Monday, June 12, 2017

Faber's Market Predictions You Wont Hear This From The Mainstream Economists


Click here it the above video does not play

Excerpts from the interview
-We are dealing with manipulated markets by Central Banks so it is very hard to predict.
-Markets can go much much higher before it all blows up

-Diversifying assets - own some Equities, Real Estate, Cash & Bonds, Precious Metals, 

-European markets will outperform US this year and their valuations are much lower than US.

-Prices of Real Estate in good areas of Toronto are very high but two hours out are not very high.

-Real Estate in the country side are more attractive and does not have the downside risks of where the speculation is occurring such as the Condo flippers. 
-Real Estate safer to invest than Financial Assets. Real Estate will Not go to Zero where as financial assets could go to Zero.

-Consumers in USA and Canada are tapped out - too much debt.

Monday, June 5, 2017

Marc Faber recommends US Treasury bonds, European corporate bonds and Emerging markets




Marc Faber speaks to CNBC 
- Bubble in popular stocks and they are highly priced.
- Liquidity bubble
- I would invest Europe or Asia rather than US
- Car Sales and retail sales weakening show US economy is weaker than thought
- Millenials are earning less than their parents, and paying 50% of their income for rents in places like New York and San Francisco.
- The Fed has been successful in boosting asset prices but wages has not kept up.

Thursday, June 1, 2017

This bull market depends on FAANG stocks

I recently attended the annual Mauldin conference. What surprised me most is how bearish the attendees were. I can only explain this bearishness after an 8-year bull market as a result of most individual investors having lost so much money in the 2000 to 2003 and 2007 to 2009 bear markets. Consequently, they failed to capitalize on the subsequent huge bull market, which followed the March 2009 low.

Apple is one of the biggest companies in the world

In early May, Wolf Richter commented that, “Over the past 10 weeks – so since March 1, 2017 – five stocks in the S&P 500 index have gained a total of $260 billion in market value, the infamous FAANG stocks: Facebook, Apple, Amazon, Netflix, and Google (now Alphabet). 

By any measure, $260 billion is a massive surge in valuation for just five stocks, or 1% of the S&P 500, in just 10 weeks. And the rest of the S&P 500? On March 1, the index closed at 2,394. Today it closed at 2,397. In those 10 weeks, it went absolutely nowhere. Which means this: the remaining 495 stocks in the index lost as much in total market capitalization as the FAANG stocks gained.” 
I should add that this dichotomy has continued to this very day with the FAANG stocks having been joined by stocks such as Tesla and NVIDIA.

I need to emphasize that this kind of narrow leadership is symptomatic of an extremely mature bull market (after all the bull market is more than 8 years’ old by now), but as was the case of the NASDAQ bubble in 1999/2000, the investment mania in FAANG type of stocks (and Bitcoins) could last somewhat longer. We should not forget that between October 1999 and March 30, 2000, the NASDAQ 100 rose by more than 120%!

There is one issue investors should carefully consider. After the NASDAQ began to collapse post March 2000 a major shift in the stock market’s leadership occurred. NASDAQ stocks which had been the leaders during the bubble did not make new highs for years (most of them never) and it took the NASDAQ 100 until the end of 2016 to exceed the 2000 peak. However, the transition from the old leadership to the new leadership was not smooth and painless. Take as an example Newmont Mining (NEM). Along with the stock market, Newmont Mining rose until early 2000. Then, along with the NASDAQ slump the stock was also dragged down into October 2000 when it had declined from peak to through by 53%.

What I want to say is that once the FAANG stocks and their peers will break down it is likely that they will – at least initially - drag down the entire market and also the emerging new leadership.

Stress is caused by adversity and extreme stress by extreme adversity. Extreme adversity can be caused by a total loss of money (including divorce), the loss of a beloved one, the loss of one’s job, and a severe illness or accident. The extreme stress arising from loss of money can usually be avoided by disciplined diversification of one’s assets (stocks, bonds/cash, real estate, and precious metals). A geographical diversification is equally important.

via gloomboomdoom

Monday, May 22, 2017

They will print money until there is a credit collapse


One day there will be a credit collapse, but I think we aren’t yet there.  Before it happens they’re going to print. 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.
Janet Yellen

Tuesday, May 16, 2017

Marc Faber on Canada Real Estate and More





Click here if the above video does not play 


Many people have been bearish on Canadian Real Estate and for many years. They have also been bearish on Canadian Banks. And so far they haven't been proven to be right. One day they will be right, the markets will go down. As you've seen in Vancouver, the markets went down over the last two years and the last six months later it picked up again. So there is still a lot of money sloshing around in the world and in general international investors view Canada more favorably than the US.

Wednesday, May 10, 2017

Marc Faber praises India and its economic policies


What I maintained more than a year ago that over the next 5-10 years, India would outperform the US and other western markets. I think it is still a valid story. In general, you have a new government, Mr Modi who is trying hard to implement some reforms and he has actually a far better chance to implement these reforms than Mr Trump.



Secondly, this is something that is very interesting for me as an observer of economic history. I think central banks in emerging economies such as India, as an example, are much more responsible and much better educated about the perils of money printing. Mr Rajan and Mr Patel have done a very good job so far in stabilizing the rupee. In local currency, the Indian market is up something like 13 percent this year.

But in dollar terms, the market is up close to 18 percent because first the stock market went up then the rupee went up. The stock market is not that important for the majority of Indians because it is only a minority that owns Indian shares. But, the currency is very important for the majority of Indians and for foreign investors.

If you have a steady currency, a strong currency, you have money coming from overseas, looking for investments in India and so, I remain actually quite constructive about India. And over the next 10-20 years, India has the potential, I am not saying it will realize it, but it has the potential at least to grow at 5-7 percent per annum each year which is huge compared to the growth that we have in the US and in Europe.

Monday, May 8, 2017

Why money printing can resume in the US and other countries


In the US we are now eight years into an economic expansion. This is a very old expansion. We are more than eight years into a bull market which is a very old bull market. If the market goes down substantially, we have a recession again and we expect that in the next 1-2 years, then the Fed, in my opinion, they will launch qualitative easing -QE 4. They may not call it QE-4, they may call it helicopter money or Trump money or whatever it is. But I think they will print money as they have in Europe and Japan up to this very date.

Deutsche Bank has recently produced a statistic or it was Bank of America whereby in the first three months of this year, the balance sheet of the ECB and the Bank of Japan (BoJ) increased by more than USD 1 trillion. So, annually, by close to USD 4 trillion, we still have money printing and we do not know where it will end. I think it will continue because that is all they can do.

Friday, May 5, 2017

Commodity investing VS Precious Metals

A correction in commodity markets, 10-20 percent is a huge move because, as an investor, you have the roll over costs and you do not have dividends on commodities basically. So, I would be a little bit careful about economic sensitive commodities such as steel, iron ore, copper, aluminium and so forth, but I still like precious metals because if you look around the world and you see all these academics and central banks.

Thursday, May 4, 2017

Stock Bull market is possible even if the economy is dropping downwards

In a money printing environment such as we had in Japan, in Europe with the European Central Bank (ECB), Bank of England and the Federal Reserve, you can have a bull market even if the economy is actually going down or not recovering much simply because of money printing. But, I agree with you. In principle, it is predicated on nominal gross domestic product (GDP) growth in the long run and on corporate earnings growth. And in my view, in the long run, if you take say, the US, what is the future growth rate of the US? Maybe 1-2 percent per annum.

So, corporate earnings in my view, will grow at 1 - 2 percent per annum in the long run, otherwise eventually, if they grow much faster than nominal GDP, corporate earnings will be nominal GDP which is not possible.

Wednesday, May 3, 2017

More Americans seem to want bigger governments


Simon Black, the founder of Sovereign Man, made some comments which truly astounded me. In his April 24, 2017 missive he wrote that, “In a poll conducted a few days ago by NBC News / Wall Street Journal, a record 57% of Americans responded that they want MORE government in their lives, and that the government should be doing more to solve people’s problems.

That’s the highest percentage since they started asking this question in 1995.

In fact, 57% is nearly double what people responded in the mid-90's. Furthermore, the number of Americans who feel the opposite, i.e. responded that the government is doing too many things that should be left to private businesses and individuals, fell to a near record-low 39%. Bottom line: people want more government.”

I find these poll results hard to believe given that over the last hundred years, as Western governments expanded as a percentage of GDP economic growth rates slowed down.

I studied fiscal and monetary policies and learned that taxation is an extremely tricky issue because, as the economist Gunmar Myrdal pointed out, “Taxation is a most flexible and effective but also dangerous instrument of social reform. One has to know precisely what one is doing lest the results diverge greatly from one’s intentions.” I seriously doubt that Mr. Trump and his ex-Goldman Sachs Treasury Secretary would know what they are precisely doing.

I also remember from my studies Sir Thomas White’s (British Minister of Finance 1911 - 1916) words:


“In such experience as I have had with taxation – and it has been considerable – there is only one tax that is popular, and that is the tax that is on the other fellow.”

via gloomboomdoom.com

Tuesday, May 2, 2017

CNBC Scott Nations takes on Marc Faber



I tell you when all is over people will love me for having warned them to have all their money in stocks. I'm used to people like you who always attack me.

In 2007 and 2012, I was relatively positive about bonds and I argued that emerging markets would go up strongly. Some emerging markets have gone up vertically and bonds have actually performed quite well.

You're accusing me of being wrong? I laugh at it.


Monday, May 1, 2017

US Dollar and US Stocks are at risk

The consensus was, at the beginning of the year that the only game in town are U.S. stocks and the U.S. dollar. I don’t believe that the U.S. dollar is structurally a strong currency. Now can it stay high as it’s rallied a lot against the euro but at this level, I don’t think that the U.S. is very competitive. So, my sense would be the U.S. dollar is vulnerable as well as asset prices in the U.S. both.

Thursday, April 27, 2017

Dr Marc Faber explains the Gold Market


The gold market is very interesting because it consists of a very limited number of people who are “gold bugs” as they call them. And these are people that will accumulate gold, physical gold and gold shares and so forth, but this is the minority. And then there are the gold detractors. These are mostly fund managers and so-called central bankers. And central bankers are not particularly smart. And then there are people who simply haven’t heard about gold as an investment… and don’t forget that in the U.S. 50 percent of the people have no interest in investments for the simple reason that they have no money. You could show them any proposal for an investment, they wouldn’t be interested because they have not the money to invest in the first place.

But in general I think that people will gradually wake up to the fact that in absence of knowing how the world will look like in five or ten years, you need some diversification and in this environment, I think that some people will say “well, let’s own some gold.” Most people will only own five or ten percent but some people will own 20 percent and I think that if the whole world decides to own, just say three percent or five percent, and the fund managers who are very anti gold see gold prices running up again… the whole investment business has become a momentum game….. so if they see that gold is moving up in a convincing way they’ll buy gold.

So, my sense is that you need some gold strength and then people will come in and buy gold simply because it moves up. I buy gold all the time, of course within my asset allocation

I also have shares and bonds and real estate, but I always buy some gold to maintain the proper weighting.

Wednesday, April 26, 2017

Gold and Gold Shares are still at reasonable valuations

At the beginning of the year so many people have started to write reports about the surprise of 2017 and projections of 2017, so everybody has a view, nobody knows precisely and the lot will depend on central banks’ monetary policies. I don’t believe central banks can tighten meaningfully, maybe optically they do some, but in general I think they’ll keep money printing on the table as far as we can see, in other words, for the next few years. And eventually it will be friendly for precious metals and hard assets. 

Number two, hard assets such as precious metals are at the historical low point compared to financial assets, so I think that’s going forward there’s a huge discrepancy in the performance between financial assets which has been very good since 2009 and gold which has been more mixed… it’s also up but it’s been more mixed especially after 2011… that these hard assets will come back into favor.

So, if you’re asking what is my expectation for the rest of 2017, I think that gold shares are an attractive asset class. I think precious metals can easily move up another 20, 30 percent, possibly 100 percent or so. In general, I would say American investors should take the opportunity that the dollar is strong and that asset prices, in other words stocks and bonds in the U.S. has been strong to reduce their positions in the U.S. in terms of equities.

Monday, April 24, 2017

Real Wealth VS Fake Wealth - MUST READ


The other day, I was interviewed
 by CNBC. One of the participants on their
panel asked me whether I believed I was providing a service to investors by warning them that stocks could decline by between 20% and 40%, or even more. He further questioned my morality in dissuading investors from buying stocks that were being touted as a once-in-a-lifetime opportunity to make money following their March 2009 lows. Aside from 
the inaccuracy of the interviewer’s statement that I had been keeping investors out of the market, I was taken aback by the notion of a CNBC employee talking about morality. Every year, I attend several conferences and Hillary Clinton about ethical behavior, Trump about modesty and unpretentiousness, Bernanke and Yellen about “honest money”, and mobster Whitey Bulger about mercy. (Federal prosecutors indicted Bulger for 19 murders.) Still, the question prompted me subsequently to contemplate whether periods of high monetary inflation (printing money) make people wealthier in real terms. Last month, I explained that it is an irrefutable fact that inflation-adjusted millennials earn less, and have less wealth, than the baby boomers had
 at the same age.

Also, it is true that US household wealth is at an all-time high – certainly in nominal terms. But, as I have explained in the past, the distribution of wealth has become more unequal, with the 0.1% (the super-wealthy) doing extremely well, while the median household’s or asset owner’s wealth has declined by close to 40% in real terms (adjusted by the CPI) from its peak in 2007. I now wish to make some further observations about the increase in household wealth, in both nominal and real terms, of the 0.1%.


The Wealth Illusion

Say I own a nice property in Beverly Hills, Newport Beach or Palm Beach. I bought the property 15 years ago 
for US$1 million. It’s now worth US$10 million. Over the same period, the CPI is up by 25%. Therefore, adjusted for inflation, my house has appreciated by 75%, correct? Not so fast. First of all, the cost-of-living increase over that period of time
has been far greater than the CPI indicates (and includes taxes, home maintenance costs, school fees for my children, salaries of my housekeepers – that is, unless I’m a member of Congress who employs illegals).

So, the real wealth increase, even measured by an index of consumption-related expenditures, may be far lower than that which is deflated by the official CPI. Furthermore, let us assume that I decide to sell my US$10 million house in Beverly Hills with the intention of buying another house in Palm Beach, Newport Beach, San Francisco, or an equivalent location. What will I pay for that house? I suppose it will be something like the inflated price at which I’m selling my existing home. I invite a statistician to explain to me what is a more appropriate index against which to measure the price of my house: the CPI, or an index of property values in an equivalent location?

Measured against the CPI, my house has appreciated; however, measured against a property price index it may have gone up somewhat more, or somewhat less, than the index, depending on how the prices of other homes comparable to my house have moved in the same location. Now, someone might argue that, regardless, I would have done very well compared to the median
 US household and the 50% of Americans who have no assets at
all. That argument is correct. In an asset inflationary environment, asset holders do far better than people who don’t own any assets. (The same is true in a consumer price inflationary environment such as we had in the 1970's.) But my point is that, unless, after selling my US$10 million house, I move to an area that has appreciated only very little or has even gone down in price, in reality I have no net wealth gain. I concede that I could move to Mexico City, Rio de Janeiro, Bahia, New Orleans, Bali, Pattaya, Maputo, or a similar location, and purchase a house equivalent to the Beverly Hills house that I’ve just sold, but for a fraction of the price. In some places, I might even improve my standard
of living meaningfully. But in other locations, the environment may not be to my liking at all. The point I wish to make is that my wealth increase as represented by the Beverly Hills house is largely illusionary, unless I sell that expensive property and move to a far less expensive area. The same would be true of an investment in the stock market. In the 1970's, I could buy
the Dow Jones Industrial Average for less than 1,000. Now, I need to pay 21,000 for one Dow Jones, which is 21-times what I would have paid in the seventies. Over the same period of time, US household wealth has increased by about the same amount.

Naturally, the total return of the stock market (including reinvestment of dividends) over the same period
was far higher. The Dow Jones US Total Stock Market Index appreciated more than 100-fold between 1970 and 2017. The total returns of other indices such as the S&P 500 and the Dow Jones Industrial Average are of a similar magnitude, whereby value outperformed growth over the entire period.

There are several reasons why household wealth increased far less than the total return of the stock market. The main component of household wealth is pension fund assets (approximately US$22 trillion). Since pension funds hold a diversified portfolio of assets consisting of stocks, bonds, cash, real estate, alternative investments, etc., they underperformed the total return of
a stock portfolio. Households also have large real estate holdings in
the form of owner-occupied homes. Owner-occupied homes are a cash-flow negative asset (taxes, maintenance costs, mortgage payments, etc.). The value of these (cash-flow negative) homes has appreciated since 1970; however, they have appreciated (with few exceptions) far less than have stocks whose dividends were reinvested. The same goes for households’ holdings of bonds and cash, and their own businesses. The value of households’ direct ownership of equities increased at about the same rate as household wealth, but at a far lower rate than the total return of equities because households tended to be net sellers of equities. I assume that households felt increasingly comfortable holding the bulk of their wealth in pension fund assets and, therefore, reduced their direct ownership of equities.

Still, there is no question that 
US household wealth has increased significantly since the 1970's. But can we say that the record US$89 trillion wealth of the household sector is an indication of how well the economy is performing? Furthermore, can we conclude that when a part of this household wealth is liquidated, a huge consumption
and economic boom will follow? The answer to the first question is simple. Most of the increase in household wealth accrued to a tiny percentage
 of the population.
 In fact, following the Trump rally,
the top 0.1% of households own
 more than the bottom 90%. Also, 
as I explained above, the increase in value of my Beverly Hills house is of limited utility if I wish to continue living in an equivalent house in an equivalent area somewhere else. We then need to consider the increase in the US population, which in 1970 was 205 million and is now 318 million.

Therefore, a better indication of American wealth than total household wealth would be per-capita wealth. Lastly, as I explained above, the largest component of US household wealth
is pension fund reserves, currently valued at US$22 trillion. But there are some question marks over these assets and whether they are really worth this amount. Last October, my friend Fred Sheehan explained just how underfunded pension funds were, citing the Commonwealth of Massachusetts Funded Ratios.

In this respect, it’s interesting to note that The New York Daily News recently carried an article about
 the Teamster Local 707’s pension fund (see February 26, 2017), which has encountered serious financial problems. According to the Daily News, one trucker reported: “It’s a nightmare, it has just devastated all of our lives. I’ve gone from having $48,000 a year to less than half that.” Again according to the Daily News, another Teamster pensioner, Narvaez, explained that:
...like 4,000 other retired Teamster truckers, [he] got a letter from Local 707 in February of last year. It said monthly pensions had to be slashed by more than a third. It was an emergency move to try to keep the dying fund solvent. That dropped Narvaez from nearly $3,500 to about $2,000. 
The stopgap measure didn’t work – and after years of dangling over the precipice, Local 707’s pension fund fell off the financial cliff this month. With no money left, it turned to Pension Benefit Guaranty Corp., a government insurance company that covers pensions.
Pension Benefit Guaranty Corp. picked up Local 707’s retiree payouts – but the maximum benefit it gives a year is roughly $12,000, for workers who racked up at least 30 years. For those with less time on the job, the payouts are smaller. 
Narvaez now gets $1,170 a month – before taxes. Ex-trucker Edward Hernandez, 67, went from $2,422 a month to $1,465 last year. As of this month, his gross check is $902. After federal taxes, it’s $721 – but he still has to pay state and city taxes. 
“We have guys on Long Island who are losing their houses,
the taxes are so high out there,” Hernandez said. Milton Acosta, 75, was a dockworker in Local 707. He retired at age 62, figuring his union pension of $2,300, coupled with his Social Security, would keep him and his wife afloat. Now his pension is $760 a month after taxes, he said.
As heartbreaking as their stories are, they are not new to Thomas Nyhan, executive director and general counsel of the Central States Pension Fund. 
The same crisis now hitting Local 707 has been stewing among numerous Teamster locals around the country for the past decade, he said, and that includes in upstate New York. The trucking industry
– almost uniformly organized by Teamsters – has suffered enormous financial losses in its pension and welfare funds due to a crippling combination of deregulation and stock market crashes, Nyhan said. 
“This is a quiet crisis, but it’s very real. There are currently 200 other plans on track for insolvency – that’s going to affect anywhere from 1.5 to 2 million people,” said Nyhan. “The prognosis is bleak minus some new legislative help.” And it’s not just private-sector industries that are suffering, he added. 
“Municipal and state plans 
are the next to go down – that’s a pension tsunami that’s coming,” he said. “In many states, those defined benefit plans are seriously underfunded – and at the end
of the day, math trumps the statutes.” [Emphasis added in each instance.]
(As an aside, Illinois is facing the worst pension crisis of any US state, with unfunded obligations totalling US$130 billion, according to the state’s Commission on Government Forecasting and Accountability. That amounts to about US$10,000 in debt for each resident.)

I urge my readers to peruse once again Fred Sheehan’s report, entitled “Public Pension Recipients: Start Saving. You Are on Your Own”, in the October 2016 GBD report. I explained at the time that the shocking funding level and its deterioration (see
Table 2), about which Sheehan writes, is also evident in the corporate sector and in Europe. So, whereas prior
to the 2008/2009 crisis S&P 1500 companies were fully funded, today funding has dropped below 80% (see Figure 7 of the October 2016 GBD report). I also noted that I found the deteriorating funding levels of pension funds remarkable because, post-March 2009 (S&P 500 at 666), stocks around the world rebounded strongly and many markets (including the US stock market) made new highs. Furthermore, government bonds were rallying strongly after 2006 as interest rates continued to decline.
My point was that if, despite truly mouth-watering returns of financial assets over the last ten years, unfunded liabilities have increased, what will happen once these returns diminish or disappear completely? After all, it’s almost certain that the returns of pension funds (as well as of other financial institutions) will diminish given the current level of interest rates and the lofty US stock market valuations.

The Road to Perdition

The next time an economist tells you that the US economy is rock solid because household wealth keeps going up and is now almost US$93 trillion (following the Trump rally), keep in mind that this wealth is unevenly distributed (see Figure 2) and that the US$22 trillion in the form of pension funds is completely inadequate to meet those funds’ obligations to pensioners. Either contributions will have to increase massively, or benefits will have to be cut, as we have seen in the case of the Teamster Local 707’s pension fund. I should also like my readers to reflect on the hardships that have to be endured by retirees if their benefits are cut by more than 50%, as we have seen in the examples quoted above by the Daily News. Furthermore, if, as Thomas Nyhan states, there is a quiet but very real crisis “that’s going to affect anywhere from 1.5 to 2 million people” (probably far more than that number nationwide), consider what the impact on consumption and the US economy will be.

There is another point I need to explain. Let us assume that I belong
to the 0.1% and that I have assets
of US$100 million. Because of the Trump rally, I make a profit of
US$5 million within a month. Will
 it change my consumption? Maybe at the margin (the trickle-down effect), but very little overall, compared to a thousand lower middle-class people suddenly making an additional US$1,000 each. In that case, it’s
likely that the 1,000 people who
 enjoy a sudden “monetary” windfall of US$1,000 will spend most of it. Therefore, if wealth is concentrated
in the hands of very few people, as
it is now, the economic impact of household wealth rising is minimal. In other words, the level of household wealth is a very poor indicator of how the economy is really performing. This is especially true in a money-printing environment.

In this context, I need to clarify another matter. Most economist s
have argued that inflation is low and growth is anaemic because the velocity of money has been declining since
the late 1990's. These economists will argue that when the velocity of money picks up, inflation and growth will accelerate. But how can velocity accelerate? The top 0.1% of asset holders (the super-rich) will unlikely spend their wealth if they liquidate some assets. Let’s say that Warren Buffett makes another US$1 billion because of the Trump rally. Will he spend that money? It’s unlikely. He might reduce his equity exposure and build up his cash holdings or buy some other assets, but his billion- dollar capital gain isn’t going to cause him to go out and buy another 50 tailor-made suits, neckties and sets of silk pajamas. In other words, the Fed and other central banks can further increase their balance sheets, which will boost asset prices still higher. However, it will only worsen the wealth inequality because only the existing asset holders will benefit, and it will further deflate the velocity of money.

There are, however, three ways in which the velocity of money could be increased. A complete collapse of asset markets would bring about deflation and improve the affordability of goods, services and assets for the median household – certainly relative to the 0.1%. In this scenario, the velocity of money will increase, but I very much doubt that the increase in velocity would bring about stronger growth and higher inflation.

A massive dose of helicopter money dropped on the 50% of Americans who are struggling and have no assets would probably be the most potent tool for boosting the velocity of money, inflation and economic growth – that is, temporarily. I say “probably” and “temporarily” because it is far from certain that this intervention would improve “real” economic activity and “real” growth. Also, “Helicopter Money One” would have to be followed by “Helicopter Money Two”, and so on, which
would have numerous very negative consequences (a collapse in the dollar, very high consumer price inflation rates, further increase in wealth inequality, etc.). The third option
for boosting the velocity of money would be to expropriate a significant share of the wealth of the top 0.1%
of wealth owners and distribute it to the 50% who are the lowest-income recipients. Again, this would boost consumption only temporarily and it would be a complete disaster for the overall economy. Disturbingly, this
is what will be the ultimate outcome unless an authoritarian dictator seizes power, in which case the outcome could be even worse.

Let me explain. Should the economy weaken and enter another recession (which is inevitable, sooner or later), QE4 will be a given. The result of QE4 would be more of
the same: rising wealth inequality
as asset prices continue to increase (this time, very selectively) whereby the median household is left further behind. Therefore, the next step 
by the interventionists will be – possibly simultaneously with QE4
– helicopter money. However, make no mistake. Helicopter money whose objective would be to kick-start the economy would be almost instantly captured by the powerful corporate sector and the asset owners, because the increased consumption would increase consumer prices and boost corporate profits. In other words, unless the interventionists with
their fiscal and monetary policies engineer an asset price collapse (about the last thing they will do intentionally), the top 0.1% will continue to gain at the expense of just about everybody else. Don’t misunderstand me. I am not blaming the 0.1% for snatching an increased share of the income and wealth pie. They were in a better position and more able to take advantage of globalization and monetary inflation than the vast majority of Americans. Moreover, their wealth allowed them to manipulate governments, their agencies, the lawmakers and regulators, etc. (especially central banks and treasury departments) for implementing policies that would greatly benefit them. Thus, their share of the wealth and income pie exploded.

I admit that the statistics compiled by Thomas Piketty and Emmanuel Saez should be taken with a grain
of salt, but the expansion of CEOs’ salaries relative to the salaries of workers does support the fact that the 0.1% have done very well compared to workers (see Figure 7). According to the Bureau of Economic Analysis, CEOs of the largest US companies now earn more than 300 times
 what workers earn, compared to
CEO salaries of less than 30 times what workers earned in the 1970s. (The Bureau of Economic Analysis computes CEO annual compensation by using the “option realised” compensation series, which includes salary, bonus, restricted stock grants, options exercised, and long-term incentive payouts for CEOs at the top 350 US firms ranked by sales.)

Above, I mentioned that wealthy people, including the CEOs of major companies, were in a better position and more skillful at taking advantage of globalization and monetary inflation than the vast majority of Americans. Monetary inflation, the secular decline of interest rates after 1981, the process of outsourcing, clever lobbying, etc. all contributed to rising corporate profits, which in turn allowed executives to boost their compensation without any objection from shareholders. In fact, we can see that CEOs’ compensation increases mirror the increase in the S&P 500. I want to stress that I have no idea whether CEOs should earn 30 times more than workers or 500 times more. (I also earn more than 500 times the salaries of my housekeepers in Chiang Mai, which difference can be partly explained by them earning a Thai local salary whereas I have an international income.) The fact is that, in a market economy, the market will determine the “price” of CEOs and of labor. But, as I said above, I suppose that wealthy people and corporate leaders (especially in the financial sector) were in a position to manipulate the system, which enabled them to heist a dis-proportionally large share of the economic pie. When money printing began to accelerate in and after the late 1990s, the financial sector managed to raid almost all the central banks’ newly printed money and some more ... with impunity. (According to the organisation Americans for Financial Reform, “in the 2015–16 election cycle, Wall Street banks and financial interests reported spending over $2.0 billion to influence decision- making in Washington. That total — of officially reported expenditures on campaign contributions and lobbying — comes to more than $2.7 million a day. It also works out to over $3.7 million per member of Congress.”

We have a system in place that is based on fiscal and monetary policies, and laws and regulations, that favour the corporate elite, the largest corporations, the captains of finance, and the 0.1% in general, because they are the asset holders. This moneyed class will not give up its privileges voluntarily. The privileged class will 
do everything in their power to keep these favourable conditions in place, which would include money printing in one or another form if there is a recession or if asset markets decline meaningfully (say, to the February 2016 low of 1,810 for the S&P 500). 

As I said, I’m not discussing these issues because I have some rancour about these “conditions” from which
 I actually profiteered greatly. I am discussing them because I believe
 that an unstable system in which 
the majority of people lose out to 
the privileged few is simply not sustainable and will end either with a Bernie Sanders-type socialist gaining power or with the establishment of a dictatorship. Democracies promised a level playing field in society, but that certainly does not seem to be in place nowadays. I suspect that we have never yet had a level playing field, but I feel that we are reaching a tipping point where something is likely to give, and I am afraid that this “something” could be the inflated asset markets.

via newsmax

Friday, April 21, 2017

Weakness in Euro currency will increase foreign investment in European companies

The Euro having declined so much against the U.S. dollar, if there is further weakness in the Euro; European stocks will adjust on the upside and foreign companies from Asia… China, Japan and the U.S. will increasingly acquire European companies and European assets.

Thursday, April 20, 2017

Buying Stocks near market peaks could end badly

Some people say that the central banks are out of bullets. This is not my impression. They can keep on printing money and boost asset prices where by not all asset prices will go up, some will go up and some will go down. 

But the point I want to make is the central banks are not really out of bullets.
The economy, if it weakens some stocks will outperform others, in other words recently you’ve seen the weaker in automobile stocks, so there is still a selective process in the market. The stocks that have gone up the most recently are actually mostly companies with very little earnings, very high evaluations, Tesla, Amazon, Netflix and so forth and we’ll have to see.

All I can say is when I look around the world, I don’t see any particularly good values in the U.S. except in mining companies and I think some of the interest rate sensitive stocks are again relatively attractive because I expect the economy to disappoint, especially if the Fed continues to increase interest rates and so a short increase in interest rates could mean some further weakness in bond prices but eventually bond prices could rally again and this is my view that the U.S. by any standards compared to historical evaluations, compared to Europe, compared to Asia, compared to emerging markets the U.S. is very expensive. Now, can it go up another ten percent? Maybe 20 percent? Yes, between December 1999 and 2000 March 21 when the stock markets peaked out the Nasdaq was up more than 30 percent, but was it a good buy? No, everybody who bought at the time in the first three months of 2000 lost money.

So, my sense is that yeah people can buy stocks here but most of them are going to lose money with the exception in my view, that mining stocks will perform reasonably well.

Wednesday, April 19, 2017

Dividend paying European stocks looking attractive


I’ve just written two reports recently highlighting that in Europe there are some companies, mostly utilities and infrastructure related companies that on a valuation screen appear relatively attractive. They have dividend yields of between four and six percent, the Euro is weak or has been weak and is at the low level and these yields of four to six percent are very attractive considering the bonds yield in Europe. 

And so, I think that this year European stocks and especially the stock I mentioned, infrastructure plays, utilities and also food (stocks) will way out perform the U.S. I also happen to think that there will be more and more American companies and foreign companies that will be interested to acquire European companies.


Tuesday, April 18, 2017

Infrastructure Spending ASIA VS USA

I don’t think the economy is as strong as people believe or as the statistics would show and recent trends have rather been indicating some weakness is auto sales, not a particularly strong housing market and we have several problems as a result of excessive credit. So, I think that the economy is not going to do as well as people expect and concerning the huge infrastructure expenditure that Mr. Trump has been talking about, it is about a trillion dollars over ten years, maximum. In other words, a hundred billion a year.

In China in 2016 in the first ten months the infrastructure expenditures were 1.6 trillion, in other words 16 times higher than what Mr. Trump is proposing. So just to put this in a perspective. Now throughout Asia and the emerging world there will be a lot of infrastructural expenditures in the years to come. The question is will stocks go up because of that, maybe some stocks will go up and some will not. So, we have to be now increasing the selective in what we purchase in terms of equities. My sense is that the economy in the U.S. is weakening and not strengthening.

Wednesday, April 12, 2017

USA and Europe Economic Growth Has Been Anaemic Even With All The Money Printing


The emerging markets had under-performed the US meaningfully since 2011 and so it is a very mixed bag. The European markets -- by and large and certainly in US dollar terms -- are not at new highs. India after its very good performance so far this year has grossly outperformed the US this year. We have to be very careful. Some markets will continue to go up and others will go down and within markets, there will be some stocks that will go up and other stocks are probably extremely expensive and extended and will go down. 



Already a year ago, I mentioned that if I had to invest the money for 5 or 10 years, my belief was that India would outperform the US because the US is a highly priced market. It is now 54% of global market capitalisation and India relatively would outperform the US for many years. So yes, I would say, already for 18 months or so. my view has been that you will make more money in emerging markets and last year some emerging markets in Asia significantly outperformed the US. 

We were up between 15 and 25% in Indonesia, the Philippines, Thailand, Vietnam while the US hardly moved up. So far this year, despite all this hoopla (about the US market, most of the European markets have outperformed the S&P and emerging markets. Practically every emerging market has outperformed the US. 

Recently PWC published a study about the long-term outlook of the global economy and about the ongoing shift in the balance of economic power in the world which essentially showed very clearly how some countries had become very important economic powers over the last 20 to 30 years including China and Vietnam and also India to some extent. 

That study concluded that by 2050, India, purchasing power adjusted, could be the third largest economy or the even the second largest economy. If you look at what has happened in Europe and the US where despite all the fiscal stimulus and money printing you have essentially very anaemic growth and you look at China where you have around 6%-7% growth while India has over 7% growth, who knows? 

Over the long term if you can grow even 5%, which in the global economy is a very rapid growth rate compared to Europe and the US, as an investor for the next 5 years, 10 years or 20 years, I would find ways to invest in India and in emerging markets in general. 

The emerging markets that is going to grow probably the most is Vietnam and Indo-China, Cambodia Laos, Myanmar. But having the outlook for India and with the proviso that we do not get into a major military confrontation. If we have peace and are nor beset by any huge natural disaster like a pandemic, then I the outlook for the Chinese economy, for the Indian economy, for emerging markets in general is far superior to the outlook in our rotten western democracies. 


Monday, April 10, 2017

Value in commodities VS financial assets and trending companies


We had a huge bull market in commodities between 1999 and in some cases 2008. For oil, it peaked out at $147 in July 2008, and for other commodities they continued to go up until 2011 and then commodities by and large declined sharply until the end of 2015, early 2016 when oil briefly went towards $30. Subsequently, we had a strong rebound in commodity prices principally because the demand from China stabilized and started to increase again. That drove some commodities up, plus in some cases there is the expectation that the shift to electric cars will increase the demand for copper very substantially along with increased defense expenditures. 

Each commodity has to be looked at individually and some have rebounded and some have gone up dramatically. Zinc last year was up over 80% and others are still relatively depressed. Agricultural commodities are relatively depressed although the prices of sugar doubled last year. 

But one thing I can say is that we are in a world where central banks in the advanced economies; Japan, the US, Europe have printed money. 

The Reserve Bank of India has pursued a very good policy but the other central banks in the western world are basically money printers and they will continue to print money. If the economy weakens, they will go into the US QE4 and the Europeans did the same and the Bank of Japan the same. 

Regardless whether the global economy picks up or not, I believe that commodity prices are at a relatively low level and I would rather invest in commodity related plays than in say financial assets and in companies that are valued at infinity. 


Monday, April 3, 2017

G7 Countries VS E7 Countries


Last week, I was interested in re-reading an article which had appeared last November (before the election) in The New York Times by Op-Ed columnist Nikolai Tolstoy entitled Consider Monarchy, America. Tolstoy is a historian and author of several books. He is also a committed monarchist.

Before rejecting Tolstoy’s views as outrageous I suggest my readers to listen to his arguments carefully. The reason I am discussing political systems is that I came across a study by PwC which paints a rather pessimistic picture for G7 countries (US, UK, France, Germany, Japan, Canada and Italy) relative to E7 countries (China, India, Indonesia, Brazil, Russia, Mexico and Turkey) for the future. The PwC study is entitled The long view: how will the global economic order change by 2050? Its key findings are as follows: emerging markets will continue to be the growth engine of the global economy. By 2050, the E7 economies could have increased their share of world GDP from around 35% to almost 50%. China could be the largest economy in the world, accounting for around 20% of world GDP in 2050, with India in second place and Indonesia in fourth place (based on GDP at PPPs).

A number of other emerging markets will also take center stage – Mexico could be larger than the UK and Germany by 2050 in PPP terms and six of the seven largest economies in the world could be emerging markets by that time.

Meanwhile, the EU27 share of world GDP could be down to less than 10% by 2050, smaller than India. PwC also projects Vietnam, India and Bangladesh to be three of the world’s fastest growing economies over this period.

The PwC study rightly says that emerging market investing requires the “patience to ride out the storms we have seen recently in economies like, for example, Brazil, Nigeria and Turkey, all of which still have considerable long-term economic potential based on our analysis,” but I should point out that we also had some storms in the G7 economies over the last 30 or so years (Japan post 1989, all markets post 2000 and also post 2007).

Also, whereas I do not believe that it is an ideal time to buy equities I equally think that relative to the US, emerging markets are about as undervalued as they will become.

Bloomberg recently reported that sales of art and antiques dropped 11 percent to $56.6 billion in 2016. The decline, on top of a 7 percent slide in 2015, wipes out the gains seen in 2013 and 2014, when sales reached an all-time high of $68.2 billion.

Noteworthy is that art sales are not much higher than in 2007 – ten years earlier despite a huge increase in purchases by Chinese collectors.

via gloomboomdoom

Monday, March 20, 2017

Voting, democracy and Millennials


Last month’s we discussed the poor financial conditions of millennials. According to the Federal Reserve Bank of New York wages for the typical recent college graduate working full time have risen just 1.6 percent over the last 25 years, after adjusting for inflation. At the same time, student debt burdens for the typical bachelor’s degree recipient who borrowed for college have increased about 163.8 percent. The Huffington Post explained that, “In 1990, the typical college student graduated with debt equivalent to 28.6 percent of her annual earnings. By 2015, that number had shot up to 74.3 percent. Stagnant wages and the jump in student debt levels has prompted growing concern among government policymakers and financial industry executives that student debt risks slowing U.S. economic growth as households reduce their spending to make their student loan payments.

Furthermore, since 2004, homeownership rate for people under 35 have dropped by 21 percent, easily outpacing the 15 percent fall among those 35 to 44 old.

Various studies show that homeowners tend to vote more than renters. Under the title, Have millennials given up on democracy? The Guardian discussed the issue of millennials being less interested in democracy than their parents or older age groups: “Chief among the accusations levelled at millennials is that of political apathy. But the real problem could be even worse than disengagement: it seems many members of Generation Y could be ready to back a despot. A large-scale survey of political attitudes conducted by the Lowy Institute for International Policy in Sydney found that just 42% of Australian 18- to 29-year-olds thought democracy was “the most preferable form of government”, compared with 65% of those aged 30 or above…. Millennials themselves, asked why they do not back democracy, mostly say it “only serves the interests of a few” (40%) and that there is “no real difference between the policies of the major parties” (32%). A similar malaise is expressed across western democracies.

Unsurprisingly, the millennial generation is the least entrepreneurial of all. According to Cowen, millennials are “most committed ideological carriers” of the new spirit of complacency.

Finally, concerning the millennials apathy towards democracies remember that as Alice Walker observed, “The most common way people give up their power is by thinking they don't have any.”


Monday, March 13, 2017

I would buy European stocks




The US markets is completely out of range with other markets in the world, such as European markets, Emerging markets. So I think there will be a closing of this diverging performance with Europe outperforming the US or both going down or with the US going down more.

Investors should understand that markets can also go down and it would not surprise me to see the inflated asset markets especially the financial markets being down 20 to 40 percent at some point. The typical stock in America is already down 9 percent from a 52 week time and in the last three days wouldn’t you think that this is maybe a little bit funny? Every day there were more new lows on the New York Stock Exchange than new highs and this 1.6 percent below the all-time high in the market, that should tell you something. 

Wednesday, March 1, 2017

Asia and China could do well in 2017


Well I think that emerging Asia - China looks quite attractive, for how long? who knows. But for the next 3 months money can flow into China. The economy has surprisingly has begun to do quite well. We see that in retail in Hong Kong, we see that in the Hotel industry and we see that in the demand for Commodities. 

What has done relatively well is selected commodities. Last year Zinc and Iron Ore were the best performing asset. This year Copper has been very strong, Gold last year was up 9 percent, this year is again up 9 percent. So I think investors should again be investing in Resource Stocks. Because when you really look at Trump and his Administration, I think further money printing down the line is inevitable. Maybe they increase rates a little bit here in March, that is possible. But the bond markets will have already discounted it. 

So bonds are relatively undervalued compared to Equities. And Emerging Markets are relatively undervalued, Resource stocks are undervalued, and I think Consumer Staples are also reasonably priced as well as REITS. I have a large exposure to REITS in Singapore and Hong Kong.

Monday, February 27, 2017

Markets going up is not always a bullish signal

Well we are very overbought, but I'd like to put things into perspective. Whereas Trump has said he will make America great again. So far this year numerous markets have done very well, Mexico, Brazil. In Asia we have many markets up 10 percent and more. So I think the question of Asset Allocators ... the big question for 2017 is what will perform relatively well - Emerging Markets, Europe or US. I think if you look at the valuations of the US and all the super bulls, they may be right and the market continues to go up. The market also continued to go up between December 1999 and March 2000 and gave back five years of advance. 

So when the market goes up doesn't make me particularly bullish when the valuations are out of sync.

Sell off will be like an Avalanche

As the market goes down it will trigger selling and then it will be an avalanche. 
You don't know what the catalyst will be. But nobody knows the reason why the market peaked out in March 2000, nobody knows why the Japanese market peaked out in December 1989 and so forth. We just don't know but something usually pushes markets down when they are very overbought and when sentiment is very bullish.


Wednesday, February 22, 2017

China focused Asian countries


It is a Chinese-centric Asia nowadays. The exports of Taiwan, South Korea, to China are much more important than to the U.S. All the Asian countries for them, exports to China are the key, tourists from China are the key.

When you see Mr. Trump lambasting the exporting countries of Asia, calling China – he hasn't declared it officially a currency manipulator and so forth, what is the reaction of the leadership in Beijing ?

Everybody in Asia and around the world, including Mexico and the Europeans will say, 'the U.S. is no longer a reliable trading partner and no longer a reliable ally. We have to look after ourselves'. So the Chinese are pushing essentially domestic-led growth.

Monday, February 20, 2017

Could we be near the market top ?

I like the US markets in a sense that for the first time since the bull markets began in March 2009. There is a euphoric move. In other words we are leading to a top somewhere here. 

The shorting pit is dangerous because we don't know how far Central Banks are still going to print money. If you print money and you have large deficits that lead to higher government debt. 

Under Mr Obama US debt almost doubled to now $20 Trillion Dollars. Then stocks can go up and economic conditions can worsen. So the shorting game, I think you have to be short very specific names that have deteriorating conditions.

But I think the way to play it is to own emerging markets. Everyone makes a huge hoopla about US markets going up, Hong Kong is up 9 percent, Singapore is up 9 percent.... Mexico is up 6 percent.... Brazil, Argentina is up almost 20 percent. So actually Trump policies have been good for foreign markets.

Monday, February 13, 2017

US and US corporate sector benefited most from globalization over the last 20 years


Many markets in Asia are up 8 to 9 percent. In Asia almost every market has outperformed the US.

Watch the full video here

Thursday, February 9, 2017

Money printing will not be easy to stop

The most attractive sector in commodities is probably agricultural commodities -soybean, rubber, sugar, etc .- their prices may still go higher. 

The precious metals are also attractive for a simple reason that the policies that the central banks have embarked upon, mainly money printing, will be very difficult to terminate.


Wednesday, February 8, 2017

Fed and interest rate hikes

Since the end of last year, the US dollar has been weakening and I suppose that the policies of the US would rather welcome a weak dollar than a strong dollar. It is not my view that it would help the US in the long run but that of the policy maker's.Going forward, dollar assets are not the most desirable assets.

The Fed may increase interest rates at some point, but they will probably leave real rates negative for a long time. We have had many American property prices already declining and also rents declining, which essentially would rather indicate weakness in the economy than strength. Whenever the next recession comes, the Federal Reserve in my view will liquify the system with some sort of quantitative easing.They may not call it QE, but the impact will be the same.


Monday, February 6, 2017

Bull market in USA is ageing

It is difficult to tell what the policies of Trump eventually will be because he is a very great talker, but I am not so sure that the implementation will be as he has promised during his campaign. Despite what he may do, the US economic expansion will be eight years old by June and the stock market bull run will be eight years old by March. We are dealing with an ageing bull market and an ageing economy that is likely to weaken rather than strengthen. Whether his policies will actually translate into strong growth is questionable. The US economy will weaken and the 4% growth target he has is completely unrealistic.

Wednesday, February 1, 2017

Implications of protectionist policies in the long term

Has The Trump Presidency begun in the worst possible way for all those who believe in Free Markets?

According to University of Chicago Booth School of Business Professor Luigi Zingales, “it is clear that the Trump industrial policy will be pro-business, not pro-market. It may seem to be a nuance, but there is a fundamental difference. A pro-business policy favors existing companies at the expense of future generations. A pro-market policy favors conditions that allow all businesses to thrive without any favoritism. A pro-business policy defends domestic enterprises with favorable rates and treatment. A pro-market policy opens the domestic market to international competition because doing so would not only benefit consumers, but would also benefit the companies themselves in the long term, which will have to learn to be competitive on the market, rather than prosper thanks to protection and state aid.

Paradoxically, a pro-business policy ends up damaging not only the economy, but also, in the long-run, those companies that it had originally benefited.”
Zingales concludes that, “The Trump presidency has begun in the worst possible way for all those who, like me, still believe in the market.”

Young Invincibles is a national organization, representing the interests of 18 to 34 year-olds, which makes sure that their perspective is heard wherever decisions about their collective future are being made. Young Invincibles (YI) recently published a study entitled Financial Health of Young America: Measuring Generational Declines between Baby Boomers & Millennials, which makes very interesting reading.

According to YI, “Baby Boomers were much more financially secure than Millennials when they were the same age. Boomers earned higher incomes, amassed greater assets, were more likely to own homes, and had greater net wealth when they were young adults than today’s young people.”

It will be interesting to see whether the protectionist policies of Trump will improve the financial conditions of the millennials or, as I believe, hurt them even more because from now on the millennials will not only have to live with lower incomes, less wealth, and inflated asset markets, which they cannot afford, but also with rising consumer prices. 


Monday, January 30, 2017

US travel ban issued by Trump will affect US Dollars and US Stocks negatively in the long term


As we go into 2017 the consensus is interest rates will go up, you want to be long US stocks and overweight US Dollars. But I think, but its also about the travel ban and protectionism.... But protectionism, I guarantee you, is not going to be good for the U.S. That for sure not.

The US has a trade and current account deficit today. That is not an issue today. The world has a huge supply of US Dollar floating around. Sometimes the global liquidity gets tighter but in general the US Dollar position and assets in the US depend on one factor - confidence of foreigners investing in USA. What if I'm a foreigner and I see a travel ban. So the private citizens, they see a travel ban on Muslims. Anyone with any brains will think what if tomorrow there is a travel ban on the Chinese and I own a property in the US or I own assets in the US and I can't access assets in the US. So I think this travel ban, psychologically, will have a very negative impact in the long run on the U.S. dollar and U.S. assets.

Number two, protectionism, I just came back from Mexico, the price level is now unbelievably low. So a lot of countries  Turkey, Mexico but even in Asia because of the depreciation of the currency against the US Dollar, they have become quite reasonable in price.

Tuesday, January 24, 2017

Rising rates could jeopardize the stock market rally



This year some markets have vastly outperformed the US, such as Brazil, Russia, Kazakhstan, Thailand, Indonesia, Pakistan and so forth......

Monday, January 23, 2017

Market Sentiment - Extreme optimism on stocks and pessimism on Bonds



If you look at the valuation of stocks, they’re high. If you look at the valuation of the U.S. dollar, it is high.

There is a lot of liquidity in the world and I believe that whatever you think, the liquidity will move into precious metals and precious metal stocks in the next three to six months. So I would be long gold shares, silver shares, platinum shares and their underlying. I also think the sentiment is much too optimistic about stocks and far too pessimistic in bonds. I would buy as a trade Treasury Bonds in the US.

Wednesday, January 11, 2017

US Stock markets and Reversion to the mean

I would like to say that when the market embarked on bull market in 1991, interest rates say on treasuries were still around 8-9% and we had a big correction in 1987 whereby the valuations of stocks in 1990 were not particularly high. Valuations of US stocks today are very high.

Also in the 1980's, do not forget the US market had significantly under-performed emerging economies in particularly Japan. The Japanese markets was the story of the 1980's. By early 1990's, the market in the US was relatively inexpensive compared to stock markets overseas but this is not the case at the present time.

If you look at that figures or charts that go back 30 years. the US market has never been this expensive compared to other markets in the world then it is now and I believe whether you are contrarian or not, eventually there is a reversion to the mean.

I believe the stock market in the US will either go down more than emerging markets because we are in a global bear market or emerging economies stock markets will go up more than the US if the super bulls are right. But we have very strong headwinds.

One of the headwinds is obviously if the economy strengthens a lot, I think that consumer price inflationary pressures will come up and that interest rates will go up. Once the 10 years yield goes to around 3%, the stock market will notice and those stocks will face this headwind of rising interest rates.

Secondly, do not forget if the US dollar is strong, it means that foreign earnings of American companies are translated into dollars in the US and so the earnings of multinationals will suffer. Also, if the US dollar is very strong , it is a symptom that global liquidity is tightening and when the dollar is very strong, usually stocks do not perform particularly well.


Monday, January 9, 2017

Three investment views for 2017

I have essentially three views. First off all, the US economy is like a supertanker or a sailboat. It is not easy to turn it around and come back to where you have been in terms of prosperity. In general, Mr Trump’s policies will fail to lift economic growth rates significantly.

US stocks, compared to emerging markets or European companies or Japanese stocks, are significantly ahead of themselves. In 2017, emerging markets will outperform the US or by going up substantially more than the US. So I would essentially avoid the US and rather invest in emerging economies....

The second view I have is that recently investors have been obsessed with growth in the United States and with interest rates going up because the Fed has said that they would essentially increase the Fed fund rates three times this year but in the US, the treasury bond market is grossly oversold and for the next three months, we can have a rebound in US treasuries. Short-term and long term interest rates in the US are going to ease again in the next three months. You could get the 5% to 10% upside move in US treasuries.

The third view I have is the whole world seems to think that the only way the US dollar can go is upward. I doubt this is to be the case. First of all, if you have a strong dollar, the trade deficit in the US and the current account deficit are likely to weaken as well as the economy. So, within the next three to six months or even already now, the US dollar has become rather vulnerable against foreign currencies. I would rather be short on the US dollar in 2017 than go long.

If I look at the sentiment of investors towards precious metals, it is actually puzzling because gold is up against the US dollar and gold shares were up on an average of 60 to 80% in 2016. But despite this performance, investors are very bearish about gold and gold shares. I would accumulate or recommend to accumulate precious metals stocks and the physical in 2017.


Tuesday, January 3, 2017

Various factors drive asset market prices

Robert Hutchins who in 1929, at the age of 30, was named president of the University of Chicago thought that, “My idea of education is to unsettle the minds of the young and inflame their intellects.”

Hutchins’ idea that education should unsettle the mind and inflame the intellect – in essence arise the students’ curiosity – is spot on.

I believe that economists and investors should be curious about everything because even though they may regard some issues to be irrelevant for their investment decisions, factors such as geography, history, tradition, religion, history, psychology, law, social structures, etc. may have an impact on the economy and on asset markets. 

Similarly, Robert Skidelsky, Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics writes:

“What unites the great economists ….. is a broad education and outlook. This gives them access to many different ways of understanding the economy. The giants of earlier generations knew a lot of things besides economics. Keynes graduated in mathematics, but was steeped in the classics (and studied economics for less than a year before starting to teach it). Schumpeter got his PhD in law; Hayek’s were in law and political science, and he also studied philosophy, psychology, and brain anatomy.


Today’s professional economists, by contrast, have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time”

ShareThis