Friday, December 30, 2011

Marc Faber Bearish

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

 And on the long-term future: "I am ultra bearish. I think most people will be lucky if they still have 50% of their money in 5 years time. You have to have diversification - some real estate in the countryside, some gold and some equities because if you think it through, say Germany 1900 to today, we had WWI, we had hyperinflation, WWII, cash holders and bondholders they lost everything 3 times, but if you owned equities you'd be ok. In equities in general you will not lose it all, it may not be a good investment, unless you put it all in one company and it goes bankrupt." As for gold: "I am worried that one day the government will take it away." As for the one thing he hates the most? No surprise here -government bonds.

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

Friday, December 23, 2011

How to Invest $1000 Safely -

One of the best tips a novice investor can get is probably to simply expect moderate returns and to be happy with a lack of volatility. For those investors with a great deal of money to burn, perhaps riskier investments might make sense, but if $1,000 represents a significant chunk of the savings for you or your family, the tortoise approach to investing is probably the wisest course of action.
Starry-eyed dreams of massive returns is precisely what drove investors into the arms of Bernie Madoff or led them to think the subprime mortgage market was the way to go. So, for the investor interested in steady, slow, but most importantly safe returns, here are some simple, very broad, very general pointers that can help get you started.
Italian Treasury Bonds and Highly Leveraged Hedge Funds
Just kidding. Wanted to make sure you were paying attention. These would fall into the opposite category of high risk/high reward. If you have $1,000 you can afford to lose, maybe it’s worth doing some research, playing a hunch, and seeing if you can make money where MF Global’s (MFGLQ.PK) Jon Corzine failed. However, more likely than not, you don’t have the time, knowledge, money, or access to information that the people who play these markets professionally have, so it’s probably not worth it in the long run.
Mutual Funds
Ah, here’s something simple. Mutual funds are investment vehicles specifically designed for the consumer. In essence, mutual funds pool the funds of many different investors to buy a portfolio of equities, bonds, and money market instruments. Most mutual funds are typically geared toward being very low risk, providing the average small-time investor an avenue to invest his savings that will garner a better rate of return than a savings account while having lower risk for collapse. Because of the pooled money, mutual funds can feature a diversified portfolio that would be difficult to assemble for any individual investor. Picking a mutual fund can be tricky, but most funds have ample data on their historical performance.
Think of a mutual fund like long-term parking for your car at the airport. It isn’t necessarily the most economical place to park your car, but you can feel confident that your car won’t get broken into. If you’re primarily concerned about your car being where you left it when you get back, long-term parking is the way to go, and mutual funds are a relatively safe place to park your car…er, savings.
Exchange-traded funds are very similar to mutual funds in that they’re a collection of assets pooled together to provide a chance for an investor with limited funds to diversify his portfolio. Investing in any individual stock means taking a chance on a specific company, which can be risky. Just ask anyone who put money into Netflix (NFLX) last year. However, ETFs are a portfolio of investments designed to mimic the performance of a particular index or sector. This allows an investor to make fairly broad, fairly general bets about the economy without having to do the meticulous research required to find specific companies to invest in and also mitigates the risks of investing in individual stocks.
There are a dizzying array of ETFs available, including those that speculate on commodities futures, currencies, and specific sectors and subsectors (have a particularly strong feeling about the future of companies specializing in wind power? Well the First Trust ISE Global Wind Energy Index Fund (FAN) and the PowerShares Global Wind Energy Portfolio (PWND) are both specific to the segment!), but the casual investor should most likely avoid these specific ETFs.
Broad, index-based ETFs like the SPDR S&P 500 ETF (SPY) are fairly safe bets over a long enough period of time. The S&P 500 Index has returned 13.5% annually over the past 50 years against 11.8% for the average mutual fund. Of course, this is no guarantee. Anyone who thinks that 50 straight years of growth means that there’s no chance that things can change should ask anyone who was heavily invested in home prices continuing to increase in 2007. However, betting on the S&P continuing to increase at a similar rate over a long enough period of time is still a reasonable bet.
Blue Chips With Strong Dividends
Once again, investing in specific stocks presents an extra level of risk that isn’t as present in ETFs or mutual funds. Namely, you’ve pinned your hopes on one company rather than dozens, and who knows what might happen. However, there are certain massive corporations that have reached a point of relative inertia that makes it hard to see them completely collapsing. While they probably won’t offer big upward moves in share value either, they are safer than companies with smaller market capitalization (a number reached by multiplying the total number of outstanding shares by the price per share) and offer a major benefit: Dividends.
Dividends are how major companies with little room left to grow bolster their share price, essentially paying cash back to shareholders when big enough profits are turned. These companies are typically in industries with a set demand for their product and a history of performance, like food makers or telecommunications companies.
Dividends are typically expressed as a “yield,” which is essentially what percentage of your investment will be paid back in the form of a dividend over the course of the year (dividends are paid in four quarterly installments). Any dividend yield of over 5% is a strong return on investment, and this can further be bolstered by rising share prices over time. What’s more, dividends can also allow an investor to continue making money even if the share price drops. Dividends aren’t certain; companies can and do change them, but they can offer a path to increasing returns on a longer-term investment horizon for anyone willing to take on a little more risk.
No investment is completely safe, and even the lowest risk bets can ultimately prove a mistake. But any investor willing to forgo dreams of miracle stock-picking and crushing the market can find a number of simple, relatively safe investment vehicles that, with patience, can offer solid returns.
This article was written by Joel Anderson.
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Perma-Bear Marc Faber: U.S. Equities Not Terribly Expensive - Wall St.Cheat Sheet

Marc Faber, publisher of the Gloom, Boom & Doom Report spoke to Bloomberg TV and said that U.S. equities are not “terribly expensive” and that he thinks the euro will survive.

Faber on his latest report:

“It’s actually quite gloomy but if you’re very gloomy what do you invest in: Treasuries, Italian bonds or commodities or equities?  I happen to think U.S. equities are not terribly expensive, so relatively speaking to other assets, they may for a while actually do quite well.”

On the market now:

“Right now, the market is in neutral territory. It was very oversold on October 4th when the S&P dropped to 1,074. Now around 1260, the upside in my opinion will be between 1,280 and 1,350 because there’s a lot of supply around that area. But if there is some good news coming out of Europe, and good news would simply mean postponing the problems for another few years with some kind of money printing operation, either by that ECB or IMF or EFSF, [that] lift stock prices higher.”

“[Postponing problems] is not good news, but it is better news than if the whole eurozone falls apart. It gives some time to maybe find better solutions. I doubt they will be found, but with money printing you can hide a lot of things and you can postpone problems as we have seen in the U.S.”

On the outlook for the euro:

“I think the euro will survive, the question is in what form. It may survive without the weaker countries or it could survive theoretically just as a currency aside from local currencies. You would have in France and Italy and Spain and Greece, local currencies and…the dollar. So, I could travel anywhere in Europe and still pay in euros.”

On whether he’d rather own euros or dollars:

“I have a very special stock tip for you. The symbol is g-o-l-d (NYSEARCA:GLD). That is what I prefer to hold. Both the euro and the dollar are long-term undesirable currencies, especially given zero interest rates in the U.S. Equities to some extent become like cash because they become a store of value compared to cash at a zero interest-rates. Paintings become a store of value, stamps become a store of value.”

On emerging markets:

“There is close correlation between all markets in the world. This year, the U.S. has grossly outperformed the emerging markets   In Asia, we’re down between 15% and 25% in markets. In Eastern Europe, even more. The U.S. this year is a wonderful market relative to the rest of the world. ”

“I think this outperformance may go on for a while. Some emerging markets could rebound more strongly than the U.S. because they are more oversold. Like India, the currency is down 18% since July and the market is down 22%.  Currency adjusted, the market has been extremely weak and is oversold. It could rebound somewhat here, but forget about new highs. It’s not going to happen anytime soon.”

On China:

“The reason I’m not very keen on China at the present time [is because] we had a credit bubble, we still have artificially low interest rates and a huge fiscal deficit in orders words artificial stimulus. That’s coming to an end. Yes, the government can further stimulate and slash interest-rates again and reduce reserve requirements, but it will just postpone the problem and aggravate the problem in my opinion.”

“When you have an economy like China that becomes so big so quickly, you can have a more meaningful setback. If the U.S. economy grows at 3% or contracts that 3%, it has no impact on the price of copper to speak of….In the case of China, whether the economy grows at 10% or 5% as a huge impact on the demand for iron ore and copper and aluminum, steel and coal. The Chinese economy today has a much larger impact on the rest of the world than is generally perceived economically speaking.”

Thursday, December 22, 2011

Faber: Dissolve European Union to Ignite Growth -

Economist Marc Faber, publisher of The Gloom, Boom and Doom report. says the European Union should be dissolved to facilitate growth.
"Unless there's an authority that can really punish (rule breakers) it's not going to work," Faber told Fox Business Network. "I think the best thing to do is dissolve the EU. Let the markets sort this out. Let the countries default."

"It's going to be painful, very painful," says Faber. "But rather than to intervene into something that is not going to work in the long run … (intervention) is the wrong medicine." Mentalities in Greece, Portugal and Spain are totally different from that found in Germany, Faber observes, making forging and carrying out agreements difficult.
Moreover, Faber says that if the euro becomes history, countries can always trade in dollars. "In most countries now, the euro is actually a better currency than the U.S. dollar, but you could have dual currencies."

For example, Faber says that Greece could conduct transactions in drachma and euros or dollars. "The same is true in Latin America." says Faber. "I pay in dollars, I never exchange any money."

Faber points out that the U.S. has intervened in the free market since the savings and loan crisis, and "each time the crisis grew larger and larger and larger."

"I think that's a big problem."

The Washington Post reports that Sean Callow, a senior currency strategist at Westpac Banking, says the euro may reach $1.27 in the first quarter of 2012.

Jim Rogers vs Marc Faber: Faber Cautious On China; Rogers Bullish OnAll ... - ETF Daily News

The dog fight between Thailand’s Marc Faber and Singapore’s Jim Rogers is on. The point of contention is:  Which way will commodities prices go now that China’s (NYSEARCA:FXI) bubble economy appears to be headed for some sort of economic slowdown, contraction or crash?  “Well if we define a bubble as a period of excessive growth and artificially low interest rates, then China had a huge bubble,” Faber told King  World News on Wednesday, reiterating his previous calls for a China economic hard landing.  “Usually bubbles are not deflated by a soft landing, but by a hard landing and this concerns me, actually, much more than the European  situation.”

If China’s rapid growth slows “meaningfully” or crashes, “it will have a huge impact on the demand from China for raw materials, for commodities,” according to Faber, which “will impact Australia, Africa, the Middle-East and Latin America” and could create a “vicious spiral on the downside” to one of the  only few outperforming sectors of the world economy—commodities.

The pony-tailed Swiss money manager and 20-year+ resident of Thailand isn’t alone with his grim outlook for China and commodities prices.  Echoing concerns about the implications to commodities prices from a possible China crackup have been expressed by Eclectica Asset Management’s CIO Hugh Hendry and  Kynikos Associate’s President and Founder Jim Chanos, two additional and respected minds on the subject of China.

Hendry, who attended a December 2010 investor conference in Russia, which incidentally was chaired by Faber, said, “There should be a Confucius saying ‘Thou shall not invest in overcapacity.’”  Hendry went on to emphasis that he’s suspicious of China’s growth rate after factoring out it’s behemoth ‘manufactured’ capital spending component, a component which can be directly tied to Beijing’s centrally planned projects.

Chanos agrees with Faber and the fears of a hard landing to the Chinese economy.  Chanos told Bloomberg on two recent occasions, on Oct.  28 and Nov.  24, the real estate bubble has popped and the banking crisis that is most likely to result from drop in real estate prices may rival the financial crisis in the West.

“The Chinese are beginning to realize that property prices can go down as  well as up and this is going to be a very, very troubling development for the Chinese property market,” he said, and will lead to a “hard landing” in  China.

“Most China observers were not talking about any landing three months ago and  now they are confidently talking about a soft landing,” he added.

Pundits to the Chinese hard landing scenario, including Jim Rogers of Rogers Holdings, in particular, took a swipe at Faber on Friday in an email to CNBC regarding Faber’s take on commodities as an investment.

“Marc still does not understand China,” stated Rogers. “There are going to be several hard landings in the next few years, but China’s will be less hard overall than others such as Greece, U.S., et al,” and added that he believes China’s economy will undergo some busts in some sectors but will be offset by booms in other sectors.

According to Bloomberg, Rogers continued his email with references to two great bull markets of the recent past, one in stocks from 1983 to 1999 and the other bull market in gold from 1971 to 1980, that underwent steep consolidations such as the one commodities have been going through today before resuming their climbs.

After stocks took a drubbing during the 1987 crash, the bull market in equities continued for another 12 years, returning approximately 725 percent from the lows of the crash.

Rogers also cited the super bull market for gold (NYSEARCA:GLD), which crashed in price by 50 percent in 1974 following a six-fold move in the  price of the yellow metal to $200 from its pegged price of $35 per the ounce in  1971.  After reaching as low as nearly $100 following the crash, the gold price continued its bull market with a 750 percent gain during that six-year  period.

“Corrections are the normal way of all markets,” stated Rogers, and remains bullish in all commodities, especially silver (NYSEARCA:SLV) and rice in the shorter term.

Roger’s thesis on the outlook for China, with its enormous appetite for commodities during this decade and expectation to continue for at least another decade, has a strong advocate in Steven Leeb, a researcher and author of several  financial books on the subject of bull markets, whose new book, Red Alert:  How China’s Growing Prosperity Threatens the American Way of Life
discusses  this very issue.
When asked about Chanos’ point (adopted by Faber), specifically, about China and his expectations for weak commodities prices and a possible end to the bull market in ‘things’, Leeb told Financial  Sense Newshour’s James Puplava that China’s overcapacity is quite intentional and part of a much bigger plan being implemented by Beijing’s  hierarchy, a plan that includes building out capacity now in anticipation of the global demand for alternative energy products it sees later in the decade.

China intends to dominate the world in the production of alternative energy technologies and products, according to Leeb, adding that China has been “eating  our [America's] lunch” in the competition to gain control of the  world’s mega-trillion dollar market—clean energy products, specifically products  which utilize the sun and wind.

And according to Leeb, the amount of raw materials China will need to roll out its alternative energy industry will be simply “enormous.”

“It’s the height of arrogance for Americans to look at China and say they’re  doing things wrong,” said Leeb, referring to conclusions drawn about the Chinese economy by Chanos’, directly.

“There’s no doubt there was a real estate bubble there, but they’ve gained  control of it.  People tend to view China . . . through the same lens as  they do America; they do it through this kind of monetary lens, through this money lens,” Leeb explained.  “China’s not like that . . . they don’t think  in terms of minute to minute trading bonds day to day.  They think in terms of 10 to 20 year increments.”

Leeb gives an example of China’s impact upon the solar industry, citing the demise of one of America’s darling solar stocks, Evergreen Solar (ESLRQ.PK) as a prime example of what happens to companies which stand in the way of Beijing’s  plans to dominate the alternative energy market.

“This [Evergreen Solar] was the bellwether solar company, no fraud, no  nothing,” Leeb said.  “A few years ago the stock traded at $120, now it’s trading at 3 cents.  And it’s trading at 3 cents because the Chinese have underbid, they’ve under-priced.

“No one can stay in business.  These companies are not competing against other companies; they’re competing against a country that has over $3 trillion in reserves.  They are competing directly against China.”

Leeb ends his point about the misconceptions of Westerners regarding the  Chinese social, political and economic model by referencing a passage from one  of the books authored by former Secretary of State Henry Kissinger.

“There’s that very famous page in Kissinger’s book, I think, on China, in which Kissinger asked Zhou Enlai, who was the former leader of China, do you think the French Revolution was a success?  And Zhou Enlia, after thinking about it for minute said, ‘You know, I think it’s too soon to say.’”

Marc Faber Says Europe Should Dissolve the EU for Economic Growth - TheMarket Oracle

Marc Faber on the Euro-zone crisis, that the problem is that governments cannot agree to sticking to the 3% budget limits and the only option they have is to print money. The best solution is to dissolve the EU and let the markets sought things out.

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

Wednesday, December 21, 2011

Prince Alwaleed's Twitter Investment Isn't For Politics Or FootballScores - Forbes

Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.
Prince Al-Waleed Bin Talal, nephew of the Saud...Prince Alwaleed Bin Talal Alsaud announced today that his Kingdom Holding Company is investing $300 million in Twitter, the microblogging social media site that delivers everything from breaking news to lame trending topics. Twitter played a notable about role during the Arab Spring uprisings – which included threatened violence in Saudi Arabia – leading some to call the Saudi Prince’s investment ironic. Though Prince Alwaleed does not use the service himself, his wife, Princess Ameerah Al-Taweel has a popular account. She took the opportunity to retweet a follower today, rejecting the claim that Alwaleed’s investment is political [rough tranlastion]: “Some consider Alwaleed’s investment in Twitter as political. This is not true. It is an investment and exchange in new media that is not restricted to Football Scores on Twitter.”
Alwaleed, the 26th richest man in the world, echoed the fact that the investment is a business decision, not a political one, in a statement, calling Twitter one of the world’s “promising, high-growth businesses with a global impact.”
Eng. Ahmed Halawani, the Executive Director of Private Equity and International Investments at Kingdom Holding Company, added, “We believe that social media will fundamentally change the media industry landscape in the coming years. Twitter will capture and monetize this positive trend.”
In fact, Alwaleed has been vocal about the need for change, particularly with regards to communication and technology. In an editorial published in the New York Times earlier this year, the prince called for meaningful interaction using technology – something Twitter hopes to provide. “For any reform to be effective,” wrote Prince Alwaleed in February of this year, “it has to be the result of meaningful interaction and dialogue among the different components of a society, most particularly between the rulers and the ruled. It also has to encompass the younger generation, which in this technologically advanced age has become increasingly intertwined with its counterparts in other parts of the world.”
Prince Alwaleed Bin Talal sat down with Steve Forbes in January of 2010 to discuss his investments and his outlook for media companies in particular. He has been a large stakeholder in News Corp. and other media companies like Disney and Time Warner, as well as in Saudi Research and Marketing Group, which publishes a number of magazines and news sources.
“The Web has revolutionized everything. It changes the whole equation,” Prince Alwaleed told Forbes. “We are seeing right now – in News Corp. and some other companies – they would like to have the Web pay for content. Still, they have not found the equilibrium point on what to do with it. Is it just that you have to pay? How much? And to whom to pay? This thing is an ongoing dialogue right now, but it’s very interesting what’s going on.”
Prince Alwaleed has also recently announced plans to launch his own news network, called Alarab. One would guess some integration with Twitter could be in the cards.

View the original article here

Investors not shying away from solar power - San Francisco Chronicle

Stion, a new solar manufacturer in San Jose, has raised a total of $234.6 million from venture capitalists and other investors.

Solyndra notwithstanding, some investors are still willing to bet big money on solar power.

Google, for example, reported Tuesday that it will invest $94 million to help build four solar power plants near Sacramento.

And Stion, a San Jose startup that makes thin-film solar cells, said Tuesday that it has raised another $130 million in private investments, much of it from Korean private equity funds.

The high-profile bankruptcy of Fremont's Solyndra in September prompted intense scrutiny of all manner of solar companies and projects, particularly those involved in manufacturing. A flood of inexpensive solar cells pouring from new factories in China has undercut many American solar businesses, pushing several into bankruptcy.

But the plunge in solar-cell prices has been a boon to developers of solar power plants.

The four plants that Google will fund - along with investors Kohlberg Kravis Roberts & Co. - will be built by San Francisco's Recurrent Energy, a subsidiary of Sharp Corp. The plants will sell their electricity to the Sacramento Municipal Utility District and should begin operations next year. Three are already under construction.

"The declining cost of solar has really driven demand for us, in our business," said Arno Harris, Recurrent's CEO. "I would say unequivocally that there's a ton of interest in investing in these projects."

Google has already invested in solar-thermal power plants, which use mirrors to concentrate sunlight, generate steam and turn turbines. But the Recurrent project marks the first time the Internet search giant has invested in power plants that use photovoltaic panels, which generate electricity directly from sunlight.

Google's clean-energy investments have now topped $915 million. The company reported in November that it was pulling the plug on an ambitious four-year research effort to make renewable power cheaper than coal, but it has not stopped investing in the sector.

Stion, meanwhile, has now raised a total of $234.6 million from venture capitalists and other investors. The company will use some of the most recent funding to expand its solar-module manufacturing facility in Hattiesburg, Miss.

Stion also will create a subsidiary in Korea to build a factory there, supplying thin-film solar modules to growing markets in Asia. One of the lead investors in Stion's new financing round is Avaco, a Korean company that makes thin-film processing equipment.

"Solar has always been a global business, and this investment enables Stion to address market demand in Asia and beyond," said Chet Farris, Stion's CEO. "We have added world-class investors as well as a strategic partner with deep technical expertise."

Wednesday, December 14, 2011

Jim Rogers: Faber's Wrong About China -

Jim Rogers thinks Marc Faber has got it wrong about China, when he says the country is possibly headed for a hard landing, which would lead to a devastating impact on commodities around the world.

"Marc still does not understand China. There are going to be several hard landings in the next few years, but China’s will be less hard overall than others such as Greece, U.S., et al," Rogers told CNBC in an email.Rogers says some parts of China's economy will have a "hard landing" but other parts will continue to boom. He says the commodity market will have a correction, but rebutted Faber's view that it would be devastating."Yes, there will be consolidations in the commodity bull market just as all markets have consolidations," he said. "In 1987, stocks declined 40-80 percent worldwide, but it was not the end of the secular bull market in stocks."Rogers said he was still long commodities, adding that gold went up 600 percent in the 1970s and then corrected by 50 percent scaring a lot of people. "It then continued its secular bull market and rose 850 percent. Corrections are the normal way of all markets."According to Faber, Rogers' bullish call on commodities is misplaced. "If I was always bullish about commodities and completely missed out on the crash in 2008, then obviously, having tied essentially my reputation to commodities, I'd continue to be bullish," Faber said.But Rogers said Faber had got it wrong when it came to his call in 2008. "I proclaimed repeatedly far and wide that one should not buy commodities in the run up phase. I also explained that I was not selling mine since we were [and are] in a secular bull market," Rogers said."I explained that my shorts of Citibank, Fannie Mae, all the investment banks and homebuilders, plus my long position in the Japanese yen would protect me in any sell-offs. When one’s shorts decline 90-100 percent, it is a good year even when one’s longs decline," Rogers added.

According to Rogers, Faber is the one who has made many wrong calls, arguing that he "totally missed" the secular bull market in commodities that began in early 1999."Also back in those days, he and his friends proclaimed often that China was a mess and would continue to be so," Rogers said. "They all were wildly excited about Russia. Some of his friends even left China to start operations in Russia. We all know how that resulted."

Tuesday, December 13, 2011

Dissolve the EU; – Marc Faber - Wall Street Pit

Investment analyst and entrepreneur Marc Faber spoke with FOX Business Network’s (FBN) David Asman and Liz Claman about the European debt crisis and attempts by the European Union (E.U.) to restore fiscal austerity. Faber said the best course of action would be to “dissolve the EU” and he blamed “bureaucrats” for not keeping the “3% maximum fiscal deficit and government debt to GDP maximums” in order to remain fiscally sound. Faber said the EU should “let the countries default” and while it “is going to be painful” it is better than an intervention that “is not going to work in the long run.” Excerpts from the interview are below, courtesy of Fox Business Network
On the whether the European Union was destined for failure:
“If they had kept the agreement 3% maximum fiscal deficit and government debt to GDP maximums, it could have worked. Why didn’t it work? What do these bureaucrats in Brussels do besides eating well and sleeping and sharpening their pencils? They are useless bureaucrats that brought about the financial crisis worldwide.”
On whether states in the European Union would be willing to give up their sovereignty to regain fiscal austerity:
“I doubt they are willing to do that. The best would be to dissolve the EU. Let the market sort this out. Let the countries default. It is going to be painful, but rather than intervene into something that is not going to work in the long run.”
On Germany rejecting the bailout proposal:
“Eventually they will come to some kind of compromise and there will be some kind of money printing.”

Marc Faber Fears Gold Confiscation From The Government (GLD, GDX, IAU,DZZ, SLV) - ETF Daily News (blog)

Aside from the cherished and entertaining Faberisms
deployed from  time to time in his fight to preserve the truth in front of television audiences  controlled by a media-based establishment propaganda machine, Marc Faber also demonstrates why he’s the go-to man for clarity and thoughtful insights in the  midst of today’s Orwellian headache.
Speaking with FinancialSense Newshour’s (FSN) James Puplava on Wednesday, Faber, the editor and publisher  of the Gloom Boom Doom Report discusses a range of topics, from geopolitics, to freedom  and tyranny, to his concerns of people living in an age of central bank monetary  cannons gone completely rogue.  He also touched on one of his favorite  asset classes, gold (NYSEARCA:GLD), and the  third-rail subject of interest to every gold bug: government confiscation. 

As far as how high the price of gold (NYSEARCA:IAU) can go, it depends upon who has control of the printing presses, according to  Faber.  Right now, he said, the power hungry in Washington won’t let gold bugs down,  as each sign of a lurking systemic collapse or stock  market meltdown has been propped up by the Fed.

“If I could show you a picture of Mr. Ben Bernanke and Mr. Obama, then I  would have to say that the upside is unlimited,” said Faber.

And the downside risk to gold (NYSEARCA:DZZ) rests on the shoulders of central bankers, as  well, as the Fed, and now the ECB, will go to any length to feed the global  financial system with creative and backdoor credit expansion mechanisms.

“In my view the downside exists if money printing by government is  insufficient to revive or maintain credit growth at this level and you have a credit collapse,” he said, and also noted that competing asset classes would  most likely fall more, thus retaining gold holders purchasing power during a bona fide deflationary collapse.

But, first, the globe will undergo roaring inflation, according to Faber, then, second, the Robert Prechter, Gary Schilling and David ‘Rosie’ Rosenberg  deflationary spiral scenario will play out.

“One day there will be a credit collapse, but I think we aren’t yet  there.  Before it happens they’re going to print,” Faber speculates.  “And when printing as it has done in the last 12 years in the U.S. leads to  discontent populations, because when you print money then only a few players in  the economy that benefit, not the majority of households.”

However, Faber warns that the gold market’s extremely volatile, a normal  symptom of a fiat-backed financial system inducing the public into  schizophrenia—of clinging to the familiarity of a 67-year-long financial system,  moving to periods of fearing total loss at the currency graveyard—will chase  investors out.

“A 30 percent correction or 40 percent correction cannot be ruled out, but as  I maintain, again and again, I’m not going to go and sell my gold,” Faber said  forcefully, as he explained that owning gold is should be viewed as the ultimate  insurance policy to cover financial calamity, a viewpoint shared by famed Dow Theory Letters’
Richard Russell—another periodic guest of FSN.
Whether the gold price is in  bubble territory, as a few prominent analysts claim, Faber doesn’t see it that  way, at all.  In fact, he said, very few people own it or talk about  it.  History clearly demonstrates that every bubble will suck in the very  last investor before collapsing under its own weight.

Besides, the powerful propaganda machine, which endlessly repeats the party  line of a system predicated on a fiat system of dollar hegemony, will not allow  cheerleaders of the gold bugs to expend too much airtime away from Wall Street  advertisers and obvious shills (to the trained eye) of CNBC, Bloomberg and other ‘mainstream’ media.

So far, the propaganda has only delayed the inevitable rush into gold—the  next and longest stage of the bull market.

“I have one concern about gold.  I was recently on Taiwan and South  Korea, at two large conferences, nobody owned any gold,” Faber said.  “Gold  is owned by a minority, even in the U.S..  Most people in the U.S. have no clue what an ounce of gold is or looks like and so forth.  The same in Europe.”

But as the ‘wealthy’ begin to acquire gold, the chasm between the ‘rich’ and  poor will widen substantially, not just between the 1 percent and the rest, but between the upper 10 percent and the growing-poorer middle class.  That’s  when the democratic process turns ugly, morphing from a society of rights to a nation ruled by a tyrannical banana republic political dynamic.  See FSN  interview, Ann Barnhardt: The Entire Futures/Options  Market Has Been Destroyed by the MF Global Collapse.
Or transcript.
Populist political leaders vying for votes from the masses will opt to score easy points with the 90 percent have-nots at the expense of the haves, with  draconian taxes on assets such as gold and silver held by the haves, not just through taxes on capital gains, but maybe even through a wealth tax on the holdings.

“This is what the tyranny of the masses can do,” Faber explains.

“You can make it, advertise it to the masses by just taking away from a few  people, he added.  “I’m worried most about is the case of gold, not the price; that I’m not worried . . . but I’m worried about the government taking it  away.”

The interview moves on to the discussion of the bull rally in gold and silver (NYSEARCA:SLV).   After 11 years of continuous gains in the price of gold, why, then, do so few  investors hold the metal?

Faber explains that there remains too many deflationists holding to their  thesis of a tumbling gold  price, though, as Faber suggests, there has been no factual evidence to  support the argument since the pop of the Nasdaq bubble of 1999.

What deflationists point to as proof of their contention, declining housing  prices and stock prices, are really manifestations of inflation moving out of  those asset classes into others, such as commodities,  precious metals and overseas assets, of all kinds.  Inflation, Faber has  stated in the past, doesn’t move all asset prices up simultaneously.

“I don’t hear about gold.  I lived through the last gold bubble between  1978 and January 1980.  The whole world, whether you were in the Middle  East or in Asia or Europe or in America was trading London gold, buying and  selling every day,” he recalls.  “This has not happened yet, and it hasn’t  happened.  Your friends, the deflationists, have been telling people that  gold will collapse to $200 an ounce for the last 10 years and that’s it was in a  bubble.

“[They] said it [gold] was in a bubble at $500; they said it at $600, and  they’re still maintaining it.  So a lot of people they don’t own it; they  bought it and sold it again.  But in the meantime, gold has moved into sold  hands.

“In my case, I’m not going to sell my gold unless I have to.  In other  words, everything else is bankrupt, bond market, stock  market, cash and real estate.”

Faber also points out, even though the price of gold appears to look like and  quack like a bubble duck, with the price of the yellow metal sporting gains of  700 percent since the year 2000, the monetary base and credit creation by the  Fed has been so large for so long, the gold price has much more room to move  higher to reach ‘fair value’.  See Goldmoney Founder James Turk’s analysis  on this very point: BER article, Goldmoney’s James Turk, $11,000 Gold Price
“I can turnaround and say, look if I consider the price of gold, an average  price in mid-1980s, then we take $400 or $450, or whatever it is,” Faber  explains, “and we take the monetary base at that time; we take the international  reserve; we take into consideration that China hasn’t really begun in earnest to open up; and we haven’t had this wealth expansion in emerging economies, and so  forth and so on.  Then, I can maintain, well, actually the gold price is  not up; it’s just the price of money, or the value of money, has declined so  much against a stable anchor.  So I don’t think that we’re in a bubble  stage.”

For the newcomers to the gold market, Faber stresses, “Don’t buy it on  leverage.”

Reiterating his previous comments during the interview, Faber leaves the FSN  listener with his overriding observations of a U.S. government (other Westerner  countries, as well) that shows signs of eventually taking the next steps in its  fight to maintain a hopelessly broken political and financial system:  confiscation, not necessarily though a highly unlikely and dangerous  door-to-door search of proof of non-paid taxes on a citizen’s bullion stash, but  through confiscatory levels of taxation and possible criminal penalties to those  who daring to escape the Marxist or Fascist regime’s grip on power over its  population’s wealth.

“My only concern with the gold insurance is government will take it away,” Faber concluded.  “That is my only concern.  I’m not concerned about the price.

“I also have a concern generally speaking about our capitalistic system.  For sure people with assets, they will be taxed more heavily,  that’s for sure.”

Monday, December 12, 2011

US Not Terribly Expensive, Euro will Survive

“It’s actually quite gloomy but if you’re very gloomy what do you invest in: Treasuries, Italian bonds or commodities or equities?  I happen to think U.S. equities are not terribly expensive, so relatively speaking to other assets, they may for a while actually do quite well.”

I think the euro will survive, the question is in what form. It may survive without the weaker countries or it could survive theoretically just as a currency aside from local currencies. You would have in France and Italy and Spain and Greece, local currencies and…the dollar. So, I could travel anywhere in Europe and still pay in euros.

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

Thursday, December 8, 2011

Marc Faber, Jim Rogers not selling gold, but it’s not all good news forbullion

Investment gurus Jim Rogers and Marc Faber in recent interviews seem to agree on the dynamics in the gold market. Rogers says he’s not selling his gold and Faber says there is no bubble. But that doesn’t mean bullion is not still in a correction phase.

Investment Week quoted legendary global investor Jim Rogers, co-founder of the Quantum Fund with George Soros now based in Singapore, on the outlook for gold on Monday:

“It has been correcting for the past three months so it is overdue for a stronger correction, but I have no idea by how much. It is very unusual for any asset to go up for 11 years in a row with no correction. I own gold and I am not selling my gold.

The price at which I buy will depend on the circumstances. If it is going down because the world is going bankrupt then it would need to be priced at $900 for me to buy it. If there is an artificial occurrence then maybe between $1,200 and $1,400. It depends on what is going on in the world.”

Last week Bloomberg interviewed Marc Faber, fund manager and author of the widely followed ‘The Gloom Boom & Doom Report’ based in Chang Mia, Thailand (the conversation about gold starts around the 11:00 mark):

Faber tells how he recently asked a room full of Asian investors if they owned gold and only a one said yes, which signalled to him that gold was not in a bubble because “if [he] asked the same question about Yahoo! type of stocks ten years ago everybody would have put up their hands.”

Gold’s spike above $1,900 an ounce was a “huge move” and bullion was “still in a correction phase” although it has to be remembered that for the year gold is still up 20%. Faber commented on the record gold price in early September saying at the time “when you buy gold, it’s an insurance against systematic failure and problems in the financial markets.”

Wednesday, December 7, 2011

Jim Rogers to Marc Faber: you are wrong on China (FXI, RJA, EEM)

Legendary investor Jim Rogers claims that noted China bear Marc Faber is wrong about the country and its economic future.  Goldman Sachs ( GS , quote
), Morgan Stanley ( MS , quote ) and JP Morgan ( JPM , quote ) agree with Rogers and are all also calling for a "soft landing" in China, too. In an interview with CNBC, Rogers noted that "Marc still does not understand China.  There are going to be several hard landings in the next few years, but China's will be less hard overall than others such as Greece, U.S., et al."
Rogers' disagreement with "Doctor Doom" seems odd given the fact that Faber is an old Asia hand currently based in Thailand. To be fair, Rogers himself now lives in Singapore.
They agree that at least certain sectors of the Chinese economy were destined for a "hard fall," however.
The correct answer will be reflected in the performance of China funds like FXI  ( quote
), and as China goes, so go global emerging markets funds like RJA  ( quote ).
Rogers, the co-founder of the Quantum Fund with George Soros, remains long on commodities as he states there is "100% chance" of another financial crisis that will be worse than 2008, as detailed in articles
on .
He does anticipate corrections in commodities, although these will not be devastating,
"Yes, there will be consolidations in the commodity bull market just as all markets have consolidations.  In 1987, stocks declined 40% to 80% worldwide, but it was not the end of the secular bull market in stocks," he says.
Speaking of corrections, the publicly traded portfolio that attempts to replicate Rogers' investment strategy, the Elements Rogers International Commodity Agriculture exchange-traded note ( RJA
, quote ), is off sharply for the year, down almost 20%.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Thursday, December 1, 2011

Marc Faber Sees Signs Of A Major China Slowdown Everywhere He Looks InAsia

There's something that worries Marc Faber more than Europe: China. Faber warned of a China crash in an interview today with King World News.

He says the slowdown is evident from his home in Chiangmai, Thailand:

"In China, if the economy slows down meaningfully or if there is a crash, it will have a huge impact on the demand from China for raw materials, for commodities.  It will impact Australia, Africa, the Middle-East and Latin America...

"I’m sure the economy (of China) is softer than official statistics would suggest and probably the government will start to print money at some point.  So maybe stocks will rebound here because of money printing, but again, it won’t help the economy....

I live in Asia and all I can say is I observe a meaningful slowdown in business activity recently and increasing corporate earnings that disappoint...

“There’s a huge capital flight [from China], there’s no question about this.”

Marc Faber Tells Fox Business Not to “Expect Too Much” from the CurrentMarket Rally

The rally came from a very oversold level. We have a very strong support on the S&P between 1100-1150. And usually the December month is a strong month as well as January so we have seasonal strength and oversold conditions and we can rally, but I don’t think you should expect too much. I think we’ll get into overhead resistance when the S&P rallies another 5% or so between 1250-1300.

“The optimism arises from some sort of a bailout and monetization. But if you look at the market, OK it’s up, but gold is also up and oil is up. Like in the US, we monetized time and again and it’s just postponing the problem. In the end, crisis will eventually happen. The problem of the Western world is that there is too much debt and too many unfunded liabilities.”

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

Tuesday, November 22, 2011

Printing money solves no crises: Faber - Taipei Times

Marc Faber, publisher of the Gloom, Boom and Doom report, yesterday reiterated his criticism of money printing practices, which he believes will continue in the US, Europe and elsewhere, causing bubbles such as those seen in the Chinese real-estate market.
“A third wave of quantitative easing by the US Federal Reserve is just a matter of time,” said Faber, a contrarian investor who has been referred to as “Doctor Doom” for a number of years.
Printing money is the way global governments will evade debt crises, such as the one that is gripping Europe, Faber said in Taipei.
That would forestall the crisis rather than solve it, keeping prices elevated for assets like stocks, real estate in some areas and precious metal, he said.
Loose monetary policies, including low interest rates, intended as a short-term fix, can have unintended consequences later, Faber said.
While central banks can inject fresh funds into the markets, they cannot control where the funds flow, he said, adding that money printing has encouraged speculation on commodities whose prices have gone up faster than real demand in recent years.
“Some people will benefit from money printing that deflates the purchasing power of currency ... but the middle and lower--income classes are being hurt,” said Faber, an investment adviser focused on value investments, who owns Marc Faber Ltd.
Countries with resources are basking in the trend in light of their sharp increases in international reserves, which Faber said was symptomatic of monetary inflation and a shift in wealth.
The fast-growing economy of China has pushed up its inflationary pressures, with the bubble in the real-estate sector on the brink of bursting, Faber said.
“Don’t believe China’s consumer price index stands only at 5 percent,” he said. “The truth is somewhere between 12 percent and 15 percent ... The real-estate bubble is so evident that Chinese property shares are very weak as the volume of real-estate transactions goes down and prices fall.”
Faber said China would follow the practice of quantitative easing if it has to choose between printing money and a concrete recession.
The Chinese bubble will burst eventually, in three months or in three years; when it happens, it will have devastating consequences for the global economy, he said.
“Chinese invented paper. They know how to print money,” Faber said.
Still, the ongoing shifting balance of economic power from industrialized countries to emerging economies is building up geopolitical tensions, especially in the Middle East and Central Asia, he said.
All the West needs to do to contain China is seize control of oil supplies, but China and the countries dependent on oil imports would not allow that for the sake of self-preservation, Faber said.
He recommended risk diversification against the current backdrop, but took a dim view of government bond purchases as they would mean trust in the easy monetary policy.
Rather, he suggests owning physical gold, equities and Asian real estate that will prove a better defense against inflation.
Greece, Faber said, is bankrupt whether Europe likes to admit it or not, and the European Central Bank will print money to postpone a systematic failure.

Monday, November 21, 2011

If the economy is so terrible, why is Obama winning? - Baltimore Sun

It's the economy, stupid — or maybe not. President Barack Obama, with the help of congressional allies, has taken key issues that should be dooming him and turned them to his advantage.

Economists agree that growth is slow and jobs scarce because demand for what Americans make is weak. Consumers are spending and businesses are investing again; however, too many dollars go to imports but do not return to buy exports — a huge deficit with China and on oil are to blame.
President Obama effectively articulates those problems and seeks to move China off mercantilism with diplomacy and wean Americans from fossil fuels with alternative technologies.

However, neither reasoning with the Middle Kingdom nor windmills and electric cars addresses those problems effectively. Moreover, the president flat-out rejects that an out-of-control federal regulatory system and rocketing health care costs are driving businesses and jobs abroad.
Instead of "fixing what's broke," he campaigns across America for quick fixes that would make voters feel better until after the election and paints the GOP as callous defenders of the rich.
Meanwhile, Democrats in the Senate serve up one proposal after another — aid to states, public works and job aid for veterans — each financed with a new tax on millionaires. Recognizing the economy needs structural solutions, Republicans block those ploys, but then the president exclaims that Republicans would rather protect the richest 1 percent than keep teachers and firefighters on the job, invest in America's future and help unemployed veterans.
The president has turned liabilities — high unemployment and failed policies — into assets: the fairness and responsibility issues.
It's working. According to the most recent Quinnipiac Poll, President Obama leads Mitt Romney, Rick Perry, Herman Cain and Newt Gingrich, and his advantage is growing.
For Republicans, it doesn't help that the field has not thinned; the messages of those top-tier candidates are partially drowned by the cacophony of second-tier hopefuls whose viability is extended by the endless cavalcade of entertaining network debates.
Also, it doesn't help that Messrs. Perry, Cain and Gingrich offer vague, thin and doctrinaire economic prescriptions. Moreover, Mr. Perry comes off a bumbler, Mr. Cain is handicapped by sexual misconduct allegations, and Mr. Gingrich, an amusing senior statesman, is just too professorial to win the brass ring.
The likely Republican nominee, Mitt Romney has a comprehensive program to right the economy — on trade, energy, regulation and health care — but has failed to effectively articulate for voters what's broken and demonstrate how what he offers will fix it. It doesn't help that he is not exciting or charismatic; Lyndon Johnson proved a president doesn't need those to be highly effective, but John F. Kennedy set the tone for TV-era campaigns by demonstrating how those qualities can trump other considerations.
Mr. Romney has been in politics long enough to recognize his communications strategy is failing, and those close to him can attest to his persuasive personal qualities. It remains a puzzle that he has not improved his messaging and found a way to compel more attention to the strength of his ideas and character. He must do those things to demonstrate he has the intelligence and vigor for high office.
On the road (the campaign trail) and at home (Washington), Mr. Obama keeps winning because he effectively defines the terms of the debate to suit his advantages, and the GOP has not offered voters a credible and exciting alternative.
The president is simply outplaying his opponents on all venues. If Mitt Romney indeed emerges as the Republican nominee, he must expose the president's tactics and convince voters he offers something that is better and will solve the nation's problems — and that he is strong enough and smart enough to get it done.

Peter Morici, a professor at the University of Maryland's Smith School of Business, is former chief economist at the U.S. International Trade Commission. His email is

Marc Faber on Gold, Stocks & QE3 - Beacon Equity Research

As the global financial crisis accelerates in the fourth quarter following revised economic data revealing a high probability of another recession in Europe and the United States (see BER article of Nov. 7) on the horizon, the ever-entertaining publisher of the Gloom Boom Doom
Report Marc Faber stated Wednesday that he’s convinced that governments across the globe will print money to prevent a collapse of the financial system.
Japan, the UK and EU continue to relentlessly debase their respective currencies in a fight to retain a piece of shrinking global demand, simultaneously reducing crushing debt obligations in real terms priced in their respective currencies—a kill-two-birds-with-one-stone monetary policy salvos fiercely unleashed anew in the recent wake of horrendous drops in global export data for October.

In the case of Europe, imminent debt defaults merely add to the urgency for more money printing by the ECB—whose new U.S.-centric central banker from Italy, Mario Draghi, has taken the helm as the next step toward flushing out the ultimate intentions of Germany regarding the euro.

China apologetically lurches back onto the dollar peg, and it’s now the turn of the U.S. to fight back with its own strategic weapon—the dollar—in the race to devaluations.

“A third wave of quantitative easing by the U.S. Federal Reserve is just a matter of time,” Faber said in a speech in Taipei, according to Taiwan’s Taipei Times.

Faber also points out that, while the world’s industrialized countries wage a full-blown global currency war, the victims of said war won’t include the rich; it will be the masses who take on the traditional role of cannon fodder for the bankers and politicians.

“Some people will benefit from money printing that deflates the purchasing power of currency . . . but the middle and lower—income classes are being hurt,” said Faber, who has repeated on many occasions throughout the global financial crisis his disdain for central bankers and the financial pain they inflict on innocent people.

Faber recommends eschewing bonds in favor of stocks, Asia real estate and physical gold—especially gold, an asset he colorfully referred to in an interview with Newsmax in September, “I own my gold and I will never sell it, especially when I see clowns like Ben Bernanke, Larry Summers, Tim Geithner.”

On the growing debate regarding China’s economy, according to Faber, it’s in a bubble; but the Chinese bubble can last longer than many expect; it could pop in three months or three years, he said.

It should be noted that the notion of a potential Japanese-style collapse in China has gathered steam lately—and was first suggested by famed hedge fund manager Hugh Hendry of Eclectica Asset Management, who said at an investment forum in Russia last year regarding China’s successive string of high GDP rates which appeared to him to be driven by too much capital spending, “Confucius say: thou shall not invest in overcapacity.”

Faber also touched upon the escalating geopolitical tensions between the West and the Middle East/Central Asia region.  To contain China’s rise as a bona fide superpower, the West must secure oil supplies for themselves at the expense of China, he said.

But no matter how the struggle for oil supplies between the West and China plays out, or whether China’s economy heads south, or not, Faber wittily said, if need be, “Chinese invented paper. They know how to print money.”

According to Faber, at some point, the global reflation trade is all but certain.

Sunday, November 20, 2011

Is it time to invest in technology? -

Those who still have their holdings are sitting on substantial losses, despite the fact that names such as Google and Apple have subsequently become not only two of the most famous worldwide brands, but highly profitable companies as well.

Yet while technology and the internet have transformed the way we live our lives, and the way companies conduct business, this hasn't always translated into profits for British investors. At the beginning of 2000 investors were ploughing hundreds of millions of pounds into technology funds. The most popular at the time was Aberdeen Technology - it was raking in more money a week than it had attracted in almost 20 years.
Eleven years later, investors have seen the fund sold on to New Star, then Henderson Global Investors. Despite a modest recovery in technology share prices in the past five years, if they invested a lump sum at the height of the boom they now have less than half their money.
Figures from Morningstar show that a £1,000 investment in Axa Framlington Global Technology at the end of 1999 is today worth £454, a similar amount invested in Invesco Global Technology is worth £304, while Henderson Global Technology has turned the same sum into £528. A number of other funds, including Framlington's NetNet and Jupiter Technology, have been closed, merged or sold on.
But while these shocking figures may have turned a generation off completely, there are strong signs of more positive growth in this sector.
Over the past three years Axa Framlington Global Technology has doubled investors' money, as has GLG Technology; while Polar Capital Technology – a well-rated investment trust – has turned £1,000 into £2,409, making it the best-performing fund in the sector. This trust has also delivered positive returns over one and five years and is managed by Ben Rogoff, who previously ran the Aberdeen fund.
Rob Morgan, an investment analyst at Hargreaves Lansdown, said: "In a low-growth environment it is perhaps not surprising that many investors are naturally drawn to sectors where there is the capacity for growth." A new idea can rapidly translate into worldwide sales: look at the success of the iPhone.
As Mr Morgan pointed out, people only have to think about where they spend their money, and how they live their lives, to see the potential that companies have in the technology, telecoms and media sector.
Just as there was a massive boom in the number of people buying mobile phones a decade ago, now we are seeing a huge rise in the sales of "tablet" computers (such as iPads), smartphones and other mobile computing devices.
But the risks inherent in the sector are also abundantly clear from the trends we see around us. Nokia, for example, had been one of the biggest players in the mobile handset market. But its failure to capitalise quickly on the touch-screen technology that has driven the smartphone market has led to a significant decline in its sales, profits and share price.
So the speed at which companies can grow and transform markets can conversely have a similar rapid effect on the fortunes of others; and it can be almost impossible to predict these changes.
The nature of technology investing has also changed. Where a decade ago many technology stocks were risky start-ups, today the sector includes some global giants.
Mr Morgan added: "Companies like Apple don't fit most people's stereotype of a technology stock. This is a global brand that, thanks to its impressive sales, has huge cash reserves, rather than debt. In that respect it is a blue-chip stock and a relatively safe investment."
But investors don't have to pile in to higher-risk technology funds to gain exposure to such companies. Most global funds will have a significant exposure to this sector – via Apple, Intel, Dell and Hewlett-Packard in the US, or Asian giants such as Sony, Samsung and Hitachi. Likewise, any US fund – whether it is actively managed or a tracker – is likely to have a significant technology weighting.
But it is still easy for investors to get caught out by the technology hype. The potential of the "next big thing" to make lots of money is something many investors – both amateur and professional – find hard to resist.
Recently there has been a lot of interest in social media sites. When LinkedIn floated on the US stock market in April this year its share price doubled on the first day as the volume of shares traded meant investors effectively bought and sold the company three times over.
This has led to Monopoly-money style valuations being attached to the likes of Groupon, Zynga (the makers of the online game Farmville) and Twitter, which some have suggested could float for $10bn. You don't need 140 characters to suggest that it's a big price tag for a company that has yet to make a profit.
Nick Evans, one of the managers of the Polar Capital Global Technology fund, said it was easy to compare the hype around social media stocks today to the last technology bubble. But he said there were considerable differences. "Overall, social media valuations do look stretched, but this is the only area of the sector that does. To say a bubble is forming in the sector as a whole looks unjust."
But other managers can see clear parallels to the dotcom boom. Stuart O'Gorman, the director of technology at Henderson, said: "In the Nineties everyone agreed that the internet was going to explode over the next decade and transform the way we shop, communicate and do business."
Because everyone could see the logic of this assertion, investors piled in to dotcom shares. The assertion certainly proved to be true – but a lot of people lost a lot of money in the process.
Mr O'Gorman added: "We can see the same things happening with some social media companies. The question is whether companies like Facebook can monetise their dominant position. The trick for investors will be spotting the Googles and Amazons of tomorrow."
He said technology had over-promised and under-delivered in the past. "Do you remember 3G in 2000? Everybody was expecting an iPhone and what we got was a ghastly NEC/Vodafone 'Live' product."
If investors want to avoid such traps while simultaneously profiting from growth in the sector, they could do a lot worse than follow Mr Buffett's example: buy technology stocks, but only when you understand the rationale for their success, and ensure that the company – like IBM – has a good record of delivering value for its shareholders.

Thursday, November 17, 2011

Where to invest next year

The stock market should have some modest gains as investors get back to basics.
(MONEY Magazine) -- As some of the uncertainties surrounding the economy lift over the course of the year, attention is bound to turn back to the fundamentals of the private sector, says Katherine Nixon, chief investment officer for the Northeast region at Northern Trust.
And on that front, things don't look so bad. Corporate profits are hanging tough. Yes, growth has been slowing noticeably in recent months, but earnings for firms in the S&P 500 (SPX) are still expected to climb an above-average 9% next year, according to S&P Capital IQ.

As for whether stocks represent a good value now, the picture is decidedly mixed. A conservative measure of price/ earnings ratios -- which relies on 10 years of averaged earnings -- would suggest equities are too expensive to load up on. But the S&P's P/E, based on projected profits, points to stocks being a decent buy. "Anyone willing to take on volatility and invest in equities today with a three-year time frame should see large positive returns," said Chuck de Lardemelle, a co-manager of IVA Worldwide Fund.
Meanwhile, interest rates are near all-time lows. That's good news for stocks, but fixed-income investors will have a tough time making money. Tom Atteberry, manager of FPA New Income Fund, notes 10-year Treasuries were yielding less than 2% in the fall. At that paltry level, a fraction of a percentage point increase in rates could wipe out what little your bonds are yielding -- and then some. Yet economists think 10-year rates will climb modestly. So it will be critical to diversify your bond portfolio into other areas, in particular, corporate debt.
The action plan -- In a market likely to produce only modest gains, diversify your fixed-income bets and focus on relatively safe equities.
Stocks: Ride the big dependables. Early on in a recovery, small-company stocks traditionally give you the biggest pop. At this stage, it's the big boys with balance-sheet might that are likely to outperform, as was the case in 2011. Not only do large firms provide greater exposure to foreign markets -- including emerging economies that are growing much faster than the U.S. -- their bigger dividends can account for a sizable portion of your gains in a low-return year, says Northern Trust's Nixon. Funds that pay particularly close attention to high-quality blue chips are Jensen Quality Growth (JENSX) and T. Rowe Price Blue Chip Growth (TRBCX). Both are on the MONEY 70, our recommended list of mutual funds and exchange-traded funds.
Seek out revenue growers. Brad Sorensen, director of market and sector analysis at the Schwab Center for Financial Research, expects businesses to upgrade technology to boost productivity. It's already happening. In the third quarter, business spending jumped 16.3%. Another area likely to enjoy better-than-average revenue growth is the industrial sector, where firms are seeing strong demand from emerging markets building out their infrastructure. For an added dollop of tech, go with the Vanguard Information Technology ETF (VGT), which bulks up on tech giants like Apple (AAPL, Fortune 500) and IBM (IBM, Fortune 500). For industrials, check out iShares S&P Global Industrials (EXI).
Bonds: Bet on high yield. As recession fears rose in 2011, economically sensitive high-yield bonds sold off bigtime. Result: The gap in yields between "junk" bonds and short-term Treasuries jumped to more than nine percentage points, up from six points in early 2011. "That spread represents a pretty good value," says Robert Ostrowski, in charge of taxable fixed-income strategy at Federated. LPL Financial market strategist Anthony Valeri says junk is trading as if defaults will spike to 9%, up from 2%. "We just don't see a 9% default rate as remotely likely," he says. Given junk's tendency to bounce around, Valeri recommends keeping a modest stake of 5% to 10% in these bonds. You can accomplish that through a diversified junk fund like Fidelity High Income (SPHIX).
Don't get stuck in the middle. On the other end of the fixed-income spectrum are Treasuries, which won't default but are at risk if rates rise. Treasuries maturing in five to seven years are paying barely more than cash, so it makes little sense to buy them. Ostrowski recommends a "barbell" strategy, with 80% of your Treasuries in short-term securities and 20% in long-term bonds. He says the Fed's campaign to buy long-term Treasuries, dubbed Operation Twist, should make long Treasuries less of a risk. And this strategy could yield around 2.5%, nearly a point more than what seven-year Treasuries are paying.
Dr. Dooms...
Though the economy is healing, some long-standing bears are still bracing for Armageddon. Yet each has a different take on how to prepare for the fallout.
Nouriel Roubini, Economics professor who called the mortgage crisis
Forecast: Decent chance of another recession.
Advice: Favor U.S. stocks over European equities.
Peter Schiff, Strategist who predicted a decade-long bear
Forecast: Expect an actual depression.
Advice: Avoid dollar-denominated assets. Buy gold and silver.
Marc Faber, Investment analyst who called the 1987 crash
Forecast: A collapse in China threatens the global economy.
Advice: Keep a quarter in cash, a quarter in gold, a quarter in real estate, and a quarter in stocks.
Henry Kaufman, Economist dubbed "Dr. Gloom" in the '80s for his general pessimism
Forecast: The U.S. economy will stagnate.
Advice: Buy stock in firms with strong balance sheets.
... And a Dr. Hope
Richard Sylla, Economist and financial historian who foresaw the "lost decade"
Forecast: Expect better returns over the next decade.
Advice: Shift from cash to stocks in stages, putting a quarter in every few months. To top of page

Hey, where are all the healthcare investors going? - Fortune (blog)

By Lisa Suennen, contributor
Health and healthcare issues has been a dominant topic in the national media since the 2008 elections, and have been constantly in the news as the Patient Protection and Affordable Care Act (PPACA) has taken center stage.  Even if PPACA weren't always in the headlines, stories about employers who are grasping for solutions to their healthcare cost crises would still be.
Given the massive amount of change currently underway in the U.S. healthcare economy, we have bona fide industry upheaval on our hands. Today more than ever there is a tremendous opportunity to find new ways of doing business in the world of healthcare through changing delivery systems, insurance models, technology solutions, drug discovery, device innovation and just about everything else that takes place in the healthcare system. Never before has there been so much energy and so much necessity to produce innovation in our field.
So then why are venture capitalists fleeing healthcare like female co-workers from Herman Cain? Historically the source of funding for so much innovation and employment in the healthcare field, VCs with lengthy histories funding the drug, device, service and IT companies of tomorrow are picking up their marbles and going home. Last guy out turn out the lights.
Last week the National Venture Capital Association (NVCA) said the following in their blog:
"…today we can say officially that we are seeing an alarming trend in the area of life sciences investing with the announcement that Scale Venture Partners will cease healthcare investing permanently.  This exit follows the announcement last week that long time, established funds Morgenthaler and Advanced Technology Ventures would be effectively spinning out their healthcare investment practices and the announcement just over a month ago that Prospect Ventures would not raise a fourth healthcare fund and return committed capital to limited partners."
What they didn't include in their article were the additional facts that Highland Capital Partners recently decided to cut back its healthcare practice, CMEA Ventures has decided to make no more medical device investments and that Versant Ventures appears to be on the verge of reducing its healthcare practice if the industry buzz is correct. There are rumors afoot that a slew of others firms on Sand Hill Road are in the process of divesting themselves of their healthcare practices and there are several others that I know for sure already have taken steps in this direction but have not yet announced it formally.
To add to the pile, the NVCA released a report in October called Vital Signs. The report documents a survey that found that U.S. venture capital firms have been decreasing their investment in biopharmaceutical and medical device companies over the past three years and are planning to decrease their commitments to these areas even more. Thirty-nine percent of the 150 firms surveyed report decreasing their investments in life sciences companies over the last three years and the same percentage expect to further decrease these investments over the next three years, some by greater than 30 percent. According to NVCA, this is twice the number of firms that plan to increase healthcare investments.
Given this, I suppose the mass extinction we are now watching is predictable, if sad. It is certainly possible there was too much capital chasing healthcare deals, but now we are likely to swing too far in the other direction. Also, I know the people at most of these firms—great investors like Mark Brooks (Scale), Rod Altman (CMEA) and Bijan Salehizedah (Highland)–and they are smart, successful and have contributed greatly to the establishment of important healthcare companies that have become leading industry players. It is really a drag to see them heading into a game of musical chairs where someone has already taken all the chairs away. Hopefully all the really good ones will rapidly be back in active investing action before long.
Most of the firms who are jettisoning healthcare are planning to spend all of their capital on information technology deals. Because the world needs another Zynga and Groupon... I mean, I get it. You can build these companies with no significant regulatory entanglement, grow them rapidly through direct-to-consumer sales, take them public with magic fairy dust (Groupon is worth $11.5 billion? Nice infinity multiple of EBITDA) and come home the conquering hero. Yes, people want and love these companies and their products; just try to tear someone away from Angry Birds.
But seriously people, we are not going to maintain world dominance because we are totally awesome at World of Warcraft or access to Groupon's wide world of discount pedicures. We can only re-establish our economic world dominance by having an economy to come home to. And if we don't fix the healthcare system by changing the way we do things, we aren't going to have that. So given the massive opportunity to bring companies to the fore to fix this problem, why are healthcare investors waving the white flag?
The primary reason given for why firms are running way from healthcare like Road Runner from Wile E. Coyote is the vastly more complex regulatory environment that has created a dark cloud over the biopharma and medical device industries. It is getting increasingly more difficult, more unpredictable and more expensive to get drugs or devices approved by the FDA. Over the last few years a trail of tears has been formed by companies that got surprised in the FDA process when they met their end points and still didn't get approval or where the rules of the approval game were changed mid-field. Where many young U.S. companies didn't even bother getting European regulatory approval in the past, now it is becoming the primary path to market. There is a rising crop of these companies that have decided never to seek U.S. regulatory approval, trying to make it by marketing only in countries where the FDA is not. Today's regulatory environment is fraught with mistrust and confusion and it has had a real, measurable and negative impact on U.S. bio-medical dominance.  Increasingly investment dollars are going overseas to China, India and elsewhere, taking with it the innovations that used to be ours alone. The net result of all this has been an environment where it costs far more and takes far longer than used to be the case to get a new drug or device to market in the U.S.  These are two characteristics that those who invest in venture funds simply can't stand–they want shorter time to liquidity, not longer; and they want a good return on investment, not an increasingly high cost to get to any outcome.    As a result, money is drying up for those who specialize in biotech and medical devices and thus funds are wrapping up instead of bulking up.
A second issue is the advent of much greater scrutiny around what drugs and devices can get reimbursed in our public and private insurance systems. Even if you can get a regulatory approval, you may never see the light of day on getting payment for what you have to offer. It has always been challenging to get a new reimbursement code for a new product, but now it is becoming an act of God. For very good reasons payers don't want to open the floodgates to new products that might simply increase costs further and add no meaningful clinical value. Purveyors of new products are being forced to make a strong economic case to get coverage for their drugs and devices, which further complicates the ability of new companies to get traction. It is very hard to build your real life economic case when you can't get the product paid for to begin with, companies will argue. Frankly, it is hard to argue with the payers' orientation, as the biotech and medtech focus has too long been on technology and not on value.  However, there is a fine line between "prove it is worth paying for" and "when hell freezes over" and the latter is becoming the more dominant theme on the reimbursement front.
The federal government should be very uncomfortable seeing the flight from healthcare investing.  They are the ones leading the charge for change in the healthcare system but clearly they are not the ones who will create the innovations that satisfy their policy goals.  If politicians don't recognize that their policies are flattening the innovation curve, they are going to be left with a sorry mess where healthcare costs continue to double every 10 years, eventually eating up the entire GDP. Rather than take an adversarial regulatory, tax, hiring stance, the government needs to find ways to work hand-in-hand with industry to ensure that the healthcare goals they have set out can be met through the delivery of new products and services. If you kill the source of innovation now (venture capital and entrepreneurship go hand in hand), there will be no new ideas to implement 2-5-10 years from now when the rubber really hits the road.
Thankfully, there are still a few of us stalwarts (fools?) left who continue to believe there is real money to be made by investing in innovation in the healthcare system.  A few of us are even crazy enough to continue investing in medical devices or biopharma, although the criteria to get funded are definitely more complex than in days gone by.  Clinical efficacy, capital efficiency and evidence of real value to patients, payers and providers are the yardsticks by which these new investments must be measured if they are to have a chance in today's increasingly complex healthcare economy.
So far this year only $264 million has been invested in venture-backed healthcare services deals as compared to over $5.5 billion in biotech/medtech; healthcare IT doesn't even merit its own category in the PriceWaterhouseCoopers survey that tracks these things.  It is definitely worth noting that the biggest challenges impeding the health our healthcare system are in the areas of how services are delivered and how technology could improve those functions.  Thus one can hope that the investors that invest in venture funds will see the great opportunity, and thus great returns, that can be made by supporting innovation in these subsectors.
Furthermore, there are a lot of contrarians out there who make it their business to invest heavily in the areas from which everybody else is running away. Sometimes this doesn't work out—I wouldn't want to be investing in in horse-drawn carriages right now while everyone is standing in line to buy a Fisker—but when it comes to the healthcare economy, you gotta believe people are going to keep getting older, sicker, and needier of services no matter what else is happening out there in the world or how annoying the FDA may be.  Thus I hope our industry begins to benefits from the wisdom of the contrarians, who must recognize the vast investment opportunity presented by an industry under dramatic transformation.
In The Big Short
, Michael Lewis he writes about Charlie Ledley, a money manager who made out like a bandit while the financial markets collapsed, murdering the majority of the investment community.  He writes that Ledley, "was odd in his belief that the best way to make money on Wall Street was to seek out whatever it was that Wall Street believed was least likely to happen, and bet on its happening. Charlie and his partners had done this often enough, and had had enough success, to know that the markets were predisposed to underestimating the likelihood of dramatic change."
While investors must be prudent about the risks inherent in investing in the healthcare marketplace, I think it is worth considering this thesis.  The healthcare marketplace will undoubtedly look far differently 10 years from now than it does today given all of the changes underway.  As the Age Wave crashes over our country, we will need the next generation of drugs, devices, services and technologies that can effectively serve the needs of our population. Those who are there with innovations that grease the wheels of progress will be tomorrow's Charlie Ledleys.
John F. Kennedy once said, "Change is the law of life. And those who look only to the past or present are certain to miss the future."  Let's hope that the government can remember that their actions today will result in outcomes for tomorrow.  Moreover, let's pray that the venture capital community and its backers can heed JFK's words and hang in there long enough to reap the benefits of building tomorrow's U.S. healthcare economy.
Lisa Suennen is a co-founder and Managing Member of Psilos Group, a healthcare-focused venture capital firm with over $577 million under management.

Investing in Population Growth -

When the birth of the 7 billionth person was announced by the United Nations on Halloween this year, it was accompanied by a level of fear mongering that made it far scarier than any haunted house or costumed goblin. The facts on global warming are, of course, even more terrifying, and they will result in changes to the way that the world conducts itself in a shorter time frame than many are prepared for.  The price of energy and commodities will rise exponentially with the size of the global population, projected to reach 9 billion by 2030. The recent rejection of nuclear energy only worsens the first problem, while spells of inclimate weather and a growing middle class in the world’s most massive nations, China and India, will exacerbate the fast rise of prices for our most vital resources.

These factors, from a consumer standpoint are disconcerting. From an investor standpoint, however, they could be considered compelling. Supply and demand dictate pricing. Higher demand, born from a  larger population  growing middle classes in India and China, will put pressure on prices for both energy and food. Investment in commodities, agricultural ETFs, companies that produce mineralized soil to helps increase yields, oil futures and oil companies could have major long term benefits if this age-old model can be relied upon.

Energy Prices Climb Under Higher Pressure

Beginning with energy, the trend toward vastly higher prices can already be observed. Oil may have sunk lower as the global economy grew with less sure-footedness than the population itself, but in the macro picture, the price of energy is headed higher. The most recent major projects that oil companies are engaging in are more expensive and involve less hospitable environments. While in the past, the wealth of oil in easy-to-access areas was enough to sustain the population, production has suddenly shifted off shore or into shale, requiring greater efforts and higher expenditures for extraction. When those resources are exhausted or relied upon wholly, the price of energy can be expected to push higher. Investing early could be a helpful tool in affording it later.

A recent announcement from the International Energy Agency confirmed that prices are headed higher. The group predicts that energy will become “viciously more expensive.”  In the next breath, the IEA expressed its weak expectations for renewable energy integration, further raising alarm over future fossil fuel prices. The Paris-based agency projects that global demand for energy will increase 40 percent by 2035, led in part by China, who is expected to augment its consumption by 1.3 percent a year. India, where the population is anticipated to outpace China’s during period, can also be expected to maximize the amount of resources it uses. The group called for a $1.5 trillion annual investment in energy infrastructure to help mitigate some of the fiscal consequences of rising oil expenditures but admitted, even then, “the cost of energy will increase.” The IEA, calculated that crude prices will reach $120 a barrel in 2035, or a nominal $212. The $120 a barrel is the IEA’s best scenario prediction. They added that should the recommended spending levels fall by a third, oil prices could reach $150 a barrel.

Investors looking to prepare themselves for the rise in prices may want to look into ETFs and ETNs that track the long term price of crude like PowerShares DB CrudeOil Long ETN (OLO). Another option for investors looking to participate in the long-term rise in prices  may consider oil services companies which aid in drilling. As the oil becomes more difficult to attain, oil service companies that create and innovate the necessary equipment are likely to thrive. Two examples of companies like this include the internationally operating, Schlumberg Limited (SLB) or Halliburton (HAL). Both companies provide technology and services that will be in higher demand alongside rising growth.

In addition to the rising price of oil, natural gas is also expected to undergo a similar trajectory with demand forecast to reach as much as 5.1 trillion cubic meters a year by 2035 up from about 3.1 trillion as of 2009. The trend toward increasing usages of natural gas has already been evident in earnings reports from Exxon (XOM) and other major companies, and the IEA predicts that trend will continue as many recognize the green benefits to burning natural gas instead of oil. The recent disaster in Japan that resulted in the paring down of Nuclear power use has also been a boon for natural gas. Options for investing in the long-term trajectory of natural gas include Patterson-UTI Energy (PTEN), which provides natural gas companies with contract drilling services and could become more profitable alongside long-term demand. Other options could be healthy majors like Exxon, whose relatively recent acquistion of shale gas producer, XTO Energy Inc., may represent the company’s preparation for a new age in natural gas.

Newfield Exploration Co. (NFX) and Range Resources Corp. (RRC), also specialize in shale production, are considered to be well-managed, and have the potential to profit long-term from demographic realities.

Commodity Prices and the Rising Middle Class

High energy prices can also be expected to drive up the cost of food. Energy is essential to the success of food crops, as a result of its direct influence on things like shipping costs and its impact on fertilizer prices. Add to the mix, more demand from nations where both population and affluence are increasing, and the price of food could sky rocket.

The wealthier a nation the more they expect to integrate meat into their diets. This in turn requires greater energy and more crops in order to sustain the animals until they can be consumed. In and of itself, this causes the prices for food items like corn to increase. We have been seeing a steady rise in the prices of these commodities for over two years and considering global trends and population growth, its likely this will be sustained.

Investors can choose to invest in this trend in several ways. They can like many investors before them, make a bet on agricultural exchange traded funds like Teucrium Corn Fund (CORN) or an agricultural ETF or ETN that tracks a basket of food prices like Power Shares DB Agriculture Fund (DBA). DBA reflects the price of a mix of food items from, feeder cattle to cocoa, coffee, corn, live cattle, soy beans and sugar. There’s also the option of making a long-term play on companies that produce enriched fertilizers, like Potash (POT). The demand on corporations of this nature will be amplified as farmers are under greater pressure to produce stronger and larger yields. It’s estimated that we will need to be producing 50 percent more food than we are now by the year 2030, meaning the global food supply will undergo a major shift both in terms of pricing and technology.

For individuals willing to bet that both prices and technology will shift, it may be wise to consider an investment in one of the major players in agricultural genetic engineering. These companies add transgenic traits to the variety of plants they breed in order to improve production. Other related corporations seek to modify genes of live stock and other animal proteins, like fish, in order to minimize the energy consumed in growth and maximize production. These companies include Monsanto (MON), which has the largest share of genetically engineered crops in the world.  Another of the protein focused is Aqua Bounty (ABTX), a biotechnology company responsible for obtaining approval for the premier animal for food production, an exceptionally fast growing salmon.

Considering the impact of demographic realities on the cost and availability of our most essential resources, investing early in the limited areas that will profit from the shift, may be the surest way to afford lunch and a tank of gas in 2035.

Wednesday, November 16, 2011

Destructive inflationism - Asia Times Online

I was struck recently by a question posed by CNBC's Simon Hobbs to Marc Faber - investor, analyst and financial writer extraordinaire: "In Steve Jobs' new biography, Walter Isaacson talks about a conversation that he had with Rupert Murdoch, and Steve Jobs says that for commentary and analysis the axis today is not liberal versus conservative. The axis now is constructive versus destructive. Which side of that line do you think you fall on?"

I'll assume that Mr Hobbs sees Marc Faber residing more in the "destructive" camp - and I presume many would consider my

analysis "destructive" as well. We're now in this strange and uncomfortable period of heightened angst, anger and vilification, whether it is in Athens, throughout Europe, or across the US from New York City to Oakland, California. European policymakers have been keen to blame short-sellers and speculators for their bond market woes. The rating agencies are under attack on both sides of the Atlantic. And analysts such as Mr Faber and myself are generally viewed with contempt by those determined to view the world through rose-colored glasses.

From Websters: "Destructionist: One who delights in destroying that which is valuable; one whose principles and influence tend to destroy existing institutions; a destructive."

I tend to view the recent use of "destructionist" in similar light to the vilification of the so-called "liquidationists" and "bubble poppers" (a Ben Bernanke term) from the spectacular "Roaring Twenties" boom and bust cycle. There are those who believe that enlightened policymaking can implement an inflationary cycle and successfully grow out of debt problems. Then there are others that see failed policy doctrine and credit inflation as the root cause of a dangerous dynamic that risks a catastrophic end. Revisionist history has been especially unfair to Andrew Mellon and other "bubble poppers" who warned of the impending dangers associated with the runaway monetary, credit and speculative excess in the years immediately preceding the 1929 crash.

I am of the view that inflationary policy doctrine ("inflationism") is in the process of impairing the creditworthiness of the financial claims that constitute the foundation of the global financial system. Massive issuance of non-productive debt and central bank monetization have irreparably distorted the global pricing of finance and the resulting allocation of financial and real resources.
This backdrop has nurtured destructive speculative dynamics. From my perspective, it is the "destructionist" forces of "inflationism" that today pose grave risk to global capitalism. And, to be sure, the "socialism" of credit risk is at the heart of the monetary and economic quagmires imperiling Europe, the US and nations around the world.

From Wikipedia: "Destructionism is a term used by Ludwig Von Mises, a classical liberal economist, to refer to policies that consume capital but do not accumulate it. It is the title of Part V of his seminal work Socialism. Since accumulation of capital is the basis for economic progress (as the capital stock of society increases, the productivity of labor rises, as well as wages and standards of living), Von Mises warned that pursuing socialist and statist policies will eventually lead to the consumption and reliance on old capital, borrowed capital, or printed 'capital' as these policies cannot create any new capital, instead only consuming the old."

From the "Austrian" perspective, runaway credit booms destroy wealth instead of creating it. There is as well an important facet of inequitable wealth redistribution that returns to haunt the system come the unavoidable bursting of the bubble and the associated devaluation of "printed capital". I believe the current course of reflationary policymaking is doomed specifically because the ongoing massive expansion (inflation) of financial claims is not associated with a corresponding increase in capital investment and real wealth-creating capacity. Governments around the world are - and will be in the future - required to issue massive amounts of new debt to sustain maladjusted financial and economic structures, in the processes prolonging wealth-destructive over-consumption and destabilizing global imbalances. The "Austrians" use the apt analogy of consuming one's furniture for firewood.

As she has a habit of doing, The Financial Times' Gillian Tett wrote an exceptional piece on Friday. "Subprime moment looms for 'risk-free' sovereign debt: When future financial historians look back at the early 21st century, they may wonder why anybody ever thought it was a good idea to repackage subprime securities into 'triple A' bonds. So, too, in relation to assumptions about the 'risk-free' status of western sovereign debt. After all, during most of the past few decades, it has been taken as a key axiom of investing that most western sovereign debt was in effect risk-free, and thus expected to trade at relatively undifferentiated tight spreads. Now, of course, that assumption is being exposed as a fallacy ... As the turmoil in the eurozone spreads, forcing a paradigm shift for investors, the intriguing question now is whether we are on the verge of a paradigm shift in the regulatory and central bank world, too."

Italian yields jumped 16 basis points (bps) on Friday to 6.35%, tacking on another 34 bps for the week. The spread to bunds surged 69 bps this week to 453 bps. One is left pondering how the Italian bond market would have fared had the European Central Bank (ECB) not surprised the market with a rate cut and not continued to aggressively buy Italy's debt. On Tuesday from the FT: "A trader of Italian government bonds said: 'It was meltdown at one point before the ECB came in. There were no prices in Italian government bonds. That is almost unheard of in a big market like Italy. There were just no buyers and therefore no prices.'"

Just to think that there were "just no buyers and therefore no prices" in the world's third-largest sovereign debt market. To have Greek yields last week approach 100%. To have speculative positions in sovereign debt early in the week lead to the eighth largest bankruptcy filing in US history. And there were heightened market concerns as to the safety of "segregated" brokerage assets (in response to MF Global issues) and the integrity of the credit default swap (CDS) marketplace (Greece and beyond). To have G20 policymakers, again, fail to reach a consensus as to how to approach the European debt crisis. To have Greece spiraling out of control.

Well, the wrecking ball has been just chipping away at the bedrock of market faith in contemporary finance. And then to read one of the world's preeminent financial journalists contemplating market "fallacies" and a paradigm shift with respect to the nature of sovereign debt risk.

No doubt about it, it was another troubling week in global finance. But not to worry; the ECB surprised markets with a rate cut and Federal Reserve chairman Bernanke stated that the Fed was readying its mortgage-backed security (MBS) bazooka. The more destabilized world finance becomes, the more our captivated markets fixate on synchronized global reflationary policymaking. For now, faith in policymaking seems to be holding up better than confidence in finance.

There are important reasons why financial crises traditionally often originate in the so-called "money market". Money market assets are generally the most intensively intermediated financial claims. Risk intermediation is critical to the process of transforming loans with various risk profiles into financial claims essentially perceived as risk-free in the marketplace.

As I attempted to address last week, this perception of "moneyness" is an extremely powerful force in finance, the markets and economics more generally. The credit mechanism and resulting flow of finance can work miraculously when markets perceive "moneyness", although things can unravel dramatically when the marketplace begins to fear what it thought was safe and liquid "money" are instead risky and potentially illiquid Credit instruments. Just as there is a thin line between love and hate, there can be an even finer line between Credit boom and bust.

From the concluding sentences of Ms Tett's article: " ... if regulatory systems had not encouraged banks and investors to be so complacent about sovereign risk in the past, markets might have done a better job of signalling that structural tensions were rising in the eurozone - and today's crunch would not be creating such a convulsive shock. It is, as I said above, wearily reminiscent of the subprime tale. And, sadly, that is no comfort at all."

I, as well, see disconcerting parallels to subprime. Especially late in the mortgage finance bubble, a huge and expanding gulf had developed between the market's perception of "moneyness" for mortgage securities and the true underlying Creditworthiness of the debt. Importantly, it was the ongoing massive expansion of mortgage credit that supported home prices and economic growth - all working seductively to further seduce the marketplace into perceiving ongoing "moneyness".

The "terminal phase" of credit bubble excess saw systemic risk expanded exponentially, as the quantity of credit ballooned and the quality of this debt deteriorated markedly. It was both a historic mania and astonishing example of (Minsky) "Ponzi Finance".

These days, sovereign debt (Treasuries, in particular) is being issued in incredible quantities (and at amazingly low yields). The vast majority of this debt is non-productive and of rapidly deteriorating quality. Yet the markets for the most part are sufficiently content to continue perceiving "moneyness".

Part of this "moneyness" is due to the credit cycle reality that, similar to subprime, things tend to look ok even in the perilous late stage of a credit boom. And, importantly, the markets perceive that the Fed, ECB, People's Bank of China, Bank of Japan, Bank of England, and other global central bankers will continue to monetize (accumulate) this debt - in the process ensuring stable valuation and abundant liquidity in the marketplace ("moneyness").

Here's where it gets really troubling from my analytical framework: the more this "new paradigm" takes hold - of the market now recognizing the fallacy of the traditional assumption of "risk-free" sovereign debt (especially in regard to $2.5 trillion of Italian federal borrowings) - the greater the scope of central bank monetizaton anticipated by the markets.

This expectation for reflationary policymaking is increasingly underpinning speculative risk asset markets globally. Especially when it comes to Treasury debt, the markets' perception of "moneyness" is related much more to the expectation of ongoing central bank purchases than it is with (rapidly deteriorating) credit fundamentals. Ironically, the greater the upheaval in global sovereign debt and risk markets, the more willing the markets are to further accommodate Treasury bubble excess.

Increasingly, the key dynamic underpinning global risk markets is the expectation for the Fed and global bankers to ensure the "moneyness" of Treasury and global sovereign debt. Indeed, "risk on" or "risk off" now rests chiefly on the markets' immediate, perhaps whimsical, view of the capacity for the world's central banks to sustain the faltering sovereign credit boom.