Dear CIGAs,

Long term success does not depend upon the positive things that happen to you, but on how you handle adversity.
-Common theme in several notable quotes

The weight of the evidence for the global investment markets has swung from a recession with inflation problems, to the high probability of a deep recession or depression that lasts for years.

Governments everywhere have been slow, and some politicians have been unequivocally unwise. Those in the real estate, mortgage banking, insurance and investment communities who started the mortgage and derivative scandal that we have warned of for six years are to blame, and will carry the stigma for the remainder of their lives. Many will go to jail. Let us hope that we can avoid a great depression, but for now the wise course of action is to continue to protect yourselves.

TO PROTECT YOURSELVES

How? In our opinion, you should hold your cash in excess of insured levels in treasury bills, and not money market funds. Hold 10% to 20% gold. Where possible, work to hold assets in private banking institutions where legal documents state that the client assets are not commingled with the assets of the firm or any other depositor. We believe that this is critical. Some people want access to trade via their computer on a daily basis, but typically the firms that provide cheap trades and instant computer access do not provide legal safeguards against commingling that private banks provide.

A MAJOR REFLATION IS BEING ATTEMPTED BY CENTRAL BANKS AROUND THE WORLD

The rapid recovery of the banking system that is being sought will probably not develop. Governments did not take rapid action. They stalled, and by stalling and failing to act they may have created an inflation combined with a serious economic downturn. We have long argued that if it was done in a timely manner it could work. It was not done in a timely manner, and in our opinion the efforts will fail. They did not listen to the people who argued that a reflation and bank bailout was needed a year ago...and now they are too late.

The great depression of the 1930's was aggravated by unwise political moves like the Smoot Hawley tariff, and this time, many lawmakers worldwide still do not get it. They are throwing up roadblocks to the redevelopment of a functioning banking system with their parochial political concerns. This is what the financial markets around the globe are telling investors today as they plummet.

EUROPE IS NEXT TO HAVE SERIOUS PROBLEMS...AND THEIRS WILL BE HUGE

The culture of banking in Europe is secretive, and they have not admitted the depth of their problems with bad loans and toxic bonds. This will be a much bigger problem than most realize.

ONCE IN A LIFETIME MELTDOWN IN WORLD MARKETS, ECONOMIES AND CONFIDENCE

This is not hyperbole. This is a once in a lifetime event, and we predict many years of slow economic activity especially in Europe and the U.S. We are currently invested for our clients in gold shares and U.S. Tbills. Foreign currencies are declining rapidly as the panicking investors worldwide move to U.S. dollars for perceived security. This is a short term fix. Longer term, the U.S. dollar will have to go lower as the supply of dollars floating in the world skyrockets.

AS STRANGE AS IT SEEMS, EVEN IN THE GREAT DEPRESSION THERE WERE MANY MARKET RALLIES...SOME OF THEM WERE BIG

Even in the Great Depression of the 1930's (the event most closely correlated with the current situation) there were many rallies of 10 to 30%, one of 50%, and two rallies of over 90%. Some of these rallies lasted for well over a year. Stocks will periodically rally and opportunities to make money (both long and short) will develop over coming months and years.

OUR STRATEGY

Our strategy is to wait until the smoke clears, so we can see where the world economy and its sectors are positioned before taking any action. There were those who made substantial money during the great depression. They did so by: 1) waiting for rallies and buying with a trading mind set, 2) waiting for big price declines and buying for the very long term. 3) selling short with a trading mentality. Those investors who held cash and invested periodically after big price declines could have easily done much better than those who bought and held.

IT SHOULD BE OBVIOUS BY NOW THAT GOVERNMENTS ARE NOT HONEST WITH THEIR PEOPLE

The U.S. has been in a recession for months, and the only reason that the statistics don't show it is that they are using an inflation number that is much too low. If the real inflation number were to be inserted, we would see that U.S. economic growth is negative...and has been for a long time. Total growth minus inflation is real growth. If total growth is 3% and inflation is 4%, then growth is negative. Currently, total growth is 3%, and they are saying inflation is 1%. This is patently absurd. Some other countries are honest about recession. Recently, New Zealand and Ireland admitted to being in recession. Much of Europe is in recession, and only the Chinese, Brazilian, Indian, and a few emerging economies are growing on a real basis. The question is how much longer can this last?

I wish the news was better, but we believe that you prefer our unvarnished view rather than 'feel good' platitudes.

Thanks for listening.