Monday 1st December

The stock markets in Asia fell overnight and at the time of writing are falling again today. Wall Street looks certain to open lower. These are large falls, and it looks as though last week's bear market rally is over; we will probably see quite a sharp pullback to new lows during this week.

Meanwhile, hedge funds are falling apart and unwinding their positions. Many have halted withdrawals. There is chaos in the financial markets and most asset classes are being hit as people dispose of hard assets in order to cover paper (derivatives) positions.

This has resulted in even gold pulling back quite sharply today possibly as part of the unwinding of commodities portfolios by the hedge funds.

Oil was in the news over the weekend. It looks as though OPEC is going to let the price drift down, if that's where the market wants to take it. This lower price is going to hit Russia very hard just at the time when she is going through a crises on the stock market, the Rouble and industry. The main issues for Europe are continuity of supply of oil and gas, and the worry about a destabilised Russia at her back door. Both are critical issues.

I think that this week is going to see some major casualties in the financial sector (banks, insurance companies), industrials and retailers. We can expect to see more major retailers fail before Christmas - some have been hanging onto the hope of a last minute surge by Christmas shoppers and if that does not materialise, they will have to go public about their financial situation. As I said last week, then was a good time to offload stocks during the short rally. For now, it is down.

Many people now have put a significant proportion of their portfolios into gold. I think that the underlying trend is again bullish despite today's pullback. However, gold is controlled politically and does not respond in the way you'd expect it to in a free market. The only safe way to hold gold is physical gold -- ideally take delivery. If you are holding physical gold, hold onto it and even add to it. Over the next six months gold is almost certain to gain in value in real terms while most other asset classes are likely to fall in value, in real terms.