Today, Merrill Lynch published a report on the economy and the banking crisis.

In it, Merrill Lynch’s chief economist, David Rosenberg, corroborates my opinion.  He states

"It is truly a  modern day depression, in our view-what else do you call it when an entire industry vanishes (investment banks) in less than a year: the ranks of the unemployed soar more than 30%, and nearly one in ten homeowners with a mortgage are either in arrears or foreclosure?"
Like us, he goes on to say "Now lets not confuse that with the Great Depression-this is not the 1930’s all over again."

These are the main points that we took from Merrill Lynch’s report:
· Everyone is waiting for the big government solution
· Coordinated move will not necessarily be effective, but it will be historic if it happens
· We are barely past halfway point of credit down cycle
· People will continue to crowd into treasuries (and in our opinion, gold)
· Corporate profits not yet impacted; will go lower
· Private sector interest rates  are rising
· The government will have taken over many banks before this ends

Finally, David Rosenberg states that the current money supply boost may not be inflationary.  His argument is that the velocity of money is shrinking in the U.S. and Europe…and that is clearly true.  Over the short term, we agree with him.  This is one reason we stated in our letters a few weeks ago that the inflation rate would moderate for a few months.

Inflation will moderate over the short term.  Long term is a different story…Once the velocity of money resumes its normal functioning, the massive amounts of money currently being pumped into the system worldwide, will create a big inflationary bubble.

The inflation will not hit in the next few months, but when it does hit it will be big.  As Jim Sinclair likes to say, "Weimar on Weimar."

Thanks for Listening

These articles are for informational purposes only and are not intended to be a solicitation, offering or recommendation of any security.  Guild Investment Management does not represent that the securities, products, or services discussed in this web site are suitable or appropriate for all investors.   Any market analysis constitutes an opinion that may not be correct.  Readers must make their own independent investment decisions.

The information in this article is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Guild Investment Management to any registration requirement within such jurisdiction or country.

Any opinions expressed herein, are subject to change without notice.  In addition, there are many market, currency, economic, political, business, technological and other risks that are beyond our control.  We make reasonable efforts to provide accurate content in these articles; however, some content and some of the assumptions, formulas, algorithms and other data that impact the content may be inaccurate, outdated, or otherwise inappropriate.  In addition, we may have conflicts of interest with respect to any investments mentioned.  Our principals and our clients may hold positions in investments mentioned on the site or we may take positions contrary to investments mentioned.

Guild’s current and past market commentaries are protected by copyright.  Apart from any use permitted under the Copyright Act, you must not copy, frame, modify, transmit or distribute the market commentaries, without seeking the prior consent of Guild.