Wednesday, July 27, 2016

World recession could come from asset price deflation

I think the problem will be if there are no additional QE's around the world…is that asset prices will no longer go up and we’ve seen this already in London properties, in New York properties – and this will have a negative impact on the economy. The recession in my view is not going to come really from the economy per se, but from asset price deflation.

Monday, July 25, 2016

Commentary from CFA Institute seminar in Chicago

Marc Faber spoke at the recent seminar for the CFA Institute in Chicago, USA. Below is the summary.

Dr. Faber told the investment professionals gathered in Chicago that they shouldn't be prejudiced against gold. Although the typical investment pro keeps less than 1 percent of his or her portfolio in gold, Faber suggests 25 percent. He sees it as protection from a dangerous combination of tremendous government debt and massive bond-buying by central banks globally trying to fight off recession with near-zero interest rates. Besides gold, Faber has invested in Asian real estate and some stocks and bonds.

Money is made when investors dig through carnage, not when they buy something that's been popular a long time.

Currently, he sees value in the stocks of companies that mine gold and other precious metals. Agricultural commodities are also cheap, but not agricultural stocks, he said.

Long term, he thinks emerging market stocks will be more valuable than those in the U.S. and Europe because developing countries — especially in Asia — are growing while the U.S. and Europe are stagnant. But in the short term, emerging markets could be disrupted by geopolitical strife and global recession.

Many of the investing opportunities he spotted in years past are no longer opportunities, he said. Because central banks have been throwing so much money into the system, everything has become expensive — from stocks and bonds to real estate and artwork.

Typically, when investments become overly expensive, a downturn like the 2008 housing crash comes. Pros awaken some day, say the prices are crazy and start selling as a herd. But Faber is not predicting a sharp plunge is imminent. Rather, he says, the central banks are going to continue to try to stave off a global recession through ultralow interest rates. He is particularly critical of negative interest rates, which mean people earn nothing in government bonds.

While people may not feel like they are getting bloodied during this, Faber says they are. Interest rates, he said, are so low people can't make money in bonds so they keep buying stocks even though the prices are inflated. Central banks want rising stock prices to make people feel good and spend, but only 20 percent of people have stocks so the result is income inequality and resentment, he said.

"Young adults will earn less than their parents and die with less than their parents," Faber said, noting parents — when young — bought U.S. Treasury bonds paying 7 percent rather than bonds paying nothing today. They bought homes that appreciated greatly. Now, "young people don't have money to buy condos and houses," so they overpay on rent and are left without money to invest or spend.

He blames central banks. "It's ludicrous to think that slashing rates will get people to spend." When rates are low, he says, you feel insecure as savings earn nothing. So, "you save more."


Thursday, July 21, 2016

Why QE4 is coming in USA

Clearly Brexit means more money printing by central banks; They will continue to intervene. And I think before the year end we’ll have some form of QE4 in the U.S.

The Fed was fast asleep ahead of the 2007-2008 recession. So the fact that they assign a low probability to a recession doesn’t give me any comfort at all.

Wednesday, July 20, 2016

US embargo on Russia will not hurt them much

All I can say is that we had already free trade for hundreds of years between different countries, and we had merchant families in the world that traded goods and so forth. I don't think that for free trade you need an EU or you need the TPP and so forth. You can have bilateral agreements for free trade. 

What you certainly do not need for free trade is a country like the U.S. that declares an embargo. They had an embargo against Myanmar. They had an embargo against Cuba. For what? They have an embargo against Russia. You think Russia cannot buy your Mercedes car? They can import everything through China. Russia has been surrounded by countries - Baltic countries and also Balkan countries in the South, also in Central Asia, countries that have specialized in smuggling for thousands of years - and Americans, they think that an embargo will hurt Russia? It is ridiculous!

Monday, July 18, 2016

Credit as percentage of economy growing in US and Europe

I'm in support of dismantling of the whole EU, and having individual countries, but I have to add to the problem of the currency the following: the Europeans and the Japanese and also the U.S., they always talk about the reforms and so forth and so on.

How do you go about the market-based reform, if the market was reforming countries? The worst policy is, essentially, zero interest rates, because at zero interest rates, governments can borrow money without any cost, for a while. In other words, the U.S. government debt has grown, from $4 trillion in 1994, to now over $19 trillion, but the interest expense is down because the level of interest rates has collapsed. The same in Europe - if you look at the debt profile of Europe... 

Also, we, economists, we distinguish, I mean, at least I do, between "productive" debt and "unproductive" debt. The "productive" debt is you and I borrow money and you would build a factory, buy the machinery and we produce something, and then the cash flow from this business will sustain the interest payments and the repayment of the debt.  

Unproductive credit, is, basically, government credit - you lend money to the government, and the government will then give it away to people - you know, the redistribution of wealth - that is a very unproductive credit. In Europe, and in the U.S., government credit as the percentage of the economy has grown enormously over the last 10 - 20 years, enormously.

Wednesday, July 13, 2016

Over the long term US Dollar will be less relevant

So much money was printed and it's floating around the world - I mean, foreign exchange reserves are huge and they have been going up, but recently they have been contracting - nevertheless, they're going up, and you have all the sovereign funds. 

So, if you're running a sovereign fund, and you have a trillion dollars in assets to invest - are you going to buy the Thai Baht or the Philippine Peso and so forth? Do you understand? You have an asset allocation and the bulk will obviously be a basket of currencies, and the majority will be in U.S. dollars, and then you will hold some Euros and yen and British pounds. That's the way it is, but it may not stay that way. 

If you go back to 1900, the major foreign exchange reserve currency was the British pound, and to tide it's a side show. So, I think, over time, the U.S. dollar will lose its importance.

Monday, July 11, 2016

Friday, July 8, 2016

Bond markets knew the economies were weakening

Click here if above video does not play.

Thursday, July 7, 2016

European banks hold a lot of bad paper and other topics

Click here if the above video does not play

Wednesday, July 6, 2016

July 2016 Market Commentary Summary

Three years ago, I met Fernando del Pino y Calvo-Sotelo at a CLSA(Credit Lyonnais Securities Asia) conference for a drink. Following our meeting, del Pino and I stayed in touch. In early January of this year 2016 he sent me an essay entitled 'The Five Experiments', which I think my readers, and their families and friends should study because most people take some social, political, and economic conditions for granted, and as if they were the ultimate Truth when in fact they are just experiments, and untested in the history of mankind.

Brexit is a blessing in disguise for the ruling political elite, central banks, their cronies in the financial sector, and for the multinationals, which benefit from complex laws and regulations. From now on, the elite can blame Brexit for all the world’s problems when in fact financial and economic cracks appeared much earlier.

Brexit is also a welcome event for the Federal Reserve, the ECB, the BOJ and other central banks around the world: now they have the perfect excuse to launch further quantitative easing measures in order to save the system.

Agriculture Crisis ?

Shawn Hackett of Hackett Financial Advisors, Inc. warns in a special update that, grain markets are in the early stages of a massive bull market that will complete by the summer/Fall of 2017 into a full blown food crisis.

I wish my readers a wonderful holiday season. 

Remember that, “Travel - its very motion - ought to suggest hope. Despair is the armchair; it is indifference and glazed, incurious eyes. I think travelers are essentially optimists, or else they would never go anywhere” (Paul Theroux, The Tao of Travel).

Tuesday, July 5, 2016

Europe is becoming economic irrelevant in the long run

Click here to watch the Marc Faber video if the above link does not work.