The demand for instruments such as perpetuals or preferred shares has increased tenfold in spite of the usually incorrectly assessed risk. In their hunt for yield, investors are disregarding basic elements of valuation; we continue to advise strongly against this as we do not see a favorable risk-return in this strategy.

The Dubai debacle, while not being in itself a major issue has reminded all that excessive government debt levels is one of the really worrying issues we are facing going forward. In some ways, it is better that this crisis remains contained. Its virtuous aspect has been to remind over-optimistics that risk returns have been seriously biased for a while now. Whether this painful reminder is going to suffice is not a given as cash remains plentiful and seems desperate to find a home.
There are times when one has to accept lower returns and position oneself for capital preservation. We believe such times are in front of us. Therefore, while remaining invested, we shift positions towards the least volatile instruments in each asset class and recommend favoring investment funds with demonstrated capacity to manage over time.
In the current environment, with low visibility for the average household, we find it hard to get convinced by those who believe in a renascent demand from the consumer, there are too many unknowns for the “people from the street” to go back to the shops. Indeed, the retail sales numbers have found it hard to go back up. Consequently, corporations have to concentrate on their cost control in order to be able to publish decent profit figures. Unemployment not only adds to the gloom but is also a worry going forward, putting an additional drain on government finances that are already stretched.
It must also be kept in mind that governments’ ability to face a second bout of crisis, if the case was to arise, is very limited.
Real assets are being scrutinized again: Whether Real Estate, forests etc… The main difficulty being in finding the right investment vehicles and focused exposure. With year-end approaching, we are more and more convinced that trading activity is going to be lower, it has been a good year for investors, none want to jeopardize their performance at this stage: tomorrow’s another day !

Opportunities and how to seize them:
Overall - The level of rates, credit spreads and even Equity markets leave little room for real untapped potential. Overall, we maintain existing exposure but have started moving towards better credit ratings in spite of the low yields, in a protective move. Regarding Equities, a move following a similar philosophy is taken: we remain slightly overweight but decrease at the same time the volatility of positions by choosing defensives and value stocks or Equity funds. Currencies offer more risk than potential, we suggest limiting exposure to non-home currencies. Some exposure is maintained on Industrial Metals and Agricultural commodities.

● Rates and Credit: As it has been for a couple of months, our view is that capital appreciation (based on either rates movements or spreads tightening) is limited and that the risk-reward offered by lower credits has turned negative.
● On the currencies front our view is clearly unchanged: the EUR and the USD are weak currencies versus others, particularly those of developing countries with a strong budget and natural resources. We avoid currency exposure in portfolios with the exception of marginal exposure to developing world currencies.
● As per commodities our view on the Natural gas bounce which was beneficial has turned sour but we maintain this position, expecting a rebound as cold days are approaching.. Regarding industrial metals and Agricultural commodities, our recent positioning has started offering some positive returns since the month of October and we maintain it on fundamental view. At least neutral exposure to precious metals is recommended as ballooning Central Banks balance sheets allow for future inflation jumps even if this is not expected to happen very shortly. On Gold more specifically, the exposure is gained via Gold mining companies and remains at previous levels. However, Analysts targets are being touched on Gold, leaving little room, based on fundamentals.
● In the Equity markets, we wish to contain the risk by exiting the most volatile segments: Emerging markets, financials for instance.. We continue to make a strong stance on detailed analysis in order to assess value, looking at the financials, competitive positioning in order to select the right companies. Overall, we limit the exposure to volatile stocks or vehicles: preference for value oriented strategies and funds with outstanding histories. Exposure to Emerging countries is also decreased in favour of the above mentioned equity vehicles, a shift towards convertible funds which have characteristics in between Equities and bonds is also implemented. As per sectors, we avoid Car, “financing” companies and Airlines. Our exposure to financials, while reduced now, remains more biased towards insurance companies than banks.
● We maintain exposure to liquid non-directional funds such as quantitative/statistical funds as a buffer for directional exposure taken in other asset classes.
● In the Real Estate segment, which has been on our watch list, we still prefer holding as we see mixed signals and would want to avoid having to suffer from potential rates rises that are not out of question if one reads the most recent statements from Central Banks. Nevertheless, there is some yield and capital appreciation possible.
● Our Key Words remain Tradability, Simplicity, Diversification and Reactivity. We are adding one temporarily: Caution.
http://www.espiritosanto.com

The amercican dream has vanished.... .Unfortunately everytime we tried to look somewhere else, it seems that the other Dream countries vanish as well. Dubaï is the latest example (predicted some time ago...isn't it Georges...???) but obviously it is easy to talk about Predictions once they happened. Why don't we just talk about Common Sense.
Once upon a time you dreamed of sending your kids to Harvard, UCLA, Stanford, Columbia or GW University... In the last years we started learning Mandarin, Arabic or Russian , to keep up with the "surging" economies. To be the first one to be out there and to make tons of money from those "guys"... But are you sure you know many who actually made money from China, from Russia, or Great Example from Dubai ?
Well in my case I personally know one out of ten who actually earned money, all the remaining 9 "friends" lost energy, lost time, lost ideas and some even lost money with those countries.
We all believe that we have to go to China to make bucks... Please forgive me as I 'm the first who spent hours and hours repeating my mandain phonetics... I will never forget the words of a friend when we were in Shanghai some three or four years ago at the first F1 event in China. This friend who is actually one of the Top F1 managers listened to me with lots of attention when I was trying to show him all the local brands which surrounded us. Not one single brand we actually new. I then suggested to him to help in finding the contacts to get them as sponsors for some of the leading pilots... What a good idea... His answer was: "Pablo, good idea but we are 25 years to early" and added:" and we will have to compete in there local formulas, they are too smart for us..."
I think he was right. Lets not try to play with tools we do not even know how they work . Lets keep ideas and put our strengths and money where we know how people react, bux, sell, exchange or trade. Now who are “WE” ? Lets identify this point of view from an occidental 43 year old Italo-Swiss living in Switzerland, spending in Swiss francs, hollidays in Euros and dreams in U Dollars... What ...What dreams ?
The dream of our life, even if we already traveled through Asia, Arabic countries, Africa and Europe on weekends, we still dream of America. We all watched TV when Obama came to glory. We most certainly were dreaming of Change. As we desperately all want the American Dream to come back.
Who desnt wish to live in Miamy ...or LA ? Who doesn’t dreams of New York’s Christmas shopping ? ...and not only to buy cheaply.
Who doesn’t dream of sending his kids to Parson or some other great American school ? Or simply whos wishes of route 66 with a group of friends, a houseboat on Lake Tahoe, a Van accross the national Parks...
America is in our hearts ! (this said I did not say Americans, they are sometimes too naïve, to superficial and there lack of personality just kills me)
Lets go back to our Dollar, our green note. Well why is it so low ? And compared to who and to what ? Is Europe in such a good prosperous and wealthy state ? Is Spain going so well hundreds of thousands of villas let to die unfinished...? Italy is loosing his government ! France is keeping his head up, with the strength of little Nicolas and tall Carla, it seems as the can cope with it. But what about Uk....what about Portugal ??? What about all those ex-eastern block countries, they cannot even eat at there hunger anymore.
Is the Euro so much stronger ? Well yes on currency it really looks strong ! 1,50 against $ ??? Now try to extrapolate the currency and replace it with a phisical person. Is the Euro man so much stronger then The dollar man ?

Same thins with the Yen.... And the British Pound we will not even talk about it.

This is a ridiculous way of seeing a currency, changing its face from a material person to a phisical man. They cannot be dissociated. Americans, now I will talk about them have the short memory of a young adolescent. Looking to what he will be doing tomorrow, next weekend, in some time. But he doesn’t care opf what happened last week, last month or year. He only looks forward.
On the other side, the european lady is a bit oldish, intraverted, only thinking of what others will think or talk about her. She is only scared of how she will appear, feal or be when faced with society. She only lives on her past glory. She is often scared of looking ahead, “who knows what tomorrow will be like...?” This is a phenomenal hand break, this is a truck uphill with no power and full of old very heavy memories.
Unlike the american who looks more as a skateboarder yelling as he tumbles down a steap alley. Yeah , sure he can fall, and break his arm or worst ! That’s the american way of living. Searching for a downhill street with a light suitcase to carry.

I believe they can go fast, recover from brouses, climb the economic ladder again. This will immediately bring back the dollar to higher levels compared to Euro and Swiss franc.

This is my personal thought and extrapolation of a currency into human thoughts, human actions.... Realistic behaviou.

Personally  the only reason for me would be the fact that if you actually buy Gold you are effectively buying U$ Dollars.
The problem of going into Gold now is that thos countires which tended to invest in Gold as the only place where they knew where to put there money. These are the Indians, Indonesians, Middle Eastern and Chinese. Now the fact of this “globalization” carries forward a whole new ea of knowledgeble human beeings. These now read, listen, watch tv or other electronic facilities. They have there own internet access. The follow there countries facts and figures. The invest in there local gurus, the managers, there companies. The now became more interested in the world, or at least there world. They want to be able to earn money just as there neighbour did. They want there new TV set, the new computer or the mobile phone too.
Accessibility of mutual funds of banks, of offices offering small clients to invest is becoming more and more easy. The hidden gold under the bed is not working as well as before. Money is now kept in cooperative banks, savings accounts, Post offices or financial companies. Once its there the power of convincing starts to make his way through. Those millions of little savers start investing. They buy, they sell, they trade stocks.
Gold is not as interesting neither for the banker (low commissions and very long investments) and often not as interesting for the customer as there is no Dividend. Gold can also be complicated to trade due to its fiscal position , Capital Gain or Fixed Income ? Some countries consider it as fixed income when they have to tax on its earnings.
Gold is Old ! I should copyright this sentence, sounds great ! But yes: Gold is Old. It is not appealing as it used to be. At least not for the new generations.
Now lately we saw these incredible moves upwards of this metal. Actually quite understandable, as where should we put our money otherwise ? Not in stocks due to there volatility , not on bonds as coupons paid are inexistant....Gold was a good opportunity . Now please do also remember that all thos who bought Gold being invested in another currency then $ actually made a grea loss on the fall of the currency. Partiually there gains of the rise of Gold were lost with the exchange rate.

We will now see an inversion . Dollar Up, Gold down. Which is actually just as what we saw previously : Gold Up Vs Dollar down.
The reasons being that we also now have a better outlook on the worlds economy in general, the stock market recobvers very fast. Look a t Duba!i.... Everyone thought the world would collapse again as the Emiratis were falling down the luxurious fallout. But nothing of that happened (even if I am very happy to have always spoken against the Dubaï real estate investments), the markest just didn’t care. The envy of going ahead is pushing hard. Starting form the Nikkei, the Dow the Footsie and the others just want another go. Even if we are seeing the last days of splendor of the stock market, as I am for the next months quite Bearish , people want to buy it.
Well I didn’t want to talk about stocks but just to see another aspect of why people will start moving there little economies/savings from the Gold to Stock Markets.

I will now call it “The Gold Brush” ....Rush is over. Actually I should start writing Poems, surely pay more then Gold.

My advice: SELL NUGGETS & BUY BUCKS

by Pablo Dana