Spreads are the differences that financial institutions get between their cost of money and the price they demand for loans. Spreads in effect reflect evaluations of current and expected risk. Clearly, the current bond market problems are due to a very over-optimistic evaluation of risk by many lenders. The lenders have realized their mistakes and are rapidly adjusting their risk premiums back to the historical levels of risk premium that have prevailed for the better part of 30 years. As we wrote recently, every type of loan from government paper to all types of mortgages and corporate and consumer credit will become more expensive. This will reverberate through the U. S. and global debt markets and raise the cost of borrowing for everyone.





GOOD FOR STOCKS AND COMMODITIES

This will also make investors more cautious about future commitments to debt. Historically, when interest rates were rising, investors shunned long-term debt in favor of short-term debt and moved more into equities (stocks).

Many aggressive investors have been using leveraged debt instead of equities to maximize returns..We believe that many of those seeking high returns will return to stocks and commodities in order to maximize returns.

In this area, there are statistics suggesting why base metals and energy remain in demand. We have stated these things before in different ways in hopes of capturing your attention.

From an economic point of view, world economic growth determines the demand for raw materials to build economies.

The estimated GDP growth for the last four years and the coming four years is as follows:

?India 8-9%

?China 10 % +

?Developing world other than India and China 6-8%

?Developed world 2-3%

If the developing world contributes about 40% of the global GDP as many economists think, and the developed world is contributing about 60%, then the blended world growth rate is roughly 5% per annum.

We believe, based upon the research of economists from many parts of the world, that global GDP growth has been about 5% a year for the past few years, and will probably continue at about that rate for the next few years.



LONGER TERM GLOBAL ECONOMIC GROWTH LIKELY TO BE STRONG

We further believe that world economic growth will remain strong for two or more decades as the current 6.5 billion world population grows by more than 50% by 2050.

TO GROW A WORLD ECONOMY BY 5% PER YEAR..you must consume resources at the rate of about 3% per year.

In today's tight markets for oil and minerals, the supply of many commodities is growing at about 1% a year or less. If demand is growing at 3% per year PRICES MUST RISE SUBSTANTIALLY for energy and for many other commodities.



AS WE HAVE SAID, WE ARE OPTIMISTIC ABOUT THE OUTLOOK FOR SOME STOCK MARKETS AND THE MARKETS FOR ENERGY, BASE METALS AND PRECIOUS METALS

LET'S MAKE A LIST OF WORLD NEGATIVES AND POSITIVES..THEN LET'S DECIDE WHO IS HURT BY THE NEGATIVES AND WHO IS HELPED BY THE POSITIVES..THIS WAY WE CAN DETERMINE WHERE TO INVEST AND WHERE TO AVOID INVESTING.

POSITIVES

SOME COUNTRIES ENJOY:

?Rapid economic growth

?Rapid growth in corporate profits

?Availability of low cost labor

?Availability of raw materials and energy

?Availability of capital in the local markets

Those in the positive category are: China, India, Norway, Canada, Brazil, Hong Kong, Singapore, and Korea. Much of Latin America and Eastern Europe are on the fence with some positives, but they also have some negatives.

NEGATIVES

SOME COUNTRIES SUFFER FROM:

?Rising interest rates

?Lowering of P/E ratios as interest rates rise

?Slower economic growth

?Weakness of the financial system

?Lack of availability of capital in some markets

?Threats to corporate profits from tax policy after 2008 [U.S.]

?Increasing restrictions on global trade (potentially the biggest problem)

GLOBAL INVESTING EXPERTISE A MUST

In our opinion investing solely with a U. S. (or for that matter any one country centric) strategy will become more difficult in coming years. We further believe that expertise in global investing will become an important attribute for investment success in a increasingly globalizing world. We have worked very hard over the past few decades developing such expertise. We look forward to the changes taking place in the global economy as we expect they will create some very profitable opportunities in coming years.

Thanks for listening.

Guild Investment Management, Inc., a registered investment advisor. All material presented herein is believed to be reliable. Investment recommendations and opinions expressed in these reports may change without prior notice.

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