Monday, August 31, 2015

Markets can go down even in Oversold conditions

Well I have this to say about markets: they have become very oversold in the near term and medium term. Long term, if you look at this--say twenty years chart of the S&P--the recent decline hardly shows up, but it can get much worse. 

Let me remind your viewers that the day before the market crashed in October 1987, the market was also already oversold, and then the Dow dropped 21 percent in one day. So unusual things can happen when the goal of the authorities is to reduce some rift through central banking and monetary policies and fiscal policies. Then these depressed risks come back one day at the systemic rate, and this is what may happen now.

Updated: September 3, 2015 

Tuesday, August 25, 2015

Downturn in global economy causing markets to sell off

What we have is a general downturn in the global economy at the present time that will have a negative impact on earnings. That's why the markets are selling off and emerging markets have been selling off for a long time. The U.S. was in "lalaand" to believe that their economy and their corporate earnings would not be affected.

Monday, August 24, 2015

Emerging market selloff to hit US Stocks

Marc Faber speaks with Maria Bartiromo of Fox Business News

We have a big selloff in emerging economies. In dollar terms many emerging markets have tumbled. The U.S. is essentially the last man standing, and I think it will spill over to the US.

GM (General Motors) about 34 percent of the sales are in China and close to 50 percent of the profits come from China… In July car sales were down 7 percent and more to come

Friday, August 21, 2015

Marc Faber full interview with ET News

Topics include India economy, Chinese Yuan devluation, Chinese economic weakness, US Fed and much more.

Thursday, August 20, 2015

Conspiracy theory for Chinese Yuan devluation

We do not know exactly why they did it [Chinese devalued the Yuan] because 2% devaluation is not going to help exports and even a 10% or 20% devaluation is not going to help exports meaningfully in a world that is slowing down. 

My view is that the central banks around the world would talk to each other and the Federal Reserve talks everyday to the ECB, to the Bank of England, to the Bank of Japan and so forth. 

The Fed may have very well told the Chinese why don't devalue their currency somewhat. This will give the Fed an excuse not to increase interest rate in September.

Wednesday, August 19, 2015

Context of Yuan devaluation is more important

The two or three percent devaluation of the yuan is completely meaningless.

You have to look at the Chinese currency in the context of all other currencies. 

The Chinese yuan has appreciated by 80% over the past two years against the yen. 

Over the last few years, the yuan has appreciated against the dollar, and the dollar has appreciated against just about anything in the world.

Don’t forget the People’s Bank of China has said that they will have now a currency that will reflect more market forces. And that means that if the market forces are against the currency, then the currency will go down.

Chinese Yuan further weakness ahead

It is likely that the Yuan, which has had been strong until recently, has turned the trend and here onwards, it will rather weaken. It would easily weaken from the recent peak by about 10%. We should not forget many Asian currencies and many emerging market currencies are down 30% to 60% over the last four years.

Monday, August 17, 2015

Global Recession to come warns Marc Faber

Global Recession coming up

Indices are close to a high but if you look at the 12 month new highs and the 12 month new lows, there are far more 12 month new lows than new highs.

I think there is a deceleration of economic activity everywhere. The U.S. has done relatively well, but also in the U.S. there are now cracks that are appearing… industrial production, new orders for durable goods… if you look at the trade balance of the U.S., imports are up and exports are basically down.

You look at corporate announcements of United Technologies and Caterpillar Tractor, which are big companies in the industrial sector… their announcements are all essentially negative for the second half. Technology companies have all warned about the second half.

China Slowdown

The Chinese economy is nowhere near growing what the government is publishing. In July, car sales and this is the first time in a very long time, car sales were down for the first time in a very long time, 7 percent in China. And yesterday I talked to someone who has a luxury car dealerships in China who says car sales have hit a brick wall and exports are down and so forth.

When the weakness in China becomes so evident, it also affects all its trading partners and China is the largest trading partner of 124 different countries in the world. The new point of view is that [China’s economic growth] is nowhere near 7% and more likely closer to 2%, if any growth at all.

Wednesday, August 12, 2015

Marc Faber on China's New Silk Road program

China has established the Asian Infrastructure Investment Bank (AIIB) and went ahead with plans for a so called “New Silk Road”, a huge infrastructure project, connecting China with Europe via a new land route and a maritime equivalent. Steen Jakobsen from Saxo Bank mentioned a while ago that this could be a game-changer - particularly in regards to the demand for commodities as much of the work and investment needed is in infrastructure, buildings and railroads. What do you think?

Well I think there may be some euphoria about this infrastructure building and the ´New Silk Road´. My sense is that yes, some investments will take place but we have to recognize that first of all it will take time. It is not going to be built overnight. Whether it will be really so profitable is another question and the other question is will China have the money to do it?

We are moving here into geopolitics, basically, because of the antagonism of the Western world towards Russia specifically Mr Putin, whom they portray as a villain when in fact he wasn’t the aggressor, it is NATO and the Neocons that essentially pushed the existing government out in Ukraine and began to create the whole problem that we have. If you look at the map of Europe and Eastern Europe it is very clear that Russia will not allow NATO to be east of the Dnieper River, in other words in eastern Ukraine nor will they give up the Crimea, this is strategically of great importance for Russia, has no strategic value for anybody else except for Russia. So the tensions have arisen and because of this hostility of the West towards Russia, Russia has been pushed closer to China.

They share very substantial borders areas with each other and because of the proximity of the two countries and the nature of their economies, Russia possessing the resources and China largely technology and consumer goods which Russians don’t necessarily produce, there is a symbiotic relationship going on. The Chinese and the Russians want to exploit this strength, what they call the hinterland essentially and the rim land in geopolitics.

Of course the US is completely against it because the containment policy was precisely directed against the major power emerging again in Central Asia and Far East Russia and in Russia. So this Silk Road initiative in my view is far from being a certain thing that it will succeed because there are also political obstacles and you know, when the Americans want to create trouble, that they excel at, they are very good at doing that.

Instead of building nations they destroy nations, from Libya to Egypt to Syria to Iraq and Afghanistan. Whatever they touch, they mess it up or in good English F* up!


Monday, August 10, 2015

Commodities down due to China slowdown

Question: In your 2002 book “Tomorrow’s gold” you identified two major investment themes: emerging markets along with commodities. That was a great call. As for commodities, they had a great run up until 2008. Then they crashed sharply along with everything else just to recover strongly into 2011. Since then they have acted weakly, and recently commodities even reached a 13-years low. Is this the end of the commodities-super-cycle, as some have claimed, or is it more like a correction?

Marc Faber: Well that’s a very good question because obviously the weakness in commodities this time is not due to, like, contraction in liquidity as we had in 2008. 2008 commodities ran up very quickly in the first half until July. The oil prices in 2007, just before they started to cut interest rates in the US were still at 78 dollars a barrel and then by July 2008 they ran up to 147 dollars a barrel. Afterwards they crashed within six months to 32 dollars a barrel and then as you said in 2011-2012, they recovered and were trading around 100 dollars a barrel. Now they have been weak again as well as all other industrial commodities and precious metals.

My sense is that this time around, commodity prices are weak because of weakness in the global economy, specifically weakening demand from China,

because if you look at the Chinese consumption of industrial commodities, in 1970 China consumed 2% of all industrial commodities, by 1990 it was 5% of global commodity consumption for industrial commodities and by the year 2000 it was 12% and then it went in 2011-2012 to 47%, in other words almost half of all industrial commodities in the world were consumed by China.

Therefore a slowdown in the Chinese economy has a huge impact on the demand for industrial commodities and on the wellbeing of the commodity producers, whether that is the commodity producers in Latin America, in Central Asia, Middle East, Australasia, Africa and Russia.

And so because of the reduced demand from China, the prices have been very weak and I think that may last for quite some time because the Chinese economy will not go back and grow at 10% per annum any time soon. My view is that at the present time, there is hardly any growth in China. In some sectors there is a contraction and in some sectors, and don’t forget China is a country with 1.3 billion people, so some provinces may still grow and other provinces may contract, as well as some sectors may grow and others may contract. But in general I think the economy is weak.

My estimate is that at the very best the Chinese economy is growing at the present time at say 4% per annum and not at 7.8 or 8% as the government claims. We have relatively reliable statistics like auto sales and freight loadings that are down year on year, electricity consumption, exports, imports and so forth. So there has been a remarkable slow down and to answer your question about commodity prices, if the global economy slows down as much as I do believe, because other economists predict an acceleration of global growth, a healing of global growth, my sense is that it is the opposite, that within 6 months to one year we are back into recession and then it will depend on central banks and what they will do. Up until now, they have always printed money and I suppose they will continue to do that.

Now from a longer term perspective, commodity cycles last 45 to 60 years roughly, from trough to trough or peak to peak. In other words we had a peak in 1980 and then commodity prices were weak throughout the 1980s and 1990s, then in 1999 they started to pick up and went and made a peak for most commodities in 2008 and for the grains 2011-2012. Since then everything has been weak. I could argue that well, maybe this is a major correction in the commodities complex within still an upward wave of commodity prices and that the final peak prices are not yet seen.


Thursday, August 6, 2015

High price valuations will lead to low returns

I’m of the view of Jeremy Grantham — that when you have low valuations, future returns are relatively high; when you have high valuations, future returns are relatively low.

Wednesday, August 5, 2015

Insurance can be in form of Gold as well

Gold is insurance if the banking system fails. 

As an investor I’d like to own something outside the banking system, and that includes real estate, art and gold.

Monday, August 3, 2015

August 2016 Market Commentary

More than 200 years ago Adam Smith opined that,
“Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands… those unproductive hands… may consume so great a share of the whole revenue, and thereby oblige so great a number to encroach upon their capitals, upon the funds destined for the maintenance of productive labour, that all the frugality and good conduct of individuals may not be able to compensate the waste and degradation of produce occasioned by this violent and forced encroachment.”

Much later F. A. Hayek, explained the consequences of over-consumption by the private and public sector: “The economy in its entirety must continue to decline so long as more is being consumed than produced, and some part of consumption therefore takes place at the expense of the existing capital stock.”

I believe that misguided fiscal and monetary policies around the world will lead again to a global recession.

My readers will naturally wonder what my views are about gold following the latest sell-off. What is obvious is that gold is now an unloved asset, which is badly oversold in the near-term, and which should shortly benefit from seasonal strength.

However, we also need to entertain the idea that the recent sell-off is a clear break down move, which may lead to further weakness – possibly to $800 per ounce (this is not a forecast). One point I should like to make about a further significant price decline: such an event could be a signal of overwhelming deflationary forces in the system, which would lead to a collapse of other assets including equities as well. This is a point the super gold bears and the stock bulls should consider.