With the dollar rallying, foreign stocks swooning, and commodity prices plummeting, many have concluded that the trends that I have been championing over the past decade have reversed. However, as is often the case over the short term, market behavior can easily fool the majority of investors. I am convinced that this is just one of those occasions.

For most of this decade, while my investment recommendations were benefitting from the trends I had forecast, critics erroneously suggested that my dire view of the U.S. economy was costing my clients money. More recently, as the U.S. economy has begun to collapse like the house of cards that I always said it was, my investment thesis has not performed as I would have expected. The panic unleashed by the magnitude of America's troubles has caused global stock and currency markets to behave senselessly. For the moment, fundamentals are not driving valuations.

I must confess that when many of the bulls I had been debating for years finally adopted my investment strategy, I was a bit worried that the trades were getting crowed. In hindsight, one can argue that I should have been more concerned that the accelerated fall in the dollar and the rise in commodities in late 2007 and early 2008 had brought in so many short term speculators that reversals were likely. But the fundamentals for the dollar remained so horrendous to me that those concerns could never gain the upper hand.

But with so many dilettante investors (who had jumped belatedly onto the foreign stock and commodity bandwagon in 2006 and 2007) now flushed from the market, the stage is set for huge rallies in both sectors. Since many of these investors were chasing trends they never really understood, they have fled at the first sign of trouble. This is par for the course in bull markets, as corrections are designed to shake loose the weakest players. This particularly includes leveraged speculators, who typically over-extend themselves on the rallies.

Just as they dismissed my economic forecasts for years, my critics are now making the same mistakes with respect to my investment strategy. Their justifications are recycled. Most investment analysts can only see what is happening in the present. As a result, they draw long-term conclusions from short-run events.

However, it should be obvious by now that doing the right thing often means going against the crowd. As this massive recession gets underway it's important to recall just how many people allowed this elephant to sneak up on them. The delusion was shocking, and it still is. What are the chances that these visionaries finally have it right?

There were also those who joined me in warning of a pending economic collapse, but advised investors to remain in cash (usually defined as U.S. dollars). For years, while the dollar tanked and foreign markets soared, these individuals appeared wrong on the economy and wrong on investments. While at the moment they can now claim complete vindication, if they stay in dollars too long, their victory will be hollow. While U.S. Treasuries are set to win the gold, silver and bronze in the 2008 investment Olympics, I do not expect a repeat performance in 2009. This is just another example of short-term movements incorrectly being given long-term significance.

However, most who saw this disaster coming now foresee a deflationary spiral, where the world economy crumbles, commodity and consumer goods prices collapse, and the dollar reigns supreme. This group is just as wrong now as was the Goldilocks crowd with respect to the U.S. economy a few years ago.

Based on the recent poor performance of my investment recommendations, many claim that I had been blinded by arrogance. They said the same in years past about my views on internet stocks, housing, and the U.S. economy. The fact that my conviction has not been shaken by short-term market action or popular sentiment is not a sin of arrogance but of confidence. The difference is crucial. Arrogance is confidence without knowledge. But if you know the facts, and understand the dynamics, then knowledge justifies confidence.

Now, I certainly admit that with the benefit of hindsight, it would have been better to have sold our foreign stocks and sidestepped this correction. However, I do not accept that my failure to do so invalidates my strategy. While I certainly warned that both foreign stocks and commodity prices could correct as the severity of America's economic problems became more evident (and I clearly advised that investors hold some cash reserves and physical gold to profit from such a correction), the only thing I truly missed was the sharp bear market rally in the dollar. This has made the short-term correction in foreign stocks much more severe then I had anticipated.

My take was that U.S. government's response to the crises would be so inflationary and so detrimental to the long-term health of our economy, that it would overwhelm any temporary boost the dollar would get from deleveraging. Here my error was my overestimation of the market's ability to comprehend the long term inflationary effects of a massive expansion of money supply. The irony here is that while the government is acting even more irresponsibly than I had forecast, the dollar has managed to rally in the face of it!

However, the case for foreign stocks has never been better. Not only are valuations at historic lows, but given the recent fall in global interest rates, relative values are more compelling than ever. In the final analysis only time will tell if I am correct, and investors need to study the facts and draw their own conclusions on the best way to apply them. Both the good and the bad news is that I do not believe we will be waiting too much longer for the answer.

This company is one of the largest manufacturers of TVs, consumer electronic and display technology products, audio and visual and information technology products in China. In the export market, the company is a pioneer, offering quality in OEM (original equipment manufacture) and ODM (original design manufacture) services to international markets. Exports account for more than 15% of its total turnover.

The Company has been listed on the Hong Kong Stock Exchange since April 2000. According to company spokesmen, the Group was the largest Chinese color television exporter and 3rd largest TV manufacturer in China since 2001. It was the No. 1 Chinese OEM and ODM TV exporter since 1995 for consecutive 8 years. With a recent drop in share price, a solid plan to increase market share, a yield around 10%, we think this company deserves a good look from investors wanting a high yield and exposure to China.

This company focuses on quality.

The Company has made high quality one of its top priorities. Six main TV manufacturers are battling it out for market share in China's fast growing flat screen panel TV market. We view this Company as the best positioned of the six, given its acute focus on quality as a key differentiation between it and the low cost, flat panel TVs manufactured by its competitors. As China's economy grows in affluence, we believe the high end of the market will likely continue to be dominated by foreign brands (Japanese and Korean) with a vast mid tier market available for manufacturers to exploit. We believe the number of local players in the TV space in China could reduce to 2-3 very large manufacturers over the next few years, and think that the Company will be one of them.

Industry outlook remains robust.

The demand for flat-screen TVs in China reached 9.5 million units in 2007, surpassing the Japanese market. Demand is forecast to grow to 28 million units by 2010, making China one of the top three flat-screen TV markets, along with the US and Europe. With about 10% market share in a fragmented TV market, we believe the Company is well positioned to take advantage of the growth in flat panel TV sets. In addition, China's State Administration of Radio, Film, and Television announced that it would terminate analog broadcasts in 2015, favoring set top box manufacturers. The company is one of the largest manufacturers of set top boxes in China. With the new government policy, demand for digital set top boxes is expected to grow sharply in the next five years. We believe the Company could witness a sharp growth in its set top box business starting in CY:09.

Company exits Mobile Phone and Appliance business.

2007 was a difficult year for the mobile phone business, with the lowering of entry barriers, inducing rivalry from local and global brands and damaging the profit margin of the business. The Company decided to sell 80% of its equity interest in its mobile phone business to a supplier of the business in order to limit its exposure to the financial and operational risks from the business. We believe this was a prudent financial move.

Lack of access to flat panels continues to be an issue to the company's competitors.

Flat TV panel manufacturing is dominated by Taiwanese and Japanese manufacturers. Most TV manufacturers buy flat screen panels from suppliers in either of these 2 countries. The screens themselves account for almost 80% of the total cost of the TV set. With fierce competition in China for cheaper and cheaper TVs, manufacturers continue to fight for access to other manufacturers of inexpensive flat screen TV panels. The Company has a strong agreement with a flat screen panel manufacturer, assuring the company of a steady supply of competitively priced screens. This allows them to keep the prices of their TV well priced versus their competition.

CONCLUSION

With the sale of the low margin mobile phone business, and the favorable flat screen supply agreement, the Company is in much better position to compete aggressively in its market, while increasing its margins. We believe its relationship with the panel provider and the restructuring of its business, which will allow the Company to focus on TV and Set top box business, bodes well for the Company in 2009.

Trading at just 2 times projected 2009 earnings, with 10% dividend yield, we view the Company as very attractive, with a compelling valuation. The share price has dropped over 50%. With a sound strategy focused on extending its market share in the Chinese TV market, we believe investors should put new money to work at these price levels.

RISKS

1. Despite the low share price, it could drop farther.
   
2. The dividend could be cut.
   
3. We could be wrong in our evaluation of the company's chances to prosper and increase market share.
   
4. The Chinese TV Market is very competitive, and should the company not execute its business plan well, its earnings could drop.
   
5. The Chinese currency could decline against the US Dollar
   

Investing in foreign securities involves risks specific to international investing, such as currency and political risks. There can be no guarantees of success in pursuing any of the strategies we recommend, or that any of the specific companies will gain in value. Risks include an economic slowdown, or worse, which would adversely impact economic growth, profits, and investment flows; a financial accident resulting from the veritable explosion of global liquidity, increasingly risk-taking and its attendant volatility; a terrorist attack; any developments impeding globalization (protectionism); and currency volatility/weakness. While every effort has been made to assure that the accuracy of the material contained in this report is correct, Euro Pacific cannot be held liable for errors, omissions or inaccuracies. Euro Pacific has not independently verified the information supplied by the company, and cannot make any representations as to its accuracy. This material is for private use of the subscriber; it may not be reprinted without permission.

© Euro Pacific Capital Inc. All rights reserved. 1-800-727-7922
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In recent months, it's been one monumental crisis after another. At times, events were moving so quickly it was hard to keep up as markets spiraled out of control.

What lies ahead remains unknown because massive changes are still taking place as the worst financial crisis since the Great Depression unfolds. Opinions are running rampant but we can make some valid assumptions based on the facts. It's really pretty simple and it boils down to the numbers...

Even way before the credit crisis hit, the U.S. was the world's largest debtor nation. For years, it's been spending vast amounts of borrowed money on everything and anything. This resulted in the largest deficits the U.S. has ever known.

To give you a couple of examples, consider this...

The war in Iraq alone will probably end up costing about $2 trillion, based on reliable estimates. These numbers are so big, they hardly mean much to most people. But to put this into perspective... if you were to take all of the gold ever mined over the past 2000 years, it adds up to about $2 trillion. So just the war in Iraq could end up costing what all of the gold in the world since the time of Christ is worth. It boggles the mind, but if we throw in the credit crisis expenses, it boggles the mind even more.

According to Bloomberg, the total amount of money provided by the U.S. government to rescue the financial system over the past year and a half has been $7.4 trillion. That amounts to $24,000 for every man, woman and child. It also amounts to more than three times all of the gold ever produced over the past 2000 years. And the crisis isn't over yet.

A HOUSE OF CARDS

So far, there were the stimulus checks, the Bear Stearns bust, and the takeover of Fannie and Freddie, which made the government responsible for about half of the mortgages in the U.S.

Next, Lehman Brothers went bankrupt and Merrill Lynch was bought. The Federal Reserve poured massive amounts of money into the banking system to provide ever more liquidity as stocks fell sharply and the banking situation grew more serious.

The government then took over AIG, the U.S.'s largest insurer. Money market funds came under pressure. The bottom line was that in just one week, the Fed spent over $1 trillion to keep things going.

Then, Washington Mutual failed. The government bought stock in the nine biggest banks, partially nationalizing the banking system in what amounted to the largest government banking intervention since the Great Depression. They rescued Citibank and now the auto markers need help, which is where we currently stand.

DELICATE GLOBAL FINANCIAL SYSTEM

There's no question these are dangerous times and the financial world is in uncharted waters. The global financial system is on very thin ice. The Fed is spending money at an astronomical rate and the amount of money we're talking about is so unprecedented, there's nothing to compare it to.

Normally, there is a lag of about a year or so between money creation and inflation but eventually, what's recently happened will result in massive inflation and a soaring gold price, since gold is the ultimate inflation hedge. This is inevitable. The weak economy is currently keeping a lid on inflation, but that will not last long.

For now, important changes are taking place but that also means challenges and opportunities. Whatever lies ahead, the current challenge is getting safely from here to there relatively unscathed and again, gold is best to achieve that objective during these turbulent times.