By Monty Guild and Tony Danaher, on October 8th, 2010

Over the last several years, we have pointed out in our commentaries many times that the U.S. dollar is due for long-term decline in price. Please visit our archive of our commentaries to review the reasons that we have held, and continue to hold, this opinion.

The following summarizes our opinions about some of the attractive opportunities U.S. dollar based investors have.

1. PROFIT FROM A DECLINING U.S. DOLLAR

U.S. currency holders may diversify into commodities that are priced in dollars. As the U.S. dollar falls, the value of such commodities will rise.

U.S. currency holders can shift their dollar cash and investments into stronger alternate currencies, which will move inversely to the dollar. As the dollar declines, these strong foreign currencies will rise.

2. PROFIT FROM CHINESE CONSUMER STOCKS

In China’s 12th ‘Five-Year Plan’, senior officials have announced that China will concentrate on building a stronger consumer economy in the years from 2011-2015.

China will reinforce their intention to increase the percentage of consumer spending from the current 35 percent of GDP to 45 percent or more. This will create many jobs in industries such as airlines, hotels, retailing, restaurants, educational services, and consumer services. Currently, China’s population of consumers is already increasing. The Chinese public is spending their new-found wealth and upgrading their dietary habits to include more protein. This plan will create a stronger, more diversified economy.

The industries that will benefit from this growth include:

· Food Production Farm equipment, fertilizer, and farm products producers

· Travel Hotels, travel agencies, airlines, and tour operators

· Education – For-profit schools and tutoring service providers

· Retailing Restaurants and retail stores

· Manufacturing – Manufacturers of consumer products, including school supplies, electronics, automobiles, automobile parts, home appliances, clothing, sporting goods, and luxury goods

These industries and others will be followed by Guild Investment Management and we will be purchasing companies from these categories as opportunities arise. Our commentaries will continue to expound our investment ideas and suggestion.

3. PROFIT FROM THE CONTINUED LIQUIDITY FLOWING INTO RAPIDLY GROWING EMERGING ECONOMIES

Our favorite growth-bound economies continue to be Singapore, Thailand, Indonesia, India, Malaysia, China, Colombia, Chile, and Peru.

These countries are experiencing capital inflows as China and other countries decide to diversify their investments more broadly into growing countries’ currencies, stocks, bonds, resources, and real estate.

Investors in all markets should remember that any investment can (and will) decline from time to time. People periodically take profits. Markets correct as investors shift their attention from risk-taking to more defensive positions, and vise versa.

Investors can take a more deflationary market outlook. The argument will be that the world is falling into a deflationary depression, so they will sell stocks in these fast-growing countries and seek the “safety” of European or U.S. bonds. This same psychology caused some to incorrectly predict an economic decline in China in the second half of 2010, this has not happened. China’s economy continues to grow rapidly.

We hold the view that no government in existence will knowingly act to create a deflation, and that all governments will act to stimulate economic activity and reverse deflationary trends. We believe that it will be a wise course of action to buy the markets mentioned above during periods of correction with a five-year investment horizon.

4. PROFIT FROM PURCHASING GOLD AND HARD ASSETS DURING PERIODS OF WEAKNESS

Gold is the ultimate currency and the store of value that will benefit most from a U.S. dollar decline. Investors should buy gold on dips and hold gold for part of your portfolio.

Investors should also look for opportunities in income-producing real estate properties with strong rental demand.

WHAT ARE THE LESSONS FROM THE RECENT MOVEMENTS OF COMMODITIES PRICES?

Inflation is creeping up, in many growing countries. This inflation will gradually be imported to the U.S. and Europe through higher priced imports due to rising commodity prices, and a weak U.S. dollar and Euro.

The prices of commodities priced in dollars or Euros are rising. As you know, many global commodities are priced in U.S. dollars. Below, we examine four commodities: gold, oil, copper, and corn. They are all up in U.S. dollar terms over these past few months. They are also up versus the U.S. dollar index, which is an index that represents the U.S. dollar’s value versus a basket of other currencies. Currently, the basket represented by the index is weighted as follows: Euro (57.6%), Japanese Yen (13.6%), British Pound (11.9%), Canadian Dollar (9.1%), Swiss Franc (3.6%), and Swedish Krona (3.6%).

Price Change of Four Commodities June7, 2010 through October 1, 2010

% Change vs. U.S. $ % Change vs. basket

Corn (from $340 to $470/bushel) +38% + 27%

Gold (from $1,240 to $1,317/oz) + 6% 5%

Oil (from $71.44 to $81.30/barrel) +13% +2%

Copper (from $2.77 $3.67/lb) + 33% +22%

We learn two major things from this:

1. The price increases of gold and oil have lagged the price increases of food and copper over the period. We expect the gold price to catch up.

2. Those who buy commodities using some foreign currencies have not seen the rise in prices of commodities that U.S. dollar based purchasers have seen.

CHINA PLAYS ITS EURO CARD

China’s premier, Wen Jiabao, announced recently that the Chinese government will support the Euro system’s stability by not selling any of the Euros that the Chinese government owns. China announced this action to improve their political and public relations’ status in Europe, which happens to be their biggest non-Asian export market.

VERY IMPORTANT FED PRONOUNCEMENT—WHICH WE INTERPRET AS MEANING QUANTITATIVE EASING AND INFLATION AHEAD

Several Federal Reserve voting members have aired their views in speeches in the last few days, but no statement was as important as the remarks made a few days ago by William Dudley, the President of the Federal Reserve Bank of New York. Mr. Dudley clearly stated that he was in favor of more quantitative easing and that he also suggested raising Federal Reserve’s stated inflation goal. He stated that one option would be to copy the UK and set an explicit inflation target, and he expressed that being more explicit about the inflation goal would “clarify the extent to which the current level of inflation falls short of that rate.” Our guess is that the Federal Reserve Bank of New York would initially raise the goal to 2% from a current level of 1%.

What is interesting to note is that this is actually a reversal of the last 30 years of Fed policy where the Fed has worried about excess inflation and has sought to hold it down. Now, Mr. Dudley is proposing that we try to raise the inflation level to avoid a deflation, which is exactly what we have been stating that the Fed would do as deflation became a concern. In essence, he is suggesting that the Federal Reserve engineer a change from a very small inflation to a larger rate of inflation. If this became the policy (and we believe that it will become the policy very soon), it will have great consequences for investors and their appropriate investment selection. It will favor the countries, stocks, currencies, and commodities that we have mentioned in this letter.

SUMMARY

The new Chinese 5-year plan is promoting more consumer spending and a focus on development in smaller inland regions. China is working on increasing itself in the areas of lower-income housing, consumer spending, and continued the build-out of massive travel, communications, and physical infrastructure.

China is on record as supporting the Euro by not selling any of the Euros that they hold. China announced this action to improve their political status in Europe, which is their biggest export destination outside of Asia.

Inflation, which has heated up in countries like Brazil, India, Indonesia, and many others will make its way to the

U.S. and Europe.

Attractive areas for investment include:

· Chinese consumer stocks and currencies.

· Stocks and bonds of nine growing countries in Asia and Latin America, namely India, Indonesia, Thailand, Singapore, Malaysia, China, Chile, Colombia, and Peru. (We may later add Brazil, Australia and Canada to our countries of interest, however we are monitoring political events before doing so.)

· U.S. Stocks

· Gold. Buy dips and sell rallies with your trading positions, but continue to hold a long-term core position that you do not trade.

We still think the Japanese yen is a short. Today’s announcement of further quantitative easing (QE) in Japan is bearish for the yen. Japan’s announcement is a complete turn-about for them. They have announced a 60 billion dollar fund allowing them to purchase a list of riskier assets, including ETF’s, Japanese REITS, commercial paper, corporate paper, and government securities. This is a clear attempt to stimulate the economy away from the stagnation it has been experiencing, and to lower the value of the yen. Japanese interest rates are at zero percent.

Japan’s QE when combined with the QE going on elsewhere provides a strong impetus for price increases in commodities, gold and stocks.

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.

General Disclosures about this Newsletter

The publisher of this newsletter is Guild Investment Management, Inc. (GIM or Guild), an investment advisor registered with the Securities and Exchange Commission. GIM manages the accounts of high net worth individuals, investment partnerships, trusts and estates, pension and profit sharing plans, and corporations, among other clients.

Your receipt of this newsletter does not create a personal advisory relationship with GIM although some recipients may also be advisory clients of GIM. GIM has written advisory agreements with all its personal advisory clients, which sets forth the nature of that relationship.

The newsletter makes general observations about markets and business and financial trends and may provide advice about specific companies and specific investments. It does not give personal advice tailored to the needs, objectives, and circumstances of individual readers. Whether investment ideas and recommendations are suitable for individual readers depends substantially on the personal and financial situation of that reader, which GIM, as the publisher of the newsletter, makes no effort to investigate.

GIM attempts to provide accurate content in its newsletters to the extent such content is factual rather than analysis and opinion, but GIM relies primarily on information compiled or reported by third parties and does not generally attempt to independently verify or investigate such information. GIM does not guarantee the accuracy of such information. Moreover, some content and some of the assumptions, formulas, algorithms and other data that affect the content may be inaccurate, outdated, or otherwise flawed.

Please note that investing in stocks, other securities, and commodities is inherently risky, and you should rely on your personal financial advisors and conduct your own due diligence in connection with any investment decision.

A Special Comment for Guild’s Clients

If you are an investment advisory client of GIM who is receiving this newsletter, please note that the fact that a general recommendation is made of a particular security, commodity, or investment area to its newsletter subscribers does not mean that investment is suitable for you or should be purchased by you. For example, GIM may already have purchased such securities on your behalf or purchased securities in the same industry (and an increase in the position for you may represent too much concentration in one security or industry), or GIM may believe the investment is not suitable for you based on your risk tolerance or other factors. If you have questions about the recommendations in this newsletter in relation to your account at GIM, please contact Monty Guild or Tony Danaher.

Conflicts of Interest

As of the date of this newsletter, GIM’s investment advisory clients or GIM’s principals owned positions in equities and etfs in areas that are the subject of the commentary, analysis, opinions, advice, or recommendations contained in this newsletter. These positions are equities and etfs of the following countries: U.S. Canada, India, China, Singapore, Thailand, Malaysia, Indonesia, Brazil, Chile, Colombia, and Peru, as well as other countries not mentioned in this newsletter. In addition, GIM’s investment advisory clients or GIM’s principals owned equities and etfs related to the following commodity markets: gold, silver, oil, copper, and agriculture.

GIM and its principals have certain conflicts of interest in its relations with its investment advisory clients and its newsletter subscribers resulting from GIM or its principals holding positions for its clients or themselves which are also recommended to its clients. GIM may change the positions of its clients or GIM’s principals may change their positions (increasing, decreasing, and eliminating them) based on GIM’s best judgment at any given time, including the time of publication of the newsletter. Factors that lead GIM to change or eliminate its positions may include general market developments, factors specific to the issuer, or the needs of GIM or its advisory clients. From time to time GIM’s investing goals on behalf of its investment advisory clients or the personal investing goals of GIM’s principals and their risk tolerance may be different from those discussed in the newsletter, and the investment decisions made by GIM for its advisory clients or the investment decisions of its principals may vary from (and may even be contrary to) the advice and recommendations in the newsletter.

In addition, GIM or its principals may reduce or eliminate their positions in an investment that is recommended in the newsletter prior to notifying the newsletter subscribers of such a reduction or elimination. The publication by GIM of a target price or stop loss for a particular security or other asset does not necessarily represent the price at which GIM intends to sell or will sell any such assets for its advisory clients or the price at which GIM’s principals intend to sell any such assets.

As a consequence of the conflict of interest, GIM’s clients or principals may benefit if newsletter subscribers purchase assets recommended by GIM since it could increase the value of the assets already held by GIM’s investment advisory clients or GIM’s principals. On the other hand, GIM’s principals and clients may suffer a detriment if they seek to acquire additional shares in securities that have been recommended and the price of the securities has increased as a result of purchases by newsletter subscribers.

To help mitigate these conflicts, GIM seeks to avoid recommending the securities of individual companies where GIM or its principals have an ownership position and where the issuer is small or its securities are thinly traded-that way sales by GIM in advance of possible sales by newsletter subscribers would not be likely to cause any significant decrease in the sale price to newsletter subscribers. GIM has a fiduciary relationship with its investment advisory clients and cannot agree on behalf of such clients to refrain from purchases or sales of a security mentioned in the newsletter for a period of time before or after recommendations for purchases or sales are made to its newsletter subscribers.

GIM encourages you to do independent research on the securities or other assets discussed or recommended in the newsletter prior to making any investment decisions and to be especially cautious of investments in small, thinly-traded companies, which are usually the most risky investments that you can make.

Disclaimer of Liability

GIM disclaims any liability for investment decisions based upon information or opinions in its newsletters. GIM is not soliciting you to execute any trade. Nothing contained in GIM’s newsletters is intended to be, nor shall it be construed as an offer to buy or sell securities or to give individual investment advice. The information in the newsletter 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 GIM to any registration requirement within such jurisdiction or country.