Precious metals, base metals and foreign currencies will rise substantially in US dollar terms in 2004.

4. Get used to higher energy prices. Oil has entered a new price band due to some members of OPEC supporting an oil price increase to allay the effects of the declining US dollar on the buying power of oil producers. Saudi Arabia and other dominant producers have acted as swing producers increasing and decreasing production to keep oil in the band. We expect the new band to be 25% higher than the old band of $22 to $28 per barrel. Thus, we expect oil to range between roughly $27 and $35 per barrel for most of the year. The reasons for this are complex and may be addressed in a future letter.

5. The global stock markets will receive continued capital flows but these flows will shift more and more to growth and speculative stocks.

6. Top performing stock groups will include base metals, energy production, precious metals and growth stocks.

WE BELIEVE THAT A LONG TERM RESURGANCE IN INFLATION IS IN ITS INFANCY AND WE EXPECT IT TO LAST FOR SEVERAL YEARS.

If we are correct in our assumptions, then the appropriate investment posture is to own:

1. Precious metals and gold and silver shares

2. Base metals; copper , nickel, aluminum, zinc and steel shares

3. Energy shares, especially the shares of natural gas and oil producers in politically safe areas such as Canada, the US and China

4. Foreign currencies in cash and short maturity bonds

5. Growing companies that can grow through any economic environment (inflation or deflation) because of the high quality and the high demand products or services they offer.

For those of you who would like to review our arguments about why higher inflation is on the horizon, please go to our website www.guildinvestment.com and review our last several letters in the ‘Commentary Archive”. A quick explanation is that most major economic blocks in the world are rapidly expanding their money supplies and bank credit. The effect of this behavior will be to create liquidity in the world economic system and thus demand for capital equipment, infrastructure building, investment assets such as stocks and commodities, as well as for consumer goods and services. The excess liquidity created by these policies will lead to a resurgence in inflation as a rapidly growing supply of monetary assets chase a relatively less rapidly growing supply of purchasable goods, services and investments.

OUR STRATEGY
Because we believe that a long-term trend is upon us and because we believe that volatility will increase as the trend matures over the next several years, we have adopted a strategy of purchasing core holdings and trading around the core. Some of you might be asking ‘What in the world does that mean?’ It means we will hold core positions in base metals, precious metals, currencies and growth companies. Most of our holdings will be bought with a long-term view (more than 1 year).

In addition, we will hold shorter term trading positions in the same groups. While we may trade these positions in the short-term, our main focus will be to invest along with the themes outlined above, and to remove our commitment to the themes if they become obsolete. One way they may become obsolete is in the case of an expected correction of several weeks or months. In this case, we will cut our core position and reenter later when we believe that the correction has run its course.

We sign off with every good wish for your holiday season and with the hope that you will contact us with comments, criticisms, or insights.