Marc Faber is in a bullish mindset, particularly on gold. In a wide-ranging interview with CNBC TV-18 in India, Faber talked about where he sees markets headed and why he thinks gold will never drop below $1,000 an ounce.

Private sector contracting while public sector expanding

This is the frame that Marc Faber puts on recent events post 2008 panic, namely that we are likely to see an era of increased government intervention. This is an echo of comments Bill Gross has been making for some time. We are seeing this stimulus on both the fiscal and monetary sides through fiscal stimulus programmes and quantitative easing worldwide.

The economy has not responded robustly given the size of stimulus, Faber says. Asset markets, on the other hand have. This sets up a clear dichotomy between ordinary citizens and those who benefit most from asset price appreciation on Wall Street and elsewhere in the financial sector. Moreover, the spill-over of asset price appreciation into commodity prices further constrains purchasing power for ordinary citizens.

Less certain about carry trade

Faber is less certain about the U.S. dollar carry trade. He sees a dollar overhang due to the enormous U.S. current account deficit and $7.7 trillion in U.S. dollar reserves as more the issue. Many are looking to sell these dollars and hedge their exposure in precious metals and other currencies.

Treasury bearish

The one area where Faber is bearish is U.S. treasuries. He says:

There is a risk that at some stage in 2010, the government bond markets (would) weaken considerably because I don’t understand why anyone who would now buy a 10-year US treasury at a yield of less than 3.5%. It’s a losing proposition. I also don’t understand why anyone could buy a 30-year US treasury at a yield of 4.4%. So I think that eventually yields will go up and this could disturb the stock market.

Not as bullish on equities

Given the huge uptick in share prices globally, Faber believes there is now limited upside going forward.  He says the risk/reward in equity markets at present is not favourable. Moreover, profit margins are cyclically high due to cost-cutting. Faber anticipates weakness in profits in 2010, causing earnings to disappoint and precipitating a correction.

Bullish on commodities and precious metals

His logic is as follows: cash is now trash with zero interest rates. So holding cash means underperforming.  Bonds present an unfavourable risk/reward.  Therefore, commodities and precious metals look attractive. One must also have equities exposure.

Interestingly, he makes a fairly explicit statement in favour of peak oil from about 1:40 in the second video below. The world is adding less in oil reserves than it consumes. That necessarily means a tighter supply/demand dynamic, especially given the demand in emerging economies for oil.

He uses a technical argument to make his money quote (in bold):

I believe that whereas in the past the USD 1000 per ounce level was kind of a resistance level, now it becomes a support level. I don’t think that you’ll see gold below a USD 1000 per ounce probably ever again.

So I’m actually quite positive. Maybe gold at this level is a better buy than it was at USD 300 per ounce in 2001.

Much, much more below.

(videos embedded below)

Marc Faber Interview: Part 1 (6:19)

Marc Faber Interview: Part 2 (5:42)

Sources

Gold will never fall below $1,000 an ounce: Faber – Live Mint

Gold won’t fall below $1000/oz level ever again: Marc Faber – Money Control

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• Marc Faber: “I am 100% sure that the U.S. will go into hyperinflation”

Below are two videos from Marc Faber’s recent interview on Asia Confidential.  In it, he takes questions from user emails in regards to the U.S. dollar, economic decline in the U.S. and gold as an investment.

He sees a need for the U.S. to borrow increasing amounts of money going forward – not less. As a result, what was a crisis in finance in 2008, resulting in the nationalization of Fannie Mae and Freddie Mac will become a national bankruptcy. The U.S. will borrow and print money. The dollar will fall precipitously. Then, “next station is when the U.S. government goes bust.”

Edward here. This might make for good headlines on Bloomberg, but it is patently false.  The United States is not now or ever going bust. A sovereign government which borrows in its own currency in a fiat currency system can never go bust. An entity which borrows and prints its own money does not have the same constraints that, say, California or Ireland have. How prices are affected is another issue altogether.

That’s where gold comes into the picture. Here, there are many questions.

• Is it overvalued?
• Is it a good inflation hedge?
• How does gold perform in deflationary environments?
• How does it perform against equities over the longer run?
• What about silver?

Faber takes on all of these.

On the whole, he is an inflationista and does not believe the U.S. will suffer deflation. When asked how gold might perform in a significant deflationary environment, he responds “first of all, I would like to make a very clear statement. I will believe in deflation once we have a significant period of U.S. dollar strength. U.S. dollar weakness is a symptom of inflation in the system.”

He goes on to say that gold outperforms other asset classes in a deflationary environment and is therefore a good hedge against fiat currency revulsion whether one expects deflation or inflation.

My own view is similar. However, I would differentiate between consumer price inflation, which will remain non-existent while industrial capacity and employment levels are at depressionary levels.  The inflation in the system will manifest itself first in asset prices – with industrial and food commodities or oil being the transmission mechanism into consumer prices.  Secular consumer price inflation will not return until the slack in the system is purged. 

I would add that this is one principal reason that the Great Moderation occurred despite enormous money printing in Japan and extraordinarily loose monetary policy in the U.S.  After China, India and Eastern Europe joined the capitalist system, the enormous increase in labor – both skilled and unskilled – acted as a check on inflation of the consumer price variety.

Alan Greenspan was fooled by this and kept monetary policy too loose. The result was asset bubbles again and again.  Going forward, it would comforting to see central banks target asset prices not just to gain policy traction through reflation but in order to cool the economy through deflation.

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Below is a wide-ranging interview with Marc Faber over four videos on CNBC TV18 in India explaining view on inflation, currencies, commodities, stocks and more.

Asset-based economy. In general, he thinks we are in an inflationary environment, whereas I think that deleveraging is secular and means any inflation is only cyclical. But he shares my belief that zero interest rates induce money balances to move into consumption or into higher yielding assets. He believes this is a boon over the medium-term (if not the short-term or long-term) for financial assets, whether they be stocks, bonds, commodities, real estate or art. And it is something that will continue, he says. Faber believes Bernanke will be loath to raise rates aggressively given his prior statements and writings.

Currencies. Faber takes the view with which I agree that the Fed’s easy money policies after 1998 flooded the global economy, especially emerging economies with liquidity. This has led to asset bubbles.  Hong Kong residential real estate is one example he cites.  As a result, Faber thinks the U.S. dollar is no longer overvalued at present levels. A snapback rally for the dollar resulting from oversold levels would be bearish for asset markets. But, longer term, Faber thinks the dollar is weak.

Equities. There has been a huge rally everywhere.  He says he is not a buyer at these levels. However, as central banks are going to continue to print money, stocks could continue higher – but he would not bet on a blow off rally from these levels.

Commodities. Faber thinks zero rate levels makes it extremely difficult to value anything.  Pose the question: which would you rather own – the “US dollar at zero interest rates or a ton of gold or a ton of copper or a ton of crude oil?” Of course, commodities are supply constrained, whereas dollars are not, so there is a justification for buying them. But, he anticipates the commodity hoarding by China is about to end and that is bearish for industrial commodities as well as precious metals. As with other commodities, he thinks the huge run up in oil could induce a setback. Long run, he is an oil bull because of limited supply.

 Financial Crisis. He is disturbed by the fact that a crisis caused by excessive debt growth, especially as a result of Federal Reserve policy has been allowed to pass with the same players in control. He says enjoy the ride for now. Longer-term, this necessarily means the same bad policies will follow and it will lead to a system-wide financial collapse.

India. Faber is bullish longer-term. Short-term, there could be a correction. India is one of the best protected countries because of less vulnerability to the export sector. He also believes the Reserve Bank of India has one of the best monetary policies in the world – supervise the financial system closely, relatively tight, and mindful not just of core inflation but other price levels like asset prices.

(videos embedded below)

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How about all three. Faber released another provocative newsletter this month that has a little grist for investor of all stripes.

Boom. His short-term outlook is bullish because he believes money-printing will underpin the market even after the 60% increase in the S&P 500 from March 2009 lows. This puts him in the same camp with Rich Bernstein and Jim Grant. Interestingly, he says that a “very weak” economy is best for stocks because it will induce more money printing from central banks.

Gloom. However, he says this will only make matters worse over the longer-term as the U.S. government has no stomach for reigning in budget deficits expected to reach $2 trillion. It is merely underwriting the bankers’ mistakes. Down the line a point of debt revulsion will come.

Doom. In five to ten years, Faber sees major problems as a result.  In the September Gloom, Boom & Doom report he writes:

The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society.

Let’s call this Financial Armageddon. While he certainly presents a dire worst-case scenario, I sympathise with this view because, as I have warned in the past, unsustainable debt bubbles like the one we are now witnessing usually end in depression, war and strife.

Below are three videos of Faber on Bloomberg earlier today spinning his tale of waste and woe.  Pretty entertaining and they run twenty minutes in total.  Faber likes drug stocks.  He thinks that bonds and cash will be the worst long-term investments because of inflation.  Faber also would be overweight Asia as he believes emerging markets will grow faster than the West.  He has good things to say about Goldman. “They are really a smart group of people.”

See also Bullish Today, Marc Faber Is “Highly Confident” the Future Will Be Very Bleak and the attached video at Tech Ticker with Aaron Task. Faber gives another entertaining performance there as well.

(three videos embedded)

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Late last year, I anticipated that the global slowdown would bring China’s GDP growth down to 2%, a level that would make most nations envious but which would have been catastrophic for China.  In the end, robust government stimulus has saved the day, as spending for infrastructure, commodities, and property has soared.  The 8% growth target seems likely to be met.

However, the malinvestment from excess lending has made China’s growth dynamic appear incredibly unbalanced as even China bull Stephen Roach opined yesterday.  An asset bubble is forming there. And even though shares tumbled 5% earlier this week, the correction was rather brief as the market came roaring back the very next day.

Perhaps this unbalanced growth and asset bubble is just the price China must pay in order to wean itself from dependence on export to the West.  After all, the country is still growing 8% whereas the United States has been in a mild depression over the past nine months.

That may make for nice copy, but is it really true?  Is China making the transition?  Are they actually growing 8%?  Marc Faber doubts it.

China’s economy is growing at 2 percent, not the 7.8 percent its government claims, says economist Marc Faber, publisher of the Gloom, Boom and Doom report.

“The Chinese government is one of the few governments in the world that knows its GDP numbers three years in advance,” Faber told CNBC.

“I’d be a bit careful about China.”

A growing number of investors turned bullish on China after its markets began to rise last March, Faber notes, adding that it’s possible Chinese markets will continue to rise for a while.

“If you throw money at the system, lots of things go up in value — but maybe they go up for the wrong reasons. What disturbs me today … is that the lows in March and late last year, sentiment was incredibly bearish about everything.”

Now, Faber observes, “there’s this incredibly bullish sentiment when insiders are actually selling and the technical picture of the market doesn’t look that great.”

Faber believes the market faces headwinds because there’s a huge supply of available shares and a record number of new issues, which dampens share-price increases.

“My sense is that, near term, we could still have disappointments because now the mood is very optimistic. I don’t think we’ll make new market lows in Asia, but I do think we’ll have a meaningful correction.”

On Monday, China’s first initial public offering in nearly a year rose so high and so fast that regulators were forced to halt trading twice, The Washington Post reports. The Hang Seng index rose to double its low point last fall.

There is a lot to like about China. But, this all sounds very toppy to me. Caution is definitely warranted.

Source

Faber: China Really Growing At 2 Percent – Money News

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Marc Faber was quoted in June as saying he expects a major move in financial markets, but is unclear which directions markets will turn.  His statements suggest to me he could be advising clients to go long volatility in anticipation of market turbulence.  This would usually be accomplished by buying options in high beta assets which one believes are underpriced.

Moneycontrol.com reports.

Investment Guru Marc Faber said he sees a huge breakout from the narrow trading range soon. “I think the summer is shaping up nicely. The grave is out, we had a huge rally. We now have a narrow trading range but we will get a big breakout.” He added that the S&P could hit 970-1020.

“I have turned kind of neutral recently because I think we are at that trading range. The big move, a huge move is coming in the dollar, bonds and in equities. But I am not yet sure clearly on what side it will be.”

However, today CNBC is reporting that Faber remains a long-term bear irrespective of his short-term views. An article on their site called “Ultimate Crisis Is Still Coming: Marc Faber” says:

We haven’t seen the last of the crisis despite all talk about green shoots, and the surge in markets was caused by nothing more than the excess liquidity coming from central banks, Marc Faber, author of the Gloom, Boom and Doom Report, told CNBC Friday.

"If you pump money into the system and you create large fiscal deficits, you create volatility," Faber said.

"We’ve seen an intermediate low in March, we’ll rally for a year or so or maybe 18 months… the ultimate crisis will happen much later, and the ultimate crisis would clean the system," he added.

Asked when this would be, he said he could not forecast a precise timing: "it may be 5 years time, 10 years time, but that’s not the last crisis."

Translation: Don’t underestimate the power of printing money. This combined with government intervention into the market will most definitely keep markets from crashing over the near term. In fact, markets may rise for a longer period than bears now expect. The real question is what will be the likely longer-term implications of this money printing.

In my view, it distorts price signals, causing people to lever up, reach for yield and take on more risk.  Whether those bets pay off is now largely determined by how successful government actions are in arresting deflationary forces over the short-term.  That makes this market extremely difficult to call and also extremely volatile, hence Faber’s talk about a big move in either direction.

On other fronts, I see Faber as a bit extreme. Always the small government-minded Libertarian, he goes on to suggest firing half of government employees in the world as a solution.  He says, “Why does California have these problems? It’s not that there are too many teachers in California but the education department is very bloated.”

Whether you agree or not, he is always entertaining.

The video of Marc Faber’s more bullish statement from June is below.

Source

Mkt to break out either way, stay on sideline… – Moneycontrol.com

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Here is a Marc Faber interview from March. It is well worth watching because he calls things perfectly through June: economic news, equity markets, and commodity markets.

This is billed as a Czech TV interview.  But the audio is pretty bad. So, the interviewer may be a Czech with halting English, but this is hardly a TV spot (notice the cigarette in Faber’s hand). Given the photo flashes, it may be for a newspaper or magazine. What you get is fifty minutes of Marc Faber unfiltered.

I call it Marc Faber Raw.

Enjoy.

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You have to hand it to Marc Faber; he knows how to grab your attention. Earlier this year, I posted a video of him saying “don’t underestimate the power of printing money“, a quote that has become mantra for me.  Basically, he believes a rising tide of quantitative easing is going to buoy stock markets globally and the global economy (at least for the medium-term). This is a view I agree with and one reason I have taken a more bullish tack at Credit Writedowns.

Earlier today, I also posted a video of Faber talking about Nouriel Roubini and the pressure not to overstay a bearish call and miss the turn which I found rather interesting (Here’s a video of Roubini sounding rather bullish – for him).  However, later in that same interview, Faber makes his most quotable statement yet: “I am 100% sure that the U.S. will go into hyperinflation.”  That is a very bold claim.

Just last week, I made similar comments in my post, “More thoughts on the fake recovery.”

In my view, the Federal Reserve has effectively demonstrated it is willing to risk hyperinflation in order to beat back the deflationary forces.

But I was using hyperbole.  Faber, however, is dead serious.  It is the secret desire of the Fed to want inflation that has U.S. government bond yields going bezerk.  But, most people are not expecting hyperinflation in the United States ever.

The video of Faber is below.  Is this headline-seeking exaggeration or serious punditry?

Source

U.S. Inflation to Approach Zimbabwe Level, Faber Says – Bloomberg.com

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In the wake of the huge consumer confidence number that caused U.S. markets to rally yesterday, Marc Faber is still singing from the same songbook that I am: delayed end to the recession and a weak recovery. See the video below.

The video also mentions the fact that Nouriel Roubini is in this camp. Faber says that Roubini has been forced to become more bullish due to the huge (bear market?) rally in stocks brought on by a tide of massive monetary and fiscal stimulus. Faber said, “it’s very tough for a forecaster who was ultra-bearish to stay bearish, because if he’s wrong he has a reputational risk.”

I certainly fall in to that camp as well. Ultimately, one can never underestimate the power of printing money. This is going to have a positive effect for the time being. But, papering over structural problems is going to create problems once recovery takes hold.

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Marc Faber is a definite bull right now, despite his title as Dr. Doom. In the video below he makes his case for gold miners and for a general equity rally through to the end of April (Hat tip Chris Martenson).

His main points are:

• Many miners are facing a cash crunch.  So, this is bullish for gold mining companies that can put cash to exploration.
• But gold itself is at a record high compared to the CRB index.  Faber likes industrial commodities more.
• Global GDP ex. government has already contracted 10% in his view.
• Money printing and deficits will make it difficult to rein in inflation in future.
• Markets have tumbled 50% so he believes you will make money in stocks over a ten-year horizon if you start buying here.  He sees few scenarios where this is not true.
• Markets will go higher due to money expansion. “Don’t underestimate the power of printing money.”  That is surely the money quote here.
• The dollar will weaken and this will be a sign that liquidity is flowing into the market.
• Extreme negative sentiment is a contrarian indicator.

Again, Faber is not the only bull here: Buffett, Grantham, Fleckenstein and Leuthold are all bulls.

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The quote of the day comes from Marc Faber via Fleet Street News:

Meanwhile, the cop who had the Wall Street beat when the biggest heist in history was going on… and who engineered the loans to AIG and GM… is now the chief of police. Tim Geithner said he was working night and day on Obama’s rescue plan, “because we know how directly the future of our economy depends on it.”

But as our old friend Marc Faber points out, neither Mr. Geithner, Mr. Bernanke, nor any of the men who rule us, seems to have any idea what they are talking about. As Chairman of the New York Fed, writes Faber, Mr. Geithner “did not seem to ‘know’, in the period preceding the crisis, how the future of the economy depends on a sound financial system!”

Faber goes on to explain that not only did the key players fail to understand what was going on – when it was obvious to him, us and millions of others – they then misdiagnosed the problem and prescribed the wrong treatment. They thought it was a liquidity crisis; so they threw billions in cash at dying institutions.

At every step of the way, the feds have been clueless, hopeless, and defenseless. It was the feds who lent money at negative real interest rates for more than 5 years. It was the feds who pretended to “regulate” and “control” the marketplace… claiming to protect investors from fraud and malfeasance. It was the feds who licensed the banks… set banking standards… blessed derivatives because they “distributed risk more widely” (Greenspan)… urged people to buy adjustable rate mortgages (Greenspan again)… praised sub-prime lending because it encouraged home ownership… and even told consumers to “go out and buy an SUV” in order to give the economy a boost (Fed governor Robert Tier).

The feds piled up the tinder… poured on the gasoline… and lit the match. And now, what do you know… they’ve all joined the fire department!

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In keeping with my the-sky-is-not-falling meme, I want t present yet further evidence that major market bears are increasingly seeing this market as a stock picker’s dream. We’re talking about Steven Leuthold, Bill Fleckenstein, Fred Hickey, Jeremy Grantham and Marty Fridson. Let’s add Marc Faber here as well.

Hold you hats, Dr. Doom is forecasting a (small) boom!

As you may know Dr. Doom is the familiar name for the widely followed investor Marc Faber. He made a name for himself by telling investors to sell all their U.S. stocks a week before 1987 crash. He also publishes the popular GloomBoomDoom newsletter.

Despite the negative tone of his nickname, Faber is bullish — he thinks that some stocks are heading for a boom. “Commodities are very cheap in real terms,” he says. We found his sentiment so intriguing that we invited Faber to be our guest on Fast Money.

He told us “industrial commodities are cheap in particular” and he’s extremely bullish on the oil servicing companies. “Oil has a huge geo-political aftertone. The US and China need oil – and they need to become less dependent on the Middle East. That should stimulate exploration.”

And it’s interesting to note that in a recent Bloomberg report Faber suggested some other commodities plays. Specifically he said to keep an eye on gold miners. “The mining stocks, especially exploration companies, are relatively attractive, but you have to buy the ones that have a strong backer,” he said.

And he recommended trading the hypothesis by getting long Ivanhoe Mines [IVAN], NovaGold Resources [NG] and Gabriel Resources [GBU].

Sound familiar? It’s because Fast Money told you about this trade well over a week ago!

It’s the same trade FM contributor Jon Najarian suggested on Friday February 27th . At the time he suggested,” long the miners ETF [GDX] and short the GLD [GLD] against it.

To be sure, there are some major bearish holdouts like David Tice and Louise Yamada. Even Jeremy Grantham sees a potential S&P 500 at 450 as a downside risk. After all, we re in a secular bear market. Nevertheless, the market is getting cheaper and this makes high-quality assets unencumbered by huge debt burdens more attractive for long-term investors.

 Source
Dr. Doom Forecasts Boom – CNBC

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After another brutal day in the market, whether the market is bottoming does not seem like the question on most people’s minds. Ten stocks declined for every one up today — and on heavy volume. Retail investors are clearly switching into cash and bonds judging from the recent price action. Yet, an increasing number of long-time bears are becoming ever more bullish as the market declines. Witness famous investor Steven Leuthold.

Steven Leuthold, whose Grizzly Short Fund makes money for investors by betting companies will fail, says he wouldn’t invest in his own fund now because the U.S. stock market is close to its bottom.

Leuthold, who helps manage $3.2 billion as founder of Minneapolis-based Leuthold Weeden Capital Management, told investors to keep money out of the Grizzly fund yesterday after it rose 74 percent in 2008. He joined Bill Fleckenstein, who shut a 13-year-old bearish fund in December, and Marc Faber, who covered bets against U.S. stocks.

The 54 percent plunge in the Standard & Poor’s 500 Index since October 2007 gave the average short-selling hedge fund a 28 percent increase last year, the most among strategies tracked by Chicago-based Hedge Fund Research Inc. Leuthold says the S&P 500 may rise 40 percent this year because the U.S. economy won’t fall into a depression and stocks are the cheapest in 24 years.

“I personally would not have an investment in the Grizzly fund because I think we’re so close to a major market bottom,” said Leuthold in an interview with Bloomberg Television from Tucson, Arizona. “Every investor ought to be considering putting money into equities.”

Short sellers borrow stock and sell it with the hope of profiting by replacing it after prices fall. The number of shares held short on the New York Stock Exchange has fallen 26 percent from a July peak.

Edward here. Leuthold is not the only bear turned bull. On Monday, I mentioned that Bill Fleckenstein was bullish on Gold in the article Fleckenstein: Protect yourself from Financial Armageddon with gold, the corollary being he is probably bearish on stocks. But is that really true?

Fleckenstein, president of Seattle-based Fleckenstein Capital Inc., says that while stocks may advance in coming months, they’re likely to lose the gains as the recession worsens and unemployment climbs.

The 55-year-old investor, who plans to open a fund that bets on both stock declines and gains later this year, said if he were managing a fund today he would be “doing a whole lot of nothing” and would have few short sales.

“Just because the market is going down, I don’t necessarily feel I want to put my capital at risk if I can’t find ideas that make sense,” said Fleckenstein. “It’s kind of dangerous to be shorting even though it’s working.”

Fleckenstein said he boosted his stake in Redmond, Washington-based Microsoft Corp. yesterday as the world’s largest software maker traded at 8.5 times profit, the cheapest since at least 1987. Microsoft added 1.5 percent to $16.12 yesterday after losing 73 percent of its value since December 1999.

So, let’s call Fleckenstein a bull here. I reckon he is not bullish on everything, but sees a number of value plays that a discerning investor could have, Microsoft being an obvious one. But, not everyone is so bullish. David Tice of the Prudent Bear Fund sees danger ahead.

The size of the stock market’s losses over the last 16 months is fooling investors into buying, according to David Tice, the chief portfolio strategist for bear markets at Federated Investors Inc., which manages $407 billion including the $1.1 billion Federated Prudent Bear Fund. Tice said in February that the S&P 500 may decrease as much as 50 percent this year.

Rounding out the article is another famous Bear, Marc Faber. He seems to be bullish, if only for a technical bear market rally.

Faber, who publishes the “Gloom, Boom & Doom Report,” said in a Feb. 23 interview on Bloomberg Television that investors shouldn’t short stocks because programs by the Federal Reserve and Treasury may ease the recession in the next three months. The U.S. government pledged more than $11.6 trillion over the past 19 months to spur economic growth and bail out banks, according to Bloomberg data as of Feb. 24.

Faber, based in Hong Kong, didn’t respond to requests for an interview sent outside of normal business hours.

“I see the comments from my readers and a lot of them, they want to short the market,” said Faber, 63, on Feb. 23. “This is something I would not necessarily do.”

My own read here is this: markets tend to overshoot in both directions. This suggests that we will need to go well below fair value before this bear market is over. The price/earnings ratio on the stock market of 13 is near perceived fair value of 15 here. An overshoot could take us down to 500-600 on the S&P 500. Moreover, in 2007, corporate earnings as a percentage of GDP were at record highs, suggesting they were cyclically inflated, making those P/E ratios also inflated.

The long and short is I don’t think we are near bottom. We should see more downside before this bear market is over. However, I tend to think a bear-market rally is in the offing this year due to unprecedented stimulus. So, shorting might be as dangerous as Faber suggests, but indexing is equally dangerous. In the meantime, there are an increasing number of attractively-priced stocks out there as Faber, Fleckenstein and Leuthold can attest.

Source
Leuthold Joins Fleckenstein, Faber Warning on Shorts – Bloomberg.com
Next Stop…Dow 5000? – Smart Money

Related posts:

• Are the markets set for a pullback?
• Marc Faber: Dr. Doom goes bullish
• Jim Chanos: “It’s a bear market rally”
• Marc Faber makes bullish comments on Bloomberg
• Bullish

Everybody is talking about nationalization. The latest trigger is the Citi discussions with the U.S. government to convert taxpayers’ preferred shares into common equity.

Below are a few Bloomberg video clips from just this morning where experts including Marc Faber, Peter Hahn and Bloomberg’s Tom Keene talk about nationalization. It is a very controversial issue. Hopefully, these clips will give you different viewpoints on the subject.

As to the stock prices of banks that could be nationalized (Citigroup, Bank of America, Lloyd’s and RBS), it is unclear where things are headed. But, these stocks are very volatile due to the uncertainty associated with nationalization. Marc Faber, in particular, has good comments on the outlook for shares.

I will be closing the poll below on nationalization soon and posting results in an article with my own views.

Related posts:

• Marc Faber: “A huge move is coming in the dollar, in bonds and in equities” but…
• Marc Faber: “I am 100% sure that the U.S. will go into hyperinflation”
• Japanese stocks, Asian real estate and commodities
• Marc Faber: “The feds poured the gasoline and lit the match. Now they’ve joined the fire department
• Pimco sees inflation in America’s future

Marc Faber, a noted market guru, thinks it would better to nationalize the banks rather than bail them out. In his view, bailing the banks out is the worst of all scenarios. He believes we are just seeing special interests feeding at the trough. I would tend to agree as you could imagine, given my recent posts on the lack of regulation in financial services. He also has a few choice words for how he would run a good bank, bad bank model.

You should also notice that he refers to “the Depression” in referring to this period.

One reason pundits like Faber sees bailouts as the worst of all solutions is the revelation that the U.S TARP funds were wasted.

The Bush administration received assets that were worth $78 billion less than the amount it invested as part of the massive infusion of capital into the country’s banks, congressional investigators have found.

The investigators concluded that the Treasury under the federal bailout had invested $254 billion into companies but the preferred stock it got in return had a market value at the time of only $176 billion, or 69 percent of what the government paid, according to a congressional oversight panel report scheduled to be released today.

Elizabeth Warren, the chairwoman of the panel, said former Treasury secretary Henry M. Paulson Jr. had promised that the government would buy the assets at their market value and that it was alarming that he didn’t do so. “At various points, Treasury has articulated policy objectives which could result in a program involved paying substantially more for investments than they appear to have been worth at the time of the transaction,” she said in written testimony submitted to the Senate Banking Committee yesterday. “The American people want to know what’s going on and they deserve answers.

Source
Treasury Overpaid for Bank Assets in Bailout, Oversight Panel Says – Washington Post

Related posts:

• $700 Billion? Try $5 Trilion – So says Marc Faber
• Marc Faber says avoid financials and buy gold
• Marc Faber says rate cuts won’t work
• Marc Faber: “A huge move is coming in the dollar, in bonds and in equities” but…
• Marc Faber: I advise every American to hold his gold outside of the United States

With the global economy in recession and inflation headed toward zero, government bonds are looking like the best place to put one’s money.  As a result, we have seen yields on these assets drop to incredibly low levels in the world’s largest developed economies as their prices have increased.

I am on record for expecting this rally in government bonds to continue due to the economic environment despite having labeled Treasuries a bubble.  Stephen Roach agrees with that assessment, which brings me to his quote:

“Rates can go to unusually low levels for much longer than people think.”

That is exactly my point regarding Treasury securities. They may show all the hallmarks of a bubble. But does that mean that the bubble will end now? That did not happen after Greenspan’s irrational exuberance quip in 1996. It didn’t happen in 2004 and 2005 when the Federal Reserve and the Bank of England were looking to stem the tide of residential property price bubbles.

Certainly there are those like Marc Faber who think Treasuries will tank.

“It’s hard to believe that after blowing up so many bubbles over the past couple years, the Fed is managing to blow yet another bubble,” he says.

“Thirty-year Treasury bonds are yielding about 2.5 percent. You would have to assume that over the next 30 years there will be no inflation problem” to make those yields attractive.

Given the expansionary fiscal and monetary policy of the United States, “there will be a time when inflation accelerates along with a weak dollar,” Faber says.

“When that happens, central banks will have to increases interest rates, which will be difficult to implement.”

You should notice that Roach and Faber have similar views on the direction of the global economy over the next five to ten years, but drastically different views as to what this means for government bonds.

While I have my money on a rise in Treasury bonds, this is not a sure thing by any stretch. If the Federal Reserve reflates the U.S. (and the global economy) through massive stimulus, you can be sure that Treasuries will be in for a very nasty correction.

Sources
Roach: No Recovery Until 2010 – Newsmax
Faber: Recession Will Last Five to 10 Years – Newsmax
Faber: Short Treasuries Massively Now – Newsmaxi

Related posts:

• Another take on the treasuries bubble
• Stephen Roach: Downturn in Asia less severe, but recovery later
• Treasuries are getting crushed
• Stephen Roach is still bearish, no recovery until 2010
• Video: Andrew Barry says stay away from treasuries

I would like to point out an interview with Marc Faber, one of my favorite market analysts. He is pretty entertaining, really.

Marc Faber is a hard money, old school investor who thinks that the U.S. government is going to reflate in order to avoid depression and that means gold is more valuable. But, for those of you who don’t know economic history, the fact is that this has been tried before, in the Great Depression in the 1930s and the result was that the government had to confiscate Americans’ gold.  It was Executive Order 6102 signed on 5 April 1933 right after Franklin Roosevelt came to office and it forbade all Americans from owning physical gold assets.

Quoting Wikipedia:

It required all persons to deliver on or before May 1, 1933 all gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of Executive Order 6102 was punishable by fine up to $10,000 ($166,640 if adjusted for inflation as of 2008) or up to ten years in prison, or both. Because of this forced immediate sale of gold to the Federal Reserve at the government set price of $20.67 per ounce, this Executive Order is often referred to as the Gold Confiscation of 1933. Shortly after this forced sale, the price of gold from the treasury for international transactions was raised to $35 an ounce; the U.S. government thereby devalued the U.S. dollar by 41%.

Order 6102 specifically exempted “customary use in industry, profession or art”–a provision that covered artists, jewelers, dentists, and electricians among others. The order further permitted any person to own up to $100 in gold coins (a face value equivalent to five troy ounces of Gold). Nevertheless, anecdotal accounts later related that many persons who possessed large amounts of gold simply ignored the order and hid their gold until the Order ceased to be in effect.

Faber seems to think the government could confiscate your gold again very soon.  Take a look at what he has to say below.

Oh, and Executive Order 6102 was not repealed until 1974, 41 years later.

Source
Executive Order 6102 – Wikipedia

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• Marc Faber: "I don’t think that you’ll see gold below $1,000 per ounce probably ever"
• Marc Faber: “Monetary policy in the United States will stay expansionary”
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• Marc Faber: “I am 100% sure that the U.S. will go into hyperinflation”
• Marc Faber makes bullish comments on Bloomberg

Artificially low interest rates are what got us into this mess. Why should we think that they will help us get out? That’s the question I ask myself and Marc Faber, otherwise known as Dr. Doom, answers that they won’t.

They certainly didn’t work under Greenspan. In fact it was the 1% Fed Funds rate that created a massive housing bubble. But, this time the Fed is pushing on a string. The drugs won’t work. Try something else, please.

Investor Marc Faber said a series of coordinated interest-rate cuts by central banks including the Federal Reserve to ease the economic effects of the global financial crisis won’t halt a worldwide slide in equities.

“Artificially low interest rates” that encouraged consumers and banks to take on more debt were the main cause of the credit-market turmoil that caused the failure of Bear Stearns Cos. and Lehman Brothers Holdings Inc., according to Faber, who predicted the 1987 stock-market crash.

“The slashing of interest rates will not help very much,” Faber, who manages $300 million, said in an interview in Manila. `They may cushion somewhat the decline but make matters worse.”

The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden’s Riksbank each cut their benchmark rates by half a percentage point in a bid to unfreeze global credit markets. The deepening credit crisis caused a worldwide sell-off in stocks that has dragged the MSCI World Index down by 35 percent this year.

The Bank of Japan, which didn’t participate in the move, said it supported the action. Switzerland also took part. Separately, China’s central bank lowered its key one-year lending rate by 0.27 percentage point.

Today’s decision follows a global meltdown that sent U.S. stock indexes heading for their biggest annual decline since 1937. Japan’s benchmark today had the worst drop in two decades. Policy makers are aiming to unfreeze credit markets after the premium on the three-month London interbank offered rate over the Fed’s main rate doubled in two weeks to a record.

Speculative Investments

Policy makers are reducing rates as economies weaken around the world. The International Monetary Fund said the global economy is heading for a recession in 2009 and increased its estimate of losses from the financial crisis to $1.4 trillion.

The Fed cut its key rate to 1.5 percent, a level last seen in September 2004. Low interest rates on deposits have pushed consumers to speculate on higher yields in other assets including stocks, real estate and commodities, Faber said.

“Had central banks around the world kept interest rates that encourage saving we won’t have these problems today,” the investor said.

Faber, publisher of the Gloom, Boom & Doom report, told investors to sell U.S. stocks a week before 1987’s so-called Black Monday crash, according to his Web site, and recommended buying gold at the start of its six-year rally.

Related posts
The Fed leads a global rate cut by central banks

Source
Faber Says Rate Cuts Will Fail to Stem Equities Rout – Bloomberg

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Faber thinks that the U.S. needs a lot more money than the Paulson Economic Patriot Act suggests. I agree 100%. His figure is $5 trillion! That’s a lot of dosh.

Here is how he is quoted on Bloomberg:

“The $700 billion is really nothing,” Faber said in a television interview. “The treasury is just giving out this figure when the end figure may be $5 trillion.”

Republican lawmakers offered a plan calling for Wall Street firms to purchase insurance on mortgage-backed securities and advocating tax cuts and relaxed regulations. Treasury officials had previously rejected an insurance approach in favor of one that purchased troubled assets, Virginia Republican Eric Cantor said.

President George W. Bush said Sept. 24 the U.S. faces “a long and painful” recession and will suffer “financial panic” unless the plan is approved.

“The decline in home prices of 20 percent is a relatively minor decline so far and it has created so many problems,” Faber added. “The U.S. is in much worse shape” than Japan was when its stock market crash ushered in a decade-long slump in 1990.

-Bloomberg

Faber is right about the Treasury just randomly picking the $700 Billion number. Yesterday I reported that a treasury spokesman said the pulled the number out of thin air:

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”
-Forbes 23 Sep 2008

The $700 billion plan is the first of many trips to the trough. You have been warned.

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Oil at $100? That’s certainly my call and I’ll stick to it. So far my call of oil peaking at $150 is holding.( We’ll see for how long). On July 9th, after oil’s first pullback to $138 I said:

Yesterday, oil fell the most in one day since the start of the Gulf War in January 1991 to close at $136.03 in New York trading. Now is the time to evaluate whether we have seen the top in oil prices? On Thursday in my post “Oil close to $146” I said,

The price action makes me think we are nearing the top here. I’d call $150 a peak. Many have called a peak before so let’s see what happens going forward.

I would like to reiterate that sentiment here with oil still being quoted below $138 in overnight trading. As I see it, a tight supply due to low Iraqi output from the war in Iraq, refiners’ inability to process heavy sour crude, and peak oil production led to a super spike in oil prices. The response has been demand destruction in the North America and Europe coupled with a reduction of oil subsidies in Asia.

Ultimately, the oil-induced inflationary spiral combined with the financial crisis has brought the world to the brink of recession with economies slowing markedly in Europe, North America, ANZ and South Africa. Demand for oil is lower, so prices will soon follow.

This begs the question whether inflation is still anything to worry about. My answer is yes — but not because of actual commodity prices, rather because of much higher inflation expectations getting embedded in the economy. There is always the worry about a confrontation with Iran bringing oil prices back up again (and way up potentially). But on the whole, demand destruction has set in and I expect to see oil prices lower.

If oil prices continue to fall down below $100, we can see the super spike as over. I see oil collapsing to well below $100 in the not too distant future.

Then we can move past inflation to the real worry, deflating credit and asset prices.
- Oil down below $138

Now, on July 22nd, oil has even dipped below $127. I think it’s on its way to crashing below $100 as demand collapses, with a global recession on the horizon. Marc Faber recently said the same.

Commodities and investment guru “Marc Faber, who told investors to bail out of U.S. stocks before 1987’s so-called Black Monday crash, said oil prices may fall to $100 a barrel as demand slows in a global economy at the “tail end” of its expansion.

Accelerating inflation and rising interest rates worldwide are likely to dent the value of commodities including oil, said Faber, who publishes the Gloom, Boom & Doom Report, at an investment forum in Sydney today.
-Commodity Online, 22 Jul 2008

So far, so good in my predictions of a $150 peak and a collapse toward $100. It can’t happen soon enough, as inflation is strangling the global economy.

This might save us from 1970s style inflation, but unfortunately it won’t save the global economy; the massive price decline is only a response to recessionary demand destruction from the previous high oil prices. The damage is already done.

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“I think a lot of banks are already bankrupt.” “And a lot of insurance companies and financial institutions, but they hide their rotten assets in level three asset categories, where you don’t need to value them.”

“I think the financial sector by and large has much larger problems than is perceived by the investment community. The stock market to some extent is telling you that, is giving you the price signals.”

-Street Talk, 10 Jul 2008

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The Vancouver Sun is on a roll today. They have another post on ICBC that makes for interesting reading. Frankly, I don’t know what to make of it. But it makes for a good read.

Chinese bank has market cap twice that of JPMorgan

First, the article starts off stating that the head of ICBC makes only 1% of what Jamie Dimon over at JP Morgan Chase makes. Then it points out that ICBC has a market capitalization that makes it the largest bank in the world, twice the the market cap of JP Morgan Chase.

Not many heads of global banks earn less than Jiang Jianqing, chairman of Industrial & Commercial Bank of China Ltd. Jiang’s $260,000 salary last year was less than 1 percent of the $27.8 million JPMorgan Chase & Co. paid Jamie Dimon.

Jiang has been making plenty of money for ICBC shareholders. ICBC’s stock price is up about 80 percent from its $22 billion initial public offering in October 2006 — the world’s largest — to $5.53 Hong Kong (71 cents) on June 25. The bank’s market capitalization of $252 U.S. billion is almost twice that of JPMorgan, making ICBC the largest publicly traded financial institution on the planet.

In the meantime, Chinese equities are imploding and the crack-up boom is underway in Asia. Here in the West. banks are drowning in bad debt and credit writedowns. Is none of this going to hit ICBC? I think Mark Faber’s quote near the end sums it u the best.

Bad debts could be another challenge, says Marc Faber, who manages $300 million at Marc Faber Ltd. in Hong Kong and doesn’t own ICBC shares. “If you are the largest bank in China, it’s impossible to know what every one of the bank lending officers is doing,” Faber says. “If Citibank and UBS don’t know, what hope has ICBC?”

When the Olympics are over, watch what the Chinese do. Caveat emptor.

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I have uploaded the associated PDF for this teleconference. Click here for PDF.

U.S. Global Investors Exclusive Webcast: Where is the Boom and the Doom?

SAN ANTONIO–(BUSINESS WIRE)–U.S. Global Investors (NASDAQ:GROW), a boutique investment adviser specializing in natural resources and emerging markets, will host a webcast titled, “Where is the Boom and the Doom?” on Friday, June 27, 2008 at 10:00 a.m. Central Time.

Dr. Marc Faber, the prominent contrarian economist, and Frank Holmes, will present their perspectives on the global economy. A question-and-answer session will follow the presentation.

To access the webcast, go to www.vcall.com and click the orange participant LOGIN button. Fill in the requested log-in information and enter room #145543, then click ‘OK’. Please log in 5-10 minutes prior to event start time. A pop-up window will open to display the webcast.

To review Vcall Interactive System Requirements please visit www.vcall.com/vcall/support/index.aspx. A system test and links to required free software are available.

Following the webcast, a replay will be available at www.usfunds.com/webcast.

About U.S. Global Investors, Inc.

U.S. Global Investors, Inc. (www.usfunds.com) is a registered investment adviser that focuses on profitable niche markets around the world. Headquartered in San Antonio, Texas, the company provides advisory, transfer agency and other services to U.S. Global Investors Funds, U.S. Global Accolade Funds and other clients.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

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In an interview with CNBC India, international investor Marc Faber says that gold is his commodity of choice right now.

Marc Faber sees demand for commodities to come off in second half of 2008 in India and China. He will rather buy gold at current levels rather than other commodities and sees lot of money shifting to gold. According to him, the problems of U.S. financial sector are much larger than perceived.
-CNBC Transcripts, 27 Jun 2008

With inflation rising, that’s a good call. Gold was up 3.7% yesterday to $915 as the markets tanked.

Faber also sees trouble in financials.

Q: On the financial sector, part of the reason why we saw the sell-down in the U.S. overnight was because of a downgrade for some of the brokers there. There are still lingering concerns about the impact on the financials, not just in the U.S. but Europe as well. You expect about 150 bank failures in the next 12 months. Can you explain this?

A: A lot of banks are already bankrupt. A lot of monoline insurance companies are bankrupt and financial institutions hide their rotten assets in level three asset categories where you don’t really need to value them. But, if you have stock prices like the monoline insurance Ambac and MBIA dropped 95% and then some rating agencies until last week were still carrying a AAA rating. It is a total joke.

These companies are basically out of business. So, the financial sector by and large has much larger problems than is perceived by the investment community. The stock market to some extent is telling you that. It is giving you the price, market signals. It is quite funny that one financial firm downgrades another financial firm and another financial firm begins to downgrade a financial firm that was downgrading themselves. It is kind of a domino effect. It is actually quite amusing to watch it all.

His call for financials to start going to zero is in line with my view. By the end of 2008, the bankruptcy wave and industry consolidation will probably have begun. MBIA and Ambac are going to have to be extremely lucky not to be amongst those in this list.

Related articles
Marc Faber Says Commodities Will Fall in Second Half, Bloomberg News, 27 Jun 2008

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• Marc Faber: Dr. Doom goes bullish

These are the picks of the day according to an article about what international investor Marc Faber is looking at. Despite the article’s bullish call on commodities, I know that Faber is on the record as saying that oil is due for a correction soon. And in Barron’s he mentioned that steel demand could slow if China is affected by a global slowdown.

So, buyer beware. I wouldn’t trust commodities to continue up, at least over the near term. One can’t trust what one reads.

That said, the most interesting comment in this short blurb was:

“For Japan, inflation is favorable,” Faber said, because it “will bring cash out of the mattress and into equities and real estate.”

For a country in the throes of deflation for a decade, a little inflation might be the fillup they need.

Source
Marc Faber Favors Commodities as Inflation Quickens, Bloomberg News, 24 Jun 2008
Troubled Waters, Barron’s, 16 Jun 2008

Related articles
Picture du Jour: Sun Rising Over Japanese Stocks, Prieur du Plessis, Safe Haven, 24 Jun 2008

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