Marc Faber

Top 6. Jun 11, 2005 10:15 AM

» Normxxx - Re: June 12, 2005 Report Out.

In response to June 12, 2005 Report Out. posted by Kirk:

You might as well put Marc into the "Bear Cafe" thread. I can't recall a time he was very positive. The name of his letter is the "Gloom, Boom, and Doom Report--" but there has been precious little boom (except in disaster scenerios) over the years.

On the other hand, like many bears, his reasoning is impeccable-- it just never seems to work out the way he supposes. I suspect the problem with perma-bears is that they never give enough credit to the human ability of "just muddling through."

Unqualified logic has been the downfall of many a philosopher when it comes to human affairs. Unfortunately (for their faultless reasoning), man is not very logical.

Right this moment, a basket of cash is probably the best investment; but as you are aware, the prudent investor never puts all of his eggs in one basket...

P.S. The world economy is looking much more peaked than ours at the moment... Except for China, of course.

-- posted by Normxxx

Top 7. Jun 11, 2005 11:19 AM

» Normxxx - Only gloom ahead: Dr Doom

But Asian currencies are underrated; Sing dollar could rise against US$
Vasu Menon | 25 April 2005
news@newstoday.com.sg

DR MARC Faber, popularly known as Dr Doom, warns investors to be careful about putting their money into financial markets over the next six months. He said that equity markets — especially in the United States — having enjoyed a strong recovery since Oct 2002, are now looking fully valued. US markets, in his view, are susceptible to a liquidity squeeze as interest rates head higher and money supply and international reserves show signs of contraction. According to Dr Faber, the US Federal Reserve should raise its key interest rate to about 5 per cent if it is to tackle inflation — which is probably running closer to 5 per cent, much higher than the published rate of 2 to 3 per cent. Should this happen, asset markets in the US, especially the real estate market will fall. Higher interest rates will also hurt consumer spending and corporate profits and prove to be a drag on the economy.

Dr Faber highlighted that while corporate profits in the US are at a record high, it should be noted that more than half of these profits come from the financial sector and financial transactions, which will be hurt by higher interest rates.

What if the Fed doesn’t push rates up sharply?

Dr Faber said it was possible that the Fed may not raise its interest rate to 5 per cent, since it will be concerned about the negative impact this will have on US stock markets. Instead, the US central bank may print money to increase the money supply and keep rates low.

The Fed has done this before and if it pursues this policy once again, Dr Faber reckons that it will fuel inflation and could cause the greenback to collapse. Higher inflation also hurts real wages, which will put a drag on consumer spending and hurt the economy. So whether the Fed pushes rates up sharply or not, US financial markets look susceptible. And what happens in the US will have a ripple effect in other parts of the world. Dr Faber said that in the short term, tighter liquidity is also bad news for emerging markets, including Asian bourses, which have benefited from the US dollar’s weakness and loose US monetary policy.

Asian markets may also be adversely affected if the slowdown in China is sharper than expected. Dr Faber said that China’s red-hot economy is cooling down, as evidenced by the slowdown in sales of cars and mobile phones.

Asian currencies are undervalued

While higher interest rates may support the US dollar in the short term, once the Fed is done with its rate hikes, the greenback will become prone to weakness once again. Dr Faber thinks that the US dollar’s weakness will boost Asian currencies, which have not appreciated as much as the euro. He is of the view that Asian currencies are undervalued and that the Singapore dollar could strengthen to as much as $1.40 per US dollar from $1.64 now. In fact, he is so bearish on the US dollar that he would not rule out a day when the Singapore dollar is worth more than the US dollar. Where should you invest? Dr Faber prefers holding cash to financial market investments in the next six months.

[Normxxx Here: But, obviously, not dollars! At least after the next six months. ]

But he said that if you have to invest, you should put your money into high-quality assets which offer good yields. He is positive about Asia over the long term and says that fundamentally-solid companies in the region that are trading at less than 10 to 12 times their price/earnings ratios and with dividend yields of 5 to 7 per cent may be worth considering. But even these stocks may suffer a pullback in the next 6 months. However, Dr Faber highlighted that the fundamentals for Asian markets look more promising than those for the US and Europe. He said the region’s economies are much healthier and the valuations of its stock markets are lower than those of markets in other major regions. The likelihood that Asian currencies will appreciate over the long term also adds to the appeal of Asian equities. Dr Faber expects Asian markets to outperform other major regions in the next five years.

But for the next six months, Dr Faber said that he would rather not invest anywhere as uncertainties will make it difficult for investors to make much money out of financial markets.

The writer is vice-president and chief editor of finatiQ — Bank of Singapore.

Jitters in Japan over slowdown in US

TOKYO — A majority of Japan’s top corporate executives believe that the country’s economy — the second largest in the world after the United States — is gradually recovering, but worry that it may falter in response to a US economic slowdown, the Nihon Keizai Shimbun business daily reported.

A mid-April survey showed that 64.6 per cent of 130 Japanese corporate presidents or chairmen agreed that the Japanese economy was “moving toward a recovery, albeit gradually,” the paper said. In January, the figure was 13.1 percentage points lower in a similar poll. But when asked about their own companies’ business outlook in the April-June period, only 17.7 per cent of the executives gave positive assessments, the daily said.

The executives were largely unconcerned about the anti-Japanese protests this month in leading trading partner China. The survey said 80.8 per cent felt no immediate impact of rising anti-Japanese sentiment on their businesses. Only 3.1 per cent of them forecast repercussions on marketing activities. However, economic conditions in fastgrowing China were noted by 67.7 per cent of the executives as a worrisome factor while 46.2 per cent were concerned about rising oil prices.

The US economic outlook was the top concern among the executives as 73.8 per cent of them pointed to the spectre of inflation stemming from high crude oil prices and lacklustre earnings at such marquee US firms as General Motors, the daily said. — AFP

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

Top 8. Jul 15, 2005 5:17 PM

» Normxxx - The Crisis Of Confidence

Marc Faber And The Crisis Of Confidence

By Australasian Investment Review | 15 July 2005

Dr Marc Faber is described as a "foremost international commentator and celebrated contrarian investment guru". Dr Faber publishes a widely-read monthly investment newsletter, called the Gloom, Boom & Doom Report, which highlights unusual investment opportunities. He is also the author of several best-selling books.

Suffice to say, when Dr Faber speaks, the world takes notice, and last month the good doctor deigned to provide his skew on the ongoing outlook for global equity markets. Entitling his treatise "A Crisis of Confidence", Dr Faber sought to explain his reasons for recommending "a very cautious posture" in regards to equity investments.

Writing on June 15, Faber notes that since late April, the US stock market has rallied strongly. The S&P 500 is up by 5.5% but still down 1% year-to date. In particular, the Nasdaq 100 had a powerful recovery move. From its April 29 intraday low of below 1400, it rose by 11.2%. In Europe, several stock markets broke out above their March highs, with the exception of the UK market, but strong gains in equities were largely offset by Euro weakness.

Therefore, notes Faber, while the German DAX is up by 5.2% year-to-date, in US dollar terms it is down 3.2%. Similarly, the Swiss Market Index is up year-to-date by 8%, but in dollar terms it is down by 0.4%. In Asia, the performance has so far been disappointing. Faber suggests several factors that may have contributed to this powerful recovery move.

Strength in the US dollar and diminished worries about consumer price inflation, which propelled bond prices to their February 2005 highs, also contributed to an improvement in sentiment. In this respect, says Faber, it should be noted that by late April, investors’ sentiment had become rather gloomy. There were rumors about problems at several hedge funds and, following the dismal performance of the first quarter, and the inability of the stock market to rally in the usually seasonally strong month of April, investors were about to give up on equities.

So, suggests Faber, given the perceived problems in the hedge fund industry and the slowdown in global economic growth, investors figured that the Federal Reserve Board would shortly stop raising the Fed Fund rate and, if there was indeed a problem with some financial institution, the Fed would do what it had always done in the past, which is to ease and to print money. Each time the Fed tightened monetary conditions, something "bad" occurred. But equally, each time a crisis occurred, the response was swift and massive easing, followed by rate cuts.

Needless to say, says Faber, the "maestro" at repeatedly printing money in the wake of crises— and particularly since 1997— was none other than Mr. Greenspan. In other words, investors now perceive that an economic slowdown, or a crisis at one or several hedge funds, will induce the Fed to refrain from raising rates further and once again to turn on the money printing press.

After all, MZM has been growing recently at its lowest rate in ten years, Faber notes. MZM stands for "money of zero maturity" and is another money supply measure used by the Fed alongside the traditional money supply measures of M1, M2 etc.

Faber believes the low growth of MZM is indicating currently much tighter monetary policies and, therefore, it is leaving ample room for renewed easing at the first sign of any problem for the economy or the financial system. And since investors have been conditioned over the last 20 years or so to buy into crises, because following each crisis the market has soared, they are now buying in expectation of a crisis, which would force the Fed to ease. Says Faber, "The present investment environment must therefore be described as bizarre!"

Faber believes investors are ardently longing for a poor economy or a financial accident, under the assumption that such eventualities will be favorable for the already highly inflated asset markets. However, and this should be weighted by investors carefully, suggests Faber, the strategy of buying stocks on the basis of slower economic growth or a crisis entails very high risk. "For one, we don’t know how severe any slowdown may be" he says, "Under some conditions, a slowdown could lead to a global slump— especially if the US housing market was to break at the same time that China’s economy, plagued by huge overcapacities, imploded."

Faber believes it is debatable whether, in such a situation, easy money would solve any problem for two reasons. In the past, whenever there was a crisis, there was a flight to safety. Investors immediately bought US government bonds in the hope that interest rates would come down and knowing that interest and principal on treasuries were 100% safe.

However, he says, it is far from certain that cutting the Fed Fund rate in future will produce the same reaction. It is possible that investors, seeing the Fed easing once more, will grow apprehensive about future consumer price increases and, instead of buying long-term treasuries, will sell them, thus increasing long-term interest rates. Faber asks, "If eight Fed Fund rate increases haven’t yet led to any bond market weakness but, rather, to strength, who is to know whether future cuts in short-term rates might not lead to bonds selling off?"

Also, he says, since most of the crises experienced over the last 15 years, beginning with the Persian Gulf crisis of 1990, were related to problems outside the United States, there was a flight of safety into US treasury bonds not only by domestic investors, but also by international ones. This, in turn, tended to strengthen the US dollar in times of crisis. But, Faber asks, what if the Fed were to embark on a massive money printing operation because of a really nasty economic surprise or financial accident in the United States? Would foreign investors still consider the US dollar and US bonds to be safe? "I doubt it", he concludes.

Under such circumstances, says Faber, a far more likely outcome would be a tsunami of US dollar selling and, along with it, selling of US dollar bonds. In the wake of massive selling of dollars and dollar bonds by foreign investors, interest rates would likely rise. In turn, this would force the Fed to monetize even more. A further loss of confidence in the US dollar would follow.

Faber’s question here is, "What would the [US] dollar sell off against, and what would investors perceive as a safe haven in such a situation? The Euro? Not very likely! Asian currencies? Possibly, but if China were to weaken simultaneously with the US economy it’s unlikely that Asian currencies would be viewed as a safe haven."

Faber supposes that in a crisis of confidence arising from an economic or financial problem in the United States of a scale that would lead the Fed to print money in massive quantities, only gold, silver, and platinum would be regarded as truly safe currencies, notwithstanding their current weakness.

There is, of course, he suggests, always the possibility that the global economy might weaken or that a crisis might occur while US residential property is still accelerating on the upside.

Faber believes under these conditions, the Fed would face a serious dilemma (a dilemma it faces already to some extent). Easy money might alleviate the economic or financial problems (though not solve them), but at the expense of extending the housing inflation further and making it even more dangerous for the economy once the housing bubble bursts at a later stage.

Faber has recently received many emails from investors questioning the view that a bubble had developed in some housing markets around the world. "Needless to say", says Faber, "these emails remind me of the emails I received in 1999 concerning my negative views about the Nasdaq."

There is another reason for labeling the current US stock market rally as a high-risk move, Faber suggests. Usually, strong stock market moves are led, or at least confirmed, by brokerage shares moving higher. While the world’s largest retailer, Wal-Mart, is no longer declining in price, its recent disappointing market action doesn’t suggest a very strong consumption environment.

High-tech shares have recently begun to outperform the market, and this trend could last for another few months as performance-minded fund managers shift out of economic sensitive companies into high-tech companies based on hope and momentum, Faber believes. And while this strategy may work for a while, it is also riddled with risks.

To illustrate his point, Faber offers the example of the semiconductor industry. The Sox Index, an index of 19 companies listed on the Philadelphia Exchange which produce semiconductors (also known as ‘chips’), has risen from its late April low by 15% and looks technically strong – albeit, in Faber’s opinion, near-term overbought.

Worldwide semiconductor sales, which recovered from their 2000/2001 slump, have recovered once more, but at $220bn annually are barely higher than in 2000. However, Faber notes, the composition of semiconductor sales has changed markedly since 2000. Whereas in the United States and Europe the recovery in sales has been tenuous at best (in the US, semiconductor sales are no higher than in 1995, because of product price declines and sluggish demand), in Asia, sales have been booming until just recently.

Faber believes that if certain commentators are right about a meaningful slowdown in the Chinese economy coming shortly, it is likely that Asian semiconductor sales will fail to rise, or may even decline, at precisely the time when large new production capacities will be coming into production. Says Faber: "This is hardly a very favourable fundamental outlook for this still highly valued industry!" And more ominously, "I also fail to see why semiconductors would be less economic-sensitive than the copper, shipping, or steel industries."

So once again, says Faber, by moving into semiconductor and other high-tech companies we are faced with a relatively high-risk trade, which may nevertheless work for a while due to the momentum players.

In summary, Faber and his team continue to recommend a very cautious posture regarding equity investments. Near term, the United States and most European stock markets, they believe, seem overbought, whereby following some consolidation further temporary bouts of strength cannot be ruled out. But investing in an environment of a global economic slowdown is a high-risk proposition for all asset classes, they say, as the severity of the slowdown or economic slump is unknown.

Faber concludes that "This is especially the case if one is faced with mostly inflated assets, a disproportionately large and highly leveraged financial sector, and a central planner— the Federal Reserve— that repeatedly intervenes in the free market for money and whose intentions are nebulous!"

Thus spake the guru.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx

Top 9. Jul 31, 2005 3:02 PM

» Normxxx - Faber: 7/5 Market Comment

Market Comment

By Dr. Marc Faber | 5 July 2005

Conclusions
The poor performance of economically sensitive stocks and the recent break down of industrial commodity prices from rising long-term wedge patterns is a bad omen for the global economy. Only two industrial commodities have not yet broken down: copper and oil. And while oil is likely to decline over the intermediate term, I am reluctant to short oil because of the possibility of the US bombing Iran. Copper, however, is an excellent short sale candidate. Copper demand growth is weakening and “hidden” inventories are reported to be large. Moreover, downside moves originating from rising wedge patterns tend to be very sharp! The US stock market has, in my opinion, little upside potential. Not only are economically sensitive stocks weak but also important shares like GE, Wal-Mart, IBM, and MMM are not confirming the most recent advance. Most of these shares show distribution patterns.

The US dollar should continue to appreciate for now. The dollar, however, is now significantly overbought short-term and a consolidation around the present level or some weakness is very likely. The dollar uptrend, nevertheless, should remain in place for the next few months, although I am now looking at a selling opportunity on further strength. In January 2005, we recommended to short the British Pound against the dollar. Now, a good bet would seem to be to short the Australian dollar against the US dollar. At the end of every bull market (October 2002 – present), the strongest stocks are the last ones to break down. Consistent with this observation would be that homebuilding shares should start to decline shortly. Whereas a weak economy and cracks in the housing market should be supportive for long term US government bonds, much of the bond market expected economic weakness and that weakness may already have been discounted by investors. And when the Fed stops raising rates and moves toward monetary ease, bonds could sell off. In any event, from a longer term perspective, US long dated bonds are not attractive and represent a better short sale than a buy. Although the direction of markets is— and has always been— difficult to predict, it is very likely that sometime within the next twelve month volatility will soar. Hence, buy the VIX Index.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

-- posted by Normxxx