Investment: Thoughts From My Watch List By Gareth Milliams

Below are some random thoughts on some markets that have been in the news
and on my watch list. These are all long term buys but at the moment some
may have temporarily stalled.

China

The central government is looking to slow down the economy. Lending has
become more restrictive and banks have been told to increase their reserves.
There is a fear that the Chinese economy is overheating, but it still
appears to be quite a distance from an actual correction.

A strong indication of potential contraction could be a significant decline
in domestic demand coinciding with an increase in supply. However it may be
simply that the Chinese government has underestimated the weakness of the
western economies and the return of demand for material goods. The stimulus
is economic bridging designed to keep the economy strong until the rest of
the world recovers. The inability of the western economies to return to
sustainable growth fast enough could prove to be significant.

Gold

Whilst happy that we sold gold at a peak four weeks ago, my belief that it
would test $1,000 per ounce has not materialised yet. The Greek crisis led
initially to Euro weakness but in the last three days as Germany announced
it would buy Greece's bonds, the dollar declined against Euro, supporting
the gold price. Additionally, unsubstantiated rumours from a Russian website
called Rough & Polished have spread that China has purchased 191 tons of
gold. The market reacted by pushing the price up by $10 per ounce. However,
the dynamic with the dollar is further strengthening, which will lead to
lower commodity prices and particularly with gold.

The sale of my clients gold was a strategy designed to protect client
capital values against a potentially serious drop in value. However, I still
believe that gold @ $2,000 per ounce is almost inevitable. Gold is a hedge
against inflation and dollar weakness. It is entirely possible that the Fed
will continue to keep monetary policy loose until consumer inflation becomes
an issue. Gold works under both circumstances. We will buy again.

Silver

Silver has underperformed gold thus far YTD. However, it is traditionally
more volatile than the yellow metal. My belief is that (long term) silver
can enjoy a more sustained rally than gold because of its industrial usage.
Clients who know me well, also know of my admiration for Silver Wheaton
(SLW). Silver Wheaton is a company that finances mining companies who mine
silver as a byproduct in order to buy the silver from the mines at a fixed
price of $3.90.

Therefore as the price of silver rises and SLW buys it at $3.90, it is
almost as if buying with leverage.

Russia

This is the only European economy completely dependent upon commodities. It
is in the words of President Medvedev, "a primitive economy based on raw
materials and endemic corruption." Unfortunately, Medvedev is a President
who does not preside. That honour, is claimed by Vladimir Putin. Russia is
lawless and a producer of manufactured goods of almost inevitable low
quality.

However, the Russian economy is expected to grow by 6.2% this year according
to Citibank. Russia's GDP shrank by an annual 2.2% during the last quarter
according to ING Bank NV, compared to an 8.9% decline in the third quarter
and a record-breaking 10.9% decline during the second quarter. Therefore an
increase of 6.2% is massive.

Citibank said that "Loose fiscal and monetary policies will, in our view,
stoke domestic demand and inflation, forcing the central bank to allow
rouble appreciation" during the second half of the year. The report also
predicted that the Russian rouble will strengthen to about 34 against the
euro-dollar basket.

Turkey

Turkey was the recipient of upgrades in its credit rating. However the
recent increase in its islamification and the trial of the General of the
1st Army and the head of the Special Forces has some potential investors
preferring to sit on the sidelines. Citi has downgraded Turkey from
overweight to neutral accordingly.

Verdict: Still a great opportunity, but not for the moment. Dissatisfaction
in the traditionally secular officer class could lead to unrest in the
military. Additionally, Prime Minister Tayyip Erdogan's ruling AK Party is
also embroiled in a clash with the secularist judiciary and is becoming
increasingly vocal in its calls for constitutional reform -- a move which
could fuel discord.