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November 07, 2013

November 07, 2013

Conference Call Announcement

Please join Monty Guild and Anthony Danaher on November 15th at 10:00 AM PST for our conference call/webinar “2014 Investment Outlook (Stocks, Income, Commodities)”

On this call, Mr. Guild and Mr. Danaher will  discuss the present investing environment, global economics, commodities, and what to expect in 2014. The countries, sectors, and industries which are poised to do well in the short term and long term will also be highlighted. The call will be approximately 60 minutes including a Q&A session following the slide presentation. Questions can be submitted before the call or during the call.  If you are unable to participate on the conference call, a playback will be available on our secure site.  To gain full access and to join us on the conference call, upgrade your subscription today.

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Guild’s Premium Global Market Commentary: Helping You To Be a Better Investor

The purpose of this Guild’s Premium Global Market Commentary is to help you become a better investor.

The web and the airwaves are full of people who may have a similar goal for their listeners, readers, and customers.  But if you’ve read other newsletters or spent time listening to the talk on financial TV, you may have noticed that the information we bring you each week is often different.

This week we’d like to tell you a little about our philosophy, and the years of market experience and analysis that have shaped it.  That way, we hope you’ll better understand our goal of bringing information to your attention to help you identify trends of investment importance now and in the future.  We believe this is critical in helping you make better investment decisions.

The Forest and the Trees

A recent survey conducted by Farleigh Dickinson University suggested that those Americans who listen to and read the most news are actually among the most poorly informed when it comes to foreign affairs.  It’s our conviction that this overload of information and misinformation can also become an adverse factor in investment decision-making.  Our goal in researching the topics that we present each week is to direct your attention to the trends that we believe are of great significance.

 

Out of the clamor and noise of political and financial news that surrounds you, we want to offer you the ideas that we consider most important to help you identify a trend before it goes mainstream and becomes the talk of the town.

It’s All About the Trends

Many significant trends have been successfully outlined by our newsletter in advance.  Our subscribers have had the opportunity to take advantage of this knowledge.

In the present investing environment, the market’s daily movements often reflect the actions of government, high-speed trading firms, and powerful financial institutions.  For investors outside Wall Street and other corridors of power, it’s next to impossible to beat these market movers at their own game.  Where it is possible to secure an advantage, we believe, is in the ability to spot important emerging trends in significant economic, industrial, and business sectors before mainstream analysts and media talking heads seize on them.

In short, although we do provide specific investment recommendations to our subscribers, our primary purpose is not to give mechanical instructions to buy this security or sell that one, nor is it to offer the technicalities of particular trading strategies.  Those opinions are available in abundance.

What We’re Watching — Top-Down and Bottom-Up Research

Our views about the investments we recommend are formed both by broad observation in analyzing the significance of emerging trends and by attention to detail in finding the companies that may benefit most from these trends.

From a broad top-down perspective, we monitor global social, political, and economic trends.  We begin by monitoring economic and political events in a number of countries.  From there we move to watching national-level trends — for example, supply and demand in various industries, and the political and economic events shaping the growth of GDP.  We identify trends that are shaping industries as they grow, shrink, and morph into new industries.

Next, from a bottom-up perspective, we watch companies in industries that may benefit from the trends we identified, visiting with management, customers, and competitors.  Gradually, we get an analytic and intuitive grasp of how an industry — and the companies within that industry — function.  We do this to gain an appreciation of the tone and outlook of their business — how well various companies can grow and meet the challenges of their industry.  We analyze a company’s past performance, and try to predict what type of revenues and earnings a company might achieve.  After estimating earnings and growth, we analyze the potential reward from the investment and the risk that we are willing to undertake in buying the stock.  We always try to balance risk and reward so that, in our analysis, the reward is substantially greater than the risk.  In addition, we want to understand the company’s position in the industry and the industry’s position in the economy as a whole.

Our performance is a record of how we’ve done in the past, but as you’ve heard many times, we would caution that past performance is not a guarantee of future results.

To view a sample of the Premium Global Market Commentary, please click the following link.  Premium Sample


As the Trauma of 2008 Fades in the Rearview Mirror, How Much Longer Before Businesses Act in a More Growth-oriented Manner?

What are the five key factors that will lead to continued growth?


Will Stocks Continue To Rally Into 2014? 

Recent statements by some respected commentators that the U.S. is reaching bubble levels are misleading.  While we agree that some sectors of the U.S. market may be nearing bubble levels, in our opinion, the market as a whole remains some distance from “bubblicious.”  Of course the market can correct at any time but we believe corrections will be moderate. 

Why do we say that?  In the 42 years since we started Guild Investment Management, we have noticed four main bull market-ending phenomena.  Upgrade your subscription today to find out these four main bull market-ending phenomena.

 

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Merchant Refiners Face Uncertainty From a Regulatory Roller-Coaster

2013 has been a volatile and uncertain year for refiners.

Two forces are converging on both large and small refiners.  On the one hand, U.S. oil production is growing at a rapid rate thanks to the ongoing and accelerating shale revolution.  Currently, production is growing each year by a million barrels per day (mbpd).  The technological improvements we’ve noted in recent letters are continuing to drive those production increases still higher — shale naysayers to the contrary.  Of course, this is a big positive for refiners, promising to boost their margins.  It is also a big positive for consumers, putting downward price pressure on all the downstream refined products of crude oil.

On the other hand, however, refiners are facing the uncertainty generated by the politics surrounding the Renewable Fuel Standard (RFS) mandated by the U.S. Environmental Protection Agency (EPA).  These rules may be set to change soon, as we note below — and investors should watch closely, because it could make a big difference in the fortunes of merchant refiners.


Specter of Deflation May Spur Action By the European Central Bank

Eurozone inflation surprised investors and analysts to the downside when it came in at a worrisome 0.7 percent in October.  The low figure was primarily driven by decelerating food and fuel prices, but core inflation also fell.

The slowdown of inflation is known as “disinflation.”  It worries investors because of the prospect of outright deflation (not just slowing price increases, but declines in prices), which would be bearish for equities and for the economy.  If prices fall outright, it makes more sense to hold cash, which will appreciate just by being left sitting in the bank.

What does this mean for the Euro?


Are Banks a Good Investment?

Politically, big banks have been easy targets.  In the wake of the financial crisis, nothing was simpler than for politicians and pundits of all stripes to paint banks and bankers as the source of all woes that befell the world economy after the crash of 2008/9.

Of course, banks were partially responsible — riding a tide of over-the-counter derivatives and other opaque financial instruments that were often marketed with scant regard for the interests of the clients who were buying them, and for leveraging themselves almost to infinity on the basis of wildly unrealistic risk assessments.  But there were a host of other actors in the drama as well.  Government, bent on driving home ownership rates even if it meant careless lending standards; real estate professionals; quasi-state-backed entities like Fannie Mae and Freddie Mac; and ratings agencies whose due diligence could be questioned also cashed in on the bonanza that led to the crash.

Is it a good time to invest in banks?


Global Inflation: A Mixed Picture

Many investors and global macro economists have been on vigil for a ramp up in global inflation spurred by immense central bank QE and other forms monetary stimulus.  All of the money printing from around the globe has helped keep the financial system functioning, and it continues to help weak developed economies get back on firmer growth footing.  However, it has not translated to rapidly rising prices for goods and services that many expected.  Yes, there have been pockets of high inflation, especially in developing markets (often related to food and energy items), but when you have had these price spikes, they haven’t lasted.  In fact, many commodities have been trading near the lows of the past three years.

Continuous Commodity Index – Last 3 Years

Continuous Commodity<br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br />
Index.jpg
Source: Bloomberg

Macro Forces At Work Keeping Inflation Under Wraps — For Now

At some point, we expect global prices of goods and services to accelerate, but as long as there are powerful forces working against the monetary debasement, inflation has been delayed.  Some of the forces holding prices down include a de-leveraging banking systems following the financial crisis, labor slack in the developed world, relatively good crops, rapidly increasing energy production in North America, and a slowing rate of growth in China.  This has led to the mixed bag of inflation numbers.

Speaking of the U.S, A Dovish Central Bank Seems Committed To Higher Inflation

Federal Reserve policy makers meet this week and one of the things they will discuss is that inflation is not rising fast enough.  Some economists within the Fed are convinced that more inflation will go a long way towards helping the economy escape from a half-decade of sluggish growth, low wages, and high unemployment.  Inflation bottomed in 2009 at about 0 percent, but is now mired in the low to mid 1’s according the Consumer Price Index (CPI), well below the central bank’s target of +2 percent.

Janet Yellen, President Obama’s nominee to lead the Fed starting next year, is among the Fed economists to argue that a little more inflation is particularly valuable when the economy is weak, as it can help improve wages, help borrowers repay debts, and give companies some pricing power.  Inflation has also typically encouraged people and businesses borrow and spend, which is needed to spur the moribund economy.

It’s not just the Fed that believes in a prescription of higher prices.  Other influential economists are calling for more inflation-inducing action.  Harvard economist Kenneth S. Rogoff, wrote recently that “Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about — it should be embraced.”  Professor Rogoff even suggested that the Fed is not being aggressive enough.  He says that inflation should be pushed as high as 6 percent a year for a few years.

To the monetary hawks, this sounds blasphemous.  They warn that the Fed could lose control of prices as the economy recovers. As inflation accelerates, the benefits can quickly be overcome by consequences of people hoarding and rushing to spend money.  High inflation is particularly tough on the poor and on retirees living on fixed incomes; not to mention the fact that it can lead to more speculation and less lending and long-term investing.  The hawks argue that inflation is already a problem, and they cite that over the past 10 years gasoline prices are up over 121 percent.  Healthcare is up 81 percent; college costs are up 61 percent, and milk is up 29 percent.

Nonetheless, CPI remains tame, and the hawks seem to be outnumbered by the doves.

Watch the Guild Basic Needs Index™ For Signs That Inflation Is Back

As our regular readers know, in 2012, we started the Guild Basic Needs IndexTM.  Our index tracks the prices of four categories of primary and essential living needs: Food, Clothing, Shelter, and Energy (that is needed for basic heating, electricity, cooking, and transportation).  We suspect that inflation will show up in these items before it shows up in the CPI data.  This can give investors an early look into what is percolating below the surface.  Since the start of 2000, our GBNI index of basic, essential needs has risen over 85 percent while the CPI is up less than 40 percent.

Guild Basic Needs IndexTM

GBNI<br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br />
Sept 2013.JPG

Track our analysis in these letters and at www.gbni.info.


Market Summary

Want to see the markets we think have the most growth potential?   Upgrade today to read our premium global market summary.


In Last Week’s Global Market Commentary We Discussed:

  • Why Are We Optimistic?
  • Is Food Inflation A Persistent Problem?
  • Are Commodities Building A Bottom?
  • Are U.S. Consumers Worried about the Government?
  • Is There Hope For Europe?

Gold Subscribers have full access to all Premium content.  In addition, Gold Subscribers can participate on Guild’s periodic conference calls where participants can ask direct questions to acclaimed Guild’s portfolio managers and research team.  We will be announcing our conference call date and time in the coming weeks.  Please click the button below to learn about the benefits of Gold Subscription, or contact our office at (310) 826-8600.

 

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