U.S. DOLLAR GOES DOWN GOLD AND OIL GO UP
The above is my prediction and I could probably end this missive with that sentence. I am sure many of you would breathe a sigh of relief, not having to read any more dyspeptic diatribes by that curmudgeon in training, Monty Guild. Yet it’s hard to earn ones keep with a one sentence letter, so I will elaborate a little.
THE DOLLAR GOES MUCH LOWER BECAUSE THE U.S. AND G-7 NATIONS WANT IT TO
A lower dollar is not great for our trading partners. It makes their goods more expensive in the U.S., and makes their U.S. bonds less valuable, it is overdue and everyone knows it. Even though they know this and for the above reasons, they do not welcome a lower dollar. They also know that the dollar is badly ailing and it is too hard to let it stay up. The dollar cannot stay up with the U.S. running massive triple deficits, and with the current peaking in short term interest rates that Mr. Bush wants and that Chairman Bernanke will loyally deliver. Rates in the U.S. will stop rising. This is an election year and Bernanke knows it.
So last weekend when the IMF said the dollar is 20% overvalued, on cue everyone began to move out of dollars into other currencies. I guess this is a rational behavior on the surface. Let us however, examine this behavior a little more deeply. Is it wise to trade your overvalued dollars for a slightly less overvalued British Pound, Japanese Yen or Euro? In my opinion, this is only a rational behavior if you have no alternative. Meaning you are not allowed to own the assets which people move into when searching for historical and long term value.
GOLD CONTINUES TO RISE FOR A REASON
Precious metals especially gold, are the assets people hold when they want long term value and when times are getting tricky.
I won’t bore you with a long history, but gold is money and money that works through thick and thin. It works when governments are rational, and it works better when governments are irrational. It works when there is no war, and it works better when there is war. It works when there is no inflation, and it works better when inflation is rising. It works when the economy is ok, and it works during depressions.
RIGHT NOW GOLD WILL DO WELL FOR THREE REASONS
1. Governments are acting irrationally with your money. They are wasting your money.
2. There is at least one war going on in Iraq plus a police action in Afghanistan. Wise individuals that I respect, predict more wars in Iran, Saudi Arabia and maybe elsewhere before too much longer.
3. Inflation is heating up. The governments of the U.S. and other countries are trying to delay announcing the obvious, but there is now, and will be in the future, higher inflation.
GOLD CAN GO INTO A CORRECTION AT ANY TIME, SO CAN CURRENCIES AND OIL
Any investment can decline in value for a few months at any time. In our opinion, all three are good investment’s for the long term.
WE’VE SAID IT FOR YEARS AND WE CONTINUE TO REINTERATE OUR SAME THEME SONG. GOLD AND ENERGY ARE THE PLACE TO BE. A NEW ADDITION TO THE FAVORITES LIST IS FOREIGN CURRENCIES.
We got bullish on currencies once again in our last letter. In our opinion, one should sell U.S. dollars and switch into British Pounds, Euros, Canadian Dollars, Japanese Yen, Swiss Francs, Australian dollars etc.
SOME BOOKS I HAVE ENJOYED RECENTLY
KNOWLEDGE AND DECISIONS, by Thomas Sowell the brilliant economist, historian and social scientist. Sowell illuminates how every society operates. He points out the pitfalls and opportunities inherent in different methods, people use to try to improve a society.
THE ANNALS OF IMPERIAL ROME, by Gaius Cornelius Tacitus the famous Roman orator, senator and consul wrote this history of Rome. It focuses on the period from AD 4 to AD 66, a wildly eventful period in Roman history. In my opinion, nothing on television, or in the modern press is nearly so exciting, and gives such insight into human behavior.
AGAINST THE GODS, by Peter L. Bernstein, a prominent U.S. economist and investment manager. Bernstein explains the history of the development of the mathematics, statistics, economics and psychology, which have led to the radical changes in human life that the dawn of statistical analysis has brought to mankind. How the analysis and strategic decision making has created insurance, medical research, behavioral sciences, election statistics, crime fighting, stocks, options and many other areas of knowledge.
SUN TZU WAS A SISSY, by Stanley Bing. A humorous account of how one can survive in the world of mega corporations. If you work for, or have ever worked for one you will enjoy it.
Thanks for listening,
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Monty Guild is Chairman and CEO of Guild Investment Management, Inc., a registered investment advisor. All material presented herein is believed to be reliable. Investment recommendations and opinions expressed in these reports may change without prior notice.