Tuesday, November 22, 2011

Printing money solves no crises: Faber - Taipei Times

Marc Faber, publisher of the Gloom, Boom and Doom report, yesterday reiterated his criticism of money printing practices, which he believes will continue in the US, Europe and elsewhere, causing bubbles such as those seen in the Chinese real-estate market.
“A third wave of quantitative easing by the US Federal Reserve is just a matter of time,” said Faber, a contrarian investor who has been referred to as “Doctor Doom” for a number of years.
Printing money is the way global governments will evade debt crises, such as the one that is gripping Europe, Faber said in Taipei.
That would forestall the crisis rather than solve it, keeping prices elevated for assets like stocks, real estate in some areas and precious metal, he said.
Loose monetary policies, including low interest rates, intended as a short-term fix, can have unintended consequences later, Faber said.
While central banks can inject fresh funds into the markets, they cannot control where the funds flow, he said, adding that money printing has encouraged speculation on commodities whose prices have gone up faster than real demand in recent years.
“Some people will benefit from money printing that deflates the purchasing power of currency ... but the middle and lower--income classes are being hurt,” said Faber, an investment adviser focused on value investments, who owns Marc Faber Ltd.
Countries with resources are basking in the trend in light of their sharp increases in international reserves, which Faber said was symptomatic of monetary inflation and a shift in wealth.
The fast-growing economy of China has pushed up its inflationary pressures, with the bubble in the real-estate sector on the brink of bursting, Faber said.
“Don’t believe China’s consumer price index stands only at 5 percent,” he said. “The truth is somewhere between 12 percent and 15 percent ... The real-estate bubble is so evident that Chinese property shares are very weak as the volume of real-estate transactions goes down and prices fall.”
Faber said China would follow the practice of quantitative easing if it has to choose between printing money and a concrete recession.
The Chinese bubble will burst eventually, in three months or in three years; when it happens, it will have devastating consequences for the global economy, he said.
“Chinese invented paper. They know how to print money,” Faber said.
Still, the ongoing shifting balance of economic power from industrialized countries to emerging economies is building up geopolitical tensions, especially in the Middle East and Central Asia, he said.
All the West needs to do to contain China is seize control of oil supplies, but China and the countries dependent on oil imports would not allow that for the sake of self-preservation, Faber said.
He recommended risk diversification against the current backdrop, but took a dim view of government bond purchases as they would mean trust in the easy monetary policy.
Rather, he suggests owning physical gold, equities and Asian real estate that will prove a better defense against inflation.
Greece, Faber said, is bankrupt whether Europe likes to admit it or not, and the European Central Bank will print money to postpone a systematic failure.

Monday, November 21, 2011

If the economy is so terrible, why is Obama winning? - Baltimore Sun

It's the economy, stupid — or maybe not. President Barack Obama, with the help of congressional allies, has taken key issues that should be dooming him and turned them to his advantage.

Economists agree that growth is slow and jobs scarce because demand for what Americans make is weak. Consumers are spending and businesses are investing again; however, too many dollars go to imports but do not return to buy exports — a huge deficit with China and on oil are to blame.
President Obama effectively articulates those problems and seeks to move China off mercantilism with diplomacy and wean Americans from fossil fuels with alternative technologies.

However, neither reasoning with the Middle Kingdom nor windmills and electric cars addresses those problems effectively. Moreover, the president flat-out rejects that an out-of-control federal regulatory system and rocketing health care costs are driving businesses and jobs abroad.
Instead of "fixing what's broke," he campaigns across America for quick fixes that would make voters feel better until after the election and paints the GOP as callous defenders of the rich.
Meanwhile, Democrats in the Senate serve up one proposal after another — aid to states, public works and job aid for veterans — each financed with a new tax on millionaires. Recognizing the economy needs structural solutions, Republicans block those ploys, but then the president exclaims that Republicans would rather protect the richest 1 percent than keep teachers and firefighters on the job, invest in America's future and help unemployed veterans.
The president has turned liabilities — high unemployment and failed policies — into assets: the fairness and responsibility issues.
It's working. According to the most recent Quinnipiac Poll, President Obama leads Mitt Romney, Rick Perry, Herman Cain and Newt Gingrich, and his advantage is growing.
For Republicans, it doesn't help that the field has not thinned; the messages of those top-tier candidates are partially drowned by the cacophony of second-tier hopefuls whose viability is extended by the endless cavalcade of entertaining network debates.
Also, it doesn't help that Messrs. Perry, Cain and Gingrich offer vague, thin and doctrinaire economic prescriptions. Moreover, Mr. Perry comes off a bumbler, Mr. Cain is handicapped by sexual misconduct allegations, and Mr. Gingrich, an amusing senior statesman, is just too professorial to win the brass ring.
The likely Republican nominee, Mitt Romney has a comprehensive program to right the economy — on trade, energy, regulation and health care — but has failed to effectively articulate for voters what's broken and demonstrate how what he offers will fix it. It doesn't help that he is not exciting or charismatic; Lyndon Johnson proved a president doesn't need those to be highly effective, but John F. Kennedy set the tone for TV-era campaigns by demonstrating how those qualities can trump other considerations.
Mr. Romney has been in politics long enough to recognize his communications strategy is failing, and those close to him can attest to his persuasive personal qualities. It remains a puzzle that he has not improved his messaging and found a way to compel more attention to the strength of his ideas and character. He must do those things to demonstrate he has the intelligence and vigor for high office.
On the road (the campaign trail) and at home (Washington), Mr. Obama keeps winning because he effectively defines the terms of the debate to suit his advantages, and the GOP has not offered voters a credible and exciting alternative.
The president is simply outplaying his opponents on all venues. If Mitt Romney indeed emerges as the Republican nominee, he must expose the president's tactics and convince voters he offers something that is better and will solve the nation's problems — and that he is strong enough and smart enough to get it done.

Peter Morici, a professor at the University of Maryland's Smith School of Business, is former chief economist at the U.S. International Trade Commission. His email is pmorici@rhsmith.umd.edu.

Marc Faber on Gold, Stocks & QE3 - Beacon Equity Research

As the global financial crisis accelerates in the fourth quarter following revised economic data revealing a high probability of another recession in Europe and the United States (see BER article of Nov. 7) on the horizon, the ever-entertaining publisher of the Gloom Boom Doom
Report Marc Faber stated Wednesday that he’s convinced that governments across the globe will print money to prevent a collapse of the financial system.
Japan, the UK and EU continue to relentlessly debase their respective currencies in a fight to retain a piece of shrinking global demand, simultaneously reducing crushing debt obligations in real terms priced in their respective currencies—a kill-two-birds-with-one-stone monetary policy salvos fiercely unleashed anew in the recent wake of horrendous drops in global export data for October.

In the case of Europe, imminent debt defaults merely add to the urgency for more money printing by the ECB—whose new U.S.-centric central banker from Italy, Mario Draghi, has taken the helm as the next step toward flushing out the ultimate intentions of Germany regarding the euro.

China apologetically lurches back onto the dollar peg, and it’s now the turn of the U.S. to fight back with its own strategic weapon—the dollar—in the race to devaluations.

“A third wave of quantitative easing by the U.S. Federal Reserve is just a matter of time,” Faber said in a speech in Taipei, according to Taiwan’s Taipei Times.

Faber also points out that, while the world’s industrialized countries wage a full-blown global currency war, the victims of said war won’t include the rich; it will be the masses who take on the traditional role of cannon fodder for the bankers and politicians.

“Some people will benefit from money printing that deflates the purchasing power of currency . . . but the middle and lower—income classes are being hurt,” said Faber, who has repeated on many occasions throughout the global financial crisis his disdain for central bankers and the financial pain they inflict on innocent people.

Faber recommends eschewing bonds in favor of stocks, Asia real estate and physical gold—especially gold, an asset he colorfully referred to in an interview with Newsmax in September, “I own my gold and I will never sell it, especially when I see clowns like Ben Bernanke, Larry Summers, Tim Geithner.”

On the growing debate regarding China’s economy, according to Faber, it’s in a bubble; but the Chinese bubble can last longer than many expect; it could pop in three months or three years, he said.

It should be noted that the notion of a potential Japanese-style collapse in China has gathered steam lately—and was first suggested by famed hedge fund manager Hugh Hendry of Eclectica Asset Management, who said at an investment forum in Russia last year regarding China’s successive string of high GDP rates which appeared to him to be driven by too much capital spending, “Confucius say: thou shall not invest in overcapacity.”

Faber also touched upon the escalating geopolitical tensions between the West and the Middle East/Central Asia region.  To contain China’s rise as a bona fide superpower, the West must secure oil supplies for themselves at the expense of China, he said.

But no matter how the struggle for oil supplies between the West and China plays out, or whether China’s economy heads south, or not, Faber wittily said, if need be, “Chinese invented paper. They know how to print money.”

According to Faber, at some point, the global reflation trade is all but certain.

Sunday, November 20, 2011

Is it time to invest in technology? - Telegraph.co.uk

Those who still have their holdings are sitting on substantial losses, despite the fact that names such as Google and Apple have subsequently become not only two of the most famous worldwide brands, but highly profitable companies as well.

Yet while technology and the internet have transformed the way we live our lives, and the way companies conduct business, this hasn't always translated into profits for British investors. At the beginning of 2000 investors were ploughing hundreds of millions of pounds into technology funds. The most popular at the time was Aberdeen Technology - it was raking in more money a week than it had attracted in almost 20 years.
Eleven years later, investors have seen the fund sold on to New Star, then Henderson Global Investors. Despite a modest recovery in technology share prices in the past five years, if they invested a lump sum at the height of the boom they now have less than half their money.
Figures from Morningstar show that a £1,000 investment in Axa Framlington Global Technology at the end of 1999 is today worth £454, a similar amount invested in Invesco Global Technology is worth £304, while Henderson Global Technology has turned the same sum into £528. A number of other funds, including Framlington's NetNet and Jupiter Technology, have been closed, merged or sold on.
But while these shocking figures may have turned a generation off completely, there are strong signs of more positive growth in this sector.
Over the past three years Axa Framlington Global Technology has doubled investors' money, as has GLG Technology; while Polar Capital Technology – a well-rated investment trust – has turned £1,000 into £2,409, making it the best-performing fund in the sector. This trust has also delivered positive returns over one and five years and is managed by Ben Rogoff, who previously ran the Aberdeen fund.
Rob Morgan, an investment analyst at Hargreaves Lansdown, said: "In a low-growth environment it is perhaps not surprising that many investors are naturally drawn to sectors where there is the capacity for growth." A new idea can rapidly translate into worldwide sales: look at the success of the iPhone.
As Mr Morgan pointed out, people only have to think about where they spend their money, and how they live their lives, to see the potential that companies have in the technology, telecoms and media sector.
Just as there was a massive boom in the number of people buying mobile phones a decade ago, now we are seeing a huge rise in the sales of "tablet" computers (such as iPads), smartphones and other mobile computing devices.
But the risks inherent in the sector are also abundantly clear from the trends we see around us. Nokia, for example, had been one of the biggest players in the mobile handset market. But its failure to capitalise quickly on the touch-screen technology that has driven the smartphone market has led to a significant decline in its sales, profits and share price.
So the speed at which companies can grow and transform markets can conversely have a similar rapid effect on the fortunes of others; and it can be almost impossible to predict these changes.
The nature of technology investing has also changed. Where a decade ago many technology stocks were risky start-ups, today the sector includes some global giants.
Mr Morgan added: "Companies like Apple don't fit most people's stereotype of a technology stock. This is a global brand that, thanks to its impressive sales, has huge cash reserves, rather than debt. In that respect it is a blue-chip stock and a relatively safe investment."
But investors don't have to pile in to higher-risk technology funds to gain exposure to such companies. Most global funds will have a significant exposure to this sector – via Apple, Intel, Dell and Hewlett-Packard in the US, or Asian giants such as Sony, Samsung and Hitachi. Likewise, any US fund – whether it is actively managed or a tracker – is likely to have a significant technology weighting.
But it is still easy for investors to get caught out by the technology hype. The potential of the "next big thing" to make lots of money is something many investors – both amateur and professional – find hard to resist.
Recently there has been a lot of interest in social media sites. When LinkedIn floated on the US stock market in April this year its share price doubled on the first day as the volume of shares traded meant investors effectively bought and sold the company three times over.
This has led to Monopoly-money style valuations being attached to the likes of Groupon, Zynga (the makers of the online game Farmville) and Twitter, which some have suggested could float for $10bn. You don't need 140 characters to suggest that it's a big price tag for a company that has yet to make a profit.
Nick Evans, one of the managers of the Polar Capital Global Technology fund, said it was easy to compare the hype around social media stocks today to the last technology bubble. But he said there were considerable differences. "Overall, social media valuations do look stretched, but this is the only area of the sector that does. To say a bubble is forming in the sector as a whole looks unjust."
But other managers can see clear parallels to the dotcom boom. Stuart O'Gorman, the director of technology at Henderson, said: "In the Nineties everyone agreed that the internet was going to explode over the next decade and transform the way we shop, communicate and do business."
Because everyone could see the logic of this assertion, investors piled in to dotcom shares. The assertion certainly proved to be true – but a lot of people lost a lot of money in the process.
Mr O'Gorman added: "We can see the same things happening with some social media companies. The question is whether companies like Facebook can monetise their dominant position. The trick for investors will be spotting the Googles and Amazons of tomorrow."
He said technology had over-promised and under-delivered in the past. "Do you remember 3G in 2000? Everybody was expecting an iPhone and what we got was a ghastly NEC/Vodafone 'Live' product."
If investors want to avoid such traps while simultaneously profiting from growth in the sector, they could do a lot worse than follow Mr Buffett's example: buy technology stocks, but only when you understand the rationale for their success, and ensure that the company – like IBM – has a good record of delivering value for its shareholders.

Thursday, November 17, 2011

Where to invest next year

The stock market should have some modest gains as investors get back to basics.
(MONEY Magazine) -- As some of the uncertainties surrounding the economy lift over the course of the year, attention is bound to turn back to the fundamentals of the private sector, says Katherine Nixon, chief investment officer for the Northeast region at Northern Trust.
And on that front, things don't look so bad. Corporate profits are hanging tough. Yes, growth has been slowing noticeably in recent months, but earnings for firms in the S&P 500 (SPX) are still expected to climb an above-average 9% next year, according to S&P Capital IQ.

As for whether stocks represent a good value now, the picture is decidedly mixed. A conservative measure of price/ earnings ratios -- which relies on 10 years of averaged earnings -- would suggest equities are too expensive to load up on. But the S&P's P/E, based on projected profits, points to stocks being a decent buy. "Anyone willing to take on volatility and invest in equities today with a three-year time frame should see large positive returns," said Chuck de Lardemelle, a co-manager of IVA Worldwide Fund.
Meanwhile, interest rates are near all-time lows. That's good news for stocks, but fixed-income investors will have a tough time making money. Tom Atteberry, manager of FPA New Income Fund, notes 10-year Treasuries were yielding less than 2% in the fall. At that paltry level, a fraction of a percentage point increase in rates could wipe out what little your bonds are yielding -- and then some. Yet economists think 10-year rates will climb modestly. So it will be critical to diversify your bond portfolio into other areas, in particular, corporate debt.
The action plan -- In a market likely to produce only modest gains, diversify your fixed-income bets and focus on relatively safe equities.
Stocks: Ride the big dependables. Early on in a recovery, small-company stocks traditionally give you the biggest pop. At this stage, it's the big boys with balance-sheet might that are likely to outperform, as was the case in 2011. Not only do large firms provide greater exposure to foreign markets -- including emerging economies that are growing much faster than the U.S. -- their bigger dividends can account for a sizable portion of your gains in a low-return year, says Northern Trust's Nixon. Funds that pay particularly close attention to high-quality blue chips are Jensen Quality Growth (JENSX) and T. Rowe Price Blue Chip Growth (TRBCX). Both are on the MONEY 70, our recommended list of mutual funds and exchange-traded funds.
Seek out revenue growers. Brad Sorensen, director of market and sector analysis at the Schwab Center for Financial Research, expects businesses to upgrade technology to boost productivity. It's already happening. In the third quarter, business spending jumped 16.3%. Another area likely to enjoy better-than-average revenue growth is the industrial sector, where firms are seeing strong demand from emerging markets building out their infrastructure. For an added dollop of tech, go with the Vanguard Information Technology ETF (VGT), which bulks up on tech giants like Apple (AAPL, Fortune 500) and IBM (IBM, Fortune 500). For industrials, check out iShares S&P Global Industrials (EXI).
Bonds: Bet on high yield. As recession fears rose in 2011, economically sensitive high-yield bonds sold off bigtime. Result: The gap in yields between "junk" bonds and short-term Treasuries jumped to more than nine percentage points, up from six points in early 2011. "That spread represents a pretty good value," says Robert Ostrowski, in charge of taxable fixed-income strategy at Federated. LPL Financial market strategist Anthony Valeri says junk is trading as if defaults will spike to 9%, up from 2%. "We just don't see a 9% default rate as remotely likely," he says. Given junk's tendency to bounce around, Valeri recommends keeping a modest stake of 5% to 10% in these bonds. You can accomplish that through a diversified junk fund like Fidelity High Income (SPHIX).
Don't get stuck in the middle. On the other end of the fixed-income spectrum are Treasuries, which won't default but are at risk if rates rise. Treasuries maturing in five to seven years are paying barely more than cash, so it makes little sense to buy them. Ostrowski recommends a "barbell" strategy, with 80% of your Treasuries in short-term securities and 20% in long-term bonds. He says the Fed's campaign to buy long-term Treasuries, dubbed Operation Twist, should make long Treasuries less of a risk. And this strategy could yield around 2.5%, nearly a point more than what seven-year Treasuries are paying.
Dr. Dooms...
Though the economy is healing, some long-standing bears are still bracing for Armageddon. Yet each has a different take on how to prepare for the fallout.
Nouriel Roubini, Economics professor who called the mortgage crisis
Forecast: Decent chance of another recession.
Advice: Favor U.S. stocks over European equities.
Peter Schiff, Strategist who predicted a decade-long bear
Forecast: Expect an actual depression.
Advice: Avoid dollar-denominated assets. Buy gold and silver.
Marc Faber, Investment analyst who called the 1987 crash
Forecast: A collapse in China threatens the global economy.
Advice: Keep a quarter in cash, a quarter in gold, a quarter in real estate, and a quarter in stocks.
Henry Kaufman, Economist dubbed "Dr. Gloom" in the '80s for his general pessimism
Forecast: The U.S. economy will stagnate.
Advice: Buy stock in firms with strong balance sheets.
... And a Dr. Hope
Richard Sylla, Economist and financial historian who foresaw the "lost decade"
Forecast: Expect better returns over the next decade.
Advice: Shift from cash to stocks in stages, putting a quarter in every few months. To top of page

Hey, where are all the healthcare investors going? - Fortune (blog)

By Lisa Suennen, contributor
Health and healthcare issues has been a dominant topic in the national media since the 2008 elections, and have been constantly in the news as the Patient Protection and Affordable Care Act (PPACA) has taken center stage.  Even if PPACA weren't always in the headlines, stories about employers who are grasping for solutions to their healthcare cost crises would still be.
Given the massive amount of change currently underway in the U.S. healthcare economy, we have bona fide industry upheaval on our hands. Today more than ever there is a tremendous opportunity to find new ways of doing business in the world of healthcare through changing delivery systems, insurance models, technology solutions, drug discovery, device innovation and just about everything else that takes place in the healthcare system. Never before has there been so much energy and so much necessity to produce innovation in our field.
So then why are venture capitalists fleeing healthcare like female co-workers from Herman Cain? Historically the source of funding for so much innovation and employment in the healthcare field, VCs with lengthy histories funding the drug, device, service and IT companies of tomorrow are picking up their marbles and going home. Last guy out turn out the lights.
Last week the National Venture Capital Association (NVCA) said the following in their blog:
"…today we can say officially that we are seeing an alarming trend in the area of life sciences investing with the announcement that Scale Venture Partners will cease healthcare investing permanently.  This exit follows the announcement last week that long time, established funds Morgenthaler and Advanced Technology Ventures would be effectively spinning out their healthcare investment practices and the announcement just over a month ago that Prospect Ventures would not raise a fourth healthcare fund and return committed capital to limited partners."
What they didn't include in their article were the additional facts that Highland Capital Partners recently decided to cut back its healthcare practice, CMEA Ventures has decided to make no more medical device investments and that Versant Ventures appears to be on the verge of reducing its healthcare practice if the industry buzz is correct. There are rumors afoot that a slew of others firms on Sand Hill Road are in the process of divesting themselves of their healthcare practices and there are several others that I know for sure already have taken steps in this direction but have not yet announced it formally.
To add to the pile, the NVCA released a report in October called Vital Signs. The report documents a survey that found that U.S. venture capital firms have been decreasing their investment in biopharmaceutical and medical device companies over the past three years and are planning to decrease their commitments to these areas even more. Thirty-nine percent of the 150 firms surveyed report decreasing their investments in life sciences companies over the last three years and the same percentage expect to further decrease these investments over the next three years, some by greater than 30 percent. According to NVCA, this is twice the number of firms that plan to increase healthcare investments.
Given this, I suppose the mass extinction we are now watching is predictable, if sad. It is certainly possible there was too much capital chasing healthcare deals, but now we are likely to swing too far in the other direction. Also, I know the people at most of these firms—great investors like Mark Brooks (Scale), Rod Altman (CMEA) and Bijan Salehizedah (Highland)–and they are smart, successful and have contributed greatly to the establishment of important healthcare companies that have become leading industry players. It is really a drag to see them heading into a game of musical chairs where someone has already taken all the chairs away. Hopefully all the really good ones will rapidly be back in active investing action before long.
Most of the firms who are jettisoning healthcare are planning to spend all of their capital on information technology deals. Because the world needs another Zynga and Groupon... I mean, I get it. You can build these companies with no significant regulatory entanglement, grow them rapidly through direct-to-consumer sales, take them public with magic fairy dust (Groupon is worth $11.5 billion? Nice infinity multiple of EBITDA) and come home the conquering hero. Yes, people want and love these companies and their products; just try to tear someone away from Angry Birds.
But seriously people, we are not going to maintain world dominance because we are totally awesome at World of Warcraft or access to Groupon's wide world of discount pedicures. We can only re-establish our economic world dominance by having an economy to come home to. And if we don't fix the healthcare system by changing the way we do things, we aren't going to have that. So given the massive opportunity to bring companies to the fore to fix this problem, why are healthcare investors waving the white flag?
The primary reason given for why firms are running way from healthcare like Road Runner from Wile E. Coyote is the vastly more complex regulatory environment that has created a dark cloud over the biopharma and medical device industries. It is getting increasingly more difficult, more unpredictable and more expensive to get drugs or devices approved by the FDA. Over the last few years a trail of tears has been formed by companies that got surprised in the FDA process when they met their end points and still didn't get approval or where the rules of the approval game were changed mid-field. Where many young U.S. companies didn't even bother getting European regulatory approval in the past, now it is becoming the primary path to market. There is a rising crop of these companies that have decided never to seek U.S. regulatory approval, trying to make it by marketing only in countries where the FDA is not. Today's regulatory environment is fraught with mistrust and confusion and it has had a real, measurable and negative impact on U.S. bio-medical dominance.  Increasingly investment dollars are going overseas to China, India and elsewhere, taking with it the innovations that used to be ours alone. The net result of all this has been an environment where it costs far more and takes far longer than used to be the case to get a new drug or device to market in the U.S.  These are two characteristics that those who invest in venture funds simply can't stand–they want shorter time to liquidity, not longer; and they want a good return on investment, not an increasingly high cost to get to any outcome.    As a result, money is drying up for those who specialize in biotech and medical devices and thus funds are wrapping up instead of bulking up.
A second issue is the advent of much greater scrutiny around what drugs and devices can get reimbursed in our public and private insurance systems. Even if you can get a regulatory approval, you may never see the light of day on getting payment for what you have to offer. It has always been challenging to get a new reimbursement code for a new product, but now it is becoming an act of God. For very good reasons payers don't want to open the floodgates to new products that might simply increase costs further and add no meaningful clinical value. Purveyors of new products are being forced to make a strong economic case to get coverage for their drugs and devices, which further complicates the ability of new companies to get traction. It is very hard to build your real life economic case when you can't get the product paid for to begin with, companies will argue. Frankly, it is hard to argue with the payers' orientation, as the biotech and medtech focus has too long been on technology and not on value.  However, there is a fine line between "prove it is worth paying for" and "when hell freezes over" and the latter is becoming the more dominant theme on the reimbursement front.
The federal government should be very uncomfortable seeing the flight from healthcare investing.  They are the ones leading the charge for change in the healthcare system but clearly they are not the ones who will create the innovations that satisfy their policy goals.  If politicians don't recognize that their policies are flattening the innovation curve, they are going to be left with a sorry mess where healthcare costs continue to double every 10 years, eventually eating up the entire GDP. Rather than take an adversarial regulatory, tax, hiring stance, the government needs to find ways to work hand-in-hand with industry to ensure that the healthcare goals they have set out can be met through the delivery of new products and services. If you kill the source of innovation now (venture capital and entrepreneurship go hand in hand), there will be no new ideas to implement 2-5-10 years from now when the rubber really hits the road.
Thankfully, there are still a few of us stalwarts (fools?) left who continue to believe there is real money to be made by investing in innovation in the healthcare system.  A few of us are even crazy enough to continue investing in medical devices or biopharma, although the criteria to get funded are definitely more complex than in days gone by.  Clinical efficacy, capital efficiency and evidence of real value to patients, payers and providers are the yardsticks by which these new investments must be measured if they are to have a chance in today's increasingly complex healthcare economy.
So far this year only $264 million has been invested in venture-backed healthcare services deals as compared to over $5.5 billion in biotech/medtech; healthcare IT doesn't even merit its own category in the PriceWaterhouseCoopers survey that tracks these things.  It is definitely worth noting that the biggest challenges impeding the health our healthcare system are in the areas of how services are delivered and how technology could improve those functions.  Thus one can hope that the investors that invest in venture funds will see the great opportunity, and thus great returns, that can be made by supporting innovation in these subsectors.
Furthermore, there are a lot of contrarians out there who make it their business to invest heavily in the areas from which everybody else is running away. Sometimes this doesn't work out—I wouldn't want to be investing in in horse-drawn carriages right now while everyone is standing in line to buy a Fisker—but when it comes to the healthcare economy, you gotta believe people are going to keep getting older, sicker, and needier of services no matter what else is happening out there in the world or how annoying the FDA may be.  Thus I hope our industry begins to benefits from the wisdom of the contrarians, who must recognize the vast investment opportunity presented by an industry under dramatic transformation.
In The Big Short
, Michael Lewis he writes about Charlie Ledley, a money manager who made out like a bandit while the financial markets collapsed, murdering the majority of the investment community.  He writes that Ledley, "was odd in his belief that the best way to make money on Wall Street was to seek out whatever it was that Wall Street believed was least likely to happen, and bet on its happening. Charlie and his partners had done this often enough, and had had enough success, to know that the markets were predisposed to underestimating the likelihood of dramatic change."
While investors must be prudent about the risks inherent in investing in the healthcare marketplace, I think it is worth considering this thesis.  The healthcare marketplace will undoubtedly look far differently 10 years from now than it does today given all of the changes underway.  As the Age Wave crashes over our country, we will need the next generation of drugs, devices, services and technologies that can effectively serve the needs of our population. Those who are there with innovations that grease the wheels of progress will be tomorrow's Charlie Ledleys.
John F. Kennedy once said, "Change is the law of life. And those who look only to the past or present are certain to miss the future."  Let's hope that the government can remember that their actions today will result in outcomes for tomorrow.  Moreover, let's pray that the venture capital community and its backers can heed JFK's words and hang in there long enough to reap the benefits of building tomorrow's U.S. healthcare economy.
Lisa Suennen is a co-founder and Managing Member of Psilos Group, a healthcare-focused venture capital firm with over $577 million under management.

Investing in Population Growth - Equities.com

When the birth of the 7 billionth person was announced by the United Nations on Halloween this year, it was accompanied by a level of fear mongering that made it far scarier than any haunted house or costumed goblin. The facts on global warming are, of course, even more terrifying, and they will result in changes to the way that the world conducts itself in a shorter time frame than many are prepared for.  The price of energy and commodities will rise exponentially with the size of the global population, projected to reach 9 billion by 2030. The recent rejection of nuclear energy only worsens the first problem, while spells of inclimate weather and a growing middle class in the world’s most massive nations, China and India, will exacerbate the fast rise of prices for our most vital resources.

These factors, from a consumer standpoint are disconcerting. From an investor standpoint, however, they could be considered compelling. Supply and demand dictate pricing. Higher demand, born from a  larger population  growing middle classes in India and China, will put pressure on prices for both energy and food. Investment in commodities, agricultural ETFs, companies that produce mineralized soil to helps increase yields, oil futures and oil companies could have major long term benefits if this age-old model can be relied upon.

Energy Prices Climb Under Higher Pressure

Beginning with energy, the trend toward vastly higher prices can already be observed. Oil may have sunk lower as the global economy grew with less sure-footedness than the population itself, but in the macro picture, the price of energy is headed higher. The most recent major projects that oil companies are engaging in are more expensive and involve less hospitable environments. While in the past, the wealth of oil in easy-to-access areas was enough to sustain the population, production has suddenly shifted off shore or into shale, requiring greater efforts and higher expenditures for extraction. When those resources are exhausted or relied upon wholly, the price of energy can be expected to push higher. Investing early could be a helpful tool in affording it later.

A recent announcement from the International Energy Agency confirmed that prices are headed higher. The group predicts that energy will become “viciously more expensive.”  In the next breath, the IEA expressed its weak expectations for renewable energy integration, further raising alarm over future fossil fuel prices. The Paris-based agency projects that global demand for energy will increase 40 percent by 2035, led in part by China, who is expected to augment its consumption by 1.3 percent a year. India, where the population is anticipated to outpace China’s during period, can also be expected to maximize the amount of resources it uses. The group called for a $1.5 trillion annual investment in energy infrastructure to help mitigate some of the fiscal consequences of rising oil expenditures but admitted, even then, “the cost of energy will increase.” The IEA, calculated that crude prices will reach $120 a barrel in 2035, or a nominal $212. The $120 a barrel is the IEA’s best scenario prediction. They added that should the recommended spending levels fall by a third, oil prices could reach $150 a barrel.

Investors looking to prepare themselves for the rise in prices may want to look into ETFs and ETNs that track the long term price of crude like PowerShares DB CrudeOil Long ETN (OLO). Another option for investors looking to participate in the long-term rise in prices  may consider oil services companies which aid in drilling. As the oil becomes more difficult to attain, oil service companies that create and innovate the necessary equipment are likely to thrive. Two examples of companies like this include the internationally operating, Schlumberg Limited (SLB) or Halliburton (HAL). Both companies provide technology and services that will be in higher demand alongside rising growth.

In addition to the rising price of oil, natural gas is also expected to undergo a similar trajectory with demand forecast to reach as much as 5.1 trillion cubic meters a year by 2035 up from about 3.1 trillion as of 2009. The trend toward increasing usages of natural gas has already been evident in earnings reports from Exxon (XOM) and other major companies, and the IEA predicts that trend will continue as many recognize the green benefits to burning natural gas instead of oil. The recent disaster in Japan that resulted in the paring down of Nuclear power use has also been a boon for natural gas. Options for investing in the long-term trajectory of natural gas include Patterson-UTI Energy (PTEN), which provides natural gas companies with contract drilling services and could become more profitable alongside long-term demand. Other options could be healthy majors like Exxon, whose relatively recent acquistion of shale gas producer, XTO Energy Inc., may represent the company’s preparation for a new age in natural gas.

Newfield Exploration Co. (NFX) and Range Resources Corp. (RRC), also specialize in shale production, are considered to be well-managed, and have the potential to profit long-term from demographic realities.

Commodity Prices and the Rising Middle Class

High energy prices can also be expected to drive up the cost of food. Energy is essential to the success of food crops, as a result of its direct influence on things like shipping costs and its impact on fertilizer prices. Add to the mix, more demand from nations where both population and affluence are increasing, and the price of food could sky rocket.

The wealthier a nation the more they expect to integrate meat into their diets. This in turn requires greater energy and more crops in order to sustain the animals until they can be consumed. In and of itself, this causes the prices for food items like corn to increase. We have been seeing a steady rise in the prices of these commodities for over two years and considering global trends and population growth, its likely this will be sustained.

Investors can choose to invest in this trend in several ways. They can like many investors before them, make a bet on agricultural exchange traded funds like Teucrium Corn Fund (CORN) or an agricultural ETF or ETN that tracks a basket of food prices like Power Shares DB Agriculture Fund (DBA). DBA reflects the price of a mix of food items from, feeder cattle to cocoa, coffee, corn, live cattle, soy beans and sugar. There’s also the option of making a long-term play on companies that produce enriched fertilizers, like Potash (POT). The demand on corporations of this nature will be amplified as farmers are under greater pressure to produce stronger and larger yields. It’s estimated that we will need to be producing 50 percent more food than we are now by the year 2030, meaning the global food supply will undergo a major shift both in terms of pricing and technology.

For individuals willing to bet that both prices and technology will shift, it may be wise to consider an investment in one of the major players in agricultural genetic engineering. These companies add transgenic traits to the variety of plants they breed in order to improve production. Other related corporations seek to modify genes of live stock and other animal proteins, like fish, in order to minimize the energy consumed in growth and maximize production. These companies include Monsanto (MON), which has the largest share of genetically engineered crops in the world.  Another of the protein focused is Aqua Bounty (ABTX), a biotechnology company responsible for obtaining approval for the premier animal for food production, an exceptionally fast growing salmon.

Considering the impact of demographic realities on the cost and availability of our most essential resources, investing early in the limited areas that will profit from the shift, may be the surest way to afford lunch and a tank of gas in 2035.

Wednesday, November 16, 2011

Destructive inflationism - Asia Times Online

I was struck recently by a question posed by CNBC's Simon Hobbs to Marc Faber - investor, analyst and financial writer extraordinaire: "In Steve Jobs' new biography, Walter Isaacson talks about a conversation that he had with Rupert Murdoch, and Steve Jobs says that for commentary and analysis the axis today is not liberal versus conservative. The axis now is constructive versus destructive. Which side of that line do you think you fall on?"

I'll assume that Mr Hobbs sees Marc Faber residing more in the "destructive" camp - and I presume many would consider my

analysis "destructive" as well. We're now in this strange and uncomfortable period of heightened angst, anger and vilification, whether it is in Athens, throughout Europe, or across the US from New York City to Oakland, California. European policymakers have been keen to blame short-sellers and speculators for their bond market woes. The rating agencies are under attack on both sides of the Atlantic. And analysts such as Mr Faber and myself are generally viewed with contempt by those determined to view the world through rose-colored glasses.

From Websters: "Destructionist: One who delights in destroying that which is valuable; one whose principles and influence tend to destroy existing institutions; a destructive."

I tend to view the recent use of "destructionist" in similar light to the vilification of the so-called "liquidationists" and "bubble poppers" (a Ben Bernanke term) from the spectacular "Roaring Twenties" boom and bust cycle. There are those who believe that enlightened policymaking can implement an inflationary cycle and successfully grow out of debt problems. Then there are others that see failed policy doctrine and credit inflation as the root cause of a dangerous dynamic that risks a catastrophic end. Revisionist history has been especially unfair to Andrew Mellon and other "bubble poppers" who warned of the impending dangers associated with the runaway monetary, credit and speculative excess in the years immediately preceding the 1929 crash.

I am of the view that inflationary policy doctrine ("inflationism") is in the process of impairing the creditworthiness of the financial claims that constitute the foundation of the global financial system. Massive issuance of non-productive debt and central bank monetization have irreparably distorted the global pricing of finance and the resulting allocation of financial and real resources.
This backdrop has nurtured destructive speculative dynamics. From my perspective, it is the "destructionist" forces of "inflationism" that today pose grave risk to global capitalism. And, to be sure, the "socialism" of credit risk is at the heart of the monetary and economic quagmires imperiling Europe, the US and nations around the world.

From Wikipedia: "Destructionism is a term used by Ludwig Von Mises, a classical liberal economist, to refer to policies that consume capital but do not accumulate it. It is the title of Part V of his seminal work Socialism. Since accumulation of capital is the basis for economic progress (as the capital stock of society increases, the productivity of labor rises, as well as wages and standards of living), Von Mises warned that pursuing socialist and statist policies will eventually lead to the consumption and reliance on old capital, borrowed capital, or printed 'capital' as these policies cannot create any new capital, instead only consuming the old."

From the "Austrian" perspective, runaway credit booms destroy wealth instead of creating it. There is as well an important facet of inequitable wealth redistribution that returns to haunt the system come the unavoidable bursting of the bubble and the associated devaluation of "printed capital". I believe the current course of reflationary policymaking is doomed specifically because the ongoing massive expansion (inflation) of financial claims is not associated with a corresponding increase in capital investment and real wealth-creating capacity. Governments around the world are - and will be in the future - required to issue massive amounts of new debt to sustain maladjusted financial and economic structures, in the processes prolonging wealth-destructive over-consumption and destabilizing global imbalances. The "Austrians" use the apt analogy of consuming one's furniture for firewood.

As she has a habit of doing, The Financial Times' Gillian Tett wrote an exceptional piece on Friday. "Subprime moment looms for 'risk-free' sovereign debt: When future financial historians look back at the early 21st century, they may wonder why anybody ever thought it was a good idea to repackage subprime securities into 'triple A' bonds. So, too, in relation to assumptions about the 'risk-free' status of western sovereign debt. After all, during most of the past few decades, it has been taken as a key axiom of investing that most western sovereign debt was in effect risk-free, and thus expected to trade at relatively undifferentiated tight spreads. Now, of course, that assumption is being exposed as a fallacy ... As the turmoil in the eurozone spreads, forcing a paradigm shift for investors, the intriguing question now is whether we are on the verge of a paradigm shift in the regulatory and central bank world, too."

Italian yields jumped 16 basis points (bps) on Friday to 6.35%, tacking on another 34 bps for the week. The spread to bunds surged 69 bps this week to 453 bps. One is left pondering how the Italian bond market would have fared had the European Central Bank (ECB) not surprised the market with a rate cut and not continued to aggressively buy Italy's debt. On Tuesday from the FT: "A trader of Italian government bonds said: 'It was meltdown at one point before the ECB came in. There were no prices in Italian government bonds. That is almost unheard of in a big market like Italy. There were just no buyers and therefore no prices.'"

Just to think that there were "just no buyers and therefore no prices" in the world's third-largest sovereign debt market. To have Greek yields last week approach 100%. To have speculative positions in sovereign debt early in the week lead to the eighth largest bankruptcy filing in US history. And there were heightened market concerns as to the safety of "segregated" brokerage assets (in response to MF Global issues) and the integrity of the credit default swap (CDS) marketplace (Greece and beyond). To have G20 policymakers, again, fail to reach a consensus as to how to approach the European debt crisis. To have Greece spiraling out of control.

Well, the wrecking ball has been just chipping away at the bedrock of market faith in contemporary finance. And then to read one of the world's preeminent financial journalists contemplating market "fallacies" and a paradigm shift with respect to the nature of sovereign debt risk.

No doubt about it, it was another troubling week in global finance. But not to worry; the ECB surprised markets with a rate cut and Federal Reserve chairman Bernanke stated that the Fed was readying its mortgage-backed security (MBS) bazooka. The more destabilized world finance becomes, the more our captivated markets fixate on synchronized global reflationary policymaking. For now, faith in policymaking seems to be holding up better than confidence in finance.

There are important reasons why financial crises traditionally often originate in the so-called "money market". Money market assets are generally the most intensively intermediated financial claims. Risk intermediation is critical to the process of transforming loans with various risk profiles into financial claims essentially perceived as risk-free in the marketplace.

As I attempted to address last week, this perception of "moneyness" is an extremely powerful force in finance, the markets and economics more generally. The credit mechanism and resulting flow of finance can work miraculously when markets perceive "moneyness", although things can unravel dramatically when the marketplace begins to fear what it thought was safe and liquid "money" are instead risky and potentially illiquid Credit instruments. Just as there is a thin line between love and hate, there can be an even finer line between Credit boom and bust.

From the concluding sentences of Ms Tett's article: " ... if regulatory systems had not encouraged banks and investors to be so complacent about sovereign risk in the past, markets might have done a better job of signalling that structural tensions were rising in the eurozone - and today's crunch would not be creating such a convulsive shock. It is, as I said above, wearily reminiscent of the subprime tale. And, sadly, that is no comfort at all."

I, as well, see disconcerting parallels to subprime. Especially late in the mortgage finance bubble, a huge and expanding gulf had developed between the market's perception of "moneyness" for mortgage securities and the true underlying Creditworthiness of the debt. Importantly, it was the ongoing massive expansion of mortgage credit that supported home prices and economic growth - all working seductively to further seduce the marketplace into perceiving ongoing "moneyness".

The "terminal phase" of credit bubble excess saw systemic risk expanded exponentially, as the quantity of credit ballooned and the quality of this debt deteriorated markedly. It was both a historic mania and astonishing example of (Minsky) "Ponzi Finance".

These days, sovereign debt (Treasuries, in particular) is being issued in incredible quantities (and at amazingly low yields). The vast majority of this debt is non-productive and of rapidly deteriorating quality. Yet the markets for the most part are sufficiently content to continue perceiving "moneyness".

Part of this "moneyness" is due to the credit cycle reality that, similar to subprime, things tend to look ok even in the perilous late stage of a credit boom. And, importantly, the markets perceive that the Fed, ECB, People's Bank of China, Bank of Japan, Bank of England, and other global central bankers will continue to monetize (accumulate) this debt - in the process ensuring stable valuation and abundant liquidity in the marketplace ("moneyness").

Here's where it gets really troubling from my analytical framework: the more this "new paradigm" takes hold - of the market now recognizing the fallacy of the traditional assumption of "risk-free" sovereign debt (especially in regard to $2.5 trillion of Italian federal borrowings) - the greater the scope of central bank monetizaton anticipated by the markets.

This expectation for reflationary policymaking is increasingly underpinning speculative risk asset markets globally. Especially when it comes to Treasury debt, the markets' perception of "moneyness" is related much more to the expectation of ongoing central bank purchases than it is with (rapidly deteriorating) credit fundamentals. Ironically, the greater the upheaval in global sovereign debt and risk markets, the more willing the markets are to further accommodate Treasury bubble excess.

Increasingly, the key dynamic underpinning global risk markets is the expectation for the Fed and global bankers to ensure the "moneyness" of Treasury and global sovereign debt. Indeed, "risk on" or "risk off" now rests chiefly on the markets' immediate, perhaps whimsical, view of the capacity for the world's central banks to sustain the faltering sovereign credit boom. 

Warren Buffett's 6 New Investments - TheStreet.com

NEW YORK (TheStreet) -- Warren Buffett revealed earlier today that he spent more than $10 billion for a stake in software-services company IBM(IBM), his first investment in a technology company. And now a regulatory filing shows he made another bet on tech: chipmaker Intel(INTC).
IBM is Berkshire Hathaway's(BRK.A) second-largest holding, pushing Wells Fargo(WFC) to the No. 3 spot. Coca-Cola(KO) is his conglomerate's biggest investment.
The billionaire investor's portfolio held only 33 stocks as of Sept. 30. Buffett started buying IBM shares in March and accumulated 24.9 million shares in the second quarter before adding 32.5 million shares in the third quarter and an undisclosed amount in the current quarter.
Buffett had avoided investing in technology companies because he said they're difficult businesses to predict. Trends come and go, and he prefers longstanding companies such Fruit of the Loom underwear and See's Candies. But IBM, founded in 1911, is as ingrained in the world of technology as railroads are in commodities transportation and machinery companies are in manufacturing.
Buffett's entry into IBM is based on the company's service offerings, which are more predictable and conducive to his value-investing strategy. But Intel is a different animal. It's more likely a play on dominant brands backed by strong customer loyalty. Those brands stand to gain market share in a world that's becoming more driven by technology every day.
Buffett doesn't always publish his holdings in so-called 13-F filings. If he's building a stake in a company, he uses a loophole to opt out of disclosure regulations. But once his holdings are released publicly, people tend to follow him, pushing up share prices.
Based on the third quarter 13-F filing, released today, Buffett added to positions in Wells Fargo and Dollar General(DG). He cut his investments in Kraft Foods(KFT), Johnson & Johnson(JNJ) and ConocoPhillips(COP).
Overall, Buffett added six new investments last quarter. The following pages detail those, including IBM.
Company Profile: IBM offers technology and business services in addition to developing operating system software.
Buffett's Investment: The hedge fund bought 32.5 million shares of IBM during the third quarter, bringing his total investment to 57.4 million shares valued at $10 billion as of Sept. 30. Subsequent to the third quarter, Buffett bought more shares for a total of 64 million worth $10.7 billion.
Share Price Performance: Since the end of March, when Buffett began buying, the stock is up 15%. The stock reached a new 52-week high Oct. 14. At an average purchase price of $170, Buffett probably took advantage of a dip in mid-August when Moody's downgraded U.S. debt.

Tuesday, November 15, 2011

Investors thirsty for new markets looking to water - Reuters

ATLANTA (Reuters) - Oil and water may not mix, but managing water -- moving it, filtering it, recycling it and ultimately exhausting it -- is one of the fastest growing sectors of the oil and gas industry, industry experts and investors said on Thursday.
Because getting U.S. oil and natural gas out of the ground requires billions of gallons (liters) of water a year, "oil companies are the largest water companies in the world," Amanda Brock, CEO of the water treatment company Water Standard, told a conference on water investment and technology.
Energy companies don't seek the limelight in this area, Brock said, but they are effectively in the water business. The oil and gas industry needs water and water services for drilling and hydraulic fracturing, as well as help in storing and transporting water used in energy extraction.
Environmental advocates have taken aim at oil and gas companies for what they see as profligate use of water in extraction processes, along with the use of chemicals the advocates see as health hazards or substances where health effects are unknown.
Opponents of hydraulic fracturing to get at natural gas maintain the process can contaminate ground water, a claim the energy industry denies.
The key is using and re-using every bit of water as efficiently as possible, given global pressures on the water supply, said John Lucey of the Heckmann Corporation, which provides pipelines and disposal wells used in the drilling technique known as fracking.
"What we want you to do is wear out a drop of water," Lucey said at the American Water Summit. Heckmann Water Resources, founded less than two years ago, contributed $47.8 million in third-quarter revenues to Heckmann Corporation, up from $1.9 million in the same quarter in 2010.
Investors see the potential for growth, but have been wary because traditionally, the water business has operated on a scale of decades, not years, and has been slow to adopt new methods.
James Collet of NLM Capital Partners of Irving, Texas, said most of his clients are natural resource investors, and the water industry has similar characteristics that make it attractive to them.
"Over time, it's probably going to be OK, but it's probably going to take a lot longer because the momentum to make change in this industry is typically less than in other industries," he said.
That slow pace is because U.S. water systems are generally built to last 50 to 100 years, Collet said. Now aging infrastructure is wearing out, spurring the need for new investment. And the older systems are prone to waste and inefficiency, which new technologies are designed to remedy.
A dominant theme at the water summit was the industry's need to re-invent itself, or at least to raise its profile.
"For the average person, for the average politician, we do not exist," said Debra Coy, a principal at Svanda & Coy consulting.
The U.S. water industry is seen as fragmented, without a recognizable voice to the powerful in U.S. government, as contrasted with the energy sector, Coy said.
A subtext at the summit was the expectation that global water supplies will be stressed as world population grows. Climate change and the increasing collective thirst of the developing world will add to the pressure.
That too offers opportunity, said Randall Hogan, CEO of Pentair, a global water systems business.
Unlike the United States, Hogan said, China, India and countries in the Middle Easet are investing in new water technologies.
"They take a different approach in thinking about water. They will fund it. They have to fund it, because of the growth in wealth and population ... and the kind of pressure that puts on energy, food and infrastructure," Hogan said.
His task now, he said, is to ensure that his most talented staff, now located primarily in the United States and western Europe, are available to take advantage of "the opportunities at hand, which are in the new, new world."

Gloom, Doom And Optimism: What To Do Now - Seeking Alpha

Marc Faber is a market analyst and publisher of the "Gloom, Boom and Doom Report" newsletter. As you may have gathered from that title, he's rather pessimistic about the economy. (He's also been very accurate concerning economic trends over his career.) But he really dropped jaws recently when he made the following statement on CNBC:
"I am a great optimist in life; otherwise I would commit suicide in view of the kind of governments we have nowadays."
Hyperbolic suicide comments aside, it brings up an interesting irony that I have been noticing for a while. That is, most (if not all) of the most bearish economic forecasters describe themselves as optimists in their day to day lives. I consider myself extremely optimistic, but my views on the economy are dire at best. The fact that we optimists are so pessimistic about the economy should cause observers to take notice and ask if maybe there is something to all this gloom and doom after all.
That may seem like a paradox. If you listen to the financial news, those of us who have been predicting that the economy is on the verge of collapse are "doom and gloomers" who are just negative people. When we say that the Greek debt crisis can't be resolved with more bailouts and that default is inevitable, they call us defeatists. When we point out that America's economy is as bad or worse than the problems in Europe and that the only solutions to get us out of this mess are currently politically impossible, they say we have no faith in America.
In fact, nothing could be further from the truth. We economic gloom and doomers are simply realists who understand the nature of the crisis. We're also optimists who are trying to minimize the damage and help people avoid calamity. If we weren't optimists, we wouldn't spend our time shouting into the wind, hoping against hope that the general population will heed our warnings, or that we can influence the political landscape by inserting reality into the picture.
So who are the optimists and who are the defeatists? Let's do a thought experiment.
Close your eyes and imagine you are living in New York City. (Now open your eyes so you can read the rest of this.) The local weathermen are all astrologists who have declared that although the sky looks dark, our horoscope says we have a bright future ahead of us. The clouds have always moved on in the past, and this time is no different. Then imagine an astronomer comes along and says, "I've done some scientific experiments and looked at the data; that dark spot in the sky is actually a comet and it's heading straight for New York."
Is the astronomer a pessimist because his thinks New York will be hit by a comet? I would suggest that he's an impartial analyst whose tools provide a more accurate way of looking at the universe than astrology does.
Is it pessimistic for someone to want to look at the scientist's negative data, even when all off the forecasters on the news agree he's a lone quack? I would say that's just being inquisitive, an optimistic trait.
Is it then pessimistic to observe that his experiments are based in science, and to question the majority who say astrology holds the answers? I would suggest that is simply making a judgment based on evidence as opposed to popular opinion.
Is it pessimistic or "anti-New York" for that person to say to his fellow New Yorkers, "Hey, I've seen the data and there's a good chance that the growing black spot in the sky is a comet that will hit right here. We should all move some of our assets out of the city now and be prepared to flee entirely if it gets darker."? I'd say that's just being prudent.
Is it optimistic
to sit tight and say, "It's probably gonna clear up any day now, but even if it is a comet, someone will save us. Perhaps the government will reverse gravity just in time to turn the comet around." No, that's just foolish. The pessimists are the ones who bury their heads in the sand when things get tough, or the ones who sense that something is seriously wrong, but give up because they think there's nothing they can do.
The optimists are the ones who search for the truth and have the conviction to believe in themselves. They are not scared of a changing future that will be difficult for many, but instead look the future straight in the eye and adapt and prepare. They are the ones saying, "Hey, I've got a bus with a full tank of gas (and gold) and a roadmap. Let's get out of the city before panic sets in and the bridges jam up. Besides, even if I'm wrong, there are some great places to explore."
Perhaps our optimism is the reason we want to educate as many people as we can about the problems that face us, and how we can avoid these problems in the future. We are optimistic that people will learn the right lessons from a catastrophe, and turn to freedom, instead of government, for solutions. We are the ones who see a glorious future when the dust settles and we can start from scratch with the astronomers, and not the Keynesians (I mean astrologists) running the show.
So, what are we doom and gloom optimists doing with our investments?
1. Buying gold and silver and mining companies. The foundation of a gold portfolio should start with physical gold coins in one's possession. Physical gold and silver can also be acquired through ETFs. I prefer (PHYS) and (PSLV) which I discuss in more detail here. Don't use (much) leverage when buying your metals as you can get squeezed out of a winning play. Instead, gain leverage through mining shares which can gain dramatically as the metals rise. I prefer the junior minors and more speculative plays because of their explosive upside and takeover possibilities. You can buy the junior miner ETF, GDXJ for a broad swath. I invest with brokerage firms who specialize in finding speculative mining stocks.
2. Buying natural resource companies and commodities, especially oil. One of my favorite oil plays is a Norwegian company, Statoil (STOHF.PK). Sprott Resources (SCPZF.PK) specializes in finding, fixing and selling natural resource companies. Accredited investors can skip the middle man and buy directly into oil well partnerships, essentially getting speculative plays on oil futures with nice tax benefits.
3. Avoiding U.S. Treasuries like the plague; although investing in more sound sovereign bonds in countries with higher yields and whose currency will appreciate against the dollar. If you want to get aggressive, (TBT) is a double inverse long term treasury play. I've gotten burned with it so far but I'm holding on.
4. Investing in convertible corporate bonds which pay good yields but can be converted to shares if high inflation drives up stocks and drives down bonds.
5. Diversifying our assets around the world so a desperate government can't seize them through capital controls and taxes or even confiscation.
6. Buying quality, dividend paying stocks in countries with strong sovereign balance sheets and growth prospects. I'd recommend finding a broker who specializes in foreign stocks. Some examples are Novartis (NVS) and Singapore Telecommunications (SNGNF.PK).
7. Preparing for the day when we can trade in our gold at much higher prices for cash-flow real-estate and shares at much lower relative prices.
8. Staying liquid and flexible.
9. Investing in ourselves through education, training, building relationships, and of course, having fun.

Monday, November 14, 2011

Peter Schiff's Boldest Call Ever - Beacon Equity Research

Sentiment for a euro swan dive must stand at a record; it must dwarf any negative reading the U.S. dollar ever had. No fresh data are available on the sentiment for the USD:euro cross, but the chatter everywhere about the imminent demise of the EU is truly deafening.

The Mr. Magoo of Wall Street, Euro Pacific Capital’s Peter Schiff appears to have not noticed.  As the crowd runs from talking nice things about the euro, he just muddles along with his prediction of a renewed U.S. dollar weakness against the euro—and sterling, yen, Swiss franc and the other small-weighted currencies making up the UDX. Sign-up for my 100% FREE Alerts!

“Our short-term target for the euro, maybe by year end, will be up near 1.48,” Schiff told KWN on Oct. 25.  “I think that’s going to catch a lot of people off guard who were writing the obituaries for the euro, to see the euro approaching the 1.50 level.  The dollar index should be headed back down to the 72 level.”

Schiff appears to be completely alone with that call.  Even Jim Rogers and Marc Faber cannot be quoted about the overly negative sentiment in the euro.

That should trouble contrarian investors; it reminds us of similar negatve sentiment of the U.S. dollar prior to Lehman’s death.  At that time, the USDX hovered at an all-time low of 72 in March 2008, scaring the bejesus out of the financial media of an imminent collapse of the dollar.

And like magic, the USDX soared approximately 24 percent to 89 by March 2009—a year latter, amid the Lehman Armageddon and talk of ‘deflation’ of 2009.  Jim Rogers and Marc Faber were among the handful of market savvy observers who warned of too many traders on one side of the boat before Lehman.  Not so today.

So, fast forward to today; it’s the euro’s turn.  And like clockwork, the media’s favorite apologist for the dollar among the gold community, Dennis Gartman, told Bloomberg News on Nov. 4, “The driving force in the gold market is the problems in the euro,” Gartman said in a telephone interview. “Central banks in Europe and individuals will want to lower their euro holdings and buy gold since no one knows what is happening to the euro. The euro is heading towards parity once again.”

The drama in Europe has been prime time media coverage since March 2010 with the trouble in Greece.  If Hugh Hendry was around, he’d laugh at Gartman for his much-too-obvious recommendation.

Side note: Why Gartman talks about gold in euro terms when nearly three of four visitors to his Web site are from either Columbia or Canada is as strange as his persona.  The chart from Alexa.com, below, indicates that most of the traffic to the Gartman Letter Web site originates from the country of Columbia.

Maybe the underground in South America needs to know which currency to counterfeit (tin-foil hat translation: for the ‘good guys’ to spend?).  Shouldn’t Gartman forecast gold in terms of the Columbia pesos, then?

Contrast Gartman’s latest assessment to Schiff’s call.  Schiff added to his Oct. 25 interview with KWN that the gold price could possibly trading at $2,000 by year end.  In U.S. dollars!

“I think we will come pretty close to hitting $2,000 on gold this year,” Schiff predicted.  “It would be hard for gold not to be above $2,000 in 2012.  I really think it would be unlikely that we wouldn’t see prices north of $2,000 next year.”

He continued, “The dollar is headed right back to the lows and I think it will take out the lows.  If it does break to new lows, that’s when we might see another crisis because then we might start to see the world questioning the viability of the U.S. economy….”

From the chart, above, the USDX has traded below its 20-month moving average (a metric which famed author of The Dow Theory Letters
, Richard Russell, likes to use as a guide for major turns) since November of 2010.  And with so much hype for a euro collapse in the face of the USDX trading below its 20-month moving average may not tell us where the euro is going from here, but this phenomenon should not be taken lightly, nor should Peter Schiff’s call for a lower dollar and higher gold prices—in U.S. dollars! and euros . . . and Columbian pesos.

Friday, November 11, 2011

Marc Faber believes the Fed will keep rates near zero longer than 2013

The Fed will keep rates near zero even longer than 2013.

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