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Steve Saville, an excellent market analyst based in the Far East recently wrote this interesting article below. Saville publishes a very well researched newsletter and is a great stockpicker. We used some of his Gold/Silver picks a few years back and are still sitting pretty.

Check out his www.Speculative-Investor.com and sign up for a Free trial if Gold/Silver and a general contrarian investment view is your bag.

A Reason To Like Gold / A Reason To Dislike Bonds – By Steve Saville

If gold and commodity prices do what we expect them to do over the next 3 months then inflation expectations will ramp upward and the Fed will be forced to resume its rate-hiking early next year. It will be a self-reinforcing trend, with a rising gold price pushing inflation expectations upward and higher inflation expectations fuelling a rise in the gold price. And if this happens it is unlikely that bond futures will move higher or remain near current elevated levels. In fact, if our short-term expectations for gold and commodity prices prove to be in the right ballpark then bond futures will most likely tank over the coming few months.

Something will therefore have to give in the near future. Either the nascent upward trends in the gold and commodity markets will have to come to abrupt ends, or bond futures will have to reverse sharply lower. Our money is clearly on the latter eventuality.

• www.Speculative-Investor.com

Many people don’t believe that the Fed and others play an immense part in managing the global markets in the short term by manipulation.

So let’s see some proof of this in a real time example.

Next month both the Federal reserve Chairman Bernanke and the Treasury Secretary Paulson head off to China to talk with the Chinese about their economic policy.

Expect the Gold price to get smashed AND the Dollar attracting a major bid in the days leading up to the visit.

The US banks collectively have slashed bad debt provisions by 50% from $0.60 per $100 loan to just $0.30. In the late 1980s the level was around $6 per $100.

With all the money sloshing around and the outright greed now prevalent in the markets $0.30 per $100 loan seems like a ludicrously small amount and one that many bankers will no doubt come to regret.

Perhaps the bankers though aren’t as stupid they seem because they know full well that any personal money they make is theirs to keep while losses racked up by the company are the shareholders problem. So why be prudent today if its not going to be your problem when things turn nasty?

Whatever the case when the cycle does turn bad for the banks expect far more pain than is first perceived.

A year ago we wrote a post entitled Many US Companies Are Now Just Speculators Or Trading Vehicles

The gist of the article was that the explosion in derivative volume over the last 5 years is due to massive speculation by non financial companies. And many companies are playing dangerously by taking on some of the riskiest bets the markets can offer.

Interesting to note that the fabled retail company Sears (SHLD) earned $101 million pre-tax profits via its investments in total-return swaps which the company noted in its earnings release ‘involve substantial risks’.

Howard Davidowitz, Chairman of Davidowitz & Associates Inc, a New York based retail consulting firm puts it best when he remarked that ‘at the end of the day, what you’re going to have is a publicly traded hedge fund’

Tick-tock because it won’t be too long before one of these non financial business such as Sears gets caught out.

Barron’s the US stockmarket weekly paper has been trumping the bull market over the last 3 issues with the following cover stories.

Contrarians might want to take note.

Talk to almost anyone about the impact of China & India on the global economy and they'll primarily go on about cheap labour and outsourcing.

But these countries aren't stupid - they're looking and planning ahead by several years or even decades while western companies are backslapping and congratulating themselves over an 8% rise in quarterly profits due to outsourcing or finding a cheaper supplier etc.

So the real race for the next 10-20 years is the race to the top - controlling a good part of the global economy of the future. But to do this you need good education.

Did you know right now for example that the Indian Institute of Technology is now the world's most competitive university. Its computer science education ranks on a par with the finest schools in America.

China intends to create the equivalent of a dozen Harvard's in the next few years, and given time there's no reason why they can't accomplish this.

China's elite already has education, laboratories and intellects comparable to the best elsewhere. While it remains a far smaller percentage of their total population, their absolute numbers are already in the millions and rising rapidly.

Something to think about for long term investors.....

Nobody can argue that Alan Greenspan, the recently retired head of the US Federal Reserve was anything but good news for those working on Wall Street.

The main reason was the ‘Greenspan Put’ a theoretical put option that meant that whatever happened in the markets the Fed would step and manage prices, normally by slashing rates and injecting liquidity. So every massive trade that was transacted had a free put option attached, you knew that the downside was protected

But Greenspan has gone. So the job of maintaining the put seems to have gone to the ex Goldman head Hank Paulson, the market-wise Treasury Secretary.

Read this Daily Telegraph article for an insight into how the markets will be handled should all hell break out on the downside.

• Paulson re-activates secretive support team to prevent markets meltdown

The SafeHaven.com website can always be relied on to publish some interesting and thought provoking market related articles, but you do have to watch out for the kooks as well.

Nevertheless we still like the site and always find something of interest when we visit it.

Case in point is this article entitled -

• Diatribes of a Deflationist 2 ? Why They are Still Wrong

Bear markets never last forever therefore after 8 years Coke looks like a buy especially as it broke out of a multi month trading range last week.

Interesting to see how it reacts over the next few weeks but right now there’s plenty of volume coming in.

Long term target has to be around the low 470s, right now it’s at $46.75

If you’re still a commodity bull then Coal should be on your radar screen. There’s a lot of it, 100% proven reserves and unlike oil it’s supply isn’t that dependent on political stability a la Middle East/Africa/Venezuela etc.

Exciting new develops within the industry are also taking pace namely Coal-to-liquids (CTL) technology which converts it into petrol and diesel. Promoters of this technology say it’s profitable and viable with an Oil at $40+.

Some quick facts -

• Coal demand is growing at a furious pace in China, it gets 70% of its power from coal fired plants
• US coal consumption is expected to rise by around 75% heading towards 2030
• Some analysts are suggesting that coal firms have the potential to generate better returns that oil firms over the next decade

Two Coal Stocks

• Peabody (BTU)
• World’s largest producer
• Price earnings growth ratio of 0.7%
• Share price has fallen nearly 50% in the last 5 months and we always like to see this kind of price action when long term bullish of a commodity/sector – gets all the stale bulls out and everyone depressed
• Yahoo stock profile

• Arch Coal (ACI)
• Another mega US coal producer
• Price has also fallen by around 50% in the last several months
• Yahoo stock profile

Conclusion

Yes, the short term media led circus that is now the markets has said the commodity boom is now a bust or at least no more. Well, we wouldn’t be so sure of this and fancy that this view is only because prices have been coming down since the beginning of the summer. But who said retracements in a bull market weren't a natural occurrence?

If you’re thinking long term and that commodities are a good trade for the coming decade then do some further research on the Coal sector because it looks promising.

As we all know the personal debt problem in the UK is getting out of hand. This has been due to many factors including reckless lending and promotion by the financial institutions.

Whatever the case the trend for rising bankruptcies is continuing and plenty of companies are lining up to take advantage. Check out these AIM listed firms –

• Debt Free Direct (DFD)
• ClearDebt (CLEA)
• Debts.co.uk (DETS)
• Debtmatters (DEBT)

Potential Mis-selling Risks

Some people are starting to suggest that Debt help companies especially those on the stockmarket are far too aggressive with their often unsophisticated clientele. For example, concerns have been raised that (very profitable for the debt company) Individual Voluntary Arrangements (IVAs) have been pushed on customers when straight bankruptcy would have been the more suitable option.

Debt companies are not regulated therefore it's always a risk that the Financial Services Authority will start to look at them and their business models in more detail leading to the possibly that they'l have to be regulated. If that happens it wouldn't be the best news for the sector.

Summary

Although the debt problem is not going away in the UK the stocks listed above are pretty extended on their charts alongside being valued for continuing rapid growth. For this reason we’d advise some caution about buying at these levels.

Still, the stocks are worth putting on your quote screen.