FORTUNE FAVORS THE BRAVE

As you know, we are fundamental analysts, not technicians. We take an investment view on stocks and commodities, not a trading view. That being said, we believe that much of the panic and the savage price decline in food related investments and in precious metals is behind us. We are adding to our positions in these two areas.

We do not know if the correction caused by technical momentum traders is over. What we do know is that the emerging world is very strong economically, and these countries are large and growing consumers of high protein foods. Thus, a recession in Europe, Japan and the U.S. will not deter them from upgrading their diets. This will require the production of more grains and an increase in demand for fertilizers and other food production inputs. We own fertilizer stocks and we have recently been adding to our positions.

The world banking system is broken and badly needs to be re capitalized. How will they get new capital from investors? We doubt that the banks will be able to get many investors to buy into their optimism and buy their stock. In our opinion, the only long term solution is that governments print more money to re-capitalize and re-liquefy the banking system. The season for increased gold demand is upon us as India starts to buy more for the wedding season. Gold coins are in short supply at many coin dealers in the U.S. Stagflation, inflation, and deflation threaten the world in different parts of the globe. All of these events are bullish for gold and we are adding to our gold positions.

As we said earlier we are not technicians, or momentum players (the two groups that seem to have had control of commodity prices during the last few weeks). We are fundamentalists, and the fundamentals argue that food and precious metals are getting into attractive buy areas.

We do not know if this is the ultimate bottom in precious metals. We do know that we want to own gold during periods when the world banking system is flirting with collapse and the only solution is governmental takeovers and subsequent large money printing exercises, by governments in Europe, Japan and the U.S.

There has been no fundamental decrease in the value of gold as a hedge against both inflation and strong deflation. Clearly, many commentators believe that one or the other may be the long-term outcome. We believe it is still too early to call…but that inflation has the upper hand at this time. Historically, gold has fared well in both inflationary and strong deflationary periods. We will write more on this later.