Wednesday, May 1, 2019

May 2019 Market Commentary

Marc Faber's latest market commentary is out. Read below about his thoughts via GloomBoomDoom

In the context of income and wealth inequality in the US, some of the new-rich billionaires (a large number of which made their money through the asset inflation, which the Fed created with its quantitative easing policies) now provide advice on how to reduce the inequality. Usually, the advice centers on higher taxes for the super-rich (except for their own taxes, which they hope to lower with even more loopholes), and education.

Specifically, these billionaires seem to know how the government should spend more money on education.

I find these proposals quite amusing except for the fact that the cost of education in the US may actually have contributed to growing wealth and income inequality.         

The US is already spending far more on education than any other OECD country. Unfortunately, the productivity of education (spending per student and academic achievement) seems to confirm that the US not only has an extremely expensive educational system but also one that produces poor results.          

According to Professor Richard Vedder, College Wouldn’t Cost So Much if Students and Faculty Worked Harder. Vedder further opines that, "One reason college is so costly and so little real learning occurs is that collegiate resources are vastly underused. Students don’t study much, professors teach little, few people read most of the obscure papers the professors write, and even the buildings are empty most of the time.” 

Monday, April 1, 2019

Bonds and Stocks giving conflicting messages

The S&P500 is up around 20 percent from its December 2018 lows. Are we in a new bull market ? Are we going to see higher highs ? Marc Faber on his April 2019 Market Commentary gives his opinion on Stock market and Bonds.

The Disagreement between Equities and Bonds Over the last twelve months or so, some analysts pointed out the low number of new issues as a sign that the US stock market was far from being overheated. However, I respond to this argument that instead of new public issues, privately held startup companies valued at over $1 billion - Unicorns - have proliferated at a rapid pace.

What is clear is that when privately funded companies finally list their shares on an exchange the insiders (people who funded the companies) perceive the timing and the valuation to be opportune.

The average age of a technology company before it goes public is now 11 years, as opposed to an average life of four years back in 1999. Furthermore, the number of loss-making companies that go public seems to have increased. Ride-hailing company Lyft, just tapped the public market and listed its shares at $72 giving it a market capitalisation of $23 billion. Last year Lyft posted a loss of $911 million, more than any U.S. start-up has ever lost in the 12 months leading to its IPO. The Wall Street Journal (March 25, 2019) noted sarcastically that, "Ride-hailing company Lyft Inc. is leading a parade of Silicon Valley companies to Wall Street that display an unusual quality with parallels to companies going public in the dot-com era: lots of red ink."

Investors are enjoying and discussing the strong first quarter stock returns, but seldom talk about the almost 13% gain of long-term US Treasuries since the November 2018 low. What does the March 22 upside breakout of Treasury bonds indicate? Recession dead ahead or interest cuts by the FED? 

The rally in long-dated Treasuries signals economic weakness. Therefore, stocks should begin to decline as corporate profits would come under meaningful pressure (sales declines and profit margin contraction). So far, this has not happened. Another mystery is the strong performance of junk and emerging market bonds.

In other words, we have US equities and high yield bonds (junk or lower quality bonds) saying that all is great while Treasuries scream "recession ahead." Something does not quite add up and unquestionably some investors or probably all investors will get hurt by adverse market movements.

In this context investors should remember the words of the late Leon Levy who said that, 
“For most people, the most dangerous self-delusion is that even a falling market will not affect their stocks, which they bought out of a canny understanding of value.” 

via gloomboomdoom

Monday, March 18, 2019

Marc Faber buys Bitcoin

After a conversation with @wences (CEO of @xapo), the most well-known Swiss financial market expert Marc Faber has invested in Bitcoin.

According to Dr Faber, “I was tempted to purchase Bitcoin when it was available for $200. But I held myself from purchasing something that I didn’t fully understand.”

One of his reasoning to buy Bitcoin is so he could try to better understand how it worked. Also Marc Faber says Bitcoin prices at $3000 is much more attractive than it was at $20,000.

Monday, March 4, 2019

US political situation is very bad

Marc Faber on disinformation during stock market downturns and on US politics.

Well, I think there is a lot of disinformation, and usually when stocks go down, some fraud comes to the surface. And I expect it to happen, and I mean in a major way. Whether the fraud is related to some corporation, which I think is quite likely, or whether it's related to the fraud that is going on in the pension fund system, where pension funds are grossly underfunded, and, in the future, will either have to increase contributions or reduce distributions. I think these are items that could happen. 

Secondly, the public may start to lose faith in the system because of the political situation. I think the political situation in the U.S. is very bad, and if you read about what has been happening at the FBI, the CIA in Washington, you have to scratch your head whether that is all possible in a system that is supposedly functioning. It's like Watergate, but actually magnified. So, I think there is a possibility that investing public loses interest in financial assets. 

Tuesday, February 19, 2019

Physical precious metals far superior to Cryptos as a Safe Haven

Marc Faber on whether Gold and Crypto currencies should be considered a safe haven....

I don't think that cryptos are safe. Now they may move up and they may move down but I, as an investor for the ultimate crisis, I prefer to be in physical precious metals, gold, silver, platinum.

I think, eventually, these precious metals will come back into the investment portfolios of major institutions and individuals. The major institutions of the world, they hold practically no gold. They have more money in Apple, they have more money in Amazon, than, say, in gold. And I think that will change over time, but I don't know whether it will be tomorrow or in three years’ time, but my view would be that if you really look at the financial situation, the unfunded liabilities, the government deficit, the inflated asset prices, the conclusion is central banks will have to continue to print money, otherwise the system collapses. That, in my opinion, will boost precious metals prices.

-Via Money Metals podcast

Tuesday, February 12, 2019

Both US and China will lose in a Trade War

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Wednesday, February 6, 2019

The most popular form of Taxation is ..............

Marc Faber is out with his February 2019 Monthly Commentary. He talks about the various taxation policies proposed in the US.  Via Gloomboomdoom

Thanks to expansionary monetary policies, US, household net worth has soared over the last twenty or so years.

However, if we look at which wealth group did well and which wealth group lagged behind, we find that the wealthiest of US households reaped all the gains in household wealth. Depressing is the fact that according to the Fed’s own statistics, the median net worth for the bottom 50% net worth group actually fell after 2006.

Given the rise in income and wealth inequality, which was caused mostly because of “money printing,” it is not surprising that the call by politicians for some kind of wealth tax for high income and high net-asset holders is gaining popularity.

I am bringing up these facts because it is quite evident that in future every democratic candidate will call for some tax on the wealthiest income recipients and asset holders. So even if wealthy Americans despise Mr. Trump they may have no other option but to vote for him if asset preservation is the objective.

Personally, I am certain that within a few years we shall have some sort of wealth tax for the highest wealth owners and income recipients in most, if not all Western democracies.

More so, if social-democratic candidates want to take your money and redistribute it to the people who keep them in power there will indeed be more government spending that they can’t afford and there will be more bureaucracy, which will depress economic growth and bring along even more central planning. Equally, a socialist could argue (and I would have to agree) that the elite took money from 90% of the population by having the Fed and other central banks pursue monetary policies that lifted most asset prices and increased wealth and income inequality grotesquely.

I suppose that from an investment strategy point of view, more socialistic US policies mean that investors should reduce positions in the US assets and specifically in US equities, which seem to have an extremely high valuation relative to the rest of the world.

With respect to taxes, I smile at Sir Thomas White’s words who opined that, “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.”

Monday, January 28, 2019

Marc Faber's 10 year economic outlook

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Topics discussed
- It will end in a Debt default or debt forgiveness. It will end in a disaster.

- There is No such thing as a free lunch

- Asset prices have inflated. If you went to Toronto or Vancouver 50 years ago and bought a house, and you looked at the price now, you would say it is inflated.

- Affordability issues for young people to buy certain assets. 

- Wealth inequality and potential social issues.

Wednesday, January 9, 2019

January 2019 Monthly Market Commentary

Marc Faber has posted his January 2019 Monthly Market commentary. See below for the summary via GloomBoomDoom.

At the beginning of this report I am presenting two views of China: one is by China basher Patrick J. Buchanan and the other by my friend Jay Chen who provides us with pictures that contradict most of Buchanan's views.

Concerning asset markets (including stocks, corporate bonds and real estate) the BIG QUESTION that is on every investor’s mind is whether the headwinds for asset prices we saw in the last three months of 2018 will only be of short term duration (brief correction in an ongoing bull market for asset prices) or of a more serious nature, which would imply that what we saw recently was only the first phase of a prolonged asset price downturn that would also be accompanied by a global recession.

I am quoting the views of three friends of mine who share similar views.

Mark Whitmore, CEO of Whitmore Capital Management recently concluded his letter to investors by saying that, "I think the tumult we have seen in financial markets in the 4Q 2018 is but a preview of things to come. Yes, there will be violent countertrend rallies in which the market will attempt to lure investors back in. We saw that as the previous bubbles burst over the last couple of decades. But value-conscious investors who stood on the sidelines patiently waiting for markets to be rid of speculative excesses avoided being duped by these bear-market traps….. of far greater import, I remain convinced that it is all but inevitable that markets will be going much lower in the future."

Alan Newman who is the editor of Cross Currents noted on December 26 that, “Our Nasdaq Climax indicator is ….. shocking. Nasdaq has flipped from bull market to bear market (stocks were down close to 11% last week), yet we still do not see even the slightest sign of panic. Days in which Up/Down volume reach a ratio of 1:9 (or worse) have typically been thought to be solid evidence of capitulation. To date, there has not been any such instance since May 17, 2017."

Finally, Michael Lewitt who publishes the excellent The Credit Strategist comments about credit conditions and specifically about the recent sell-off in the leveraged loan market. Under The Unthinking Consensus he bemoans the fact that publications like Barron's and the Wall Street Journal offer less insight than the week before, something it shares with the rest of the mainstream financial media, "which is one reason why investors were so ill-prepared for the bear market unfolding before their eyes."

I wish my readers a Happy New Year. Remember that just because we had for close to 40 years "asset inflation" it is unlikely that things will stay the way they were. [Bertolt Brecht: "Because things are the way they are, things will not stay the way they are.”]

Friday, January 4, 2019

I wouldnt be surprised if S&P500 dropped to 1500 or so

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