Doom and Gloom

2010-06-26T16:11:00.000-07:00

Herr Faber, bekommen die Deutschen bald ihre geliebte D-Mark zurück?

Es ist schon denkbar, dass den Deutschen eines Tages die Lust vergeht, anderen Staaten der Eurozone zu helfen – und dass sie dann die Eurozone verlassen. Ich glaube aber nicht daran.

Warum nicht?

Dazu fehlt der politische Wille. Die Politik will die Eurozone so lassen, wie sie ist. Und die Europäer sind mit dem aktuellen Euro-Wechselkurs von 1,23 Dollar glücklicher als im November, als der Euro bei 1,51 Dollar stand. Der schwache Euro hilft den Exporten.

Währungen leben vom Vertrauen. Das Vertrauen vieler Deutscher in den Euro ist nicht mehr da.

Der Euro ist letztlich auch nur eine Papierwährung, deren Kaufkraft mit der Zeit abnehmen wird, so wie der Dollar. Ich traue überhaupt keiner Papierwährung. Statt auf die Rückkehr der D-Mark zu hoffen, würde ich diesen Deutschen empfehlen, Gold und Silber zu kaufen.

Ist Europa eine homogene Veranstaltung? Erst als Frankreich mit dem Austritt aus dem Euro gedroht hatte, ist die deutsche Regierung eingeknickt. Bundeskanzlerin Angela Merkel hatte sich zunächst gesträubt, die Schatulle aufzumachen.

Damit hatte sie ja völlig recht. Aber dann sind politische Entscheidungen getroffen worden. Die kann ich nicht beurteilen. Ich bin Ökonom und Finanzberater. Gehen Sie davon aus, dass der Euro letztlich auch nur eine Papierwährung ist wie der Dollar, deren Kaufkraft mit der Zeit abnehmen wird. Das ist ganz klar.

Zur Person
Faber, 64, ist einer der bekanntesten Investmentprofis der Welt, weil er mit seinen Prognosen seit Jahren meist richtig liegt. Für seine vorwiegend in Asien ansässigen Kunden verwaltet er 300 Millionen Dollar. Sein monatlicher „Gloom, Boom & Doom Report” und seine Web-Site genießen bei immer mehr Anlegern auf der ganzen Welt Kultstatus.
Braucht die Welt einen Internationalen Währungsfonds?

Ich glaube nicht. Ich bin auch nicht der Ansicht, dass Notenbanken notwendig sind. Aber wir haben sie nun mal und müssen mit ihnen leben. Das sind Institutionen, die einmal geschaffen wurden und dann nicht mehr abgeschafft werden. Das ist der Staat, der wie ein Krebsgeschwür wächst. Die Beamten und Angestellten haben ja kein Interesse daran, sich selbst abzuschaffen. Über den IWF können die kontrollierenden Länder außerdem gewisse wirtschaftspolitische und geopolitische Ziele erreichen.

Ist der IWF ein verlängerter Arm der amerikanischen Geldpolitik?

Zum Teil schon. Die USA haben das größte Gewicht, aber die anderen Länder sind ja auch dabei. Wenn der IWF Kredite zur Verfügung stellt, dann müssen auch Länder wie Spanien und Italien proportional beitragen, also Pleitestaaten tragen zum Hilfspaket bei.

Kann das funktionieren?

Länder, die vor dem Bankrott stehen, also etwa Griechenland, Spanien oder Portugal, kann man mit zusätzlichen Krediten temporär helfen. Aber wenn die Lage grundsätzlich hoffnungslos ist, dann ist das natürlich keine Lösung des Problems, es wird nur verschoben.

Gilt das für alle Hilfspakete?

Ja. Man glaubt zwar, mit den Hilfspaketen ließe sich ein ganz starker Einbruch der Wirtschaft verteilen auf fünf bis zehn Jahre. Das ist die keynesianische Argumentation. Ich bin nicht der Meinung. Im Gegenteil, die Lage wird sich gar verschlimmern.

Schlagworte zum Thema
BörseAktienGoldAngela MerkelBarack Obama US-Notenbankchef Ben Bernanke hat gerade gesagt, er könne die Entwicklung des Goldpreises nicht nachvollziehen. Können Sie ihm auf die Sprünge helfen?

Ich würde ihm sagen: Wenn Du die Zinsen auf null Prozent setzt und Deine Notenbank Geld druckt, dann frag Dich mal, was intelligente Menschen wohl lieber haben möchten – Papiergeld oder Gold?

Die Agentur Bloomberg hat gemeldet, dass mehr als zwei Drittel der weltweit befragten Investoren mit der Arbeit von Bernanke zufrieden sind.

Das überrascht mich nicht. Bei solchen Umfragen werden Leute aus dem Finanzsektor befragt. Die werden um so besser bezahlt, je stärker die Preise für Vermögenswerte steigen. Für die ist Bernanke ein Engel, den Gott geschickt hat. Alles, was die Aktienkurse nach oben zieht, ist da willkommen. Der Konsens unter Finanzleuten und Wirtschaftspolitikern ist ja, dass wir in einer Depression stecken würden, wenn Regierungen und die Geldpolitik nicht gerettet hätten. Bewiesen ist das nicht, weil es ja überhaupt nicht versucht worden ist.

Sie hätten es versucht?

Ja, und dann wäre das System jetzt bereinigt. Der Staat hätte die Einlagen der Bürger stützen und Banken fallen lassen können. Nun gehen anstelle des Finanzsektors die Staaten pleite.

Viele Regierungen wollen jetzt massiv sparen.

Ankündigen kann man viel.

Was ist, wenn sie es wirklich tun?

Das würde die Weltwirtschaft temporär drücken, ganz klar. Langfristig wäre eine Sanierung der Staatshaushalte natürlich richtig, nicht über Steuererhöhungen, sondern nur über eine wesentliche Reduzierung der Staatsausgaben.

Wird die kommen?

Nein, in Amerika ist das höchst unwahrscheinlich, wohl auch in Deutschland. Staatsangestellte und Beamte haben eine starke Lobby.

Bankvolkswirte schließen eine neue Rezession aus. Mit Blick auf deren Trefferquote heißt das, dass es eine geben wird.

Dass wir nochmals eine Krise haben werden, da bin ich sicher. Wir werden gar noch einen gewaltigen Schlamassel erleben. Der Zeitpunkt ist aber noch nicht so klar. In der Zwischenzeit kann viel passieren. Wir werden große Schwankungen haben. Es ist schon in Ordnung, negativ zu sein. Das bin ich auch. Aber wenn ich eine Rally habe von 80 Prozent, wie im S&P seit März 2009 und meine Kunden halten in dieser Zeit 100 Prozent Bargeld, dann hab ich schon nach einem Jahr keine Kunden mehr. Es ist schön, akademisch zu argumentieren, aber man muss auch praktisch handeln.

Erklärung
Frühindikatoren:

Sie signalisieren früh, wo die Konjunktur hinläuft. Der Index des Economic Cycle Research Institute (ECRI, siehe Grafik) bündelt sieben US-Frühindikatoren, darunter Arbeitslosenanträge, Geldmengen, Hypothekenanträge und Erträge von Anleihen.

S&P 500:

Der Index umfasst seit 1918 ie größten 500 börsennotierten US-Unternehmen. Er gilt als der wichtigste Börsenindikator weltweit. Im März 2000 erreichte der S&P bei 1553 Punkten sein Hoch.
Die wirtschaftlichen Frühindikatoren signalisieren deutlich schwächeres Wachstum weltweit, Geldmengen und Bankkredite schrumpfen, die Konjunkturpakete laufen aus, die Finanzierungskosten der Unternehmen steigen.

Im den nächsten sechs Monaten wird sich das Wachstum wieder abschwächen. Der Prozess hat schon begonnen.

Signalisieren das auch die Schwellenländerbörsen, die seit April schwächer laufen als die Börsen der Industrieländer?

Die nehmen vor allem vorweg, dass sich das Wachstum in China verlangsamt. China wird in der zweiten Jahreshälfte wesentlich geringer wachsen als im ersten Halbjahr, also statt um zehn bis zwölf Prozent nur noch um sechs oder sieben Prozent.

Droht in China ein Crash?

Warnsignale gibt es.

Was könnte ihn auslösen? Der Immobilienmarkt?

Die Lage dort ist höchst nebulös. Man weiß nicht, wie viel Geld die lokalen Regierungen geborgt haben und wie stark sie von Immobiliengeschäften abhängig sind. Am chinesischen Immobilienmarkt hat sich weniger eine Preisblase aufgebaut als eine Angebotsblase, es gibt ein Überangebot. Viele Kredite könnten sich als faul erweisen. Die chinesische Börse entwickelt sich schon seit Monaten schwächer als andere Börsen und ist jetzt nach unten ausgebrochen. Auch der Kupferpreis ist stark gefallen, ebenso der australische Dollar, der stark an der Rohstoffnachfrage hängt. Das sind alles Symptome, die darauf hindeuten, dass es nicht rund läuft in China. Industrierohstoffe würde ich derzeit nicht kaufen.

Schlagworte zum Thema
BörseAktienGoldAngela MerkelBarack Obama Drohen in China Unruhen?

Ausschließen kann ich das nicht.

Trotzdem wirken Sie sehr entspannt.

Ich war gerade ein Wochenende zusammen mit bekannten US-Ökonomen wie Nouriel Roubini dem früheren Merrill-Lynch-Volkswirt David Rosenberg und dem Anlagestrategen Gary Shilling. Die sind mit Blick auf Weltwirtschaft, Europa, den Euro und die Anlagemärkte alle extrem negativ gestimmt.

Sie doch auch.

Aber Anlagemärkte können sich anders verhalten als die Wirtschaft. Sicher: Die Geldmenge fällt jetzt und die Finanzpolitik ist relativ restriktiv, weil die großen Hilfspakete eigentlich schon ausgegeben wurden. Doch sobald ein stärkerer Einbruch droht, werden neue Stützungspakete aufgelegt und es wird Geld gedruckt werden.

Geht nichts mehr ohne Gelddrucken?

Bernanke wird argumentieren, dass man die Geldmenge noch wesentlich erhöhen kann, weil man keinen inflationären Druck habe. Und dann ist es denkbar, dass sich die Wirtschaft abschwächt und die Börsen dennoch steigen. Pessimisten wie Rosenberg halten es für möglich, dass der S&P 500 auf 500 Punkte fällt – das wäre ein Minus von 50 Prozent. Doch das erwarte ich nicht. Ich denke, das Börsentief in Amerika und Europa vom März 2009 wird nicht noch einmal erreicht, weil die Notenbanken die Welt mit Geld überschwemmen werden.

Sind Aktien preiswert?

Nicht preiswert, aber auch nicht zu teuer. Analysten erwarten, dass die 500 Unternehmen im S&P im nächsten Jahr zusammen rund 95 Dollar je Aktie verdienen werden. Das Kurs-Gewinn-Verhältnis liegt damit bei zwölf. Für meinen Geschmack ist das zu optimistisch. Doch selbst wenn es nur 70 Dollar würden, kämen wir auf eine Gewinnbewertung von 16. Bei nahezu null Prozent Zinsen ist das nicht sehr hoch. Das beachten viele Ökonomen nicht. Ich kann mir in Asien ein Portfolio bauen, das ohne gewaltige Risiken fünf Prozent Dividendenrendite bringt.

Ohne Risiken? Aktienkurse können auch fallen.

Klar, aber bei null Prozent Zinsen frage ich mich, ob Bargeld nicht riskanter ist, weil es bei der Geldpolitik, die aktuell betrieben wird, an Kaufkraft verliert. Ich bin nicht superoptimistisch für Aktien. Aber dass heißt nicht, dass wir um 50 Prozent fallen müssen. Vielleicht geht es seitwärts, beim S&P in einem Band zwischen 1170 und 900 Punkten. Wenn mir jemand erzählt, die Börse wird jetzt noch um zehn oder 15 Prozent fallen, dann würde das meinem Portfolio nicht wehtun. Ich hätte es sogar lieber, wenn die Börsen weltweit um 30 Prozent fallen würden. Dann hätte ich wieder mehr Zuversicht, Aktien zu kaufen. Man muss konsequent sein. Wenn man meint, der S&P fällt auf 500 Punkte, dann sollte man auch annehmen, dass anschließend Geld gedruckt wird wie verrückt.

Erklärung
Kurs-Gewinn-Verhältnis:

Der Aktienkurs geteilt durch den Gewinn pro Aktie ergibt das Kurs-Gewinn-Verhältnis (KGV), einen der gebräuchlichsten Bewertungsmaßstäbe. Vorsicht: Grundlage sind Analyseschätzungen der Unternehmensgewinne, und Analysten schätzen oft zu optimistisch. Für die Aktien im US-Index S&P 500 müssen Anleger derzeit im Durchschnitt mehr als das 13,7-Fache des für 2010 erwarteten Gewinns zahlen (siehe Grafik). Das entspricht ungefähr dem langjährigen Durchschnitts-KGV von 14,3. In Europa liegt das aktuelle KGV bei 11,9 - deutlich unter dem langjährigen Durchschnitt 14,4.

Dividendenrendite:

Aktionäre kassieren keinen Zins, aber Dividende - wenn ihr Unternehmen aus Gewinn oder Substanz eine ausschüttet. Die Durchschnittliche Rendite (absolute Dividende geteilt durch den Aktienkurs) im DAX liegt aktuell bei 3,2 Prozent. Top ist die telekom-Aktie, die 8,1 Prozent bringt.

Deflation:

Phase mit sinkenden Verbraucherpreisen und fallenden Zinsen. Der aktuell starke Rückgang bei Bundesanleihen ist vor allem ein Symptom des Sicherheitsdenkens vieler Investoren.
Also erzeugen fallende Börsen einen Leidensdruck, der reflexartig mit der Notenpresse beantwortet wird?

Richtig. In einer überschuldeten Wirtschaft ist es problematisch, wenn die Vermögenspreise fallen. Dann sind die Kredite nicht mehr gedeckt und verwandeln sich schnell in faule Kredite. Das wollen die Notenbanken mit allen Mitteln verhindern, indem sie die Preise der Vermögensgüter nach oben schieben.

Notenbanken sagen, sie würden die Liquidität rechtzeitig wieder abschöpfen.

Bis jetzt hat das aber noch keine gemacht. Im Gegenteil, die Geldschöpfung geht weiter. Es kommt vielleicht nicht gleich morgen zu einer starken Inflation, aber ich habe einfach Bedenken, dass Geld mit der Zeit an Wert verliert. Wir hatten in den letzten 100 Jahren einen ganz gewaltigen Einbruch an Kaufkraft. Als ich in den Siebzigern in New York gearbeitet habe, hätte ich einen Picasso für 50 000 Dollar kaufen können, jetzt kostet der ein paar Millionen.

Trotzdem wissen wir nicht, in welchem Tempo das Geld an Kaufkraft verliert.

Das wird sich beschleunigen. Deshalb empfehle ich als Bargeldalternative Gold und Silber.

Aktuell sind die Märkte eher auf Deflation gepolt. Die Renditen von deutschen und US-Staatsanleihen sind gefallen. Sie gelten als sichere Anlagen.

Das sehe ich anders. Aber nehmen wir an, die Deflationisten liegen richtig und die Wirtschaft kollabiert wieder. Dann werden die Haushaltdefizite noch größer werden, weil die Steuereinnahmen fallen und die Regierungen, um die Wirtschaft in Gang zu bringen, die Staatsausgaben noch weiter erhöhen. Dann schwindet die Bonität, auch die von Deutschland.

Schlagworte zum Thema
BörseAktienGoldAngela MerkelBarack Obama Aber Aktien wären dann auch nicht erste Wahl.

Das kommt darauf an, welche Aktien Sie haben. Läuft die Wirtschaft schlecht, schwindet der Wettbewerbsdruck, weil schwache Unternehmen pleite gehen. Marktführer mit einer soliden Bilanz überlebten und gewännen Marktanteile. Und wenn alles zusammenbricht, dann habe ich immer noch ein Eigentumsrecht an der Gesellschaft. In Deutschland konnten die Aktionäre großer Gesellschaften ihren Besitztum über zwei Kriege retten. Mit Anleihen hat man dagegen zwei Mal alles verloren. In der heutigen Lage ist es eher eine Risiko, keine Aktien zu halten.

Gilt das auch für BP-Aktien?

BP interessiert mich als Anleger nicht. Das Unternehmen ist jetzt Spielball der Politik. Ich bin kein Anwalt, der beurteilen kann, wer haftbar ist für die Ölkatastrophe – BP oder Transocean und Halliburton als Betreiber der Plattform.

Sie haben gesagt, Sie würden Industrierohstoffe derzeit meiden. Gilt das auch für Öl?

Kurzfristig wird der Ölpreis wohl nicht wesentlich steigen. Langfristig wird das aber passieren, gerade wegen der Ölkatastrophe im Golf von Mexiko. Jede Ölgesellschaft wird jetzt vorsichtiger werden, deshalb wird weniger Öl gefördert. Aber das Volk soll nicht glauben, dass BP die Buße bezahlen wird. Die Kosten werden wir alle tragen – über höhere Benzinpreise.

US-Präsident Barack Obama hat rhetorische Giftpfeile in Richtung London abgefeuert. Großbritannien ist ein wichtiger Verbündeter der USA. Warum macht er das?

Obama ist sehr unpopulär im Moment. Um seine Popularität zu erhöhen, ist er auf BP losgegangen. Außerdem ist es ein ausländisches Unternehmen. Sobald in den USA ein Problem auftaucht, ist ein Ausländer der Bösewicht. Wenn es der Wirtschaft schlecht geht, ist China Schuld. Und wenn etwas schief geht im Golf von Mexiko, dann ist der Schuldige BP und nicht etwa Halliburton. So wird die Aufmerksamkeit des Volkes abgelenkt. Außenpolitisch macht er natürlich einen großen Fehler. Wenn es tatsächlich zu Uneinigkeit mit Großbritannien kommen sollte, dann könnten auch die Briten eines Tages sagen: „Ihr könnt uns mal, wir ziehen unsere Soldaten zurück aus Afghanistan.“

Erklärung
Ölpreis:

Kurzfristig hat sich der Ölpreis wegen neuer Konjunktursorgen entspannt (siehe Grafik). Das Rekordhoch der Sorte WTI lag 2008 bei fast 150 Dollar je Barrel (159 Liter). Der Preis dürfte wieder steigen: Ölvorräte liegen in der Tiefsee, in instabilen Regionen oder gehören Staatskonzernen. Vor allem der Öldurst Chinas treibt die Nachfrage.

Goldman-Sachs-Anklage:

Die US-Börsenaufsicht SEC reichte am 16. April Klage wegen Wertpapierbetrugs gegen Goldman ein. Deren Börsenwert fiel seither um ein Viertel oder 26 Milliarden Dollar. Bei der Klage geht es um Kreditderivate, über die Goldman-Kunden Ausfallrisiken für Immobilienkredite übernahmen und Milliarden verloren.

US-Hilfspakete:

Seit Beginn der Finanzkrise, der Pleite der US-Investmentbank Lehman im September 2008, haben US-Regierung und US-Notenbank zusammen fast 13 Billionen Dollar für Konjunkturpakete, Liquiditätshilfen und Stützungskäufe ausgegeben.
Denkt Obama nicht an solche Konsequenzen?

Obama ist ein Ignorant, völlig leer. Der hat schon mehr Golf gespielt als jeder Präsident vor ihm in einer ganzen Amtszeit. Obama hat das in 18 Monaten geschafft. Der liest ab vom Teleprompter, weiß selber aber nichts. Sein Hintergrund ist sehr verschwommen. Niemand weiß ganz genau, wo und wann er irgendwo war. Auch seine Universitätsschriften sind unauffindbar. Ich habe eine sehr negative Meinung über ihn. Aber beim einfachen Volk hat er sich Stimmen gekauft, indem er große Transferzahlungen versprochen hat. Er nimmt Staatsgelder und gibt dem Volk Kredite.

Goldman Sachs ist eine US-Gesellschaft, aber bei den Amerikanern noch unbeliebter als BP und Toyota. Ist die Goldman-Sachs-Anklage eine politische Showveranstaltung?

Was Goldman Sachs gemacht hat, war sicher nicht zu 100 Prozent sauber, aber das waren die Geschäfte der anderen auch nicht. Gelegenheit macht Diebe. Für die Gelegenheit gesorgt hat die Notenbank mit ihren künstlich tiefen Zinsen. Aber man sagt nicht: Wir alle sind Schuld gewesen, weil wir über unsere Verhältnisse gelebt haben, sondern man geht los auf Goldman. Hier wird auch mit Antisemitismus operiert.

Und das funktioniert? Nimmt der Antisemitismus zu in den USA?

Ich habe schon vor einem Jahr gesagt: Wenn ich Jude wäre, würde ich die USA verlassen. Die US-Hilfspakete haben Wall Street geholfen, aber nicht dem Volk. An Wall Street werden wieder Milliarden an Boni gezahlt. Da sagt sich natürlich der einfache Bürger, der keinen Job findet: Da stimmt etwas nicht im System.

Schlagworte zum Thema
BörseAktienGoldAngela MerkelBarack Obama Und Goldman wird als Sündenbock präsentiert.

Ja. Und jeder Fondsmanager, bei dem etwas schief gelaufen ist, kann sagen: Goldman Sachs hat mich betrogen. Dabei hat ihn keiner gezwungen, die Sachen zu kaufen.

Bietet die Tea-Party-Bewegung eine Plattform für neue Populisten und Demagogen?

Schon, aber die kommen eher aus der konservativen Ecke. Rosenberg zum Beispiel glaubt, dass die Demokraten bei den Zwischenwahlen im November die Mehrheit verlieren könnten. Ich bin mir da nicht so sicher. Es gibt eine Menge Amerikaner, denen auch die Republikaner bis ganz oben stehen. Die haben ja auch kein Programm, mit dem sie sagen könnten, dass sie etwas anderes gemacht hätten als die Demokraten. Die ersten Hilfspakete kamen unter Bush, ebenso die ganzen Kriegsausgaben. Ein intelligenter Mensch hat mir kürzlich gesagt: „Marc, Du hast ja recht mit Obama. Aber hättest Du lieber McCain als Präsidenten?“

http://www.wiwo.de/finanzen/ich-traue-ueberhaupt-keiner-papierwaehrung-433774/4/

2010-03-11T14:45:00.000-08:00

this year chinese economy could crash

sell corporate bonds

precious metals

some overseas equities

2009-12-28T06:41:00.000-08:00

19/12/2009
excessive credit growth
private sector rational decline
public credit growing

320% debt to GDP now
medicare/aid fre over 600% debt

one day, interest payments on gment balloon
35-50% of revenue

monetise, high inflation
distract attention, us will go to war
3-15 years, long term negative view

equities better place to hide than bonds

us vs china further apart than ever

indian ocean, leading to war

no solution to these wars

us doesn't produce enough

forex reservres up 7x in 15 years
70% held in asia
cb will buy gold
indian cb very well run

indian banks ok, big opportunities in new acounts

urbanisation will accerate
opps at the right time

hk developers did not go bust, 70% prices down
no leverage on family firms

crisis should clean system
huge opp for strong cos, more rd and cashflow / takeover

wheat, 200 year low
natural gas

us global share down a lot
car sales larger than g16 in dev countries

dev countr oil consumption higher than Gs

huge money behind warming
cannot tell you what the posn is

emerging econ continue to use
demand double in 20 years
20 to 40

eventually will have higher prices

1981 16%, 2008 bottom
yields will go up alot in 10 years

more inflation
too many

fiscal deficit balloon
q whether debts will be repayable

avoid us bonds
j stocks and banks, contrarian
economy won't do well
cos will do well

2009-09-30T15:14:00.000-07:00

27 September Bloomberg

Marc Faber Sees Stock Markets Rising on Weakening Dollar: Audio
Share Email Print A A A
Sept. 10 (Bloomberg) -- Marc Faber, publisher of the Gloom, Boom and Doom Report, talks with Bloomberg's Pimm Fox about the global economy, equities and currency markets, and Federal Reserve monetary policy.
(Source: Bloomberg)
Running time 31:29

market has stabilised
same as after 2001
big volume on upside
not based on sound fundamentals

can go into cconsumption, commodities,wages,
not go into capital spending
goes into speculation

intellectua; architect behind 2000 tech boom bernanke
money must go into equities,
;leads to volatility in financial markets

excessive credit growth in 1920s
deflationary depression

just print more money

Qatar airline flight, excellent compared with US
Iaccacca new book, where has

every problem last 30 years addressed by consumption in US
needed investment, capital investment

same cycle, save a lot, then affluent, become more
safeguard own interest
complacent
if world currency, no limit how much can borrow
hour of truth can be postponed

low leverage in Asia

why equity market has gone up, cash is trash

fiscal deficit has to be funded

higher inflation
in long runj dollar will be weak
other currencies also weaker, euro slightly stronger

people will see gold as not losing value

near term market may still go up 10%
then correction, or correction now

from 666 to 1030, say now to 800
all leaders will say more stimulus now
will limit downside to stocks
don't own gment bonds, cash

commodities cant increase at smae rate of money printing

24 September 2009 Bloomberg

rebound in dollar
correction in equity prices

could get morre than a correction, 20% could be bear market

in real term below 666

gold prices should correct
920 maybe

capital spending in ASIA, China etc

on balance China has done well
transfer of technology, knowledge; always imagined they would lose money on the dollar

2009-09-22T16:32:00.000-07:00

12 aug 2009

weak dollar - 2002 to 2007
strong dollar - 2008; weak markets

dollar strengthens
correction time in equities
for next months

big crisis is ahead, maybe 4 years, or 10 years ahead
total breakdown of system

far too low, long IR

average fanily no better off than 10 years ago

2009-09-22T08:16:00.000-07:00

Marc faber Blog
Looks pretty good

http://marcfaberblog.blogspot.com/2009/09/system-forces-you-to-speculate.html

2009-02-07T11:11:00.000-08:00

Bloomberg 6/2/2009

stimulus plan a disaster

maybe better solution, nationalise let bond holders lose out
market based solution, give junk bonds to bond, shareholders

close, cosy relationship between gment and wall st
wall st large contributor to gdp and elections

2.5% to 3.6% 30 year bonds US

no free lunch, someone hasto pay
gment doesn't let that happen

massive tax cuts would be better, to private sector

continuous intervention by the gment whcuih has brought about the problems

itel, oracle,cisco will outperform gment bonds over the next 5 years

2009-02-01T03:59:00.000-08:00

19/1/2009 cnbc
2009 or 20010 dhoe to drop in gment bond market

Japan as in 1981
South Korea, Taiwan 1987

quality commodity stocks

high volatility
widespread belief deflation will continue

agonies postponed
better to let adjustment go as quickly as possible

against bailout packages

physical gold, mining , exploration

2009-02-01T03:47:00.000-08:00

29/12/2008 cnbc
precious metals, gold silver, plattinum, oil

if oil is at 25, will be terrible for world, -5-10 gdp for year

gold will outperform

2009 trade will be short treasuries

japan had v high savings
real estate, equities go into deflation
purchasing power j worker increased

US had net foreign assets
will lead to weaker dollar
against hard assets
industrial assets, close to 2001 lows

korea, 1988 level
japan cheap,
geopolitics difficult

BHP, Freeport,

2008-12-23T14:03:00.000-08:00

22 December 2008 Bloomberg

Catastrophic 2009

LTCM not bailed out in 1997, would have been better

Mexico go bankrupt in 1994

Bank savers do stupid things when they cont get decent returns in bank

Treasury Bond Bubble,
mayeb weak currencies

Nov 21 oversold
after rebound, will drift lower again

not compelling on PE, book, div

commodity prices are relatively low
Asian markets also quite low
SK, Japan 1981 values, can still go down somewhat more

chinese economy will sufffer badly

like gold
gold miners, exploration stocks
oil at around thsi level, fairly attractive,

RT, BHB
Newmont (?)

morenaccounting standards

Glass Siegel was removed
Greenspan always objected to regulastion

a lot of volatility 2009
what will dollar do in gold
disastrous currency

2008-12-07T08:27:00.000-08:00

1 december 2008

have had largest asset deflation ever

asset markets
since 2001
2002-2007, all assets go up, global economic boom
2008, all collpases apart from US dollar

not going back to 1500 soon on SP

huge fiscal stimulus
will lead to huge rally in asset prices

2009 economies will deteriorate very badly

when dollar starts to weaken, flowing again into asset prices

central banks never surprise
will let bubbles occur
will destroy the whole global financial system sooner or later

maybe go to 950/1000 SP
high volatility, +/- 20%

Ni eg oversold now, 10k from 50k

a lot of cyclical industries will be hit very badly

Warren Buffett approach has been dead for 10 years, will be for another 10 years

play in small amounts for investors

equities will not increase much for a long time

but Commodoties, not through a 25 years of bull, mor elike 1987, rebound after this

on the board of 2 mining companies
a lot of exploration will not be carried out

earliest in 5 years, maybe 10 years
will be shortage of commodities

flooding monry will give s inflation sometime

as a trade could buy
corporate bond monkets slaughtered,

big trade will be US long term gment bonds
maybe in 1 year time
only one not to collapse

Asians - retrenchment greater than US

chinese economy a disaster
a supply bubble

not much better than the US economy

let markets do work, not gment interventions
all the bailouts will prolong the crisis
let market clear out

see how many reserves are left in China in 1 year time
not good at showing what to invest in, now most in US dollars T bills

THailand
image is destroyed
gment is totally incompetent

badly devided between aristocracy, and otehr faction

1) div Us higher than 10 year bonds
2) Sing, etc will haveto cut div significntly
3) div yields equity vs corp bonds
value in asian equities,

long term all asian markets good
all needs time to heal wounds

2008-09-28T11:28:00.001-07:00

CNBC 26 SEP

700 billion will not be enough
too much debt around the world

subsidees will have negative effects:
distort market pricing

transact
values within market

assests are prices where they should be

down 20% house prices, not the problem
too much money was lent at peak asset prices, leverage in the system
proposal does not address leverage problem

a friend suggested which would be cheaper
buy 1000000 homes and burn them down
economic nonsense solution, but as good as the treasury solution

Wall street will make a profit out of this
sell worseless assets at high prices, then buy them again at too low prices

who do you bail out
average household has not increased income
2001 - 2007; asset shufflers and mortage people, Wall St did best

74billion lost in stock prices
38 billion in bonuses last year from 5 brokerages
total joke
afetrwards go crying and say we need a bailout

PART2

houses still overvalued greatly in US, in real terms will come down
if US inflated then nominal terms maybe more stable?
fiscal manipulation markets be held up artificially

depends very much on the location
S Californai overbullt, not Detroit

Ireland, UK, Australia, Spain has big bubbles, yet to be deflated

problem is much larger in residential
construction boom everywhere
avoid real estate in financial centres

Singapore
REIT - down 50% from its high

underlying asset values, and structure of REITS

PART3

industrial commodities still vulnerable to falls

over next 5-10 years c will overperform

ease to below 800, gold will be more perceived as integrity of paper money is questioned

soft c better than hc, correction is underway

in fact will hardly make a difference to the man ion the street, may pay higher taxes

PART4

In Europe some of the banks are in a much worse situation
US bonds rising, more expensive for US
dollar will be supported

PART5

Thailand
not a nice economy, but just move along
in general THai companies are OK, noce yield

PART 6

rally could go to 1350 on plan, but wouldn't go in
bailout will be a failure at sime time
my est 50-70 dollars on SP
some Thai shares
globally shares still overvalued

Singopure REIT could be bought now
Thai beverage, div 5%, gonna sell beer

PART7
appoint Volcker, dismiss BErnanke and Paulson
B looks at depression of 29-31
conditions are very different now

leverage 30-1, everyone knew about that

PART8
China
earnings will massively disappoint in 2009
bottom around this level in next few years, then boom again
could rebound a bit

PART9
sumonkai share at same level as 1997
Singpure banks are good
Hingsang Bank, rocksolid bank
Bank of East Asia could have heavy exposure to property in China

Wamu is out of business, anoother nail in JPM, exposed to derivatives
gment given guarentees to JPM
shareprice wise may not go down much further, too big to fail

HK 1973.74 index 1700 - 150 fell in HK

will recession be inflationary, or do we have deflation
could have combo, properties down, consumer prices go up
don't know

US CNBC, ERIN
expect SP500 to bottom at 500

maybe drift lower
should be focussing on earnings disappoinyting for a long time
most economies in recession

2002-7 asset bubble extraordinary
managed to inflate everything

gold will be relatively good investment
until gment bans gold selling
not derivatives, physical gold

farmland will do well
farms quite good

fulfill daily needs in asia cos, good investment
cash might be endangered

2008-09-16T16:14:00.000-07:00

AIG would have large impact on markets.
Want to go back to $70.
Impaired

Vicious downward cycle. Assets continuously deteriorating.
Deleveraging central to this

Thailand still 50% down.
NASDAQ still 50% down.

Good that some brokers going out of business.
Houses owned with no equity, maybe 15% of house owners in US are in negative equity.

(Nuriel
cash and safe treasuries
MS and GS bought by foreign investors?)

2008-09-16T15:26:00.000-07:00

CNBC, 15 September 2008

Uncertain follow through downside.
Oversold at present time.
Temp bottom out mid OCtober, rise again, no higher levels.

Countrywide Financial rterrible buy.
Bad paper being bought worse paper.

Not paying enough attentian to the wider economic implications.

BLOOMBERG

Macro Lehman is favourable.
Shorter term, problem with more selling, credit contraction.
Market is becoming oversold.
air cleaned within next month.
By mid October start of another rally.

BoA buy is quite suspicious.

Wider problem, greater credit growth.
Private sector is deleveraging.
Fed cannot counter this trend.

Commodities and emerging markets oversold.
Economic slump in 1 year.
$60 earnings say in 2009, then 1200 not cheap.

Early 80s starting problems, not enough regulation.
Under Greenspan. Rest is patchwork now.

2008-09-11T14:52:00.000-07:00

2 SEPTEMBER 2008 BLOOMBERG

Bangkok
confusing, democracy parties don't want whole democracy

King is stability, when dies that will be problem
economy not very dynamic in Thailand
very large food production

compared to a year ago all business is down

economic downturn means lower oil prices
investing money can mean going for poor quality, if low level

tightening of global liquidity
oil price further down 3-6 months

dollar strengthen further
producing centres / manufacturing centres particularly suffer

peaked out in commodity prices
1971-1980, 108 months, CRB 3.5 x up
1999-2008, 109 months 3.5 x up

2008-07-13T14:19:00.000-07:00

7 July 2008

financialcrises has been appetiser

will last a long time

-ve on emerging economies

emerged 20% on food

annual income 50% on food and energey
poor countries will be hit very hard

industrial commodities vulnerable

2008-07-13T14:11:00.000-07:00

China Bulls Wrong; Stock Rout to Worsen, Says Faber (Update2)

July 7 (Bloomberg) -- Investors betting on a rebound in China's tumbling stocks are setting themselves up for more losses, according to Marc Faber

``We could have rebounds of 20 to 30 percent, but I wouldn't bet on it,'' Faber said. ``I would rather use rebounds as a selling opportunity.''

Japan's Nikkei 225 Stock Average plunged 60 percent in two and a half years from its December 1989 high; today it's slightly more than a third its peak of 19 years ago. The Nasdaq Composite Index plunged 78 percent in 31 months from its March 2000 record.
``Like the Nasdaq when the bubble burst in 2000, it rebounded but we're still 50 percent lower today than we were in 2000,'' said Faber. ``This is eight years later.''

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=andydUPhlDwI

2008-06-14T08:27:00.000-07:00

JUNE 10

Well, I would say what we are in is kind of a water torture bear market. A lot of stocks peaked out already in 2005 like the homebuilders; then in 2006, the subprime lenders; then in 2007, all financial stocks. The stocks that have performed well over the last 18 months are material stocks and energy stocks and cyclicals.
And I think, the cyclicals and the energy and the material stocks, like steel and iron ore companies, they will now all become under pressure. Probably, the big downside in banks is kind of running out.
In other words, we have had a huge decline in financial stocks. I think they will go lower and I think they are unattractive. But I think other sectors of the market that have held up well are now vulnerable.

I think the question should be what sectors should be sold. I don't believe that investors should be buying all the time and that each time, the market drops a little bit, that gives a long-term buying opportunity. I don't see any compelling value in equities. I also don't see any compelling value in say, real estate or in the commodity markets, I think asset markets are still inflated.

I think it should correct, partly because international liquidity is now still growing but at a decelerating rate, and that usually leads to poor performance of asset markets including commodities. And so, my view would be that commodities will rather ease, as some have already done. Nickel is down 50 percent, wheat has been down 50 percent as well as lead, and lead and zinc.

I think that investors have to be aware that the price of oil has gone from $12 in '98 to now roughly $140. And so, the increase is a 12 times. I don't think that oil will go up another 12 times. Can it go up another $20? Of course, it can. But the big upside is now gone.

And so, I would be a little bit careful about blindly buying commodities, I think they are on the high side, the way the real estate was on the high side, and the way the stocks were on the high side. I am not saying this is?I would certainly be careful about buying them here.

Well, I mean I think in this environment, I was referring to a relative tightening of global liquidity because of the declining U.S. trade and current accounts that at the present time. Because of that, the dollar has essentially some upside potential here, it has, but of course, if Mr. Bernanke continues to play in commodity and push down the Fed fund rate to zero, then the dollar won't go anywhere. But as of today, I think the dollar is relatively undervalued with the euro. I feel like gold could (inaudible) gone up that much.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anZaBLQKisb8

Cambodia Investment is getting advice from Jim Rogers, who predicted the start of the commodities boom in 1999, and Marc Faber, who forecast Asian assets would decline before the regional financial crisis in 1997.

2008-04-12T11:50:00.000-07:00

2/4/2008 MARC FABER

can have 30% rallies in bear market
eg 1972-74
73 market rallied 20%

shouldn't be dogmatic
UBS bounces back to 40/50 from 30 afer from 80, OK
5% S&P500 earnings 1970s was financials
31% max just recently
now 20% could drop to 10%
GE Capital etc and and also Treasury Depts mixing in

IMO not come back toPrivate Banking, rip off clients in other ways

don't solve problems, postpone problems

next 3 months can get US outperformance

credit problems took 20 years to will take a long time to unwind
eg 1964-1982 no change in stock market

TIME BOMBS
Derivatives US
Construction loans US
Not Asian credit bubble but investment boom
If emerging economies go bad, would drag down other areas

Dubai 1977, big recession after

2005 Dubai Unbelievable - what will end the boom in the ME?Mining conference 5000 participants
All asset markets could be deflatedLike in the wartime setting, dual strand in what is going onsometimes one wins out, then the other

Pulic expanmding
Private market tightening

very difficult to make money in this environment
v high volatilitywill get hit somewhere
rather on the sidelinesVietnam, Africa,

In countryside reasonably prices for real estate
do well personally if dolalr strengthens
Vietnam real estate
agriculturale land NZ
biggest position in gold as a kind of counterbalance
gold will go down to 750/800
my hope is that dollar rebounds, supoportive of my positions

2008-03-09T12:39:00.000-07:00

5/3/2008 Bloomberg

Fed 1925-29
Money was far too easy

recjless lending 2001-4
IR far too low

core inflation - nogood what about food and oil

Treasury 10, 30 year is a disaster waiting to happen

some house bulders could still go bankrupt

EM more vilnerable at moment, 30-40%
china, Indai

US - printing money, downside more restricted

850 in 1980 was too high

1970-80
35 to 850

1973 - 73c pound

now 1t 14c a pound

only way to introduce discipline
let big bank fails

banks with largest derivatives exposure
most at risk (JPM ?? DYG)

structured der have exposed

in next 3-6 months

2008-03-07T09:30:00.000-08:00

3/3/2008
Dr Boom
credit bubble deflated to a certain extent
google
apple
rim
amazon
another 30% down google

emerging marketchina, india

long term US treasury bondsmost overvaluedtotal disappointment for investors
look out 10 yearsbonds rise substantially

cambodia
open economy
FDI
regulatory agency

Laos, Mongolia, Myanmar

yarak
verneland
sinofert

south african gold shareswould be only thing to buy

2008-03-02T10:53:00.000-08:00

How do you buy Cambodia?
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aoqvowNTKToE

2008-03-02T10:48:00.000-08:00

Brilliantly prescient
July 18 2007

Roagers, Faber and $42 billion Fischer Investments
Fischer - minor volatility of subprime
Rogers - sell the dollar patriotic be
Faber - will be big problems
buy gold, commodities, sell dollar

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=af6Mc7fp7Vcs

2008-03-02T09:53:00.000-08:00

Interview CNBC

Lat 25 years east monry

If you liquify, you get worse problems later.
Measure infl properly in US, would be 5-7%
would be no growth in last years

truck index, sales tax receipt all down year on year

unfavourable fro bonds and equities
metals suookies limited
gold is good

not sure will continue to drift against euro
US current account is not growing
more tightness in market fir US dollars

could be bad for emerguing markets

feel sorry for Bernanke
geared towards consumption not capital formation
savings should be encouraged

not correlated to the financial markets

easing may not be beneficial if long end increases

most vuknerable asset class is emergeing stock markets

2008-03-02T09:39:00.000-08:00

The U.S. Dollar and the Euro
“In the long run, to own dollars is not very desirable,” Faber said. But he added that the dollar could surprise in the short term, and that is why he would pick it for a quick investment over the euro.
He said his view is that the U.S. dollar will lose value against hard assets that can’t be increased in supply easily. But don’t think he just has negative comments for the dollar and the euro. Remember, this is contrarian analyst Marc Faber:
“All paper money is doomed to fail! It is doomed in the long run,” he ended.

Why This Bubble Is Different
“This time around, it isn’t just one sector affected,” he said. Now the whole world is in a bubble, rather than one region or industry; thus, its implications are much larger. “When bubbles broke in the past…it signalled major changes in that region or industrial sector,” he said, but now the entire global economy could change.

“Even if the Chinese economy slows down, an absolute decline in demand is not likely,” Faber said. “By and large, demand for oil will remain the same.”

http://www.resourceinvestor.com/pebble.asp?relid=40175

2008-03-02T09:09:00.000-08:00

EMERGING MARKET CORRECTIONS

We can easily have a 40% correction from the 21,000 levels or even a 50% correction and that would not necessarily mean that the long-term upward trend in Indian equity is disturbed. You can easily have 50% corrections in bull markets. But to sit there and say, the US has problems and we don’t have any problems is ridiculous.

I think that gold is still attractive, I don’t think it’s terribly overvalued. If you have a money printer like Mr Bernanke at the Fed, who really doesn’t understand anything about economics, who essentially just prints money whenever there is a problem, of course that lowers the value of paper money against say money that can't be multiplied as easily.

The gold supply is limited and so obviously, the dollar goes down against gold or, if you turn it around, you can say gold goes up against the dollar. But in general, I think precious metals are still relatively attractive, but all these are also overbought now and probably due at some point for a correction.

http://www.moneycontrol.com/india/news/fii-view/sensex-may-test-14k-then-slip-to-12k-marc-faber/06/25/327434

2008-01-06T16:18:00.001-08:00

Marc Faber

Gold prices will be under pressure soon
December 21 2007

http://angelangie2008.blogspot.com/

monthly column in AME

December - keep buying Gold
http://www.ameinfo.com/news/Dr__Marc_Faber/

"…while I find the gold price to be currently somewhat overbought, I still think that gold will be one of the best investments over the next couple of years."However, the contrarian investor points out he only recommends gold because of the special monetary circumstances that global investors find themselves in."I wish to add that I am not a gold bug. I would much prefer to live in a world in which central banks' top priority was to safeguard paper money's purchasing power and its function as a 'store of value'."

http://www.abnnewswire.net/press/en/45080/Australasian-Investment-Review.html

October 2007
Bubbles outside of US

Between now and Olympic Games, Indian and China market bubbles will collapse
Then lots of dollars flow back to US from outside of US, will strengthen US dollar

2004-01-04T07:58:00.000-08:00

03-Nov-03

A more cautious approach toward Asia and commodity prices
Marc Faber

"Asia is firing on all cylinders. Consumer spending has more than recovered from Sars. In an increasing number of countries investment too is picking up. China is roaring ahead as a source of demand for both consumer and investment goods and, after a soft summer, export growth has picked up again. Add in a recovery in the United States, our bullish forecast for Japan and some signs of life in the EU and you have an economic environment that is better than has been seen for years and maybe the best since before the Asian crisis", so says CLSA in its fourth quarter Asian Economic Research bulletin, dated September 11, 2003. I agree! Asia is experiencing economic boom conditions although no everywhere and not for every sector of the economy. Moreover, what concerns me regarding the view of CLSA is the statement that the economic environment in Asia "maybe the best since before the Asian crisis". Let us hope that these "boom conditions" will not end the same way they unraveled in 1997!

Over the years, I have been immensely impressed by China's economic development, the relatively smooth and peaceful progress of its society post communism and the rise of standards of living in that country. More recently, I have also been impressed by the changes that have taken place in India over the last two years and which are likely to ensure future trend-line GDP growth in the 5-6% range or even higher. But, as the economist Clement Juglar wrote in the 19th century, "paradoxically as it may seem, the riches of nations can be measured by the violence of the crises they experience" and, therefore, I am now more cautious about China's and Asia's economic prospects as well as about the potential for commodities to rise much more in the near term. There are several reasons for this more cautious view.

Whereas CLSA actually predicts economic growth in China to accelerate in 2004, I take a more conservative approach and believe that its growth will slow down considerably or even be temporary interrupted by a mini crisis. In addition, since China's rapid economic expansion had a very beneficial impact on Asia by sucking in imports from the region, I have to assume that any slowdown in its growth rate would also have a negative impact on the rest of Asia as well as on commodity prices.

Let me explain. Unlike in the US, growth in China is driven by net capital formation and exports. Like in the US, growth in China is also driven by strong consumption growth and consumer credit growth, albeit unlike in the US in unsaturated markets. In recent years, China's fixed investment growth has been accelerating and accounts now, according to some experts, for 42% of GDP. Now, let us assume that this figure is grossly overstated and that capital formation only accounts for say 20% or 25% of GDP. The problem does, however, not relate to the size of current capital spending in China, but to the fact that is has expanded rapidly over the last few years and that large over-capacities have come about in almost every sector of its economy (according to Chinese statistics fixed investment growth is up 30.5% year-on-year in the first nine months of 2003). In other words, it would appear that China's current economic boom has much to do with significant over-investments, which were so common in the American economy of the 19th century and repeatedly led to vicious downturns. Now I am the first one to admit that the Chinese learnt very quickly from the US government how to doctor economic statistics and, that therefore, the year-on-year growth in fixed investments could be much lower than Chinese statistics would have us believe. However, if we consider that housing and the construction of commercial structures has been booming and that FDIs were strong, it is possible that fixed capital formation jumped massively in 2003. The fact, however, is that overcapacities now exist and that inventories have risen strongly. In this respect it is interesting to note that Motorola just sold its loss making one billion US dollar waver fabrication plant in Tianjin to China's Semiconductor Manufacturing International Corporation (SMIC) for a 10% stake in that chipmaker (SMIC is only three year old and is China's first made-to-order chipmaker!). I may add that Motorola's MOS-17 wafer-fabrication plant had been running at less than 10% of its capacity, as demand for locally made chips failed to meet Motorola's "great" expectations. That large over-capacities exist is also evident from China's stable or declining consumer good prices given the country's strong growth rates. In the case of China we can really talk about a deflationary boom! But excess capacities aside, which may lead in 2004 to slower fixed capital investment growth rates, or even a slight decline, I have other concerns regarding the Asian region as well as commodity prices. Recently Chinese import growth of 40% year-on-year (compared to 30% export growth) would suggest that some inventory building is taking place. Indeed inventories have been soaring, which is not surprising considering that commodity prices have been rising strongly. Now visualize the following situation. Since industrial production in the industrialized countries is flat to down, there is no doubt that it was the incremental demand coming from China that pushed up commodity prices since 2001. In turn, rising prices did not go unnoticed to China's authorities and corporate sector, which immediately reacted to rising prices by building up their inventories and in the process created higher demand than would have been the case without the inventory build-up! In fact, for China to build up its inventories is more than logical. By doing so, it diversifies it foreign assets out of US dollars, warehousing costs are not a factor, and it reduces the politically sensitive trade surplus. But, the flipside of this is that if industrial production and fixed capital investments slow down the rate of increase in the demand for commodities will suddenly diminish or at worse, Chinese demand could even temporary decline. I wish to stress that in order to get a meaningful slowdown in the aggregate Chinese demand there is no need for capital spending to decline. A slower growth rate or flat fixed capital formation will do the trick via the multiplier, and acceleration principle. I am, therefore, leaning towards the view of the research tem at ABN-AMRO who believes that, "the market is too complacent over China's over-investment problems and the country's need to tighten". According to ABN-AMRO, "some argue that China is not overheated on the ground of low CPI inflation rate. They miss the point that China's current overheating is caused by excessive investment. The resulting excess capacity will be deflationary, rather than inflationary. The market hopes for fine-tuning. This is wishful thinking. The severity of the problem is already well beyond what fine-tuning can solve, and also the system and tools that allow the government to fine-tune the economy simply do not exist. History tells us that China has never achieved fine-tuning…There are two options for the Chinese government: 1) try to engineer a slowdown now and hopefully it will be a soft landing (not fine-tuning), or allow the investment ratio to continue to rise until it blows up."

A slowdown in the growth of net capital formation aside there are other reasons to take a more cautious approach towards China. If, US consumption slows down as the stimulus of the tax cuts and the housing refinancing boom disappear, then export growth not only of China but also of the entire Asian region will cool down. Moreover, Chinese domestic consumption is already showing signs of slowing down somewhat, as at least some markets are becoming increasingly saturated.

Finally, what disturbs me the most is that every magazine or paper I open has some favorable comments about China's economic development and China's positive impact on commodity prices, and that there has been widespread speculation in just about any stock that has something to do with China. Just consider the three Nasdaq listed internet companies, Net Ease, Sohu and Sina which are all up over 2000% from their lows a year ago and combine all that speculators can dream of - high tech, telecommunication and China.

Regarding commodities, I continue to believe that we are at the beginning of a multi year bull market. In other words, after the more than 20 years old bear market, commodity prices have, in my opinion made secular lows and will rise considerably more in the years to come. However, the commodity theme has become rather popular and a meaningful setback would not come as a surprise to me. Prices for industrial commodities such as Steel, Alumina, and Nickel have exploded on the upside, while cotton has doubled over the last twelve months and is now at a five-year high. And while it is possible that the current first leg within a long-term bull market in commodities may have some further upside potential, investors should fully realize that "China and commodities" have become a very well known and popular theme among the investment community!

I concede that I could be wrong about the coming slowdown in Chinese growth. In this case commodity prices will rise further in the next six to twelve months. If, however, commodity prices continue to roar ahead, then the likelihood of accelerating inflation rates around the world is very high unless companies are prepared to accept lower margins as a result of rising material costs. And if inflation should accelerate, higher interest rates will begin to weight on equity markets and contain the current bull market.

In the meantime the investment case for Asia remains intact, although stock markets may be near term very overbought. Thailand is up by 85% over the last 12 months and Indonesia by 113%, albeit from an extremely depressed level. The worst performing markets over the last twelve months are the Philippines - up 22.1%, Singapore - up 23.3% and Malaysia - up 24.6%, all markets we still like on a relative basis. In the case of Indonesia and Thailand, I would wait, as in the case for commodities, for a correction to unfold before making major new commitments. In fact, I believe that emerging markets -following their superb performance over the last twelve months - are due for a significant correction, as the US stock market looks increasingly vulnerable.

The problem I have is that I don't find many bargains today anywhere, except maybe among precious metals, which are partly commodities and partly the only really "hard currencies", whose supply cannot be increased meaningfully. Platinum prices are at a 23-year high. Thus, it is entirely possible that also gold and silver will fly to the upside in the next two years.

2004-01-04T07:43:00.000-08:00

02-Oct-03

"Do economic statistics adequately reflect the size of the Asian economies?"
Marc Faber

Officially, the US has a GDP of about US$11 trillion, while China’s GDP amounts to US$1.1 trillion and India’s to about US$500 billion. Moreover, whereas the world’s GDP stands at about US$32 trillion and the advanced economies have a combined GDP of US$25 trillion (G7: US$21 trillion), the emerging Asian economies (including China and India, but excluding Hong Kong, Japan, Singapore, South Korea, and Taiwan - countries that are classified as advanced economies) have a GDP of just US$2.2 trillion. However, if we look at some production figures, it becomes obvious that the US economy is nowhere near ten times as large as the Chinese economy or more than 20 times the size of India’s GDP. Neither do the G7 countries have a GDP ten times larger than the emerging Asian countries. According to The Economist’s World in Figures 2003 directory, China ranks as the world’s largest producer of cereals, meat, fruits, vegetables, rice, zinc, tin, and cotton. It is the world’s second-largest producer of wheat, coarse grains, tea, lead, raw wool, major oil seeds, and coal, the world third-largest producer of aluminium and energy (measured in million tonnes of coal equivalent), and ranks between fourth and sixth in the production of sugar, copper, precious metals, and rubber. India ranks among the top three producers of cereals, fruits, vegetables, wheat, rice, sugar, tea (number one for the latter two), and cotton. Indonesia ranks among the top four producers of rice, coffee, cocoa, copper, tin, and rubber; while Thailand is the world’s largest producer of rubber, and Vietnam the world’s second-largest producer of coffee.

“So what?” some readers may think, since these are just commodities and thus are irrelevant in post-industrialized societies! However, if we consider that China is already the world’s largest manufacturer of textiles, garments, footwear, steel, refrigerators, TVs, radios, toys, office products, and motorcycles, just to mention a few product lines, and if we then add the industrial production of Japan, Taiwan, South Korea, and India, we get a totally different picture of the size of the Asian economies than is suggested by statistics based purely on nominal GDP figures, which don’t take into account the difference in the price level between different countries. In fact, statisticians, in order to account for the fact that in some countries the price level is far lower than in the Western industrialized countries (such as is the case for most emerging economies), have calculated the GDP level based on purchasing power parities (PPP). And while I have some doubts about the methodology of PPP-adjusted GDP figures, it is nevertheless interesting to see how large the emerging economies are when based on this measurement. Asia (including China, Japan, India, South Korea, Indonesia, Taiwan, Thailand, the Philippines, Pakistan, Bangladesh, Malaysia, Hong Kong, and Vietnam) has a PPP-adjusted GDP of US$14 trillion, which is 50% larger than the US’s PPP-adjusted GDP of US$9.6 trillion. In fact, by this measurement, Asia, in which we should probably also include Central Asia, Australia and New Zealand, as well as parts of Far East Russia, would be by far the world’s largest economic bloc. And while, as just mentioned, I have some reservations about PPP adjustments, in general I think that it is fair to say that the PPP-adjusted figures reflect a far more realistic picture of the size and importance of the Asian economic bloc with its 3.6 billion people (61% of the world’s population) than do the nominal GDP figures, which suggest that the US has a GDP ten times that of China.

One of the reasons why I have chosen to discuss the size of the Asian economies, their impact on commodity prices and on resource-based countries and basic companies aside is that if we compare the true size of Asia with the extremely low weighting some Asian countries have within the MSCI World Free Index, it becomes obvious that some big changes are likely to take place in future. The combined weighting of the entire Asian region with 3.6 billion people and the world’s largest economic bloc is just 3.4% excluding Japan and 12.1% including Japan! This low weighting of Asia compared to the US raises two important questions. Is Asia ex-Japan really worth around 5% of the world’s entire market capitalization (5% would include shares, which at present cannot be bought by foreigners), and is the US worth 11 times the Asian market capitalization ex-Japan? I, for one, doubt it! This particularly because of the low price level in Asia compared to the US and also because of Asia’s bulging foreign exchange reserves, which are approaching $ 2 trillion. Should the day come when Asians have more confidence in their own economic bloc (which I think will happen in the next few years), we could see a massive shift of assets from the US to Asia, with Asian financial assets and Asian currencies rising very strongly relative to US financial assets and the dollar. In other words, I think it is only a matter of time before Asian currencies and Asian assets, including real estate and stocks - will appreciate relative to US financial assets and US properties.

There is one further point worth mentioning. If an individual or a financial institution asked a traditional fund manager (who inevitably follows the index weighting quite closely) to invest their funds that have been allocated to equities, they would end up having more than 50% of their money in the US and just 11% in Asia including Japan, a region which, as I have explained above, is already the world’s largest economic bloc with 3.6 billion people and the world’s most favorable growth prospects (moreover, they would have a maximum of 5% of their money in Asia ex-Japan, with 3.5 billion people and which includes the world’s fastest-growing economies - China India, and Vietnam). He would also end up with less than 1% of his assets in combined China, India, Indonesia (the latter a country with the world’s fourth-largest population), Bangladesh (eighth-largest country), Pakistan (sixth-largest country), Thailand, and the Philippines. Somehow, I think that such an asset allocation, which implies that the index-benchmarked investor would own just 1% of a region which is inhabited by half the world’s population, simply doesn’t make any sense at all and exposes the absurdity of indexing as it is practiced today.

In fact, I believe that investors should allocate at least 50% of the money they invest in equities to Asia where valuations are far lower and growth prospects more favorable than in the US.

But, while I am very positive about Asia from a number of points of view (the size of the economy, growth potential, low valuations, and low weighting within the MSCI Index), I also have to admit that near term I am far less optimistic. I simply feel very uncomfortable about the US economy and the entire financial system, and feel that the US stock market has at best entered a sharp correction phase or may at worst, experience a crash - if not now, then following another brief bout of strength. And since the recent strength in the Asian markets has been driven largely by foreign buyers, a US stock market correction or, in the worst case, a crash would almost certainly spill over into Asia and lead to some pronounced weakness but not likely to new lows. It is for this reason that I have turned more cautious on Asia from a near term point of view. In the US, I am particularly concerned that rising interest rates will have a negative impact on the housing market and on financial stocks, which make up more than 20% of the S&P 500. Housing stocks, which have been formidable performers since 2000 (up fivefold), should from now on under-perform, as the decline in refinancing activity will slow down the industry. Moreover, the Philadelphia Bank Index appears to be tracing out a head and shoulders formation and financial shares such as Fannie Mae look poised to decline sharply. I may add that while financial stocks look likely to weaken in the US, in Asia financial shares appear to be strengthening. In sum, I like Asian assets including real estate and equities and I remain of the view that investors should avoid the US. Thus, you might consider hedging your Asian bets by shorting the US!

2004-01-04T07:29:00.000-08:00

18-Sep-03

"They will buy more"
Financial Post

China is booming. How can you benefit? To find the answer to that question, the Financial Post sat down this week with four of the world's most knowledgeable investment experts.

Marc Faber, author of "Tomorrow's Gold -- Asia's Age of Discovery," editor of the Gloom, Boom and Doom Report and special advisor to Dynamic Mutual Funds was in Toronto. Joan Zheng, Greater China chief economist for J.P. Morgan, spoke to us from her office in Hong Kong. Chen Zhao, managing editor of Bank Credit Analyst Group's China Analyst was in Montreal. And Mark Mobius, managing director of Templeton Asset Management Ltd., joined us from Spain.

The global teleconference was organized by Dynamic Mutual Funds and stickhandled by Levi Folk, an independent fund analyst. Below, our four experts give their views on China's rapidly industrializing economy and reveal how you can make the most of the situation.

Q. What opportunities does China hold for an investor with a long-term perspective?

Marc Faber: The Chinese economy is probably about 50% to 60% of the U.S. economy already and in many sectors of the economy, China is larger than the U.S. China produces more steel than the U.S. and Japan combined and they are still importing steel. The markets for motorcycles, refrigerators, TVs, VCRs, handset telephones is larger in China than in the U.S. So in terms of units of production and units of consumption, China is already a huge economy and such an economy, obviously with 1.2 billion people that is growing anywhere, who knows, 5%, 10% per annum trend-wise, offers investors all kinds of opportunities.

I would also like to point out that as of today, if you went to a portfolio manager ... your portfolio would be benchmarked according to the Morgan Stanley world index. You would have 53% of your money in the United States but you would only have 8% in Japan and 3% to 3.4% in the rest of Asia, which would include Pakistan, India, China and those countries that have a combined population of 3.5 billion people. I don't think this adds up. I think people should have much less money in the United States, maybe only 20% of their money. I would have no money in the U.S. and 50% to 60% in Asia, ex Japan.

Q. Could you tell us a bit about who is investing in the region, Which multinationals? Which countries? Why?

Joan Zheng: I actually had a chat with the chairman with the American Chamber of Commerce in Beijing and he said that [of] the American companies, at least about 70% are making profits in China, like Motorola, GM, Coca-Cola. He also said that ... 40% of American companies actually are getting higher margins in China last year than in the U.S. and over 80% of American companies based in China said they would reinvest in China.

Faber: Wages in China are averaging about 7% of what they are in Taiwan and South Korea and probably about 3% of what they are in the U.S. and in Japan and then you don't have all the employee benefits that accrued or that are a cost to corporations in the U.S. like health care and so forth and retirement. So, basically, you can produce anything in China probably at least with 50% lower costs than in the United States and also at much lower cost than in Taiwan or South Korea.

Q. Why is the Chinese domestic market geared towards consuming Asian goods and not U.S. goods, because we know that China runs a large trade deficit with the U.S.?

Faber: Most American goods ... cannot compete with foreign goods. Take cars: A Chinese [person] is not going to buy an American car. He is going to buy, if he is rich, a Mercedes, a BMW, a Volvo, and if he is very rich, a Rolls Royce or a Bentley, and if he is middle class, he will buy a Japanese car. Moreover he can buy domestically manufactured cars by all the major car manufacturers. So, actually, the U.S. imports at an annual rate of US$125-billion of Chinese goods but they only export at an annual rate of US$22-billion to China and that won't change. The Chinese could revalue their currency by 50% and this relationship wouldn't change.

The reasons they are buying from other Asian countries is that their purchases are principally components for electronics and resources. In other words, oil and agricultural commodities, iron ore, copper and so forth.

Chen Zhao: There is a global kind of rationalization in manufacturing. You know that the Asians, the Japanese, the Koreans, the Taiwanese, the Hong Kong people, all those investors, all those Asian investors, they have put a lot of money in China.

I would say probably since the 1990s, you have a surge in Chinese exports to the U.S. At the same time, the rest of Asia exports to the U.S. plateaued, and declined in some cases. So this is really a structure shift. If you take Asia as a total, as a whole, yes, their market share in the U.S. did increase but not as dramatically as if you look at the Chinese exports to the U.S.

Why do foreigners want to invest to China? A lot of people are emphasizing cheap labour. It is a very important part of the Chinese competitive source but it is not only the one. There is a lot of countries that have got a lot of cheap labour but it doesn't mean anything. You have to have cheap labour, at the same time your economy has to be industrializing. This combination really makes the whole story more attractive.

If you have an industrializing economy, you know that the income level is growing and at the end of the day people will buy more. So that is why all these western car makers are making cars in China. Those automobiles are not made for exports. This is a classic example of an industrializing economy or per capital income growth and [that] then creates a new market.

Q. What about specific countries, sectors or shares for individual investors?

Zheng: So far, what we are have been seeing is that those targeting in global markets have been very successful because the domestic markets are growing but they are still quite segmented. So luxury goods and services are doing very well. So, for example, GM is doing well, and Honda ... and companies which are getting into luxury services like private education.

Faber: I think the 1990s were heaven for the multinationals because they went into countries like China, Vietnam, Russia and they have faced very little competition because the local companies, they didn't have the financing. They didn't have the know-how or the marketing skills and so forth. So basically the Coca-Colas, the Gillettes of this world, overnight they grabbed anywhere between 50% and 80% of a market but over time, partly as a result of the outsourcing process, locals have actually learned. They have acquired the technology, or stolen the technology, and they are now producing competing goods.

I think from here onwards, you should own the local companies ... The largest computer seller in China is not Dell, Compaq or HP or IBM, but it is Legend, and I think everywhere we see this trend of local companies taking market share away from the multinationals and therefore I would rather focus on the local companies.

An additional point is [that] in China, you have maybe 200 or 300 breweries today. In 10 years time, maybe there will be 10 less so there will be a consolidation in the industry where the strong companies will acquire weaker companies and therefore, I think that there will be also an opportunity to own a company such as Tsingtao and maybe eventually they will have a 50% share of the market such as Anheuser Busch has in the United States.

Zhao: One way to do it is to really look at different countries. If you think about Hong Kong in the '70s and '80s, Hong Kong was a very depressed economy. The manufacturers there faced intense competitive pressure. The economy was dying, everything was bleak. What happened then was that the Hong Kong manufacturers moved to Southern China. [It made things worse for a while] but after the process Hong Kong had a boom. They had a profit boom. They had a property market boom. Their economy was upgraded.

Who is the next Hong Kong, where the economy can benefit from China's industrialization process? One is, for example, Taiwan. I mean if you look at Taiwan, what is going on in Taiwan today is exactly like what went on in Hong Kong in the '70s and '80s.

The Taiwanese are the most -- have been the most aggressive investors in China. So now you have got about half a million Taiwanese businessmen operating in Shanghai.

Zheng: I still feel it is better to go through foreign companies with investment in China because then at least you can avoid accounting, although it is true that locals can copy very quickly.

I feel Taiwanese investors actually have the best chance to succeed. Not only do they have common country, language [but] also in terms of how to deal with the bureaucracy -- very well trained at home -- they already also have the first mover advantage.

Faber: China is basically resource poor so they have to import oil, palm oil, timber, copper, iron ore and so you know, for me, the easiest way to play China is to buy today coffee because first of all, the coffee price -- last year, the lowest price in real terms ever is very, very depressed by any standard and if the Chinese just go to the per capita consumption level of say the Taiwanese or South Korean, they will take up the entire coffee crop of the world.

Per capita oil consumption in China is only about one barrel compared to 17 or 18 barrels in Japan and South Korea and over 20 barrels in the United States. So you can actually play Chinese growth by buying commodities and forgetting about all the legal problems and market share problems the individual companies will have in China and about their profitability and so forth.

I personally wouldn't buy the electronic manufacturers of Taiwan because we had the hi-tech bubble and now we have a strong recovery on Nasdaq and I suppose that tech stocks, by and large in the world, especially in the U.S., are overvalued and when they decline they will pull down again the Taiwanese tech companies and the South Korean ones. So I would rather play China through natural resource or companies in Asia and Indonesia in Malaysia that are selling to China.

In the case of Malaysia, exports of palm oil have risen from 6% of total exports to now 26% of total exports.

Q. Is this what we see happening right now, why we have seen a spike of commodity prices?

Faber: Well, basically what we had was a weak global economic environment since 2000 and in spite of that, commodity prices are up in many cases by more than 100% from their low. In other words, somebody has been buying commodities and this somebody has been principally China. So if you are optimistic about the world like all the American economists and you believe that there will be synchronized growth, then commodity prices will go up much, much higher than they are today over a period of the next five to 10 years.

In addition to that, if you are optimistic about the world and about Asia, oil demand in Asia, which is now at the present time daily 90 million barrels, that will double in the next five to 10 years to anywhere between 35 to 50 million barrels. That will push up the price of oil much more than anybody thinks and you basically have these more than 20-year bear markets in commodity -- they have bottomed out in the period 1999 to 2001 and have now entered a major bull market, in my opinion.

Zhao: I totally agree with Marc on this one. I think the commodity story is the Chinese story over the next five to 10 years. Oil prices were at US$25-some a barrel during the recession [of] 2001, 2002 when the ... the developed economies were extremely weak. Who held up oil prices during this period? Only the Chinese economy was growing very rapidly. So that to me explained the whole story.

Q. Mr. Mobius, what Chinese companies do you own?

Mark Mobius: China mobile, China Petroleum and some of the H shares in Hong Kong like China Travel.

Q. How quickly can we see a middle class emerging as a key consumer for foreign products?

Zheng: Well, what I did was I used the first official survey on China's household asset and income distribution as well as financial investments and I calculated in a very rough manner. At the moment, you have 27 million households which can already afford to buy cars. So it is not a small number, although the size of the economy is still 30% smaller than California.

Q. What is going to prompt the average Chinese person to spend more money?

Zheng: [If] we look at overall regional sales or consumption growth, in fact, it is not strong by China standards. The reason is because you have a social welfare system still in transition. You have education costs rising very rapidly. So households need to save, save for old age care, for kids' education, for possible job losses, all those. So I think this will take at least another three years for this marginal propensity to consume to rise again, so that will be the time for us to see more consumption.

Q. What are the perils of investing in China? What about management, corporate governance and the banking sector?

Mobius: There is a lack of global knowledge in particular fields. Not enough managers in China who are capable of understanding what is happening globally, so you have to find people who understand these concepts. Also, they haven't had the experience of working in profit making enterprises, so the inefficiencies are very, very high, and that is the pool of management we have to draw upon, so it takes time and effort to get these people up to speed.

[As for corporate governance] that is a problem that is not specific to China. It was a problem for [investors in] Enron and WorldCom, we saw it with Bre-X, I am sure you remember that, it is a problem everywhere.

In emerging markets it is a little more salient because the punishment system and the justice system is not very good, so people commit the same crimes.

Zhao: A lot of people are saying that the Chinese banks will face a lot of problems. Yes, no question about it and a lot of people are also saying well, the Chinese banking has got too many [bad] loans ... that the banking system will collapse. This argument is completely rubbish. Think about the history of the world. There has never been a country where it runs a current account surplus that has a collapsed banking system. The reason is very simple. As long as you do not rely on foreign borrowing, the central bank can always bail out your banking system. The simple mechanism is just to print money, right?

Think about Brazil, why Brazil got into a crisis, why Argentina got into a crisis, why Mexico got into a crisis: The reason is that they borrow heavily and all of a sudden when foreign favour starts to put money somewhere else, the whole financing system collapsed, whereas this problem does not exist in China.

The problem with the Chinese banking system problem today is that they have too much liquidity. It is pretty much like the Japanese system. It will never collapse as long as Japan runs a huge current account surplus. Yes, they will have pretty lousy profits, that is true, but they will never collapse. So the crisis story, that is a horror story that is based on nothing but western journalist sensationalism.

Q. What about the U.S. current account deficit and the yuan? Will China have to revalue its currency?

Zhao: The Chinese sell a lot of stuff to the U.S. At the same time, they are buying U.S. treasuries. It serves the purpose for the Chinese. They export to the U.S. They solve some problems with the unemployment in the manufacturing business. It serves the U.S. too because the Chinese purchase of U.S. treasuries is a major force to hold down interest rates in the U.S., which in turn helps to sustain the spending power of the consumer. It will help the capital spending recovery, too. So really there is no reason whatsoever for the Americans to press the Chinese to revalue.

Q. But isn't [the low yuan] a drag on U.S. growth?

Zhao: No. The argument for the Chinese revaluation is that the Americans basically think -- some of the Americans think -- that Chinese exports are killing the manufacturing jobs in the U.S. That is totally wrong. The decline in the manufacturing business in the U.S. started in 1949. There has been a 50-some years trend. The American economy has moved into a post-industrial age. It is a natural evolution for America to reduce its manufacturing content in its economy, otherwise -- think about it -- if Chicago was still making textiles, the American per capita GDP would probably be still at $2,000.

Another point, what [goods do] Americans buy from China? Those goods are not manufactured in North America anyway. So if the Americans do not buy from China, they will have to buy the same goods from somewhere else at higher prices.

At the end of the day, you will not reduce your current account and trade deficit. That is the bottom line.
The final point I want to make is the Bush administration, they have to be careful what they ask for. If they get it, once they get it, they may not like it, right?

The fact that the Chinese are intervening today means that they are ... trying to create some inflation. So my point is this. When the Chinese inflation reaches 3%, 4%, sometime next year, they will reevaluate the currency by themselves. You don't have to push that, but once they revalue that currency, the Americans will probably face some kind of a shock because once they revalue, they will no longer buy [U.S.] treasuries. Once they stop buying treasuries, your interest rates will go up. Then you will have a lot of problems. So the Bush administration really has to think this through very carefully.

Q. Are we going to see China importing services from the U.S. as trade barriers come down?

Zhao: There is some misperceptions. The Chinese imports from the U.S. have gone up something like 40% a year. The rate of growth is very fast, of course, from a very low level.

2004-01-04T07:01:00.000-08:00

A very Merry Christmas and a Happy New Year to all our website visitors.

First, I wish to thank all our website visitors for being part of a group of people who look at the world with scepticism and are intellectually demanding. This forces me to maintain as high a standard for our comments as I am capable of. Every day, I receive a great number of emails, some of which contain enlightening comments or challenging questions. Naturally, I don’t have all the answers, since only the ignorant have an answer for everything, and it’s usually only time that reveals the outcome of any problem or issue. But even once an outcome is known, we still don’t know what would have occurred if we had taken a different course of action. Take, as an example, the war in Iraq. As my readers will probably know, I was opposed to the invasion and I still believe that it was a mistaken course of action. But I sincerely hope that future events will prove me wrong and that, as a result of the invasion by American forces - for whom I feel very sorry for the casualties and pain they have endured - in time, the Iraqi people will have a far better life than before. Only then can we consider the invasion to have been a success and worth the heavy casualties of the coalition forces, which undoubtedly must bring a lot of grief to the families of those soldiers who have been injured or killed. But my point is that, even if the invasion proves to be a failure, we still wouldn’t know what would have happened if it hadn’t taken place. Possibly, if Saddam had remained in power, the outcome would have proven to be far worse and led to a far larger number of casualties.

Every day, we are confronted with issues and problems for which there are no simple or clear answers. Of course, I am privileged in the sense that I can draw on the knowledge of many extremely bright economists, strategists, businessmen, political observers, fund managers, and even writers and poets, who all make a contribution to my, and also my readers’ knowledge. In fact, one of the commentaries I enjoy the most is sent to me every Sunday by Dr Mardy Grothe, the author of a highly recommended book entitled Never Let a Fool Kiss You or a Kiss Fool You: Chiasmus and a World of Quotations That Say What They Mean and Mean What They Say and of Oxymoronica: Paradoxical Wit & Wisdom From History’s Greatest Wordsmiths, to be published in March 2004 (www.chiasmus.com and www.oxymoronica.com). Chiasmus is a reversal in the order of words in parallel phrases, such as “one should eat to live, not live to eat”, whereas Grothe defines oxymoronica as “a collection of apparently illogical or self-contradictory observations that contain deeper meaning or hidden truths”. In Grothe’s new book, the reader will find an anthology of quotations that are noteworthy because they are false on one level and true on another, such as when Ava Gardner said, “I am deeply superficial.” According to Grothe, “in normal discourse, ‘deep’ is the opposite of superficial. But when paired together, the marriage of opposites arrests our attention and tantalizes our thinking. Such is the nature of all well-constructed oxymoronic observations.”

Dr Grothe’s work was introduced to me by Dean Le Baron, of Batterymarch fame, a few years ago, and the good doctor has kindly given me permission to use here some of the examples he has collected over the years. In the following I shall use some of his chiastic and oxymoronic phrases and mix them with some other quotes that I have collected. On the subject of war, since we were just discussing the dilemma posed by the Iraqi occupation, many illustrious people have made insightful pronouncements. William Tecumseh Sherman warned, following the American Civil War, that “it is only those who have neither fired a shot nor heard the shrieks and groans of the wounded who cry aloud for blood, more vengeance, more desolation”. Karl von Clausewitz observed that “there is a point beyond which perseverance can only be termed desperate folly”. And during the Vietnam War, Henry Kissinger made the following chiastic observation, which has some relevance to the current situation in Iraq: “The conventional army loses if it does not win. The guerrilla wins if he does not lose.” Even the comedian and best-selling author Will Rogers had a relevant comment regarding the invasion of Iraq: “You can’t say civilisations don’t advance - for in every war they kill you in a new way.”

As far as terrorism is concerned, we should remember Pearl S. Buck’s words: “When hope is taken away from people, moral degeneration follows swiftly after.” And to complete our quotations on war, here is H.G Wells: “If we don’t end war, war will end us.”

On leadership, the 17th-century mathematical genius Blaise Pascal, who at the age of 20 invented a revolutionary calculating device for his father which many regard as the first digital calculator, made two remarkable oxymoronic observations: “There are only two kinds of men: the righteous who believe themselves sinners; and the sinners who believe themselves righteous” and “Men never do evil so completely and cheerfully as when they do it from religious conviction.”

Further on the subject of religion, Robert Ingersoll (a major force in the development of the Republican Party and one of the greatest orators of his age) made the following chiastic observation: “I am not so much for the freedom of religion as I am for the religion of freedom.” On the same subject, George Bernard Shaw, who won the Nobel Prize for Literature in 1925, remarked: “I’m an atheist and I thank God for it.” On the subject of leadership, his view was: “He knows nothing and he thinks he knows everything. Clearly, that points to a political career.”!!! On politics, Paul Valery noted: “Politics is the art of preventing people from taking part in affairs which properly concern them.”

In terms of investments, I hope that all my readers had a good year, as most asset classes, with the exception, of course, of the US dollar, increased in value. But as George Bernard Shaw put it: “The most important thing about money is to maintain its stability; You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability and intelligence of the members of the Government. And, with due respect to these gentlemen, I advise you, as long as the Capitalistic system lasts, to vote for gold.” And since I am continually asked for investment advice, let me remind our readers of Diderot’s words: “The best doctor is the one you run for and can’t find.” Jean Jacques Rousseau had this to say: “The ability to foresee that some things cannot be foreseen is a very necessary quality.” And just in case some of my readers didn’t have a good year in terms of their investments, let me remind them of what Will Rogers said: “Good judgment comes from experience and experience comes from bad judgment.” Moreover, since behavioural finance is back in fashion, don’t forget that, according to Edmund Burke, “All men that are ruined are ruined on the side of their natural propensities.” Regarding one’s ability to forecast the future, we should never forget that, as Mardy Grothe wrote, “Illusion is one of the most pervasive realities of life” and “The greatest self-deception is to believe oneself free of self-deception.”
Dr Grothe’s comments are particularly applicable to our Fed chairman, Alan Greenspan, who, in 1966, made the following comment regarding the speculative boom of the late 1920s:

The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in breaking the boom. But it was too late: By 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenchment and a consequent demoralizing of business confidence.

In Gold and Economic Freedom, Greenspan wrote “... that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other”. Lacking much intellectual integrity, Alan Greenspan was never a great forecaster either. My friend Bill Fleckenstein recently quoted Greenspan as saying, on January 7, 1973, two days after the stock market had peaked out and as it began a two-year decline that would see its value slump by 50%: “It is very rare that you can be as unqualifiedly bullish as you can be right now.” Greenspan would have been well advised to remember that, according to Bertrand Russell, “the degree of one’s emotion varies inversely with one’s knowledge of the facts - the less you know, the hotter you get”, as well as Winston Churchill’s view, which he expressed in a discussion: “I think we differ principally in that you assume the future is a mere extension of the past whereas I find history full of unexpected turns and retrogressions.” Voltaire thought that “doubt is not a pleasant state of mind, but certainty is absurd”. Along similar lines, our friend Peter Bernstein wrote: “In their calmer moments, investors recognize their inability to know what the future holds. In moments of extreme panic or enthusiasm, however, they become remarkably bold in their predictions; they act as though uncertainty has vanished and the outcome is beyond doubt. Reality is abruptly transformed into that hypothetical future where the outcome is known. These are rare occasions, but they are also unforgettable: major tops and bottoms in markets are defined by this switch from doubt to certainty.”

In 2003, momentum investing and trend following was back in fashion, as is evident from the recent strong performance of semiconductor stocks, and of companies with either extremely high valuations or no earnings at all. But as Lord Cairncross, a Fellow of the Royal Statistical Society, observed, “A trend is a trend, but the question is when will it bend? Will it alter its course due to some unforeseen force and come to a premature end?”

At a recent conference, a friend of mine, whom I regard as one of the smartest fund managers I have ever met, told me that he had had a “bad year”, having been too bearish. After maintaining short positions for too long, he eventually closed them out at significant losses. I believe that his investment misadventure in 2003 mirrors the relative underperformance of many hedge funds, which had large short positions in high-tech and telecommunications stocks over the last 12 months. I hope that my friend will find some consolation in the words of Mark Twain, who wrote: “It is strange the way the ignorant and inexperienced so often and so undeservedly succeed when the informed and the experienced fail.”

A financially prosperous year aside, I hope that all our readers also enjoyed good health and found happiness, and that 2004 will bring them much the same. Personally, I had a satisfactory year, although I was saddened by the deaths of three friends whom I greatly admired and from whom I had learned a great deal. The formidable economic historian Charles Kindleberger, and two legends of the investment world, Leon Levy and Larry Tisch, all passed away in 2003. All three men had been immensely successful, albeit in different fields, but they had remained remarkably humble and were extremely generous in donating their time and money for good causes and charities. I shall always remember Leon Levy for his great intellectual capabilities and savvy business acumen. Moreover, I well remember how, some 15 years ago, when I was still in charge of Drexel Burnham’s Hong Kong office, our receptionist called me and said that two unannounced visitors from the United States had just arrived and wanted to see me. In those days, we frequently had clients from Drexel’s US offices come by our office, check on some quotes, and send messages via our system to their account executives in the US. My first reaction was therefore to think that these visitors, whose names didn’t register, would do just that and so be a waste of my time. Still, I reluctantly agreed to meet with them. The two gentlemen came into my office, where we proceeded to chat about Hong Kong and Asia. Then, when the discussion turned to the US economy and the US stock market, it struck me that my visitors were to my great surprise very well informed. Moreover, as occurs once in a while in life on meeting someone, there was some chemistry and good feeling between us. So, when I was escorting my visitors to the door and they asked me to join them a little later for lunch at the Mandarin Grill, I accepted their invitation. However, as I was making my way back to my desk, I realized that I didn't even know their names. I asked my receptionist, who hadn’t understood their names properly but said it was something like “Tisch”. And indeed, at lunch, I learned that the two low-key and humble gentlemen who had just popped into my office were Larry and Preston Tisch. I was familiar with their company, Loews, because it, along with other conglomerates such as Gulf and Western, Rapid America, LTV, ITT, and Litton, had been enormously popular in 1970 when I started working on Wall Street.

Over the years, Larry and his sons and I became very friendly. I shall always remember how when I once complimented Larry on his astounding business success, he humbly and self-deprecatingly observed that he had just been lucky in buying Lorillard Tobacco in the 1960s, whose large cash flow had enabled him to make many mistakes and still survive. And when I started my own business in Hong Kong, one of the very first telephone calls I received was from Larry’s son Jimmy, who immediately offered me his support. Larry was extremely frugal in his personal life, but, like Leon Levy, extremely generous when it came to charities and universities. These two highly successful businessmen can best be described in the wise words of Edmund Burke, who wrote: “If we command our wealth, we shall be rich and free; if our wealth commands us, we are poor indeed” and of Albert Camus: “You are forgiven for your happiness and success only if you generously consent to share them.”

In terms of happiness, I hope that my readers will take to heart the words of William Saroyan, who said: “The greatest happiness you can have is knowing that you do not necessarily require happiness”; of Albert Schweitzer, who wrote: “Success is not the key to happiness. Happiness is the key to success”; and of George Orwell, who wrote: “The essence of being human is that one does not seek perfection.” Moreover, as Pliny the Younger wrote, “In health we should continue to be the men we vowed to become when sickness prompted our words.”

We all have ambitions and are full of hopes, but we should not forget the line in the classic tale Heidi, by Johanna Spyri, “Oh, I wish that God had not given me what I prayed for. It was not so good as I thought.” As Mardy Grothe remarked, “Be careful what you wish for, it might come true.”

At a recent conference in Germany, an evidently successful but slightly arrogant young businessman made some comments to the effect that to think about the future and to make any forecasts was bunk and basically useless. I was at first somewhat taken aback, because I suppose that I agreed with him to some extent, but I equally thought that this young man should consider the words of Confucius: “If a man gives no thought about what is distant, he will find sorrow near at hand”; although, even if we are well prepared for all eventualities, as Mark Twain wrote, “A thing long expected takes the form of the unexpected when at last it comes.”

Moreover, as Mardy Grothe recently commented, when Matthew Prior wrote a poem describing every poet as a fool, Alexander Pope retaliated with the following chiastic verse, where one might substitute “financial analyst” for “poet”:

Sir, I admit your gen’ral rule
That every poet is a fool;
But you yourself may serve to show it,
That every fool is not a poet.

Finally, I wish to thank all our readers for their support, loyalty, and encouragement. I should also like to take the opportunity to thank the many economists, strategists, analysts, fund managers, and readers of this monthly letter whose collective knowledge, advice, and suggestions have greatly benefited me and enabled me to compile this report. Thomas Mann wrote that, “a writer is somebody for whom writing is more difficult than it is for other people” and I admit to often feeling that way when putting my thoughts on paper. I also feel that 2004 may be a far more challenging year in terms of investment returns than 2003 was, as investors’ expectations are now running far higher than they were 12 months ago. Still, even if 2004 doesn’t enrich us as much as 2003 has done, I hope that all my readers appreciate that one can also become rich by moderating one’s needs and be, as Art Buck remarked, “financially secure when you can afford anything you want and don’t want anything”.

Yours sincerely
Marc Faber

2003-09-06T16:45:00.000-07:00

11-Jun-03

Long Asian Stocks - Short US Stocks
Marc Faber

(Since 1985, the dollar has declined from around 250 Yen to 116 Yen, but what about an improvement in the trade balance with Japan??) And a revaluation of the Asian currencies of such a magnitude isn't likely to occur for the time being.

At the same time, costs for insurance, healthcare, depreciation charges, and pension funds are rising rapidly in the US and could, therefore, continue to squeeze corporate profits.

So, while the corporate sector is slashing its capital spending, it is the least desirable adjustment for the US economy, since long term growth and profits in an economy can only come from net additional capital investments and not from consumption. Just consider that in 2002, merchandise imports rose by 11% against a GDP growth rate of just 2.4%. In other words in 2002, imports rose almost five times faster than GDP.

Any increase comes from soaring depreciation charges. What has happened to business savings net of depreciation charges is an outright disaster that most observers have yet to notice. Until the latter 1970s, they equaled on average 2.9% of GDP. In the late 1980s, that was down to 1.8% of GDP. Lately, however, it is zero for business as a whole" (emphasis added). According to Dr. Richebacher, "retained earning have not only disappeared, but they have turned heavily negative because the companies are paying dividends increasingly in excess of their earnings. In other words, a sharply rising part of dividends is met with borrowed money."

. In particular, the Taiwanese stock market, which is at the current level significantly lower than during the Asian crisis of 1997/1998, would seem to have strong rebound potential. Investors may consider the purchase of the Taiwan Fund (TWN) and the Korea Fund (KF) both of which are listed on the NYSE and sell at a discount of more than 15%. An alternative would be to buy the exchange traded South Korea (EWY) and Taiwan (EWT) funds, which respectively track the MSCI indexes of these countries.

As I have explained repeatedly in the past, Japan, Taiwan and South Korea will increasingly be squeezed by China, where production costs are far lower. Conversely, South East Asia with its large natural resources is in many sectors complementary to China. As a result, I still like Indonesia where the economy is performing satisfactory and where we find numerous inexpensive companies. We still like P T Telekomunikasi (listed on the NYSE: TLK), and smaller companies such as Indofarma (INAF.IJ), Ciputra Surya (CTRS.IJ), Enseval (EPMT.IJ), Mayora Indah (MYOR IJ), Lautan Luas (LTLS.IJ) and London Sumatra (LSIP.IJ).
For an exposure to Thailand, we continue to recommend the purchase of Bangkok Dusit Medical Services (BGH TB), Thai Union Frozen Products (TUF TB), Banpu (BANPU TB), Ocean Glass (OCG TB), and GFPT (GFPT TB). An overlooked and by foreigners shunned market is the Philippines. However, it has been my experience that the stock market frequently follows the Latin American markets and, therefore, given the strong performance in South America, a strong bounce could occur in Philippine stocks as well. There we still like Ayala Land (ALI PM), Jollibee (JFC PM) and ABS-CBN (ABS PM) In Hong Kong, we like Swire Pacific (19 HK), TVB (511 HK), Next Media (282 HK), Shangri-la Asia (69 HK) and Hong Kong & Shanghai Hotels (45 HK), and in Singapore, Singapore Telecommunications (ST SP), Singapore Airlines (SIAL SP), Singapore Technology Engineering (STE SP) and Capitaland (CAPL SP). I should like to stress that I have a high degree of confidence that diversified portfolio of Asian equities can be sold sometime within the next five years with a significant capital gain, while in the meantime one is paid for waiting because of the high dividend yield Asian equities provide (I own directly or indirectly some of the equities mentioned).

Incidentally, I also believe that we have just made a major low in the Japanese stock market. Blue chips and religious stocks like Sony have totally broken down, which is usually a sign that the bear market is approaching its end. I maintain my earlier recommendation that 2003 is the year when investors must go long Japanese equities and short Japanese bonds. It is only a matter of time before investors will pull out money from the ridiculously priced bond market (yielding less than 0.6%) and buy equities.

At the same time, I have less confidence that the purchase of the S&P 500 above 950 will produce satisfactory returns over the next five years. Still, I continue to like oil companies, whose earnings in the first quarter were superb, oil servicing companies and gold mining companies. Stocks like Royal Dutch (RD), Chevron Texaco (CVX), Exxon (XON), Woodside Petroleum (WPL AX), Schlumberger (SLB), Diamond Offshore (DO), Newmont Mining (NEM) and BHP Billiton (BHP) should be accumulated.

2003-09-06T16:20:00.000-07:00

COMMODITIES WILL RULE OK

02-Sep-03

"Get your chips into play!"
Marc Faber

So spoke Larry Kudlow, of CNBC fame, in a recent "Cramer and Kudlow" show. However, what Kudlow failed to specify is precisely on which number or color we should place our chips.

Thus, today, the ownership by foreigners of U.S. Treasuries, corporate bonds, and equities is more than twice as large as a percentage of GDP as it was in 1984 - not an insignificant point when appraising the future of bond prices amidst a U.S. dollar bear market, as Bridgewater seems to forecast. It is, to my mind, doubtful that foreigners will continue to increase their already very significant exposure to U.S. bonds, which are now offering very low yields, if the dollar is going to weaken much further.

Another point I believe to be relevant when comparing the 1984-1987 bond bull market and the present situation is that, at the time, Paul Volcker was Fed chairman. By contrast, we now have monetary policy makers such as Alan Greenspan and Mr. Bernanke at the helm, who are much more likely to tolerate higher inflation rates than Paul Volcker would ever have done.

As a result, I believe that the risks in U.S. financial assets remain high and that the U.S. dollar, U.S. bonds, and U.S. equities are vulnerable to a large number of potential negative factors, which could disappoint investors, if not in the second half of this year, then in 2004.

I continue to believe that commodities including gold, silver as well as industrial commodities are the place to be. I would, therefore, buy mining companies (Newmont Mining, Placer Dome, Inco, etc), oil and oil servicing stocks (Exxon, Royal Dutch, Diamond Offshore), and even some basic stocks (International Paper, Dow Chemical). Rising commodity prices will also be favorable for countries like Indonesia, Malaysia, Thailand, Russia, Brazil and Argentina. All these purchases could be hedged to some extend by shorting the sectors, which will suffer from rising interest rates and commodity prices. These sectors include the interest rate sensitive financial sectors (banks, sub-prime lenders, consumer finance companies) and US homebuilding stocks, which are up fivefold since 2000!

A word of caution: The September to November period is seasonally a weak period. Expectations in the US are now an extreme and reflect a very optimistic sentiment about an economic recovery and higher stock prices directly ahead. Any disappointment could lead to a sharp sell-off or even a crash, which would temporary strengthen the bond market. A new high in the bond market appears, however, to be most unlikely.

2003-04-19T14:39:00.000-07:00

GOOD PIECE ABOUT INVESTMENT FADS WITH EXAMPLES DECEMBER 2002 - PUMP AND DUMP
In fact, I would make two additional observations regarding major investment themes. When the investment community is fascinated by a major investment theme, outstanding opportunities arise outside the sphere of the major investment that theme.

Whereas we have seen that a major investment theme which is accepted by the majority of investors leads inevitably to an over-valuation of the theme sector and to an under-valuation elsewhere in the investment universe, the timing of the leakage from the popular and expensive sector into the neglected sector of the investment universe is difficult, if not impossible, to predict.

Interest rates will rise in the next few years – possibly far more than what investors now expect as commodity prices have made a secular low, following their more than 20 years bear markets and as the Fed will print money as if there was no tomorrow. In addition, I believe the present stock market rally in the US will shortly run out of steam – possibly between now and January of 2003 and thereafter, we will likely move into a trading range and eventually make new lows – maybe only in 2004 or 2005! Emerging markets should do better next year as in Eastern Europe there is a convergence play while in Asia a modest but enduring recovery is taking shape. Finally, the Fed’s easy monetary policies will ensure that gold will regain its proper place in the investment universe by rising significantly.

2003-04-19T14:31:00.000-07:00

NORTH KOREA AND ATOMIC WEAPON
The Chinese are also a likely candidate for such a call, since they may wish to use North Korea in future in the same way the Soviet Union used Bulgaria during the Cold War to carry out dirty jobs. Russia could also be interested in North Korea as an ally, fearing the increased Chinese presence and influence in Far East Russia. Finally, the South Koreans know that unification with North Korea is only a matter of time. So, why not seize the opportunity to have the North bring into the marriage nuclear weapons, given Korea’s small size and military vulnerability when compared to its powerful neighbours such as China, Russia, and Japan? In any event, this new “situation” is most embarrassing for the US, because it makes a war in Iraq more difficult to justify if the US fails to take any military action against North Korea, which seemingly is also interested in acquiring weapons of mass destruction.

2003-04-19T14:25:00.000-07:00

SARS
The Spanish Flu (1918-1919)
This strain killed approximately 40 million people worldwide and was first discovered in Kansas. Within two days 522 people were sick and within one week every State in America had been affected. Within one month it had spread across the Atlantic and to Asia and infected about 20% of the world's population. The mortality rate was 2 ½% to 5% and it killed ten times more people than World War I. After about 18 months it completely disappeared.

Moreover, should it become clear that the virus, which causes SARS can be transmitted through the air, airlines would lose almost all their business for a while, since viruses can spread on airlines like a bushfire.

2003-04-19T14:22:00.000-07:00

9 APRIL
Given above thoughts, I doubt that the end of the battle of Baghdad will lead to a sustainable equity bull market in the US. More likely, the aftermath of the war will be painful and full of tensions in and outside of Iraq. This will, in my opinion, continue to weight on US equity and bond prices, and the dollar in the long term. Still, the stock market rally, which began in mid March, may have some more life in April, as April tends to be a seasonally strong month for equities.

The historian, Arnold Toynbee believed in a war-and-peace cycle as a consequence of a "Generation Cycle in the transmission of a social heritage".

The famous economist Kondratieff established empirically that the periods of the rising wave (which are characterized by a rise in commodity prices and interest rates) "are considerably richer in social upheavals and radical changes in the life of society (revolutions, wars) than are periods of downward waves".

and the rising wave of the Kondratieff cycle, we should be prepared for a more hostile and bellicose world in the years to come - regardless of how quickly the present military conflict in Iraq will be settled. Moreover, while a rising Kondratieff wave has in the past led to a more belligerent mood, wars in turn also had the effect to create "upside distortions" in commodity and wholesale prices, because wars tend to temporary push up demand for raw materials. In sum, I think that investors should be aware that the late 1980s and 1990s were extremely unusual from a historical point of view since, aside from some minor conflicts, there were no major wars or revolutions. Moreover, the peace dividend following the end of the cold war certainly was a contributing factor to higher stock valuations around the world (declining interest rates and rising profits aside). If the world is now moving into an era of increased geopolitical tensions, then this will be an additional negative factor for equity valuations.
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