Tuesday, January 31, 2012

Relax, Stocks Will Not Collapse

Stock markets have already discounted "some very bad news" and there is no reason to fear stocks will sink, despite gloomy prospects for the global economy.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Marc Faber: US Credit Ratings Should Be Lower - Wall Street Pit

Marc Faber, the author of the Gloom, Boom & Doom Report, believes most European nations should be rated triple-C and downgraded even further.

Standard & Poor’s one-notch downgrade to AA+ announced by the French finance minister was “insufficient” in terms of addressing ongoing systemic stresses in the country’s economy, Faber told CNBC on Friday.

France — Europe’s second-largest economy, behind Germany — now has the same credit status as the United States, which S&P downgraded in August. France’s triple-A was the most high-profile move from S&P, which also on Friday cut Portugal’s credit to junk and downgraded Italy and Spain two notches. Austria, Cyprus, Malta, the Slovak Republic and Slovenia also saw downgrades.

Faber said he wouldn’t buy French bonds “and I wouldn’t buy any U.S. bonds either.” According to Faber, the U.S. “should not be a triple-A-minus but a BBB or junk bond,” based he said “on the unfunded liabilities that will come due in future.”

Germany “is ok,” Faber said, but it too also “has large, unfunded liabilities.”

Faber predicts the S&P’s downgrades in Europe won’t have any significant effect on the world’s stock markets.

“Much of any downgrades has [already] been priced in,” he said of Europe.

Sectors in which Faber would invest include commodities, real estate and gold.

Monday, January 30, 2012

Bond Bubble? Marc Faber Says Time to Move Into Equities - NASDAQ

In a recent interview with Bloomberg Television, publisher of the Gloom, Boom & Doom Report Marc Faber certainly had gloom and doom to say when asked about the direction of US bonds. The good news, however, is he believes equities should benefit (at least in the short term).

When asked about whether he would choose Spanish or Italian debt over US Treasuries, he said (paraphrased):

I would take the U.S. because they can print themselves out. I would not take them as a good investment because I think you have today a yield on the 10-Year of around 1.7% and on the 30-Year around 3%. I think eventually in the next few years yields will be much higher and the purchasing power of the dollar will have depreciated significantly.

Faber is actually quite bearish about the entire financial system, as he indicates in the interview. However, even in this doomsday scenario, he believes investors are better off in stocks than debt:

Relative to government bonds, equities are attractive. If you really think it through and you are bearish as I am and you think the whole financial system will one day collapse, maybe three years or five years or 10 years, one day there’ll be a reset and everything will be essentially started anew. Then you are better off in equities than in government bonds because a lot of government bonds will either default or they will have to print so much money that the purchasing power of money will depreciate very rapidly.

Oil to go up

EDMONTON - The theme for this year's annual forecast dinner put on by the Edmonton CFA Society of financial analysts could have been dubbed "gloom, boom, doom and kaboom."

Marc Faber, who writes the Gloom, Boom & Doom investment newsletter based in Hong Kong, delivered the message that intervention by governments in economic policy intensifies volatility. And things aren't about to get any better.

Helima Croft, a director of commodities research with Barclays Capital in New York, and former senior economic analyst with the Central Intelligence Agency, gave her top five list of military hot spots in the Middle East and North Africa that could explode, taking the price of oil skyward with them.

Faber, famed for his "glass half empty" viewpoint of investing, hammered away at his theme that "continuous government interventions in the free markets through mostly monetary and fiscal policies have actually, instead of smoothing out the business cycle, led to more economic and total financial volatility, and have numerous unintended and unfavourable consequences.

"When you drop the dollar bills into the system you don't know where they go, and this time around they went to the housing market. The destructive nature of dropping dollar bills is you create bubbles in one sector of the economy."

The pumping of cash into the system came at the same time central banks were keeping interest rates forever low, exemplified by the U.S. Federal Reserve's announcement that it plans to keep rates near zero through 2014.

"With negative interest rates, your money in the bank doesn't give you any return, and it forces people to speculate, on things like real estate, equities and government bonds," Faber said. "That creates bubbles. And in a bubble, the majority of people lose money, but the insiders make money."

A new study by CIBC World Markets shows that the percentage of Canadians aged 45 and older who they measure as heavy borrowers rose from 36 per cent in 2007 to 44 per cent in 2011, while overall, 34 per cent of Canadian households hold three-quarters of total debt.

"Until a few years ago, nobody paid attention to excessive credit growth," Faber said. He cited a major difference between the Great Depression and the recent recession: "In 1929 we didn't have social security, Medicare, Medicaid and the unfunded liabilities we have now. The U.S. will print money, the ECB (European Central Bank) will do the same, and that will have an impact on the purchasing power of paper money. And that has an investment implication for bonds and equities."

Looming inflation will only stir up the Occupy movement more.

"Every society that went through high inflation rates, whether it was the U.S. in the 1980s or Zimbabwe or Germany, it always benefits people with a lot of assets, and people without assets are hurt. So inequality increases. That leads to a redistribution of wealth through taxation, or through social revolution it leads to poverty for everyone."

The global saving grace during the past decade has been growth in China.

"It has never happened before that a country's share of commodity consumption for aluminum, copper, zinc and nickel goes from 10 per cent in the year 2000 to 30 or 40 per cent in just 10 years. It's an unbelievable change in the balance of demand for raw materials.

"A consumer-driven economy is much less cyclical than a capital-spending economy. If the Chinese economy experiences a significant slowdown, it will have a huge impact on the demand for commodities."

Looking forward, Faber stresses the importance of diversification in investing, spreading your assets among cash, bonds, real estate, precious metals and equities, the latter especially in Vietnam, India, all of Southeast Asia, Latin America, Africa and Russia.

Oh yes, "as a hedge, I would own some weapons industry stocks."

"You can't invest based on World War III, but the tensions are rising very rapidly and I'm very concerned about this for long-term spending. Whatever happens in the Middle East, future regimes will not be as Western-friendly as the current regimes."

That dovetails with the viewpoint of Croft, who sees oil prices rising due to geopolitical uncertainty, with West Texas Intermediate going from the current $99.13 US a barrel to $110 at year's end, while Brent Crude rises from $109.73 to $115.

Her list of potential military hot spots this year includes, in order: Libya, Saudi Arabia, Iran, Iraq and Nigeria.

She said the power vacuum in Libya could prevent the resumption of oil production halted during the recent uprisings.

"If we do get some kind of nasty situation, production will suffer and Western oil companies will take their work out of the country," Croft said.

She said Saudi Arabia pumped oodles of cash into its system, through a first-time unemployment insurance program, 500,000 new housing units, and scholarships.

"In 2009 we saw the Saudis take four million barrels off the market in an effort to boost oil prices," and now they face concerns about domestic unrest and a potential looming political succession issue."

Iran is threatening to cut off oil transportation routes.

"If things go wrong, if we get military confrontation in the Straits of Hormuz, that could push oil prices north of $150 very quickly. The last couple of months we have seen a serious deterioration in U.S.-Iranian relations. I think certainly you could see a tit-for-tat ratcheting up over the course of this year, between Western nations and Iran, that will keep the oil price elevated. The chance of military confrontation is 20 to 30 per cent."

She said Iraq has the potential for significant oil production gains, "but this will all be contingent on having a stable security environment in Iraq."


Saturday, January 7, 2012

Real Estate Forecasting for 2012 - Investment Property Sector to SeeGrowth - San Francisco Chronicle (press release)

Professionals Realty Group USA (ProsUSA) President Glenn Melton reports that the recent Chinese government's liberalization of restrictions on investing capital outside of the country will have a positive trickling down affect on real estate brokers and agents' business in the United States.

"The relaxing of Chinese foreign investment policies will create an influx of Chinese investment capital overseas," states Melton. "This will spur investments in the Asia Pacific regions, as well as the United States; especially given the concern that central government intervention to contain overheated domestic housing prices will lead Chinese investors to seek other opportunities abroad."

U.S. Congress is also actively finding new ways to spur international investment in the U.S. A new legislative bill introduced by Senators Charles Schumer (D-NY) and Mike Lee (R-UT) proposes to offer a temporary residency visa to immigrants who spend at least $500,000 on a home in the United States.

So what does this mean for real estate brokers and agents in the U.S.? According to Melton, "The real estate investment sector is rapidly evolving with more investors interested in real estate portfolios than one-off transactions - and we will truly see its fruits in the next 18 to 24 months. Real estate brokers and agents have an opportunity to be ahead of the curve and take a bigger position in the investment real estate space, whether foreign or domestic."

He adds, "Establishing easy and safe access to American real estate now will position real estate professionals for a natural flow of investment business down the line."

Friday, January 6, 2012

Marc Fabers Holiday Cheer – The Whole Derivative Market Will Go toZero

With his usual holiday cheer Marc Faber’s most recent interview had him slamming the derivative markets. In an interview with Reuters he went over his predictions for 2012 which calls for more monetary easing, QE 3 etc. He also continues to worry about the growing EU sovereign debt crisis and the lack of real solutions. This was confirmed today after the ECB announced more banks than previously known tapped liquidity lines to the tune of $600 billion.

Of course his long-term views are decidedly bearish. He thinks people in 5 years time will have maybe 50% of their money. This wealth loss will be due to either equity collapses or inflationary pressures due to monetary easing. Obviously political solutions are out of the question at this point. One can look at the US government and see utter dysfunction. The GOP led house has refused to extend a tax cut due to lobbyist pressures on certain pet projects. Then in the EU you have France and the UK with increasingly cold diplomatic relations.


“I am convinced the whole derivatives market will cease to exit. Will become zero. And when it happens I don’t know: you can postpone the problems with monetary measures for a long time but you can’t solve them… Greece should have defaulted – it would have sent a message that not all derivatives are equal because it depends on the counterparty.”

Looks like 2012 is shaping up to be another interesting year. The Mayans may be wrong about the end of the world, but if Marc Faber is right we won’t be able to tell the difference.


The State of the World Markets for 2012

It's not the markets but the governments in which those markets exist that bear watching, for this year in particular, says Marc Faber in Prieur du Plessis'
Investment Postcards from Cape Town.
Investors in the Indian market are not a happy lot as it crashed 24% in 2011. The new year does not begin on a very happy note, either, and experts still see India in a danger zone.

In an interview, Marc Faber, editor and publisher of The Gloom, Boom & Doom Report
, warned that the Bombay Stock Exchange may bottom out between 12,000 and 15,000 levels. Expecting further weakness in the emerging markets in the initial part of 2012, he is not so positive on India. Faber is looking at an entry into India in the next six to nine months.
There is, however, a bit of good news for foreign investors interested in the Indian market. The government will now allow individual foreign investors direct access to its stock market from January 15.

Foreign fund inflows, a major driver of Indian stocks, dried up with net outflows of about $ 380 million as of Wednesday, a far cry from record inflows of more than $29 billion in 2010 that had powered a 17% rise in the benchmark index, following an 81% surge in 2009.

Below is an edited transcript.

What are the expectations you would have of 2012 from equity markets, given how bad last year was for equities worldwide?

We have to clarify the statement about how bad it was for equities worldwide, because the US market was flat and it significantly outperformed most other markets in the world, in particular emerging economies' stock markets. This resembles the underperformance we had in 2008 that made the major buying opportunity.

What we will have in 2012 is initially maybe some maybe further weakness in emerging economies against the US market, and then a major low in emerging stock markets, including India. I was looking for India to bottom out the Sensex between 12,000 and 15,000, and we are getting there slowly.

It's not just India but all the BRIC markets fell off between 20% and 30% in dollar terms last year. Are you expecting significant outperformance from those markets relative to the US in 2012?
What we had in 2008 was the outperformance of the US and emerging economies' stock markets and commodity markets got hit very hard, but it led to a major low in emerging stock markets that bottomed out between October 2008 and March 2009. After that, emerging stock markets outperformed the US until the end of 2010.

So I think we may get a similar picture. That's why when I read all the strategies that say we should invest in the US, I say maybe that's correct for the next three months or so, but I would rather be looking at an entry point in markets like India over the next six to nine months.

Equity market performance was driven by what happened in the currency market. For this year, what will you say is the likely outcome on parameters such as the dollar index, what happens with the euro-dollar exchange, and how currencies are impacted by that?

To make forecasts about free markets is very difficult. The free market and the perfectly functioning market is a market where no market participant has dominated the market...but today you have a manipulated market.

It is the governments which intervene continuously to influence the price of money—in other words, interest rates and fiscal policies. So to make any predictions of political issues, we can't know exactly how far the ECB in Europe will monetize and at what stage QE3 will come about in the US.

But if the S&P drops another 10% you can be sure that there will be more QE in the US. So the markets would be supported by additional liquidity injections.

Where does all this leave the commodity markets for 2012? If you had to take calls on gold and crude, how do you think they will do this year?

We have to distinguish between precious metals and industrial commodities. My concern is that the Chinese economy is going to be weaker than is expected and that the demand for industrial commodities will probably disappoint. So I am not particularly keen on buying industrial commodities at this stage.

In the case of gold, as you know we had a ten-year bull market and we peaked out in dollar terms on September 6 at $1,921 per ounce, at which stage the gold price had somewhat overshot on the upside and we are in a correction phase.

I happen to think that the correction phase is not completely over, but recently sentiment on both silver and gold have turned very negative. We may have a trading rebound rally, and then some further weakness into possibly February or March, and then probably a major low. Then the question will be whether the precious metals rally again, and will they exceed the peak of 2011 or not.

By how much would you postpone expectations of a big up move for equity markets? When do you think there will be a clean resumption of the trend or possibly the potential for markets to get into a bull phase again?

This is a good question, because essentially what you could get in the world is worsening geopolitical and economic conditions.

Let's say Israel attacks Iran. It's a negative event, basically, but it could be countred by monetization everywhere in the world—in other words, liquidity injections. So stocks could go up while conditions worsen. This usually happens when you massively inflate the quantity of money.

But a mentally sound market in my opinion will only come about when the system has been cleaned and moved down after the financial crises of 2008. It's essentially just painting the building with fresh paint, but we haven't addressed the fundamental problem of the Western world, which is an over-indebted society.

Marc Faber: 2012 could see a major low in emerging markets

In an interview on CNBC-TV18, Marc Faber, editor and publisher of The Gloom Boom & Doom Report, said although there could initially be some further weakness in emerging economies against the U.S. market, he expected a major low in emerging markets later this year. “I think we should invest in the U.S.; I say maybe that’s correct for the next three months or so but I would rather be looking at an entry point in markets like India over the next six to nine months,” he said.

Thursday, January 5, 2012

2012 could see a major low in emerging stockmarkets

“I think we should invest in the U.S.; I say maybe that’s correct for the next three months or so but I would rather be looking at an entry point in [stock] markets like India over the next six to nine months,” he said.

Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Sensex may hit 12k-15k, to enter India in 6-9 months: Faber

Investors of Indian market are not a happy lot as it crashed 24% in 2011. The new year too does not begin on a very happy note and experts still see India in a danger zone.

In an interview to CNBC-TV18, Marc Faber, editor and publisher, The Gloom, Boom & Doom Report warned that the Sensex may bottom out between 12000-15000 levels. Expecting further weakness in the emerging markets in the initial part of 2012, he is not so positive on India.

Faber is looking at an entry into India in the next six to nine months. There is some bit of a good news for foreign investors interested in Indian market. The government will now  allow individual foreign investors direct access to its stock market from January 15.

Foreign fund inflows, a major driver of Indian stocks, dried up with net outflows of about USD 380 million as of Wednesday, a far cry from record inflows of more than USD 29 billion in 2010 that had powered a 17% rise in the benchmark index, following an 81% surge in 2009.

Below is an edited transcript. Watch the accompanying video for more.

Q: What are the expectations you would have of 2012 from equity markets given how bad last year was for equities worldwide?

A: We have to clarify the statement about how bad it was for equities worldwide because the US market was flat and it significantly outperformed most other markets in the world in particular emerging economies stock markets. This resembles the underperformance we had in 2008 that made the major buying opportunity. What we will have in 2012 is initially maybe some maybe further weakness in emerging economies against the US market and then a major low in emerging stock markets, including, India. I was looking for India to bottom out the Sensex between 12,000 and 15,000 and we are getting there slowly.

Q: It?s not just India but all the BRIC markets fell off between 20% and 30% in dollar terms last year. Are you expecting significant outperformance from those markets relative to the US in 2012?

A: You right way but what we had in 2008 was the outperformance of the US and emerging economies? stock markets and commodity markets got hit very hard but it lead to a major low in emerging stock markets that bottomed out between October 2008 and March 2009 and after that emerging stock markets outperformed the US until say the end of 2010.

So I think we may get a similar picture. That?s why when I read all the strategies that say - I think we should invest in the US, I say maybe that?s correct for the next three months or so but I would rather be looking at an entry point in markets like India over the next six to nine months.

Q: Equity market performance was driven by what happened in the currency market. For this year, what will you say is the likely outcome on parameters such as the dollar index, what happens with the euro dollar and how currencies are impacted by that?

A: To make forecasts about free markets is very difficult. The free market and that perfectly functioning market is a market where no market participant has dominated the market but today you have a manipulated market.

It is the governments which intervene continuously to influence the price of money in other words interest rates and fiscal policies so to make any predictions of political issues we can know exactly how far the ECB in Europe will monetise and at what stage QE3 will come about in the US but if the S&P drops another 10% you can be sure that there will be more QE in the US. So the markets would be supported by additional liquidity injections.

Q: Where does all this leaves the commodity markets for 2012? If you had to take calls on gold and crude, how do you think they will do this year?

A: We have to distinguish between precious metals and industrial commodities. My concern is that the Chinese economy is going to be weaker than is expected and that the demand for industrial commodities will probably disappoint. So I am not particularly keen on buying industrial commodities at this stage. In the case of gold, as you know we had a 10-year bull market and we peaked out in dollar terms on September 6. 2011 at USD 1,921 per ounce at which stage the gold price had somewhat overshot on the upside and we are in a correction phase.

I happen to think that the correction phase is not completely over but recently sentiment on both silver and gold have turned very negative. We may have a trading rebound year -trading rally and then some further weakness into possibly February-March and then probably a major low. Then the question will be whether the precious metals rally again and will they exceed the peak of 2011 or not.

Q: By how much would you postpone expectations of a big upmove for equity markets? When do you think there will be a clean resumption of trend or possibly the potential for markets to get into a bull phase again?

A: This is a good question because essentially what you could get in the world is worsening geopolitical and economic conditions. Let?s say Israel attacks Iran. It?s a negative event basically but it could be counted by monetisation everywhere in the world in other words liquidity injections. So stocks could go up while conditions worsen.

This usually happens when you massively inflate the quantity of money but from the mentally sound market in my opinion will only come about when the system has been cleaned and moved down after the financial crises of 2008 is essentially just painting the building with fresh paint but we haven?t addressed the fundamental problems of the Western world which is an over indebted society.


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