Market Still Suggesting That Investors Be Cautious, Though Not Bearish- Minyanville.com

Some people can have a lot of experience and still have good judgment. Others can pull a great deal of value out of much less experience. That’s why some people have street smarts and others don’t. A person with street smarts is someone able to take strong action based on good judgment drawn from hard experience. For example, a novice trader once asked an old Wall Street pro why he had such good judgment. “Well,” said the pro,“Good judgment comes from experience.” “Then where does experience come from?” asked the novice. “Experience comes from bad judgment,” was the pro’s answer. So you can say that good judgment comes from experience that comes from bad judgment!-- Adapted from "Confessions of a Street Smart Manager” by David Mahoney
Years ago I read a book that a Wall Street professional told me would give me good stock market judgment by benefiting from the bad experience of others who had suffered various hard hits. The name of the book was One Way Pockets. It was first published in 1917. The author used the non de plume “Don Guyon” because he was associated with a brokerage firm having sizable business with wealthy retail investors and he had conducted analytical studies of orders executed for those investors.
The results were illuminating enough to afford corroborative evidence of general investing faults that persist to this day. The study detected “bad buying” and “bad selling,” especially among the active and speculative public. It documented that the public tends to “sell too soon” and subsequently repurchase stocks at higher prices by buying more stocks after the stock market has turned down, and finally liquidate all positions near the bottom -- a sequence true in all
similar periods.
For instance, the book shows that when a bull market started, the accounts under analysis would buy for value reasons; and buy well, albeit small. The stocks were originally bought for the long term, rather than for trading purposes, but as prices moved higher on the first bull-leg of the rally, investors were so scared by memories of the previous bear market and so worried they would lose their profits, they sold their stocks. At this stage the accounts showed multiple completed transactions yielding small profits liberally interspersed with big losses.

In the second phase of the rally, when accounts were convinced the bull market was for real, and a higher market level was established, stocks were repurchased at higher prices than they had previously been sold. At this stage larger profits were the rule. At this point the advance had become so extensive that attempts were being made to find the “top” of the market move such that the public was executing short-sales, which almost always ended badly.

Finally, in the mature stage of the bull market, the recently active and speculative accounts would tend not to overtrade or try to pick “tops” using short-sales, but would resolve to buy and hold. So many times previously they had sold only to see their stocks dance higher, leaving them frustrated and angry. The customer who months ago had been eager to take a few points profit on 100 shares of stock would, at this stage, not take a 30-point profit on 1,000 shares of the same stock now that it had doubled in price. In fact, when the stock market finally broke down, even below where the accounts bought their original stock positions, they would actually buy more shares. They would not sell; rather, the tendency at this mature stage of the bull market and the public’s mindset was to buy the breakdowns and look for bargains in stocks.

The book’s author concluded that the public’s investing methods had undergone a pronounced, and obvious, unintentional change with the progression of the bull market from one stage to another -- a psychological phenomena that causes the great majority of investors to do the exact opposite of what they should do! As stated in the book:
The collective operations of the active speculative accounts must be wrong in principal [such that] the method that would prove profitable in the long run must be reversed of that followed by the consistently unsuccessful.
Not much has changed from 1917 and 2012, just the players, not the emotions of fear, hope, and greed, or supply versus demand, as we potentially near the maturing stage of this current bull market. Of course stocks can still travel higher in a maturing bull market, but at this stage we should keep Don Guyon’s insight about maturing “bulls” in mind. Verily, this week celebrates the third year of the Bull Run, which began on March 9, 2009, and we were bullish. With the S&P 500 (SPX) up more than 100% since the March 2009 “lows,” this is one of the longest bull markets ever. As the invaluable Bespoke Investment Group writes: Going all the way back to 1928, the current bull market ranks as the ninth longest ever. Even more impressive is the fact that of the nine bull markets that lasted longer, none saw a gain of 100% during their first three years. Based on the history of prior bulls that have hit the three-year mark, year four has also been positive.
Now, recall those negative nabobs who told us late last year the first half of 2012 would be really bad? W-R-O-N-G, for the SPX is off to its ninth best start of the year, while the Nasdaq (COMPQ) is off to its best start ever!
In seven out of the past 10 “best starts,” the SPX was higher at year-end, which is why I keep chanting, “You can be cautious, but don’t get bearish.” Accompanying the rally has been improving economic statistics, and last week was no exception.

Indeed, of the 20 economic reports released last week, 15 were better than estimated. Meanwhile, earnings reports for fourth quarter 2011 have come in better than expected, causing the ratio of net earnings revisions for the S&P 1500 to improve. Then, too, the employment situation reports continued to improve. Of course, such an environment has led to increased consumer confidence, punctuated by the February Consumer Confidence report that came in ahead of estimates at 70.8, versus 63.0, for its best reading in a year. And that optimism makes me nervous.

Nervous indeed because the SPX has now had 42 trading sessions year-to-date without so much as a 1% Downside Day. Since 1928 the SPX has only had six other occasions where the SPX started the year with 42 or more trading sessions without a 1% Downside Day. Worth noting, however, is that in every one of those skeins, the index closed higher by year’s end.

Still, in addition to the often mentioned upside nonconfirmations from the Dow Jones Transportation Average (TRAN) and the Russell 2000 (^RUT), seven of the SPX’s 10 macro sectors are currently overbought, but the NYSE McClellan Oscillator is now oversold, Lowry’s Short Term trading Index has fallen 12 points since peaking on January 25 (which interestingly is the day before the Buying Stampede ended), and the Operating Company Only Advance/Decline Index (OCO) has nearly 1,000 fewer issues than where it was on February 1 -- suggesting the rally is narrowing.

The number of new highs confirms the OCO (last April the index had similar readings right before a correction), and sticking with the April 2011 comparison shows a striking similarity to the December 2010 – February 2011 trading pattern for the SPX, and we all remember how that ended.

Marc Faber States Gold Far From Bubble Phase - The Market Oracle

After Standard & Poor's (S&P) downgraded a cluster of Eurozone countries in January, you came out saying that downgrades should have been even deeper, depending on the country's credit-worthiness. S&P did give below-investment-grade ratings to Portugal and Cyprus—BB and BB+, respectively—but you indicated that some of these countries warrant CCC ratings. Do you anticipate additional downgrades?

Marc Faber: If you accounted for the unfunded liabilities of most European countries, as well as the U.S., the quality of the government debt would be significantly lower. In other words, yes, I do expect to see more and more downgrades over time.

TGR: Could that happen in 2012?

MF: Yes, and some thereafter.

TGR: Have the markets priced in further downgrades already or should we expect a bigger impact in the next round?

MF: I don't think the market has priced it in because the yield today on U.S. 10-year government bonds is 2%, and 3% on 30-year bonds. If the market were priced properly based on the quality of these bonds, the yields would be far higher.

TGR: Did yields change much with these recent downgrades?

MF: Yes, particularly in the U.S., where investors perceive U.S. government bonds as safe. The U.S. will pay the interest as long as it can print money. But suppose you buy a 10-year government bond that yields 2% and inflation is perceived to be 5–7%. To what extent would investors still buy these bonds? That question will arise one day.

TGR: You've discussed investors leaving the European markets in favor of a "safe haven" in the U.S. Would U.S. bonds continue with such low yields with the European downgrades?

MF: For a while, yes, but at some point people will wake up and realize that the U.S. will default through a depreciating currency—in other words, through printing money—or by not paying the interest on the bonds. I don't think the U.S. will stop paying the interest, but printing more money will weaken the currency and produce higher inflation in consumer prices, asset prices and commodity prices. So being in U.S. government bonds will result in losses to investors through currency depreciation.

TGR: You've pointed out that negative real interest rates force people to speculate, which creates enormous market volatility. That seems to be happening now, but apparently investors are keeping a great deal of money on the sidelines as well. If that comes in, would it make the markets even more volatile? Or would you say the smart money will stay on the sidelines and the speculative money is in play already?

MF: I think there is a lot of money on the sidelines. Some will stay there, because people who don't trust the system anymore will just keep it there. Some will be invested, but it may not go into equities. It could go into some other asset class, perhaps hard currencies such as gold and silver, or real estate, which is now relatively inexpensive in the U.S.

As for volatility, it increased sharply last year, but has diminished over the last three-months. I expect we'll see increasingly very high volatility in all asset classes in the next few years. The money in an environment of negative real interest rates will flow. It might flow into fewer and fewer stocks, or into fewer and fewer assets that could go ballistic on the upside.

TGR: Which asset classes would you expect on the speculative upside?

MF: We had the NASDAQ bubble 12 years ago, the housing market bubble probably five years ago, and I would say also a bubble in commodities in 2007–2008, when oil spiked to $147. What's next, I'm not so sure. I could imagine some stocks, maybe some precious metals, in a bubble stage—not the entire market necessarily.

TGR: Could you delineate characteristics of stocks that will appreciate versus those that will stagnate or lose value?

MF: If we look at the market, we have some stocks where the outlook is perceived to be particularly bright, and then there are others—for instance, Eastman Kodak Company (EKDKQ:OTBPK)—that are at the opposite end of the spectrum. It depends on the fundamentals and the imagination of investors. I wouldn't necessarily buy up, so I'm not saying it will go down. Maybe it will go up further. But in general if you buy the company with the largest market capitalization in the world you're not going to make a lot of money.

TGR: What captures the imagination of investors?

MF: Basically mania fed by excessive liquidity, with more and more people convinced that something is the Holy Grail. It was the NASDAQ in 2000, Asia before 1997, housing from 2000 to 2006–2007, or more recently China. Exactly what it is, I don't know. But when a market has been strong, the media write about it and people are attracted to it. Then some useless academics write books about why stocks, or real estate, always go up, and so forth. The media again write that up, and more people flow into that sector.

TGR: A couple of weeks ago James Turk told us that he thinks the low price for gold in 2012 was already established early in January. What makes you think it will pull back?

MF: The big rally into Sept. 6, 2011, took the gold price to $1,922/ounce (oz) and then it dropped until the end of the year, touching $1,522/oz on Dec. 29. It has rallied, and is now above $1,700 again, but I don't think the correction is entirely over. Corrections of 40% are nothing unusual in a bull market.

As an adviser, my duty is to always inform people of investment risk. I'm not saying I expect gold to collapse, but telling people the gold price will go up leads them to leverage up and speculate. If the gold price drops $50/oz, they're wiped out. All I'm saying is that, in my opinion, the gold price correction is not yet entirely completed. I see significant support around the $1,500/oz level, but it could drop lower. It depends on global liquidity and on money printing by central banks. We could have a big correction if global liquidity tightens or they stop printing money.

TGR: Over what timeframe are you looking at the correction?

MF: This year the gold price may not exceed the $1,922/oz high that we reached on Sept. 6. Maybe it will. I'm not a prophet. I'm just telling people that I'm buying gold and holding it. I don't speculate in gold. If you buy gold, you better understand that the price could always move to the downside. If you don't understand that, don't invest in gold—or in anything.

TGR: Investment show commentators have been talking about gold being in one of those mania bubbles you described because it's been increasing for 11–12 years. Do you agree?

MF: No, gold is not in a bubble. It wasn't in a bubble in 1973, either, but it still corrected by 40% then. I don't believe gold is anywhere near a bubble phase. A bubble phase is characterized by the majority of market participants being involved in a market space. I saw a gold bubble in 1979–1980, when the whole world was dealing—buying and selling gold 24-hours a day, globally.

TGR: But not since then?

MF: No. If you went to an investment conference in 1989, 90% of the people there would have told you they owned shares in Japanese companies. In 2000, 90% of them would have said they owned NASDAQ shares. Only about 5% of the participants at an investment conference today would tell you they own gold. Very few people in this world own gold.

I don't believe that we're in a bubble.

TGR: Should people who aren't yet in gold or want to add to their position wait for a correction?

MF: I have argued for the last 12 years that investors should buy a little bit of physical gold every month and put it aside without concerns about corrections. If you don't own any gold, I would start buying some right away, keeping in mind that it could go down.

For the last 40 years in my business I've seen people always lose money when they put too much money into something and then it goes down. They panic and sell, or they have a margin call to sell—and lose money. I own gold. It's my biggest position in my life. The possibility of the gold price going down doesn't disturb me. Every bull market has corrections.

TGR: What do you think about silver as an alternative precious metal to hold?

MF: Gold and silver will move in the same direction, up together or down together. At times, silver will be stronger relative to gold, and at other times gold will be stronger relative to silver. My friend Eric Sprott thinks that silver will go ballistic. I don't know. I own gold.

TGR: You're on record as recommending that investors maintain diversified portfolios, with 20% to 30% each in gold, real estate, equities and cash. Focusing on equities, as we've discussed, means tremendous volatility. What are your thoughts? High value? Large cap? Dividends? Something more speculative, perhaps gold mining shares?

MF: Because I live in Asia, I am quite familiar with the Asian markets and economies. I have a bias toward Asian equities, especially because I can find deals in places such as Malaysia, Thailand, Singapore and Hong Kong—stocks that give me 4–7% dividend yields. With yields at those levels, at least I'm paid to wait. Even if they're cut 5%, I'd still get better cash flow than I would from, say, U.S. government bonds. Consequently, I feel reasonably confident owning such shares.

Because I have allocated only 25% of my portfolio to equities, if the markets were to drop 50%, I would have funds elsewhere in my portfolio to buy more equities. That's not a prediction for a 50% market decline; it's just to say that I'm positioned in such a way that I could put more money in equities through a) my cash flow, b) my income and c) my cash position. And I do own some gold shares through stock options, because I'm a director of several exploration companies.

TGR: Given that you're satisfied to, in essence, being paid to wait with dividend-paying stocks, do you consider yourself a buy-and-hold investor?

MF: With my asset allocation of 25% in equities, I can afford to hold them. If I had 100% in equities, I would be more inclined to take profits from time to time.

TGR: Let's get back to Asia for a moment. Headlines in the U.S. have focused lately more on what's going on in Europe, with Asia basically relegated to page 2. What's your perception of the markets and economies there?

MF: We don't have recessions yet, although there have been slowdowns in economic activity and some corporate profit disappointments. The big question is whether we have a problem in six months to one year's time that results from a meaningful slowdown or even a crash in the Chinese economy. That may happen.

Second, it's not everywhere, but in some cases I see bubbles in the real estate market, as there are in everything that relates to luxury—luxury properties, paintings, collectibles, the luxury department stores and shops, the Swiss watch companies. They're all doing very good business. I think there's a bubble essentially in everything at the high end of the market. That concerns me a little bit. It may continue for another year or so but will not last forever, so I'm relatively cautious.

Having said that, lots of companies in Asia do not cater to the high-end consumers but to the rising middle class. I believe they are reasonably well positioned to weather even a recession.

TGR: If China's bubble in those luxury goods and real estate bursts, would the Asian markets go down in tandem?

MF: Yes, I think so. Last year the Chinese markets—by the way, also India—grossly underperformed the U.S., so maybe the market has already discounted a Chinese slowdown to some extent. But because I happen to think that it hasn't discounted the Chinese slowdown entirely, yes, I think the markets are still vulnerable.

TGR: Are your investments in the Asian markets focused on companies that are not catering to the high-end, like food and items that the middle class buys?

MF: Yes, I have a mixed portfolio of both industrial and residential real estate, healthcare companies, retailers, food companies, agricultural companies, finance companies and banks. So, it's fairly broad.

TGR: Are those financing companies and banks Asian-based or internationally based? That sector is certainly out of favor in North America.

MF: I have no Chinese banks, but I own banks in Singapore and Thailand and finance companies in Singapore, Thailand and Malaysia. Actually, I'm also positive about some financial stocks in Europe and America. Simply because of the money printing, these financial institutions are benefiting at the expense of honest people who have savings that yield nothing while their cost of living is progressing at 5–10% per annum.

I took a taxi the other day from New Jersey to Manhattan. The Lincoln Tunnel has raised its toll by 50%, from $8 to $12. But the government, brainwashed by incompetent academics at the Federal Reserve, will tell you that inflation is 2%.

TGR: You mentioned liking finance companies in Europe and America because of money printing. How does that benefit them?

MF: I don't like them. In investing, it's not a question whether you like or dislike something. It's a question of price. The best company or the worst sector may be overvalued at one price and undervalued at another. I happen to think that having weakened to around the 2009 lows last fall, when the S&P dropped to 1,074 on Oct. 4, the financial sector was very cheap. Since then, there have been big rallies for Citigroup Inc. (C:NYSE), Bank of America Corp. (BAC:NYSE) and other banks. I saw opportunities there, but with the market rallying so much, I believe it is now overbought and due for a correction. We will see whether it's just a correction or a resumption of a downtrend.

TGR: Which do you think it will be?

MF: I don't know. We haven't seen a correction yet. I think it's about to start. Then we will have to see the shape of the correction, which could last a month. After that, we'll have to look at the shape of the recovery—the number of stocks that will participate, the number of new highs and so forth.

TGR: You've indicated that your portfolio allocation includes real estate. Do you consider real estate a good value in North America now?

MF: I travel around the world all the time and I'm interested in the formation of prices so I have an idea about trends in prices. You have to consider real estate prices in the context of currency valuations. For example, five years ago, homes in Australia and Canada were inexpensive and now they aren't, but not necessarily because prices have gone up. Although prices don't necessarily track with whether a currency increases or decreases in value, in those two cases, the value of the currencies also has increased.

The U.S. does have areas where real estate is incredibly low relative to other parts of the world. I can buy homes in Atlanta and Phoenix for less than I'd pay in Thailand, and because the GDP per capita in the U.S. is of course much higher than in Thailand, on a relative basis, those homes in Atlanta and Phoenix would be attractive.

As a foreigner, I am not interested in investing in U.S. real estate for various reasons, including taxation, management and regulation. But if I were a U.S. citizen, I would say now is a relatively good time to buy real estate and rent it out and net a yield of maybe 6–8%. Many of my friends who own rental apartments do very well on rental income. Many of the people who no longer qualify for mortgages can rent.

TGR: In terms of asset diversification, to what extent ought the average U.S. investor focus on international equities or real estate?

MF: I think U.S. citizens should focus very much on diversifying their assets internationally. Only Americans still believe that America remains the most important economy in the world. Everybody else knows it has become relatively less significant over the last five years. Everybody, including Americans, should be global investors, and Americans should have at least 50% of their money outside the U.S. I would argue that a global investor should have maximum 40% in Europe and in the U.S., with the rest in Asia, Latin America, Africa, etc.

It's very difficult for Americans to open bank accounts overseas, but buying real estate overseas is one way to diversify, and that's not a problem. Maybe the U.S. will close this loophole one day, but for now U.S. citizens may buy real estate in South America, Europe or Asia—anywhere in the world. That's what I would do.

TGR: Do you consider investments in stocks that are based in international areas part of the diversification?

MF: Basically you want exposure to rapidly growing economies. This is best achieved by buying companies that have large exposure in the emerging economies rather than the U.S. and Europe. The Coca-Cola Company (KO:NYSE) is a U.S. company but the bulk of its business comes from outside the U.S.

TGR: You're scheduled to speak at the World MoneyShow, coming up in Vancouver March 27–29. We understand that in your presentation, entitled "The Causes and Investment Implications of Dishonest Money," you'll be discussing unintended consequences of large fiscal deficits and expansionary monetary policies. Would you give us some highlights of what you plan to cover?

MF: Basically I will try to explain that instead of smoothing out the business cycle, government interventions have created more economic and financial volatility and have had very negative consequences for the U.S. in particular. And as I pointed out earlier, these measures, such as some of the fiscal and monetary measures we've talked about, are based on erroneous economic sophism.

TGR: What do you think people will learn from listening to your presentation?

MF: That in this environment of money printing, cash and government bonds are not very safe and that you have to navigate through different asset classes. Under normal conditions, cash and government bonds are essentially the safest investments—not investments with the highest returns, but the safest. That is not the case today.

TGR: And we appreciate the pointers you've made about some of those different asset classes. Thank you very much.

Swiss-born Marc Faber, who at age 24 earned his Ph.D in economics magna ***** laude from the University of Zurich, has lived in Hong Kong nearly 40 years. He worked in New York, Zurich and Hong Kong for White Weld & Co., an investment bank historically managed by Boston Brahmins until its sale to Merrill Lynch in 1978. From 1978 to 1990, Faber served as managing director of Drexel Burnham Lambert (HK), setting up his own investment advisory and fund management firm, Marc Faber Ltd. in mid-1990. His widely read monthly investment newsletter,
Gloom Boom & Doom Report, highlights unusual investment opportunities. Faber is also the author of several books, including Tomorrow's Gold: Asia's Age of Discovery (2002), which spent several weeks on Amazon's best-seller list and is being translated into Japanese, Chinese, Korean, Thai and German. He also contributes regularly to leading financial publications around the world. Much also has been written about Faber. Nury Vittachi, one of Asia's most popular writers and speakers, published Riding the Millennial Storm: Marc Faber's Path to Profit in the Financial Markets (1998). The Financial Times of London described him as "something of an icon" and Fortune called him a "congenital contrarian and shrewd Swiss investment advisor."

Thailand second to China as top investor market - Independent Online

During 10 turbulent years in Thailand, Kittiratt Na-Ranong tackled jobs ranging from president of the stock exchange to manager of the national soccer team, an underperforming outfit nicknamed the War Elephants.

Now, Kittiratt, 54, has taken on a task with significant implications for fund managers such as Templeton Emerging Markets Group executive chairman Mark Mobius, for market-leading companies such as Intel and Toyota Motor and for consumers of the world’s most important staple food, rice. Kittiratt said as deputy prime minister and finance minister his task was to convince investors the government could build defences to prevent the recurrence of floods that last year inundated thousands of factories critical to global supply chains as well as a swath of the paddies that supply 29 percent of international rice shipments. As the waters slowly receded, they laid bare this Southeast Asian country’s extraordinary economic importance to the rest of the world.

Thailand is second only to China among the world’s best emerging markets for investors. The ranking looks at a series of measures such as market transparency and prospects for growth over the next four years. Thailand’s tiny, $303 billion (R2.3 trillion) stock market as of February 22, accounted for just 0.6 percent of the market value of world equities. As of 2011, its gross domestic product per capita was a mere $5 281 less than half that of Mexico’s. The country is prone to disruptions, ranging from coups d’état and civil strife to tsunamis and floods. Yet Thailand has developed such successful electronics and auto industries it now produces from 35 to 40 percent of all computer hard-disc drives and, in 2010, built more light trucks than Japan. In agriculture, besides being the world’s biggest rice exporter, Thailand ranks number one in rubber and number two in sugar. The country that brands itself the Land of Smiles has consistently remained one of the world’s top 20 tourism destinations, attracting more visitors in 2010 than Greece. Even as the government of Prime Minister Yingluck Shinawatra begins spending a promised 480bn baht (R121bn) on dykes and post-flood reconstruction, it’s working on a longer-term goal – the transformation of an economy heavily dependent on cheap-labour exports into a more consumption-driven model. Its populist strategy is to give 67 million Thais more spending power by raising urban wages by 40 percent to about $10 a day and guaranteeing farmers they will receive a price for their rice that’s as much as 44 percent above the market rate. Such government initiatives, on top of the chaos caused by the deluge, could inflict a big extra cost on Thai-based manufacturers, rice exporters and their customers worldwide. Hit by floods While Kittiratt predicted Thailand’s economy would grow 7 percent this year, Singapore-based Credit Suisse economist Santitarn Sathirathai said the rate might be only 3 or 4 percent. The Thai rice price surged 28 percent from July to mid-November, when it reached a three-year high of $663 a ton. Templeton’s Mobius is making a big bet on the government’s strategy paying off – and on the Thai economy.

Thai stocks comprised 21 percent of the $16.9bn Templeton Asian Growth Fund as of January 31 – second only to Chinese stocks. In the fourth quarter of 2011, despite the floods, Thailand’s SET index jumped 12 percent to become the world’s fourth-best performer. It has risen a further 11 percent this year as of February 22. As Kittiratt and Yingluck, Thailand’s first female prime minister, implement their reconstruction programme, Thai companies like cement makers and banks will cash in on a construction-led boom this year, said Aberdeen Asset Management, Scotland’s biggest fund manager. From 1971 to 2010, Thailand’s annual GDP growth averaged 6 percent despite coups and financial crises. As buoyant as the Thai economy is, the human and economic cost of last year’s floods has been immense. About 800 people died, economic growth in 2011 probably plunged to 0.1 percent from a forecast 4 percent, and total damage to the $346bn economy could reach $46bn, the government estimated. Spectacular comebacks In 1998, in the wake of the Asian financial crisis, its economy contracted 10.5 percent before rebounding to grow 4.4 percent the next year. Since then, the country has staged spectacular comebacks from a 2004 tsunami and 2006 coup – and the debilitating political protests that followed.

 While Kittiratt said recent flood-related damage would be short-term, Thailand will always be threatened by inundation. In July, torrential rains started falling in northern Thailand. An area larger than Greece became a world of water. Factories operated by companies such as Honda Motor and Canon were swamped. Even companies that stayed dry, like Toyota, couldn’t escape the impact as their parts makers went under. Although many companies predicted 2012 production would bounce back, the effect on their bottom lines was not easily erased. On December 12, Intel, the world’s biggest chipmaker, reduced its fourth-quarter revenue forecast by $1bn. On January 10, Ford said its Asia-Pacific and Africa operations would post a loss. Biggest investor Japanese companies fared even worse. In December, Toyota said the Thai floods would cost it $1.53bn as the car maker slashed its profit forecast for the year ending in March by 54 percent. But Toyota chief executive Akio Toyoda said in November the company didn’t consider reducing investment in Thailand. Selling the plan In January, the government announced its plan. It approved 350 billion baht for flood defences . Kittiratt, the man selling the plan, said in dealing with the floods, there’s no room for failure. Survival is a historical challenge for Thai governments. Since 1946, Thailand has been rocked by 15 successful or attempted coups and 28 changes of prime minister The last coup, in 2006, overthrew the elected government of Thaksin Shinawatra, Yingluck’s brother. Tensions culminated in 2010 in violent street protests in which 92 people died. Yingluck, a 44-year-old rookie politician, assumed office in August. Any new bout of revolving-door leadership could threaten flood-prevention efforts, Aberdeen’s Adithep said. A bigger risk to Thailand’s stability could be the royal succession. King Bhumibol is the world’s longest-reigning monarch, having ascended the lotus throne in 1946. As military and civilian strongmen came and went, Bhumibol remained Thailand’s sole stabilising presence.. By comparison, his heir, twice- divorced Crown Prince Maha Vajiralongkorn, 59, has had to fight off unwelcome publicity about his personal life. A more immediate concern is the performance of the present government. Yingluck, who has a master’s degree in public administration from Kentucky State University, entered politics last year after a career as an executive in her family’s companies. Abhisit Vejjajiva, opposition Democrat party leader and a former prime minister, questioned Yingluck’s qualifications as a head of government. But Jetro’s Iuchi said his meetings with Yingluck gave him confidence in her abilities. Yingluck declined to be interviewed. In 2010, Thailand was by far the biggest rice exporter, shipping 9 million tons. In the same period, its nearest rival, Vietnam, shipped 6.7 million tons. Overtaken by Vietnam At a waterfront warehouse on the Chao Phraya River, veteran rice exporter Chookiat Ophaswongse predicted that in 2012, Thailand’s rice exports would plunge by 30 percent. Apart from flood disruptions, the government’s willingness to pay above-market rates to farmers is making Thai rice noncompetitive, said Chookiat, 57. As of February 22, the price of Thai rice, an Asian benchmark, had fallen about 15 percent from its November peak. Investor Marc Faber is more optimistic. He said he didn’t expect the floods to have any impact on Thailand’s long-term prospects. In 2000, Swiss-born Faber, who oversees $300m at Hong Kong-based Marc Faber, moved his family home to Chiang Mai, a 1 000-year-old walled city 700km north of Bangkok. In October, floods seeped into the house he built on the banks of the Ping River. Faber, 66, publisher of the Gloom, Boom & Doom Report, said he’d continue to invest in Thailand. Similarly, US-born Bill Heinecke, who owns hotels managed by Four Seasons Hotels and Marriott International in Thailand as well as his own Anantara-brand resorts, has made a bigger bet on the country than most. Heinecke, 62, gave up his US citizenship in 1992 to take Thai nationality. Since then, his Minor International has been rattled by the Asian financial crisis, the tsunami and a political protest in 2007 that closed Bangkok’s two airports for a week, stranding 400 000 travellers. During the worst times, Heinecke’s hotel occupancy rates plunged to less than 20 percent, he said. And yet his business has grown from a single hotel to 70 resorts, 1 200 restaurants and 200 retail stores. Shares of Minor International, in which King Bhumibol owns a 2.2 percent stake, rose more than 12-fold in the 10 years ended on February 22 – five times the increase in the benchmark index. In November, Heinecke went ahead with the opening of his latest, riverside Anantara hotel. This was at the height of the floods, with the swollen Chao Phraya reaching the edge of the hotel’s lawns. “We weren’t going to change the plan,” Heinecke says. “Thailand has a habit of bouncing back.”

Marc Faber's Holiday Cheer – The Whole Derivative Market Will Go toZero - Active Investor

With his usual holiday cheer Marc Faber’s most recent interview had him slamming the derivative markets. In an interview with Reuters he went over his predictions for 2012 which calls for more monetary easing, QE 3 etc. He also continues to worry about the growing EU sovereign debt crisis and the lack of real solutions. This was confirmed today after the ECB announced more banks than previously known tapped liquidity lines to the tune of $600 billion.

Of course his long-term views are decidedly bearish. He thinks people in 5 years time will have maybe 50% of their money. This wealth loss will be due to either equity collapses or inflationary pressures due to monetary easing. Obviously political solutions are out of the question at this point. One can look at the US government and see utter dysfunction. The GOP led house has refused to extend a tax cut due to lobbyist pressures on certain pet projects. Then in the EU you have France and the UK with increasingly cold diplomatic relations.

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

Looks like 2012 is shaping up to be another interesting year. The Mayans may be wrong about the end of the world, but if Marc Faber is right we won’t be able to tell the difference.

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

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

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

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

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

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

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

Marc Faber Stock Market S&P Index Won't Surpass 2011 1370 High - TheMarket Oracle

Marc Faber, publisher of the Gloom, Boom & Doom report, appeared on Bloomberg Television’s “Street Smart” with Carol Massar and Matt Miller today.

Speaking from Sao Paolo, Brazil, Faber said that the S&P won’t surpass the 2011 high of 1,370 and that investors are “better off in equities than bonds.” Faber also said that keeping money in cash in 10-Years is a “disaster.”
Faber on whether this is the market rally he’s been expecting:

“We had rally from the low on the ninth of August at 1,101 on the S&P to almost 1,200. Then we came right down again. Basically we did not make new lows. And now I think we can rally again for a while.”
Faber on how long his view of the market is:

“I think a lot of people will say the markets formed a double low and we have some technical indicators that are going to turn positive, so we could rally around 1,250, but as I said before, for me, we reached a high on May 2, 2011. 1,370 on the S&P–that we will not go through. My view is you have a lot of people with strategies that are very bullish. They have a yearend target of around 1,400-1,450 on the S&P. Then you have the super bear. I think both camps will be disappointed.”
On why the markets won’t come back down again to the lows that were hit in 2009:

“On fundamentals one could make the case that we could go lower to around March 2009 lows at 666 on the S&P. But I think we have to be realistic that if the market dropped here another 10% or 15%, there would be for sure another quantitative easing move and other measures taken to support asset prices.”
On what we’ll hear from Bernanke on Friday and whether there will be a selloff of Treasures after that:

“I think what [Bernanke] will say is that they are monitoring the situation, and they will take ‘appropriate measures’ when they are required. To some extent we are in midst of QE3 already, because by announcing the Fed will keep zero interest rates until the middle of 2013, they basically encourage financial institutions to borrow short-term and to buy 10-year Treasuries.”
On how uncertainty on a global level is affecting the markets:

“What I see extremely well is the stock market has traced out a major high between November of last year and June of this year and then fell sharply with very strong momentum and conviction very rapidly by close to 20%. I think that is a very important signal that we should not overlook. I think new highs are practically out of the question for the next six months to one year. We will likely move lower, but as I said, I do not think we will have a complete collapse.”
On why he’s not more bearish:

“I agree with you. I am the greatest bear on earth, but if you compare Treasury bond yields and equities, equities look reasonably attractive. I think we will have zero and below zero interest rates for the next 10 years. In other words, inflation adjusted to keep money in cash. Finally, the mood is so negative right now as a contrarian, you do not take a huge short position when people are as bearish as they are right now and when insider buying has picked up as much. I am as bearish as the greatest bear is. It is just that I do not believe stocks will implode.”
On insider buying:

“The insider buying has picked up, but there is still a lot of insider selling. Compared to all the selling in the last six months the buying is relatively muted. The insiders in general are a group of people against whom I would not bet against necessarily. All I am saying is I am very bearish. I think we will have inflation. I think the Treasury market is a disaster waiting to happen. I think the economy will slow down. They’re going to print money and we will go to war at some stage somewhere. So, you are probably better off in equities than in bonds. My favorite investment remains gold. As it happens the gold price is coming down, and I hope it will drop $100 or $200. Not necessarily a prediction. I think we will go down in a correction because there has been too much enthusiasm recently.”
Faber commenting on Gary Schilling’s bet against copper:

“I have known Gary Schilling since 1970 when we worked together. He has been a frequent bear about commodities and about copper. I happen to think copper is likely to come down, but I would not bet too heavily on it, because it takes a long time to bring on additional copper mines. Unless the Chinese economy collapses, the demand for copper will stay relatively high. If the Chinese economy collapses and Jim Chanos is right, then you want to be short not only copper, but short everything.”
Faber where the 10-Year will go:

“I would like to remind you that the 10-year has made a new low. [Gluskin Sheff economist] David Rosenberg was right and I was wrong. The 30-Year has not made a new low. The low in December 2008 was 2.53%. Now we’re around 3.4%. Basically we have an artificial market. The Fed has said we guarantee next to zero interest rates for the next two years. Banks and financial institutions are pouring into the 10-year because of the low rates at the present time. ”

Revolution Investing: How to position your portfolio for this market -MarketWatch (blog)

This is a special free reprint of the current Revolution Investing newsletter published here on Markewatch.  You can also sign up for a free one-week trial of my independent trading diary with just your email address by signing up here.
The guys on TV say we’re supposed to be talking about the Standard & Poor’s downgrade of the U.S. debt. The newspapers say we’re supposed to be talking about Spain and Italy and whether or not the ECB, and the World Bank can redistribute enough wealth upward to the elite and bank shareholders and lenders that they “save” the E.U. Wall Street analyst reports tell us that the markets might or might not be pricing in a new global or U.S. recession.
And certainly, we do need to talk about these market crashes over the last week. But just how sure are we that these guys are focusing on the right things? That anybody’s even looking at the primary catalyst for this sell off?
I got this instant message last night at 1:00 am from a friend of mine in Iceland:

“These riots in london are scary … the youth is so self-centered and lacking of ethics and compassion. The same with the Norwegian terror attack in Oslo … Very scary and hitting home … You getting any news about this over in your end?”

She’s in her mid 20s and was active in stopping the bank bailouts in her own country. Iceland, to review, had a bunch of corrupt bankers who created and invested and gambled on a bunch of lousy mortgage securities and needed a huge bailout and drastic austerity cuts to their social services to avoid bankruptcy and default.
The youth in the country revolted and the markets and economy tanked for a couple quarters … and then the resurgence started. Turned out that when the country forced corrupt bankers and the government they owned out and allowed smarter, more ethical managers to take over that things improved. And fast. And now the Iceland government is already back borrowing from the global markets are low rates and the country’s economy is expanding once again.
This is a special free reprint of the current Revolution Investing newsletter published here on Markewatch.  You can also sign up for a free one-week trial of my independent trading diary with just your email address by signing up here.
Contrast that to the approach that we took here in Ireland and Greece. Where they propped up the bank shareholders and lenders with welfare money, allowed the banks to continue fraudulent accounting practices by institutionalizing them, kept the corrupt bankers and traders and managers and regulators in place, and allowed them to pay out record bonuses with that welfare money while making drastic cuts to generations-old social services. You know, sort of like the Republican/Democrat regime did here in the U.S. And like they did in England. And in Norway and every other country that’s allowed the E.U. to pervert its mission of uniting the currencies and countries to one of simply looting for the elite and banks.
And people are angry. And now they’re taking to the streets and doing exactly to the establishment what the establishment has started explicitly doing to them — looting.

Likewise, the average American is also freaking out over the news that the same guys who took out bin Laden were themselves killed over the weekend. One of the guys had recently told New York magazine that they had been ordered to take Bin Laden out from the beginning, in contrast to what the Republican/Democrat regime leaders had originally told us.
People, even those like me who don’t consider themselves to be conspiracists or even-conspiracy-minded, wondered about the way Bin Laden was killed and disposed of, and now this? It rattles people to the core that our own soldiers are dying. When heroes/elite soldiers like the Green Beret guys who were taken out this week are killed en masse in one ugly attack like this, it’s horrific.
The upshot of all this is that whatever the reason for this current trashing of our stock markets, it’s the kind of ethereal, intangible catalyst that is truly the hardest kind to work through. It’s not going to be quick or easy because solutions to all of these issues are not going to be quick or easy.
But all that said, let’s also look past these issues. Unless you truly think that both the U.S. and E.U. economies and therefore societies are about to implode upon themselves and that we are headed into a Great Depression or something worse, then we’re likely already closer to pricing all off these problems into the markets already.
More likely, the reactions to these issues — U.S. debt downgrade, flash looting, mortgage title anarchy, E.U./euro debt crisis, threat of recession, etc — will be yet more corporate welfare, monetary easing, tax tricks for the biggest companies with the best lobbyists…in other words, more bubbles.
We added a short on Wells Fargo last week and the stock dropped 25% in the next few trading days, as the broader markets also tanked (though not quite that badly!). Our many smartphone/tablet/cloud stocks from Apple to Google and Marvell also took a big hit. That said, I’d also outlined repeatedly for subscribers to TradingWithCody.com that I’d been buying Cisco calls aggressively on weakness heading into their earnings report last week, catching a near-20% pop in the stock and doubling/tripling the value of the calls.
But our overall positioning of getting long for a new tech bubble while getting short for collapsing banks and other sectors that would be insolvent without ongoing welfare has helped us wildly outperform the markets since launch.
That continues to look like the right positioning.
This was a special free reprint of the current Revolution Investing newsletter published here on Markewatch.  You can also sign up for a free one-week trial of my independent trading diary (where you get access to all my stock and option trades as I do them in real-time) with just your email address by signing up here.
Cody Willard writes Revolution Investing for Marketwatch and posts the trades from his personal account at TradingWithCody.com. At time of publication, Cody was net long Cisco, Marvell, Apple, Google and net short Wells Fargo.

The bear market is starting: Marc Faber - Moneycontrol.com

The bear market is on its way back, economist and contrarian investor Marc Faber, the editor and publisher of The Gloom Boom and Doom Report
told CNBC Tuesday.
"The bear market is starting. When you compare equities to bonds and cash I don`t think equities are very positive," Faber said in an interview.

The SandP 500 has risen steadily since hitting its lowest point of the previous decade in March 2009.

Markets have been more turbulent in recent months as debt crises in both the US and the euro zone threatened to damage growth there.

"The Treasury market is telling you that the economy is in recession," said Faber. "So if the bond market is telling you that the economies of the Western world are weakening, but at the same time the stock market is still relatively high, I think the stock market is vulnerable."

He added his voice to those criticizing politicians in the US and elsewhere over the current problems.

"The politicians are all useless individuals. Nobody is reducing the problems in the US or Europe, just putting on a band aid and postponing the problems endlessly," he said.

"Some analysts think that there`s a chance economic data will surprise on the upside but I think, if anything, it will be on the downside," Faber added.

He believes that some companies will start to disappoint in the second half of this year.

China Bigger Risk

Second-quarter results so far have been a mixed bag, with major European banks such as BNP Paribas and Barclays announcing disappointing results on Tuesday, while earlier in the week Motorola and engineering giant EADS performed better than expected.

The most recent plan for US debt, which the Senate will vote on Tuesday afternoon, involves more than USD 1 trillion of spending cuts and a hard-won raising of the debt ceiling.

Faber argues that China disappointing "is a much bigger risk for the global economy than the US because the US is no longer a major commodities buyer".

He believes that the impact of a decline in Chinese growth on the oil price could be critical for major commodities producers like Canada, Australia and the Middle East.

"If commodity prices are falling, then commodity producers will buy fewer goods from China," he pointed out. "This is something that the world central bankers can`t deal with."

Food price inflation is more of a problem in emerging markets than in the developed world as food is typically a much bigger part of annual spend in poorer countries, Faber pointed out, arguing that this could lead to worse than expected growth in China.

Faber, who describes himself as "ultra-bearish", said that he thinks that precious metals are the best place to be at the moment.

Despite worries about major euro zone economies including Italy, he is relatively bullish on the survival of the euro.

"What surprises me more is actually the strength of the euro and that it has not collapsed yet," he said

He believes that peripheral economies which drag down the euro will eventually be "chucked out" of the single currency.

"I would have chucked out Greece three years ago, straight away, and it would have been much cheaper," Faber said.

Gold's position as a safe haven will continue to keep prices close to their recent historical highs, Faber believes. He said that he would buy gold if it falls below USD 150 per ounce again.

Copyright 2011 cnbc.com

Wednesday Look Ahead: Markets Twin Fears are Weak US Economy and Euro Crisis

China Rating Agency Downgrades US Debt

The Faulty Logic Behind the Market Sell-off - TIME

With the debt deal concluded, you might have expected global markets to have rallied. Instead, the Dow Jones industrial average closed down 266 points yesterday, or 2.2 percent.

The reason? There is a growing consensus among the investing class that a double-dip recession is imminent and that, as a result, stocks are in for tough times — and may even be poised for a crash.

You can’t argue with the market. If stocks fall, they fall. But the current outlook on equities may be based on faulty logic, namely that corporate profits and hence stock prices will track global GDP. For the past few years, profits have been strong even as GDP in many places has been weak, and there is little reason – based on what companies are saying over the past weeks – to believe that trend is at an end.

The sell-off of the past week and a half, which has continued even as the debt deal solidified, makes a certain amount of sense on paper. It’s been fueled by a raft of less-than-stellar economic data, ranging from a poor GDP report last Friday to weak future orders and declining consumer spending. And that data comes on top of uncertainty about just how bad the European banking and credit crisis will become. The upshot is that the investing class has turned distinctly bearish on the economy and future stock earnings.

Some of the most negative prognostication I’ve seen has come from the investing newsletter circuit. Perpetual bears like Marc Faber (whose regular report is called “Gloom, Boom & Doom”) are, not surprisingly, predicting a multi-year down market. But even less pessimistic market sages, including the widely respected John Hussman, have read the tea leaves of global economic data and concluded that a new recession is likely. Hussman is especially concerned about Chinese growth, which he believes will continue long-term but falter near-term, causing ripple effects in Canada, Australia and Brazil, among other countries.

But as I’ve noted in the past, what’s strange about all this is that somehow, amid the gloom, company after company has reported both record earnings and strong revenue growth. In fact, if you exclude financial companies, which are struggling under the combined weight of bad loans, anemic trading revenues, and new capital requirements, S&P 500 companies that have reported earnings this quarter are averaging nearly 22% earnings growth and nearly 12% revenue growth.  The revenue figure is especially powerful: Earnings can be massaged by astute accounting; but revenue reflects real demand.

Usually the market pays a premium for such growth, but stocks remain remarkably cheap. The average price-to-earnings ratio of S&P500 companies is about 12, well below historical averages and even cheaper when you look at the pathetically low yield on bonds.

None of that seems capable of swaying bearish sentiment, however, which holds that results to date are less important than results going forward — and that overall macroeconomic conditions globally won’t support the level of business we have seen.

You can’t prove the prevailing wisdom is wrong (given that it’s about the future), but it’s worth remembering that the most successful investors routinely bet against the crowd. And it is my sense that investors are falling into the same trap they have been falling into for years: Namely, they are assuming that business trends closely track economic trends when in fact they are increasingly diverging. Global GDP numbers are weakening, and traders will trade on the economic data in the short-term, but it has little bearing on the long-term strength of companies. This has been a problem for years, and it remains one.

So as the drumbeat of negativity gets louder, note what is happening in Corporateland. Sure, some are doing better than others there – all is not equal among companies any more than among individuals. But using weak economic data as an indicator of stocks or company profits is a mistake. It is one that is routinely made, and occasionally makes people money. But it will surely lead to missed opportunities and to a fundamental misreading of powerful trends propelling technology companies, industrial corporations and even many retailers relentlessly forward.

The bear market is starting: Marc Faber

The bear market is on its way back, economist and contrarian investor Marc Faber, the editor and publisher of The Gloom Boom & Doom Report told CNBC Tuesday.

The bear market is starting. When you compare equities to bonds and cash I don't think equities are very positive," Faber said in an interview.
The S&P 500 has risen steadily since hitting its lowest point of the previous decade in March 2009.
Markets have been more turbulent in recent months as debt crises in both the US and the euro zone threatened to damage growth there.

"The Treasury market is telling you that the economy is in recession," said Faber. "So if the bond market is telling you that the economies of the Western world are weakening, but at the same time the stock market is still relatively high, I think the stock market is vulnerable."
He added his voice to those criticizing politicians in the US and elsewhere over the current problems.
"The politicians are all useless individuals. Nobody is reducing the problems in the US or Europe, just putting on a band aid and postponing the problems endlessly," he said.
"Some analysts think that there's a chance economic data will surprise on the upside but I think, if anything, it will be on the downside," Faber added.
He believes that some companies will start to disappoint in the second half of this year.
China Bigger Risk
Second-quarter results so far have been a mixed bag, with major European banks such as BNP Paribas and Barclays announcing disappointing results on Tuesday, while earlier in the week Motorola and engineering giant EADS performed better than expected.
The most recent plan for US debt, which the Senate will vote on Tuesday afternoon, involves more than $1 trillion of spending cuts and a hard-won raising of the debt ceiling.
Faber argues that China disappointing "is a much bigger risk for the global economy than the US because the US is no longer a major commodities buyer".
He believes that the impact of a decline in Chinese growth on the oil price could be critical for major commodities producers like Canada, Australia and the Middle East.
"If commodity prices are falling, then commodity producers will buy fewer goods from China," he pointed out. "This is something that the world central bankers can't deal with."
Food price inflation is more of a problem in emerging markets than in the developed world as food is typically a much bigger part of annual spend in poorer countries, Faber pointed out, arguing that this could lead to worse than expected growth in China.
Faber, who describes himself as "ultra-bearish", said that he thinks that precious metals are the best place to be at the moment.
Despite worries about major euro zone economies including Italy, he is relatively bullish on the survival of the euro.
"What surprises me more is actually the strength of the euro and that it has not collapsed yet," he said
He believes that peripheral economies which drag down the euro will eventually be "chucked out" of the single currency.
"I would have chucked out Greece three years ago, straight away, and it would have been much cheaper," Faber said.
Gold's position as a safe haven will continue to keep prices close to their recent historical highs, Faber believes. He said that he would buy gold if it falls below $1500 per ounce again.