…GORDON, HOW I LOVE YOU, HOW I LOVE YOU, MY DEAR OLD GORDON…[sung to George Gershwin’s old American folk song “Swanee”]
We conjecture that this tune will not be sung in the halls of Britain in the future. The current British Prime Minister, Gordon Brown, is presiding in a major decline in the fortunes of his country. This is the same “brilliant” Gordon Brown who forcefully told the British people when he was Chancellor of the Exchequer (finance minister), that Britain no longer needed the hoard of gold in its reserves. During his tenure Britain proceeded to sell off half of their inventory in 2001 at the princely price of $270 per ounce. How does that compare to today’s $890/per ounce? I think you will agree Gordon flubbed that one in a big way.
Now, Gordon Brown is presiding over a decline in the British Pound to a 23-year low, an economy declining at about 6% per year, and a banking system crisis that he is trying to bailout…but it is proving to be too little too late. Of course, as we keep saying in our communications, too little bailout today, will necessitate a much larger bailout later. It is going to be cheaper to do a large bailout the first time versus coming back and making it bigger than it should be later.
To put it another way, it is easier to stop a runaway train when it is coasting at 10 miles per hour than when it reaches 70 miles per hour. For Gordon, the current failure is nothing new. Since his days as Chancellor, his economic policies have always been muddled. For the sake of all countries, let us hope that Britain will be steered by more competent leadership and financial management.
There was also a very good article this past weekend in the Daily Mail’s “Mail Online” that articulates just how fragile and precarious the British banking system has become. The link to the article is: http://www.dailymail.co.uk/news/article-1127278/Revealed-Day-banks-just-hours-collapse.html
MEXICO AND PAKISTAN…POLITICS
There is a lot of worry about Iran, Afghanistan, and Iraq and we understand the need to be concerned about these places. However, we do not hear enough in the American press about the two major trouble spots which are coming to the fore, Mexico and Pakistan.
Mexico has serious economic problems. Corruption, falling national oil production, and rising narco-terrorism as six major drug cartels fight for control of the lucrative drug trade.
We believe that the government’s ability to govern is compromised, and that many in the police departments and military are working for various narco-lords. As a major symptom, we point to the open gunfights on the streets of Mexico’s cities, and the fact that 4,000 have been killed by rival drug gangs within the past year on Mexico’s streets.
Another symptom is that many more illegal immigrants transit into the U.S. every day to seek employment and to flee narco-terrorism.
We can expect more illegal immigration into the U.S., and the increased pressure it puts on the U.S. health care delivery and education systems. We can expect more costs for oil and police protection as narco-terrorists try to corrupt U.S. police agencies, especially the border patrol.
In Pakistan, Al Qaeda has taken over a large part of the best farm land in the country and has terrorized the Pakistani populace with their lifestyle demands, such as men must wear beards, and not trim them, and girls may not attend school. Breaking the strict lifestyle codes can get one rapidly beheaded. The Pakistani secret service is well known to be supportive of Al Qaeda, and they have many apologists in the corrupt Pakistani political system. We should watch carefully as Pakistan could become a source of a great deal of global conflict and possible nuclear disturbance in coming years.
HOW TO INFORM ONESELF ABOUT GLOBAL ECONOMIC EVENTS
May we suggest the Financial Times of London, The Asian Wall Street Journal and The Economist as regular reading for all investors? We have found that most countries national newspaper’s do a poor job of covering global economic, social, and political events. The above three international publications do a better job.
The world banking crisis continues to simmer, and no strong, definitive solution has been found. Implementation of good ideas has not been fast enough, in no small part due to the political shortsightedness of both sides of the political aisle and the politicians desire to pander to local voters, while ignoring the national best interest. Where did all the statesmen and women go?
Our favorite investment, gold, has done well this month, and we see no reason that it will not continue to do well. We hold gold and some asset based stocks, which pay high dividends. Other than that, we hold primarily cash balances in government guaranteed paper.
This is a conservative approach, and one which is working for us thus far in 2009. We do not anticipate making any major commitments to common stocks in the U.S. or abroad until a further correction has been seen in world markets.
For no charge, as a service to our readers, we will be happy to examine your current investment portfolio, and explain how we might restructure it to meet your needs for income and capital appreciation in the current environment. Please give us a call if we can help you in this regard.
Thanks for listening.
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.
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