Let us start with good news. Economic growth, stock market rises, and quality of life indicators are rising not only in the U.S. and Europe but in many parts of the world. We are not without problems, but positive news has been on the rise.

As you know, our investment themes include the following: agriculture, alternative energy, gold, global financial intermediaries, economic growth in China, economic growth in India, non-U.S. currencies, and transportation.

Let’s focus on the major financial intermediaries. While these are mainly headquartered in the U.S., their growth is global. Major investment banks that can source clients, projects, and money globally are in the best position to benefit from the current contagion in the world of investors wishing to gain from the global financial liquidity explosion.

The recent earnings reports from the major U.S. investment banks have been of record breaking earnings exceeding analyst expectations. This is due to the fact that the banks are entering many new businesses and are competing with their former customers; for example, private equity, leveraged buyouts, insurance, investment management, etc.


Mohammed Younis, the Nobel Prize winner who won his prize for the founding of Grameen Bank, (which gives micro loans to the poor and helps them get on their feet), is starting a political party in Bangladesh, a country known for corruption and two warring political parties. Mr. Younis is a proven achiever who has helped the world’s poor immensely. It would be refreshing to see someone like him get into power in a country like Bangladesh.

We are not trying to moralize and say that corruption exists only in developing countries. It exists in the developed countries as well, but in other, and often more profitable forms. In poor countries, the establishment often uses the levers of power to enrich themselves and simultaneously hold the poorer classes down. They do this to protect the power birthright for themselves and for their progeny. This is one reason why many poor countries remain poor, and why immigration to developed countries is so popular among the world’s poor.
In developing countries, it is dangerous to be a crusading journalist or an idealist who points out corruption. For this reason, a policy of see no evil is well understood the world over.


Neither India nor China is like Bangladesh. India is a real democracy with a great deal to recommend it. However, India does face a corruption problem which is often correlated with its immense and impenetrable bureaucracy. By slowing things down, unscrupulous bureaucrats can demand payment to speed things up.

In our opinion, the Indian bureaucracy is losing power. As free markets make continuing inroads into all aspects of life in India, the differences between free market activities and the slow moving bureaucracy is becoming more obvious to everyone.

Until recently, many Indians believed stifling bureaucracy is the way it probably was elsewhere. This is no longer the case. More and more Indians are realizing that this is not how it is elsewhere, and they are trying to work around the bureaucracy as much as possible.

A recent stunning announcement is that India will start buying heavy grades of crude oil on the world market. This is stunning because the inefficient, government run refineries can’t yet process heavy crude effectively. This implies that the Indian government plans to get into more sophisticated petroleum refining and plans to do it by buying cheaper heavy crude and refining them. Clearly India has the brain power to do this, but do they have the political will to overcome the entrenched bureaucracy? Time will tell. This is important for India because due to their inefficient government refineries they must compete with rich countries for high priced light crude and have not been able (until now) buy cheaper heavy crude in the world market.


Similar to India, China’s political functionaries take bribes to speed things up and get approvals for favored projects. Often, the farmer or small landholders are forced off of their land for a few dollars payment, and the political power broker and the real estate developer make millions developing the project.


India’s economic growth rate will likely exceed 9% in the 2007 fiscal year. The fiscal year ending in March 2008 may have economic growth close to 10%. China’s economic growth rate is admittedly in excess of 10%. It might really be in excess of 12% if the economic data were more sophisticated.


We want to send kudos to Jim Sinclair for his insistent and highly accurate call for higher gold prices. He has certainly been correct. Clearly the growth of gold ETF’s may have sparked some sales of gold shares, yet, in our opinion, a good gold share with strong fundamentals and solid cost controls will outperform the ETF in the longer term.

Base metals are undergoing a continuing correction. We believe the correction will last a few months longer and are not heavily focused on base metals as a result. Longer term, base metals should continue to be heavily demanded for several more years at a minimum.


Our alternative energy themes are: uranium, coal, wind power, and heavy oil.

Uranium producers have enjoyed and will continue to enjoy fast growth as U.S. and China continues to expand their nuclear power plant inventory. Environmentalists in the U.S. who previously strongly opposed nuclear power are starting to encourage nuclear power in the U.S. Heavy oil, coal, wind power, ethanol and solar are all parts of the equation; some are more political, and some more rational.

Heavy oil is in demand again, India mentioned above, and others are buying it to save money. We see oil prices will be rising in coming months and heavy oil prices rising even faster.

Many solar stocks from China have been coming public. Watch out! Be sure to check that they have supplies of raw materials locked up. Others who are mid stream processors may be enjoying excess profits because raw materials they supply are in short supply. What will happen when the supply imbalance has ended? Will their profits fall?

Warm regards and best wishes.