Monday, December 3, 2018

The coming asset price deflation will affect the global economy negatively

Marc Faber's latest Monthly Report December 2018 is out. See excerpt below from Gloomboomdoom


Last month I concluded my report by stating: “I should warn my readers that the Wind of Change may bring about the end of the Great Asset Inflation, 1981 – 2016/2018, which propelled all assets higher including bonds, stocks, commodities, precious metals, properties, art, collectibles, etc. We may enter a period where asset prices stagnate or decline. This would imply a change from asset inflation to asset deflation.”

I must warn my readers that major changes in asset markets are never obvious because they involve enormous turbulences and divergences at the time of their occurrences, which obscure the change in the long term trend and mislead the majority of investors. Moreover, major trend changes are rather rare occurrences.

In the 1970s, the best performing assets had been oil, gold, US coins, silver, stamps, Chinese ceramics, diamonds, etc. with compound annual rates of return respectively of 34.7%, 31.6%, 27.7%, 23.7%, 21.8%, 21.6%, and 15.3%. In the 1970s, the two worst performing assets were bonds and stocks with respective compound annual rates of return of just 6.6% and 6.1%.

This all changed after 1981/1982 when equities and bonds became the best performers. But even among stocks the Change of Wind was confusing. In the 1970s, the best performing stocks had been mining companies and energy related companies, as precious metals and oil prices soared. But after the oil and precious metals collapse in 1980, these stocks performed miserably while cyclical (including autos), food and brokerage stocks performed superbly.

As my readers will most likely have noticed, in 2018 asset prices around the world performed poorly. According to Deutsche Bank Data going back to 1901, a record share of asset classes have posted negative total returns in 2018 (In 2017, just 1% of asset classes delivered negative returns).

Now, the big question is this: In the past, the Fed and other central banks have always supported asset price declines with additional liquidity injections (QEs), which drove asset markets to new highs. But will it work this time?

I am leaning towards the view that this time it will not work and that the coming asset deflation will have a devastating impact on the global economy and on most asset prices.

Monday, November 19, 2018

The Stock Market May Have Peaked



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Monday, November 5, 2018

Multi month stock market rebound possible | Sell stocks on Strength

The markets have been wonderful for a while but Marc Faber thinks its time to get worried. In his latest November Market Commentary he states his cautious outlook. 


"Under the heading First Phase of a Bear Market, Joe Granville writes that, “Bear Markets never visit by appointment, ringing your front doorbell during the daylight hours. They come like a thief in the night, sneaking in the back door while the public sleeps the slumber of confidence."

In my opinion, equities around the world have made an important high between 2016 and 2018. In the case of the US, the orthodox top was probably on January 26, 2018 (S&P 500 Index at 2872). Marginal new highs occurred among various indices between late August and early October 2018 but were not confirmed by the majority of stocks. A rebound lasting a few months is now possible given the oversold condition but new highs for the majority of stock markets around the world are most unlikely. The strategy should now be “sell on strength” and not “buy the dip,” which was the right thing to do since the March 2009 low.

I should warn my readers that the Wind of Change may bring about the end of the Great Asset Inflation, 1981 – 2016/2018, which inflated all assets including bonds, stocks, commodities, precious metals, properties, art, collectibles, etc. We may enter a period where asset prices stagnate or decline. This would imply a change from asset inflation to asset deflation."

Wednesday, October 24, 2018

This correction is not very meaningful yet



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"The financial markets were already very fragile at the beginning of this year and this fragility has actually increased because there is a tendency among central banks to step back from asset purchases, letting interest rates gradually adjust on the upside. And so this liquidity that we have in the world has been diminishing. It is not shrinking, but it is growing at the diminishing rate. 

Then came the announcement of the Trump administration. It is a really bad idea to pick on China and to launch not only a trade war but a confrontation with the US’ largest trading partner who also happens to be a large buyer of US assets, bonds, stocks and of course, properties. This idea has disturbed the financial markets around the world and so they are adjusting on the downside. Now, I would not call that the crash. A crash happened in 1987 when the Dow Jones dropped 21% in just one day. "

Monday, October 15, 2018

Central banks could eventually end up owning all assets




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