F I N A N C I A L R E P O R T VOL. 27 NO. 12 • February ...

The

Bull & Bear FINANCIAL REPORT VOL. 27 NO. 12 ? February 2019 ? $3.95

Top Stock Picks Gold & Silver

FORECAST

32 analysts from around the globe give their forecasts for the price of Gold and Silver in 2019. The analysts give their high and low price forecasts and what they think will be the key drivers likely to influence the precious metals prices through 2019.

...Page 12

TRUMP The Tariff Man

Equity markets soared on reports of a ceasefire negotiated by Presidents Trump and Xi Jinping, after the G-20 talks. But markets plunged when President Trump deflated the enthusiasm with a self-congratulatory tweet, "I am the Tariff Man", ignoring that tariffs are really a tax on consumption. ...Page 4

Bull & Bear's Investment Advisory DIGEST

Turnaround stocks for 2019. Gold Stocks to

Buy. Top Stock Picks of the Month and Market

Strategies and Trends by seasoned investment

advisors and traders.

...Page 17

Each year for more than three decades, the editorial team has surveyed the nation's leading newsletter advisors and investment experts asking for their favorite conservative and speculative stocks for the year ahead.

This year's MoneyShow report ? Top Picks 2019 ? features over 100 investment ideas for the new year. The Top Picks Report includes a variety of fast-growing stocks with high potential as well as conservative dividend-paying stocks and blue chips chosen for safe and steady returns.

Some of the investment ideas from that Special Report are featured below

Package Up UPS

for Your Portfolio

United Parcel Service (UPS) is a global leader in logistics, offering a broad range of solutions including transporting packages and freight, facilitating international trade, and deploying advanced technology to more efficiently manage the world of business, explains Ingrid Hendershot, value-oriented money manager and editor of Hendershot Investments, .

Headquartered in Atlanta, UPS serves more than 220 countries and territories worldwide. UPS has a flexible capital allocation strategy which allows the company to reinvest in its business, make dividends a priority and take a balanced approach to share repurchases.

Long-term investors should package up UPS for their portfolio. Since going public in 1999, UPS has parceled out brown boxes of free cash flow to shareholders via dividends and share buybacks which have totaled more than $73 billion.

UPS increased its dividend 10% in 2018 to an annual rate of $3.64 per share with the dividend currently yielding an attractive 3.7%. UPS has either increased or maintained its dividend every year for nearly 50 years.

During the next few years, UPS plans to annually invest $6.5 billion to $7 billion, about 10% of revenues, in new technology, aircraft and automated capacity, taking advantage of the 100% deductibility permitted for capital investments under the new tax law.

At the same time, UPS expects to continue to increase its dividend and plans to repurchase $1 billion of its shares in 2018. Management reaffirmed 2018 adjusted EPS in a range of $7.03-$7.37, which represents high double-digit growth.

Operating cost reductions between 2018 and 2022 should result in an incremental increase to adjusted earnings per share in the range of $1.00 to $1.20 by 2022.

UPS ? my top pick for conservative investors in 2019 ? is a high-quality, highly profitable market leader with strong cash flows, an attractive dividend and a solid outlook for growth.

Ulta Beauty

Pretty Three Year Plan

Ulta Beauty (ULTA) ? my top growth-oriented idea for 2019 ? is the largest beauty retailer in America with 1,124 convenient locations in 48 states offering salon services for hair, nails, skin and eyebrows plus more than 20,000 products from over 500 beauty brands, notes Ingrid Hendershot.

During the past five years, Ulta Beauty has generated stunning, profitable growth with sales compounding 22% annually and EPS growing at a 30% annual clip. Ulta Beauty's same store sales growth exceeded 11% during the past five years, well outpacing its brick and mortar peers.

After-tax profit margins have steadily expanded from 7.6% in fiscal 2014 to 9.4% in fiscal 2018. The company added nearly 400 stores during the past five years while expanding its retail sales per square foot from $407 to $548.

Ulta Beauty maintains an alluring balance sheet with no long-term debt thanks to its strong cash flow generation with free cash flow having grown more than six-fold over the last five years to $339 million last year.

Management has been using the cash to buy back shares at attractive valuations. Ulta Beauty issued comparable sales and earnings per share targets for fiscal 2019, 2020 and 2021. The company expects to achieve comparable sales growth in the range of 5% to 7%, and grow earnings per share in the mid to high teens percentage range as they expect to achieve modest operating margin expansion each year.

Ulta's U.S. store target is 1,500 to 1,700 stores with the company planning to open 80 stores in 2019, 75 stores in 2020 and 70 stores in 2021. Investors shopping for attractive long-term returns should consider Ulta Beauty is a high-quality market leader, with profitable growth, a strong balance sheet and lovely cash flows.

Starbucks: Wake-up Call

for Your Portfolio Needs?

Coffee drinkers don't care about market corrections. Perhaps that's why Starbucks (SBUX) has come through the worst market correction in a decade not only unscathed, but in a better position (+10%) than it was when the downslide started in October, suggests Chris Preston, vice-president of content at Cabot Wealth Network, .

For a stock to not just tread water but thrive over the last three months bodes well for its prospects as the market recovers. And that's why Starbucks stock looks so attractive right now.

A big fiscal fourth-quarter earnings report in early November sent the stock gapping up from $58 to $68 in a week thanks to much-better-thanexpected same-store sales, spurred in part by the recently introduced lateafternoon "happy hour" deals. While it has since pulled back to as low as $60, it remains comfortably above its 200-day moving average.

Where does the stock go from here? It's already recovered nicely from its early-December pullback, and looks buyable below month-long resistance at $67. Any push above that level, especially if the market offers a tailwind instead of a headwind, and the stock could zoom past record highs.

Beyond that, the fundamentals look good ? the stock trades at a reasonable price-to-earnings ratio of 20 even after the recent run-up, and analysts anticipate 9.5% EPS growth and 5.6% sales growth in 2019.

Add in the positives in the chart, with both moving averages on the rise since late August, and there's a lot to like about Starbucks heading in 2019. Starbucks might be just the wake-up call your portfolio needs after a threemonth slumber!

Continued on page 8

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Argus Research: Top Stock Ideas for 2019

Stocks Could Rise 15 Percent or More this Year

Each year, Argus Research, a leading independent Wall Street Research firm. surveys their analysts to find out their best ideas for the upcoming year.

The analysts see a better year ahead. S&P 500 earnings rose almost 22% in 2018, yet the index fell 6.2%. In 2019, earnings growth should slow ? but the level of earnings should not peak, and stocks could rise 15% or more in 2019.

This year should bring greater clarity and some resolution of important issues: Trade tensions should lessen as growth stalls in the Chinese economy; the U.S. economy should strengthen after a slow start; and the Federal Reserve should moderate the pace of interest-rate and balance-sheet tightening.

Chinese stocks, the worst major market last year, should rank among the better. Emerging Markets, which bottomed in October, should continue to do well this year. However, bond yields are also likely to turn around and revisit 2018 highs. But along with stocks, high-yield U.S. corporates should outperform government and quality corporates if/as it becomes clear there will be no recession in 2019.

Argus view the overall economy as sound, they expect to see a sharp dip in GDP growth in the first half of 2019, before the economy recovers in the second half. At our forecast 2.3% pace of growth for the full year 2019, analysts anticipate one Fed rate hike, though there is a possibility for two or even three.

Lastly, the growth forecasts into 2020 call for a further GDP cooling toward the 1%-2% range, versus the current rate of growth in the 3%-4% range. Investors should be ready to expect heightened market volatility as the economy continues to slow down.

The analysts each submitted the following ideas for 2019. The list is diversified, and includes large-cap and mid-cap ideas, growth stocks and value picks and, momentum and contrarian options.

Basic Materials:

Albermarle Corp.

Albemarle Corp. (ALB) develops and markets engineered specialty chemicals worldwide. The company focuses on the production of lithium compounds for use in lithium batteries, notes analyst Bill Selesky.

in 3Q19. Overall economic growth is a more

important sales driver for Home Depot than housing activity.

HD is shareholder friendly. The trailing four-quarter return on invested capital was 42.2% in 3Q, up an impressive 970 basis points from the prior year. The ROIC exceeded the cost of capital by 33 percentage points.

The company repurchased $5.5 billion of its stock in the first three quarters of FY19, and has repurchased approximately $80 billion since 2002.

Fiscal 2017 revenue totaled $3.07 billion. The current environment is extremely positive, based on strong global demand for lithium-ion batteries used in consumer electronics and automobiles. Lithium demand continues to exceed expectations and is expected to remain strong for the foreseeable future.

Lithium producers are seeking to acquire additional mines in anticipation of increasing demand. Pricing remains strong based on solid demand trends and weak capacity growth. On size and scale, ALB operates 31 facilities worldwide. Some 80% of projected 2021 demand has already been secured by customer contracts.

Albemarle's long-term goal is to ramp up lithium production by expanding existing mines and pursuing joint ventures and acquisitions. This should lead to substantially higherthan-average profit growth.

Albemarle focuses on shareholder returns through both dividend increases and stock buybacks. The company raised its dividend by 5% in February 2018 and has increased its dividend for 24 straight years.

Selesky has set a 12-month target price for ALB of $125.

Consumer Discretionary:

McDonald'sCorp.

With more than 37,000 locations in 119 countries, McDonald's Corp. (MCD) is the world's largest chain restaurant. In 2017, revenue totaled

$22.8 billion and same-store sales rose a strong 5.3%. Analyst John Staszak expects the company's "Experience of the Future" plan to drive further samestore sales gains and enable the return of cash to shareholders.

The company has raised its dividend for 42 straight years. The most recent dividend increase was nearly 15%, above the average of 6% over past five years. In our view, the dividend hike underscores management's confidence in its efforts to revive same-store sales growth through its mobile order & pay system, value menus, and restaurant renovations.

Positive outlook not reflected in valuation. We believe that prospects for further comp growth in the U.S. are inadequately reflected in the current share price. Staszak recently raised the 12-month target price for MCD by $20 to $210.

Home Depot Inc.

We believe that Home Depot's (HD) 17% pullback from its September high provides a favorable entry point, suggests analyst Chris Graja. Our 12-month target price of $220 implies a multiple of 22-times our forwardfour-quarter EPS estimate.

HD has raised its dividend at a 22% compound annual rate over the past five years. It also recently raised its target payout ratio to 55% from 50%. The current yield is an attractive 2.3%.

Fundamentals remain strong. HD has raised its operating margin by more than 400 basis points over the last five years. In fiscal 3Q19, EPS rose 36% from the prior year and topped the consensus forecast.

Comparable sales at U.S. stores rose 5.4% in 3Q19, on top of 7.7% growth in 3Q18. Online sales rose 28%

TJX Companies Inc.

TJX Companies (TJX) combination of growing store traffic, single-A credit ratings, and 22% annualized dividend growth (over the last five years) makes this a stock we were pleased to upgrade during the recent market pullback, says analyst Chris Graja.

TJX is trading at an enterprise value of 14-times trailing EBIT, below the median of 17.5 for peers designated by Bloomberg.

TJX is a relevant retailer. Consumers will not tolerate significant price increases in this competitive environment, so increasing traffic becomes crucial for driving sales.

The company's flagship Marmaxx division has delivered quarterly increases in store traffic for 17 consecutive quarters ? an impressive achievement given the sector-wide decline in traffic.

TJX has posted 22 consecutive years of rising comp sales and only one comp decline in its 41-year history.

Double-Digit Growth. We expect square footage to increase 4%-5% annually and same-store sales to rise about 2%. We expect a few percentage points of EPS growth from share buybacks. TJX has repurchased more than $10 billion of its stock over the last seven fiscal years. It plans to repurchase $2.5-$3 billion in the current FY19.

Senior analyst Chris Graja has set a 12-month target price for TJX of $55.

Consumer Staples:

Clorox Co.

Clorox Co. (CLX) manufactures and markets a wide variety of consumer products, including bleach, disinfectant wipes, cat litter, lip balm and salad dressing.

Fiscal 2018 revenue totaled $6.1 billion, while full-year earnings rose 17%.

We expect Clorox to benefit from its strong market share in mid-priced products and management's efforts to boost revenue through product innovation.

Continued on page 7

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Page 4 BULL & BEAR

Gold: Trump, the Tariff Man

By John Ing, President & CEO Maison Placements Canada Inc

Equity markets soared on reports of a ceasefire negotiated by Presidents Trump and Xi Jinping, after the G-20 talks. But markets plunged when President Trump deflated the enthusiasm with a self-congratulatory tweet, "I am the Tariff Man", ignoring that tariffs are really a tax on consumption. Trump, the Tax Man? Then the short lived truce was ended by the diplomatic firestorm caused by the unprecedented Canadian arrest of Huawei's CFO, Sabrina Meng Wanzhou oUS warrant which was more evocative of the 19th century gunboat Opium Wars than modern democracies with established rules and norms.

While the headlines are mostly about tariffs, inflation has returned, fueled by the tight labour market pushing prices for services higher and a stronger economy that pushed imports higher. Not surprising, inflation was given a boost from Mr. Trump's damaging tariff war. The sugar rush of stimulus from Mr. Trump's tax cut also boosted the full employment economy and deregulation allowed American companies to repatriate funds sparking massive share buybacks that lifted stock prices to record highs. Looking into the future, the implications are worrying. November core inflation which excludes energy and food to better capture inflation, has already picked up on increased costs for cars, medical care and housing. Currency and credit markets which once feasted on good news, ignoring the bad news, sold off sharply on the prospects of rising deficits and threats of higher inflation, signaling a change in investor attitudes.

2019, The Year of Living Dangerously

In 2019, we expect a number of factors that will drive gold prices higher. In 1990, the top ten largest institutions held about 10 percent of US financial assets. Noted economist and nonagenarian Henry Kaufman calculated that today's 10 largest financial institutions now hold about 80 percent of US financial assets. Never has so much is held by so few. Similarly, the Economist magazine noted that since 1997, market concentration has risen in two-thirds of industries such that 10 percent of the economy is made up of industries in which four companies control more than two-thirds of the market. In Canada, the concentration is more widespread with the oligopolic concentration of the banks, cable, insurance, auto and media industries.

And worrisome too, is that Wall Street's newest structured products, ETFs, algos and derivative CTA sell programs (managed futures funds) has resulted in a similar unhealthy concentration of assets, such that next year a sudden change in the markets will see the marketability of a large volume of securities and liquidity disappear ? not everyone can fit through the exit door at the same time. Gold will be a good thing to have then.

More broadly, the American economy has experienced many booms and busts in the past three decades from the dot-com bubble to the Asian crisis to the Lehman collapse. Although the pick up in inflation is largely selfinflicted, interest rates have moved up four times as the central bank drains the liquidity punchbowl, exposing an American house of cards, and a vulnerability to higher rates. Each time before every bust, the economic tipping point came when inflation and rates rose. Worrisome is that the Trump administration next year is

likely to unleash even more stimulus in advance of the next election. We haven't seen anything yet.

Tariff Wars

President Trump thinks that trade wars are winnable. Ironically he might have been victorious but for a series of self-inflicted gaffes that have hurt the US economy and markets, ensuring defeat instead. The most serious is that his "America First" leaves the rest of the world on the sidelines just when he needs allies.

Ironically, despite the threats of tariffs and hardline rhetoric, in the two years since Trump's election, the US trade deficit has actually widened, to a record level of around $1 trillion, again more for self inflicted reasons like Trump's near record spending or an unfunded tax cut that reduced US savings and of course a strong dollar that made US goods more expensive. And in another self inflicted move, with each Presidential tweet, he spooks an already fragile stock market. Yet in blaming America's problems on others, Mr. Trump's attempts to disrupt China's supply chain could backfire and his one note, "America First" tariffs are doomed to fail, like the Smoot-Hawley tariffs which helped make the downturn worse, sinking the economy into the Great Depression.

Mr. Trump has effectively changed the half century rules of engagement that allowed China to grow at the fastest pace since the Ming dynasty. Although this president has not yet started a military war or a full blown trade war (unlike his predecessors), he plans to erect an iron curtain around China because the trade conflict that matters to both, is who is to take the technological lead in the 21st century. However, Mr. Trump's hardline attitude has split the American business community and in demonizing China, he also hurts an important market for American business.

Like King Canute, he cannot reverse the tide of globalization. Already Trump's tariffs on half of China's exports have caused a "tit for tat" retaliation by Beijing who slapped a 25 percent tariff on US soybeans that led to a stunning collapse of US exports worth some $12 billion last year. Because China typically purchases some 60 percent of US soybeans, American farmers are feeling the pinch and are unsupportive of the tariffs. The tariffs even spread, affecting storage and other agriculture suppliers. Farm equipment providers face deepening losses adding to the financial stress on America's all important agricultural sector. Then in an escalation of the trade war, China banned the sale of certain popular iPhones after a court granted an injunction for patent infringement. China's

online retail market surpassed $1 trillion in 2017, twice that of the United States and is the largest in the world. Currently, tariffs are the principal weapons of engagement.

The Tariff Man Doesn't Understand Tariffs

But this growing rivalry between China and the United States also has the unintended consequence of creating geopolitical vacuums. China already does more business with its neighbors than that of the Americans. China has become a dominant influence in Latin America, replacing the United States. Despite the tariffs, China's exports have grown. China has lent to Brazil and is now the biggest buyer of soybeans, replacing the United States. China has extensive relations with Chile and Peru, buying their iron ore, copper and oil. China has been willing to invest in places that needs capital. The trade war has made America businesses less competitive, more distorted and thus is unpopular with Wall Street, joining the farmers who quickly became the pawns on the battlefield of Trump's trade war. Unfortunately they are also among its biggest causalities, reminiscent of the Eighties when America imposed an embargo on grain sales to Russia which took American farmers many decades to recover. As the US retreats, it undermines its international reputation, for potentially a very long time.

In fact, it is less clear that Mr. Trump's domestic programs will be met with the same sort of accolades and self congratulatory tweets as his trade policies where bullying and brinkmanship has met with some success. For a time, Mr. Trump's tweets and bully pulpit was ignored by the financial markets but today, dropping agricultural prices, GM plant closings and a slump in the stock market has caused second thoughts, particularly among the car dealers and farmers who are seeing inventories and losses mount. Both General Motors and Ford have said that Trump's tariffs cost them $1 billion each causing GM to restructure, closing plants and laying off workers on both sides of the border.

Worst of all, Donald Trump's tariffs are gaining fewer and fewer supporters. Wall Street has given its verdict. The farm belt has lost, maybe lost markets for generations. And, voters will be hit in their pocketbooks. Donald Trump, the Tariff Man doesn't understand tariffs.

The Thucydides Trap

Yet despite the unpopularity of the trade war, it is not the center of the dispute between China and the United States. It is about a larger technology war in which a global hegemon is being challenged by an ascending

challenger ? the Thucydides Trap. The term, coined by Graham Allison was named after the ancient Greek historian Thucydides, who noted that," it was the rise of Athens and the fear that this instilled in Sparta that made war inevitable". Allison noted that the past 500 years have seen sixteen cases in which a rising power threatened to displace the incumbent power. Twelve of those ended in war. Mr. Trump and his hardliners seem oblivious to the past. More importantly, China's "Made In China 2025" blueprint issued in 2013, places semiconductors at the forefront of technical innovation. China too has used regulation and laws as weapons in the trade war with the launch of a price fixing probe on Samsung, SK Hynix and US-based Micron Technology which controls about 95 percent of the global market for chips used in computers and smartphones. The Chinese investigation alleges that the three groups inflated prices. China accounts for 51 percent of Micron's semiconductor sales and thus is vulnerable.

Not Everyone Is Equal Under The Law

Huawei, the telecom giant is bigger than Boeing and larger than Apple in smartphones. Huawei will generate over $100 billion of revenues and is a leader in 5G technology, the next generation of mobile network. The arrest of Huawei's CFO, Sabrina Meng Wanzhou, and charging her with violating US sanctions on Iran has caused an international firestorm. The EU, Russia and Iran's neighbours have traded with Iran and the violation of those sanctions have yet to see a politician, party or executive charged under those sanctions. In fact since 2010, most of the world's financial institutions have paid million dollar fines for violating US sanctions and yet executives from Bank of America, Barclays, Deutsche Bank or the Royal Bank of Canada were not charged. In fact, no executive was charged for the violation of numerous laws that contributed to the market crash of 2008.

President Trump tweeted that he will use Meng's arrest as a bargaining chip in the trade talks. Were Huawei not China's leading technology company, would she have been arrested? While, China is often accused of not following rules and norms, it seems not everyone is treated the same under America's laws.

Canada too is caught between a rock and a hard place in the battle between the two superpowers. Under an extradition treaty with the United States, Canada arrested Meng at the behest of the Americans. However, Canada is not blameless. Everything could have been avoided. Why was Sabrina Meng not tipped off to not board her plane to Canada? To China, the arrest is not just another salvo but a naked display of American power from which a settlement agreement or ceasefire might represent " a loss of face". Ironically it might take a Canadian judge to adjudicate the case and despite the international furor, will likely release Sabrina Meng on insufficient grounds.

The Bull Market is Dead, Long Live The Bull Market

To be sure, the decade-long bull market is over. This year, the market will have its first down year in a decade. Buying the dips was an excellent strategy while the market kept on recording new highs. However this year, beset by a tighter monetary policy, rising interest rates, Trump's escalating trade war together with a slowdown in the global economy, profits are elusive causing lower stock prices. Skyhigh valuations have finally caught up and

Continued on page 6

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Page 6 BULL & BEAR

Gold: Trump, the Tariff Man

Continued from page 4

investors have found that buying the dips was an unprofitable strategy, as markets ratcheted lower. Marijuana stocks and bitcoin are on the trash heap. The inverted yield curve has turned negative for the first time since 2007, igniting concerns that the world's biggest economy is slowing down. The dollar too has crested. Now selling the rallies seems to be the best trading policy.

We believe the stock market is simply a discounting mechanism and while the US economy is currently in excellent health and yields still low, next year's outlook is murky, particularly with an escalating trade war, gyrating oil prices and a worsening geopolitical climate. We also believe that the market is the canary in the coal mine and the recent turmoil is only beginning to price the above uncertainties and risk.

After Trump's firing of "dovish" Janet Yellen, the bond market rallied on his handpicked Fed Chairman Jay Powell's appointment. The honeymoon ended with Trump's complaints on "hawkish" Powell's fourth rate increase. Defying Trump, Powell might not have a choice in raising rates since America's deficits loom large and funding with debt issuances will be difficult if foreigners balk. Mr. Powell warned that risky corporate debt has surged and, "highly leveraged borrowers would surely face distress if the economy turned down". Next year, we believe, with an expected slowdown, America's fiscal and Achilles Heel vulnerability will be exposed. Ironically Trump's dilemma is largely self-inflicted again. Gold will be a good thing to have.

The Drum Beat

of Trade Wars

Ominously, US federal debt exploded over $21 trillion and is more than 100 percent of GDP, a level reached only during and just after World War II. The interest payments today on that debt alone has exploded to over $500 billion and in October, the deficit was at $1 billion or 58 percent higher than a year ago. The federal debt and deficit have grown dramatically since Trump took office with spending up 18 percent and a budget deficit, spurred by defense spending will top $1 trillion, for the first time in American history. Trump, the spender.

Of concern is that amid the escalating trade war, foreign central banks are among the largest holders of US debt and have lately balked at buying more debt. Problematic is that with the US becoming the world's biggest debtor, in essence a giant hedge fund, in accumulating big foreign debts to fund consumption, foreign creditors in the hunt for yield, has them looking elsewhere because of currency, yield risk and Trump's politicization of diplomacy. The US has become overly dependant on foreign capital to finance its huge twin deficits and any reduction in foreign flows would cause Treasury securities to lose value, forcing the Fed itself to be the buyer of last resort and the printing press. And of concern is that with the world drifting in a more protectionism direction, that the markets themselves have become much more volatile and vulnerable to swings in market sentiment.

Then there is that big risk that China could always weaponize its massive US treasury debt holdings since it is the largest foreign holder of US debt. After all, Mr. Trump's politicization of the arrest of Meng shows that all is fair in love and war. China has been absent in five of the past six auctions of American treasuries. After being hit with sanctions, Russia recently sold all of its American debt holdings. With America mortgaged

to China, Mr. Trump is unwittingly treading on thin ice.

Gold, The Ultimate Store of Value

There was a time when the dollar was worth its weight in gold and anyone including foreign governments could redeem their dollars for gold. However in 1971, beset by huge debts and fearful of running out of gold, President Nixon severed the link to gold. Henceforth the US could run up its debt, using the printing press to pay for their debts because American dollars had the "exorbitant" privilege as the world's reserve currency. Of course after the 2008 financial crisis, when the Fed opened the monetary spigots, a decade long bull market ensued. Until now. Like the Seventies, America has become more indebted and again, foreign governments today are balking at the dollar's value, expressing concern over the excess of dollars and the American financial hegemony that provides the plumbing for the world's financial system.. Like the technological war, America's global financial hegemony and dollar supremacy is on the wane with many looking for alternatives.

Yet, Mr. Trump is not the biggest threat to the economy. Not the tariffs, not the Cold War with China but the looming disruption of the fragile world's financial ecosystem which has been broken, creating uncertainty of America's role in global commerce. World trade has slowed amid the realisation that world co-operation and adherence to rules has been replaced by growing protectionism, not only in the United States but elsewhere in echoes of the Great Depression. It is not the trade imbalance with China that is America's problem, but that China saves too much and the US saves too little. In August, the Chinese held $1.2 trillion of US debt due more to America's propensity to spend more than they earn. This is America's Achilles Heel.

Gold is an Alternative for Central Banks

The Fed remains the world's biggest holder of gold but the non-dollar countries are increasing their holdings. China and Russia have boosted their gold holdings and are the fifth and sixth largest holders. Russia and China are among the top 10 gold holders and a growing number of countries are conducting trade using their own currencies and even gold. China and Europe are settling oil contracts in other currencies than the dollar. Payment systems and channels today bypass the US because of fears of arbitrary sanctions. Gold has become an alternative for many central banks. Central banks' demand for gold rose 22 percent in third quarter, according to the World Gold Council.

Consequently, the mighty dollar is not so mighty. Markets, lulled into complacency by the rounds of quantitative easing that financed federal spending, have been shaken by Trump's trade wars damaging confidence in the US financial system. Since he started his "winnable" trade war, the trade deficit has soared to a record level and now the recent market and currency volatility has unleashed fears of a beggar-thyneighbour currency war that went hand in hand in the 1930s.

All of which suggests that the debt laden US economy is not strong enough to shake off the trade- related hits to the corporate sector. The US balance sheet is in shambles. Debt on debt is not good. The credit troubles has taken the Fed unaware. So likely, will the outbreak of inflation. Mr. Trump believes he can kick the debt can down the road, for the next president. Wrong. His protectionism

policies and isolationism echoes the blunders of the 1930s. 2019 will be a rewarding year for gold.

Thus, the age-old discipline of supply and demand leaves the dollar with only one way to go. The dollar is the keystone to the world's financial ecosystem. However, two-thirds of the world's assets are denominated in a fiat currency, issued by a country that is actively debasing that currency to lessen its debts and obligations. The only thing underpinning the dollar is the belief that the US is a credible steward of that currency. That belief is being tested. Today the dollar is on a shaky foundation, and amid the structural weakness of rising twin deficits, growing US debt and a protracted trade war, it comes down to trust. Without confidence in a fiat dollar, there is no reserve currency.

The dollar like the Venezuelan bolivar has become dependent on outside money. Part of gold's allure is that it is a safe haven in uncertain times. There are two ways to describe the movement of gold. One can say that gold has fallen against the dollar or that the dollar has fallen against gold. In the dollar world, it is the latter because gold has maintained its value in those respective currencies whether they be pounds, roubles or renminbi. We believe, gold will continue to rise in value as long as the United States runs twin deficits, spends more than they bring in and Donald Trump is in the White House.

Gold's bull market has just begun. Gold will benefit from the diversification away from equities. From a low of $1,150 when Trump was inaugurated, gold has built a two year base and we expect the rally to continue with a near term target at $1,275 an ounce. Short covering and hedge fund demand will push gold to $1,340 an ounce with a $2,200 an ounce target within 18 months. Gold will be a good thing to have.

Recommendation

The latest quarterly results for the mining industry were a mixed bag due in part to the lower gold price and squeezed margins. Underlying this is the gold miners' dilemma of replacing declining reserves, since many deposits are past their peak. In the past five years, the industry has not replaced their reserves due in part to the lower gold price, ill advised takeovers and rising costs. In addition average mine grade has dramatically dropped from almost 4 g/t to under 1 g/t.

Moreover, many of the larger gold mines with open pit operations are or at close to the end of their mine lives resulting in pit wall collapses. Detour, Alamos, Goldcorp's Eleonore and Centerra each had pit wall collapses. None have shutdown but finding gold has become more difficult. Consequently, we believe the reserves of those producers with underground mines, possess longer lives and will attract premium prices. To be sure, the low hanging fruit has been plucked as mega- deposit discoveries are few and far between. One of the reasons for the Barrick and Randgold merger is the shortage of long life assets at an all in cost of less than $1,000 an ounce. New Barrick will have the most long life mines as well as the longest reserve life in the industry.

We also expect increased investor appetite for selected grassroots programmes which possess favorable risk/reward and profiles. Finding new discoveries is like fishing. If your line is not in the water, you won't catch anything. Without exploration, there won't be any discoveries. Financing has become problematic for the juniors. We expect the majors to finance these plays or adopt a portfolio approach like Agnico Eagle giving them

exposure to potential discoveries. West Haven, Aurania and development plays like Rubicon are adding value with the drill bit. Newer jurisdictions like Ecuador are favoured. However, increased resource nationalism, and a penchant to kill the golden goose in Tanzania, Mongolia or South Africa gives cause for selectivity.

Among the senior players, we continue to favour Barrick, Agnico Eagle and B2Gold. We also like mid tier Kirkland Lake and growing juniors like McEwen Mining. We would avoid balance sheet stretched Yamana and New Gold. The fight over Detour Gold was surprising. While hedge fund player, Paulson replaced Detour's board members hoping to put Detour into play, little is expected to happen since most of the big players have passed. Detour's flagship big pit just can't make money ? a pyrhic victory indeed.

? Barrick Gold Corp. (ABX) ? The world's top producer, Barrick Gold had a positive third quarter with higher production generating free cash flow. During the quarter, corporate and administration expenses was lower than projected at $235 million. Nevada remains a core area with Cortez, Goldrush and Turquoise Ridge. Barrick also signed and furthered their agreement with Shandong Gold, a state-owned Chinese company whereby each will purchase shares in each other. Shandong owns 50 percent of Veladero and will assist in the joint development of huge Pascua Lama. Barrick's share merger with Randgold Resources was completed and we think the combination is brilliant. The focus of the world's leading gold company will be on Tier One assets which was defined as those producing more than 500,000 ounces per year, with a mine life of greater than 10 years. Barrick will have five of the world's top 10 Tier One assets and the lowest cash costs. To be sure the arrival of Mark Bristow will further an agreement with the Tanzanian government over stalemated Acacia Mining which is not reflected in the stock price. Barrick is the world's largest gold producer and with a whopping 78 million in-situ reserves, we recommend the shares here.

? B2Gold Corp. (BTO) ? B2Gold will produce almost 1 million ounces this year at an all in cost of under $800 an ounce. The key for B2Gold's newly constructed Fekola in Mali are plans to increase mill throughput from the current rate of 5.5 mm tpa to 7.5mm tpa. The cost is minimal and the company will release results early in the year. B2Gold is generating free cash flow and financing the mill will not be a problem will cash at $355 million. B2Gold is one of the fastest-growing intermediate goal producers with Otjikota in Nambia producing 22,000 ounces and Masbate in the Philipines producing 58,000 ounces, in the quarter. El Limon in Nicaragua was a disappointment but an expansion that boosts output by 18,000 ounces a year is expected. We like B2Gold for its growth profile.

? Centerra Gold Inc. (CG) ? Centerra Gold had a good quarter with Mount Milligan's quarterly throughput averaging 40,000 tpd. However, throughput was impacted by an unscheduled shutdown. The company has applied to increase water usage but a long term water source remains a problem. On a positive note, Kumtor in the Kyrgyz Republic had a strong quarter due to processing the higher grade material from the S B zone in the central pit. As a result, production guidance was increased to 490,000 ounces to 510,000 ounces and production was increased from 665,000 ounces to 705,000

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