We recently wrote that the U.S. dollar could begin a rally after the New Year.  It appears the rally has arrived three weeks before we had anticipated, and we expect the rally to last into 2010.
How long the rally continues will be determined by the magnitude and pattern of the rally now underway.  In the current dollar rally environment, we do not anticipate that gold or oil will move much higher.  We do not see them as vulnerable to a major decline.  We expect them to trade in a range, resting for a while until they begin their next assault on new highs in a few weeks or months.
For the next few months our investment focus will be on faster growing companies from around the world, and on major multinational U.S., European, and Asian companies that can use their global operations to access the fast growing markets within the multinational sphere we particularly favor large technology companies.
We especially favor domestically oriented companies in Canada, China, Hong Kong, Korea, Indonesia, Singapore and Taiwan, and we plan to add Australia, Brazil, and India after their markets have price corrections.  We will continue to buy shares in oil companies that are making new discoveries, and shares in mining companies that can add to reserves and grow their production in the coming years.


The future role of the Federal Reserve is a key item.  The outlook is not good for the U.S. without out a strong and independent Federal Reserve.  The following article from the Financial Times discusses the differences between a “broad Fed and “narrow Fed”.

Heavyweights slug it out for right to dictate Fed’s future
By Krishna Guha in Washington
Published: December 8 2009
Two sharply contrasting visions of the future of the Federal Reserve have been thrown into sharp relief by Ben Bernanke’s confirmation hearings in the US Senate.
One of them will emerge triumphant from a protracted legislative battle on Capitol Hill, with big consequences for the way the world’s most powerful central bank does business.
The first is the Bernanke/Geithner model, advocated by the Fed chairman and his former colleague Tim Geithner, Treasury secretary. Call it the "broad Fed".
A broad Fed would retain its supervision powers over the top banks and gain supervision of any other systemically important financial institutions. In concert with a wider council of regulators chaired by the Treasury secretary, it would have a leading role in dealing with systemic risk through the exercise of "macroprudential" powers. Such a Fed would be a fully-fledged financial stability agency as well as a monetary policy agency.
The second model is the Dodd model, proposed by Senate banking committee chairman Chris Dodd. Call it the "narrow Fed".
A narrow Fed would lose its banking supervision authorities. It would have a less prominent role in dealing with systemic risk, though it would have a seat at the table in a new systemic risk agency. Such a Fed would be more focused on monetary policy. 
Click here to read the full article: Financial Times Dec 08, 2009


Remember earlier this year we talked about how the government would keep stimulus programs coming?  We had stimulus package one and then two.  Now, President Obama plans to use unallocated and repaid bank rescue TARP funds ($200 billion or more is available to be spent) to spur job creation.  This amounts to a third fiscal stimulus program meant to give the economy a boost in 2010…in time for mid-term elections.

1. Slow to moderate economic growth for the U.S., Europe, and Japan.
2.  Rising global economic growth led by China and India, Singapore, Korea, Hong Kong, Taiwan…and Brazil will also continue to do well.  The growth in these countries will be driven by domestic consumer spending growth and infrastructure spending.
3. Rising global interest rates.
4. Problems will continue to proliferate in weak balance sheet countries in Eastern Europe, the former Soviet Republics of Asia, and in the Middle-East.
5. Commodity price inflation throughout the world will begin to accelerate in late 2010 and 2011.
6. The U.S. dollar will not move in one direction.  The dollar will have strong rallies (one is commencing now, and this rally could last for weeks or months).  After the rally the dollar will once again begin to fall.  Longer term, the dollar still looks like it has lower to go.
7. Higher taxes in the U.S. on earned income and on capital gains.
8. The elections in late 2010 will see the U.S. Congress move more to the center as more moderates win seats.  The rigid platforms on both the far right and far left leave much to be desired.  Voters’ disapproval of high unemployment, high budget deficits, and the obvious costs of added bureaucracy will bring more moderates to office.

The commodities markets will benefit from rising inflation expectations.  In 2010 and into 2011, gold, and silver should resume their climb.  The pickup in global economic growth that we foresee for 2010 will benefit oil, platinum, and copper.

Most attractive:
Canada, China, Hong Kong, Korea, Singapore, Taiwan, and Indonesia
More attractive after a price decline:
Australia, Brazil, India, U.S., and Europe
Most attractive industries by country:
base metals
homebuilders, banks, agriculture, oil, mining
oil, natural resources, precious metals

infrastructure, insurance, consumable soft goods, food, autos, railroads, air carriers, electrical machinery
many industries that are export driven are interesting (especially if they export to Asia)
Hong Kong:
real estate, insurance, banks
cement, consumer products, consumer finance, motor vehicles, outsourcing
natural resources
banks, real estate
electronics, pharmaceuticals
Internet, semiconductors, consumer electronics, selected retail, software, railroads, agriculture

In our opinion, the world economy will grow in 2010 by about 4 percent.  Emerging economic leaders, China and India, will grow at about 9.5 percent and 8 percent respectively, more than twice as fast as the global average.  Laggards, the U.S., Japan, and Europe will grow, but much more slowly than average.
We continue to believe that investments in the strong growth areas listed above will provide best returns.  The markets’ rally has been running out of steam in recent weeks.  We have been raising cash.  2010 will be a volatile year with stocks, currencies and commodities fluctuating.   We plan to use the cash to buy on dips.
In our opinion, when the dust settles late in 2010, stocks in most countries, oil, agricultural commodities, precious metals, copper, and foreign currencies will have risen.  Interest rates will also have risen, and long term bonds will have declined in value.
Next week we will go into more detail on expected economic activity in various regions.
We hope everyone has a wonderful holiday season.  Please call us if we can be of service.
Thanks for listening.

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