Global Markets Re-adjust To a Normalization of Spreads

Spreads are the differences that financial institutions· Rapid economic growth
get between their cost of money and the price they· Rapid growth in corporate profits
demand for loans. Spreads in effect reflect evaluations· Availability of low cost labor
of current and expected risk. Clearly, the current bond· Availability of raw materials and energy
market problems are due to a very over-optimistic· Availability of capital in the local markets
evaluation of risk by many lenders. The lenders haveThose in the positive category are: China, India,
realized their mistakes and are rapidly adjusting theirNorway, Canada, Brazil, Hong Kong, Singapore, and
risk premiums back to the historical levels of riskKorea. Much of Latin America and Eastern Europe are
premium that have prevailed for the better part of 30on the fence with some positives, but they also have
years. As we wrote recently, every type of loan fromsome negatives.
government paper to all types of mortgages andNEGATIVES
corporate and consumer credit will become moreSOME COUNTRIES SUFFER FROM:
expensive. This will reverberate through the U. S. and· Rising interest rates
global debt markets and raise the cost of borrowing· Lowering of P/E ratios as interest rates rise
for everyone.· Slower economic growth
GOOD FOR STOCKS AND COMMODITIES· Weakness of the financial system
This will also make investors more cautious about· Lack of availability of capital in some markets
future commitments to debt. Historically, when interest· Threats to corporate profits from tax policy
rates were rising, investors shunned long-term debt inafter 2008 [U.S.]
favor of short-term debt and moved more into equities· Increasing restrictions on global trade (potentially
(stocks).the biggest problem)
Many aggressive investors have been using leveragedGLOBAL INVESTING EXPERTISE A MUST
debt instead of equities to maximize returns..WeIn our opinion investing solely with a U. S. (or for that
believe that many of those seeking high returns willmatter any one country centric) strategy will become
return to stocks and commodities in order to maximizemore difficult in coming years. We further believe that
returns.expertise in global investing will become an important
In this area, there are statistics suggesting why baseattribute for investment success in a increasingly
metals and energy remain in demand. We have statedglobalizing world. We have worked very hard over the
these things before in different ways in hopes ofpast few decades developing such expertise. We look
capturing your attention.forward to the changes taking place in the global
From an economic point of view, world economiceconomy as we expect they will create some very
growth determines the demand for raw materials toprofitable opportunities in coming years.
build economies.Thanks for listening.
The estimated GDP growth for the last four yearsGuild Investment Management, Inc., a registered
and the coming four years is as follows:investment advisor. All material presented herein is
· India 8-9%believed to be reliable. Investment recommendations
· China 10 % +and opinions expressed in these reports may change
· Developing world other than India and Chinawithout prior notice.
6-8%You can also read our past periodic market and
· Developed world 2-3%economic commentary articles by going to the
If the developing world contributes about 40% of theCommentary Archive on our web site
global GDP as many economists think, and theThese articles are for informational purposes only and
developed world is contributing about 60%, then theare not intended to be a solicitation, offering or
blended world growth rate is roughly 5% per annum.recommendation of any security. Guild Investment
We believe, based upon the research of economistsManagement does not represent that the securities,
from many parts of the world, that global GDP growthproducts, or services discussed in this web site are
has been about 5% a year for the past few years,suitable or appropriate for all investors. Any market
and will probably continue at about that rate for theanalysis constitutes an opinion that may not be correct.
next few years.Readers must make their own independent investment
LONGER TERM GLOBAL ECONOMIC GROWTHdecisions.
LIKELY TO BE STRONGThe information in this article is not intended for
We further believe that world economic growth willdistribution to, or use by, any person or entity in any
remain strong for two or more decades as the currentjurisdiction or country where such distribution or use
6.5 billion world population grows by more than 50% bywould be contrary to law or regulation, or which would
2050.subject Guild Investment Management to any
TO GROW A WORLD ECONOMY BY 5% PERregistration requirement within such jurisdiction or
YEAR..you must consume resources at the rate ofcountry.
about 3% per year.Any opinions expressed herein, are subject to change
In today's tight markets for oil and minerals, the supplywithout notice. In addition, there are many market,
of many commodities is growing at about 1% a yearcurrency, economic, political, business, technological and
or less. If demand is growing at 3% per year PRICESother risks that are beyond our control. We make
MUST RISE SUBSTANTIALLY for energy and forreasonable efforts to provide accurate content in
many other commodities.these articles; however, some content and some of
AS WE HAVE SAID, WE ARE OPTIMISTIC ABOUTthe assumptions, formulas, algorithms and other data
THE OUTLOOK FOR SOME STOCK MARKETSthat impact the content may be inaccurate, outdated,
AND THE MARKETS FOR ENERGY, BASEor otherwise inappropriate. In addition, we may have
METALS AND PRECIOUS METALSconflicts of interest with respect to any investments
LET'S MAKE A LIST OF WORLD NEGATIVES ANDmentioned. Our principals and our clients may hold
POSITIVES..THEN LET'S DECIDE WHO IS HURT BYpositions in investments mentioned on the site or we
THE NEGATIVES AND WHO IS HELPED BY THEmay take positions contrary to investments mentioned.
POSITIVES..THIS WAY WE CAN DETERMINEGuild's current and past market commentaries are
WHERE TO INVEST AND WHERE TO AVOIDprotected by copyright. Apart from any use permitted
INVESTING.under the Copyright Act, you must not copy, frame,
POSITIVESmodify, transmit or distribute the market commentaries,
SOME COUNTRIES ENJOY:without seeking the prior consent of Guild.