This email was sent ONLY to clients and the professional advisers who work with us. After some while we put it up on our site.

The name of our game is to hold on to capital until the true bottom presents itself in 2010-2012 (on the basis that the markets’ slump is similar to the 1930s crash. So far it is very closely following that route). Then, as we get lower and lower your risk of loss reduces further and further by re-entering. Then, we can start going back into the market and the decade afterwards should be very interesting indeed and, hopefully, super profitable. We see every reason to expect this – if you can hold onto capital during the falls then you will buy much more, with the same amount, at much lower prices.

That, in a nutshell, is what we are currently aiming to achieve for clients. Long term growth with preserved capital after this medium term slump.

Please remember, investments can fall as well as rise. And they will!

Please also remember, no trend goes in a straight line. Otherwise it would be called a straight line! The trend in houses and stocks is still very much down, in our view.
 

Who do you know who could benefit potentially from our type of advice? You are welcome, of course, to pass this email on or suggest to them to look at our website. We will always happily speak to anyone on the phone. It is never a useless exercise or a potential waste of time. If however we feel we cannot add value to their circumstances we will always try to help informally.

Stockmarket v US Dollar

Over the last year there has been an almost perfect inverse correlation between the dollar and the stock market.
When we talk about the dollar we mean the US Dollar index against the basket of currencies, including Sterling, Yen, Euro, Canadian Dollar, Swiss Franc etc. (Thus, we are specifically NOT talking about $ v £.)

As the dollar has fallen the market has risen and vice versa.

Fundamentally, a falling dollar helps large US companies as they are multinational and they can repatriate their overseas profits back into the US with a weaker and weaker currency, thus they produce ‘free’ excess profits. This, naturally, feeds into a higher stockmarket.

Thus, large US corporates and banks (and the US government) love a weak currency. Of course, long run, it’s a disaster for the country as all the jobs move overseas. (Isn’t that what we’re doing in the UK…?)

Long run this will continue – the dollar will continue to weaken and this bodes well, especially, for commodities and gold.
So, what happens if the dollar rises? We believe the stockmarket will fall.

US Dollar Index

Please look at what happened last Friday. The US Dollar shot up by nearly 1.5%. We do not believe this is a one day wonder. We have had many signals during the last couple of months that a rise in the dollar was increasingly likely.

Please note that the dollar rose above its 50 day moving average price on Friday and stayed above. This is very significant. The last time it rose above, it could not stay up there (early November).

Thus, we believe the US Dollar has started a significant move up – remember no trend goes in a straight line. It could well rise 10-20%. Hence, we believe the stockmarket – as we wrote very recently – has an increasing likelihood to fall a similar percentage. Gold and commodities would be hit hard in this circumstance.
 

We have informed some clients during the last few weeks, for whom it was relevant, that the dollar could well rise significantly vis-à-vis Sterling. During this time it has hovered around $1.60-$1.68. As I write it stands at $1.636. Dollar strength v Sterling looks increasingly likely in the short run.

In mid October we recommended to reduce exposure to the markets, as a precaution and to lock in extraordinary gains. Also, in taking in new client investment funds recently, many we retained in cash. We will be writing immediately to those clients who will be affected by another round of recommended selling.
 

Gold was $1220 on Thursday. As I write (Monday 9.55am) it is down to $1142. We see it heading below $1100 and perhaps down to $1000-$1050 oz. This will have a major effect on gold stocks.

We currently view this as a correction, as we wrote recently. Our present view is the market will be higher in the spring than the recent highs. However, as a further precaution and to lock in extraordinary gains we are recommending a further cut in exposure, at these near highs.

If the significant correction does not come, clients will still be materially in ‘the markets’. If it does come then we will have cash and able to buy in due course at much reduced prices.

Again, though, this is all about relatively short terms.

Long term, we still believe, on balance, the markets will head down like a staircase over some years. They may not, due to inflation, however, nothing goes in a straight line and we prefer not to chase rising (or falling) markets.