Tuesday, August 30, 2011

The contrarian case for active investing - Globe and Mail

Mutual funds


Mutual fundsEnlarge this imageExpert's PodiumThe contrarian case for active investingGEORGE ATHANASSAKOS |Columnist profile| E-mailFrom Tuesday's Globe and MailPublished Monday, Aug. 29, 2011 6:04PM EDTLast updated Monday, Aug. 29, 2011 6:42PM EDT

Faber: Gold is the safest bet in these financial crunch times- ...more - Balkans.com

Marc Faber, the publisher of “The Gloom Boom and Doom report” has said that paper money has lost its value and Gold is the safest bet in these financial crunch times. He also owns the Marc Faber Limited, which acts as an investment advisor.

Faber is known for advising his clients to liquidate stock positions one week before the 1987 October crash. He also predicted the rise of oil, precious metals, commodities and emerging markets in his book “Tomorrow's Gold: Asia's Age of Discovery”. In it he had specially predicted the rise of China. His prediction of the U.S. dollar slide since 2002 and the 5/06 and 2/07 mini-corrections also proved to be true.

“Financial conditions are today worse than they were prior to the crisis in 2008. The fiscal deficits have exploded and the political system [in both the U.S. and Europe] has become completely dysfunctional” he said, as reported by marketwatch.

He says that it is dangerous to only hold investments in cash since inflation would eat away its purchasing power since hyperinflation is the pattern to come.

He prefers stocks over cash and government bonds over the long term and personally owns dividend yielding Asian shares in his portfolio.

He views Gold as currency instead of an asset class and argues that since the US dollar fails in performing the function of money, why not hold money in gold and silver.

“Physical gold in a safe deposit box is the safest. Forget about huge capital gains. I would look at capital preservation. I want to preserve my capital”, he says.



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Monday, August 29, 2011

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


Stock-Markets

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


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

Faber on whether this is the market rally he’s been expecting:


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

Faber on how long his view of the market is:


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

On why the markets won’t come back down again to the lows that were hit in 2009:


“On fundamentals one could make the case that we could go lower to around March 2009 lows at 666 on the S&P. But I think we have to be realistic that if the market dropped here another 10% or 15%, there would be for sure another quantitative easing move and other measures taken to support asset prices.”

On what we’ll hear from Bernanke on Friday and whether there will be a selloff of Treasures after that:


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

On how uncertainty on a global level is affecting the markets:


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

On why he’s not more bearish:


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

On insider buying:


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

Faber commenting on Gary Schilling’s bet against copper:


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

Faber where the 10-Year will go:


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




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Tuesday, August 23, 2011

Marc Faber's Top 5 Suggestions For Investors - Barron's (blog)

Hong Kong-based investment manager Marc Faber, a member of Barron‘s Roundtable, just last weekend warned in the magazine that stocks would drift lower.

Gold is likely to correct, he added, something that’s looking more possible each passing day even though the popular SPDR Gold ETF (GLD) moved higher this week.

He’s also bullish on silver, which saw the iShares Silver ETF (SLV) stage  a technical breakout on Friday.

Faber reiterated his recommendation to short Salesforce.com (CRM) as well.

The publisher of “The Gloom Boom & Doom Report” took time this week to talk to Jonathan Burton, MarketWatch’s money and investments editor. (See video above.)

Faber didn’t offer much that we haven’t heard before, but some of his top suggestions were put into a Top 5 list of things investors should focus on:

1.) Avoid Treasuries. “The dollar may rally somewhat, but clearly in the long run the dollar and other paper currencies — the euro is not much better — will have a depreciating tendency vis-a-vis honest money: gold and silver.”

2.) Cash is trash. “Paper money has lost its value. Hyperinflation is the pattern to come.”

3.) Stocks offer some safety. “My assumption is that March 2009 was a major low, and that we will not go back below that low.”

4.) Emerging markets will expand. “I can buy you a portfolio of high-dividend stocks in Asia that would have a yield of 5% to 7% … The banks in Asia are in a very solid position. All these are a play on the recovery in the stock market in Japan.”

5.) Gold is worth its weight. “Intelligent people, instead of holding cash in U.S. dollars with zero interest rates, why not hold money in gold and silver?”


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Avoid cash, load up on gold, says Marc Faber - MarketWatch (blog)

Marc Faber is to financial-market optimists what the Grinch is to Christmas. The Hong Kong-based investment manager and publisher of “The Gloom Boom & Doom Report”  doesn’t often like what he sees, and nowadays he finds even less to like about the world’s economic situation than he did in 2008 — as if that wasn’t bad enough.

In an interview with MarketWatch’s Jonathan Burton, Faber outlines five places where investors should put – and pull out – their money. Namely: avoid Treasurys and cash, selectively buy stocks, stick with emerging markets, and load up on gold.

Faber, also known as “Dr. Doom,” believes that Federal Reserve policy is stoking speculation over savings and debasing the U.S. dollar, hyperinflation is a real possibility, the stock market’s recovery since 2009 has favored the rich and powerful, cash is trash, and gold and land in the countryside are the only true safe havens.

“The Federal Reserve is a very evil institution,” Faber said with characteristic bluntness, “in the sense that they punish decent people who have saved all their lives. These are people who don’t understand about stocks and investments, and suddenly they are forced to speculate.” Read full story.


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Marc Faber turns “Ultra-Bearish”; what to do now? - Beacon Equity Research

After calling for a bear market in stocks two weeks ago, the publisher and editor of the Gloom Boom Doom Report Marc Faber has become more bearish on the outlook for the world’s financial markets by the minute.


Even the bull, Barton Biggs, who said stocks are at a bottom when the Dow was closer to 11,000 than 10,000, equivocated on his bullish stance on Bloomberg, yesterday.  So, even the bulls are questioning their logic of stock valuations during the solvency crisis in Europe and the contagion it will most assuredly spread to U.S. and Asian markets.


“Financial conditions are today worse than they were prior to the crisis in 2008,” Faber told MarketWatch earlier this week. “The fiscal deficits have exploded and the political system [in both the U.S. and Europe] has become completely dysfunctional.”


“Dysfunctional” may be the best word to describe revolving bailouts and further debt creation by the world’s Western debtors, certainly as far as creditors are concerned.  And the biggest creditor of them all, China, has repeatedly expressed outraged at the handling of the sovereign debt crisis in Europe and the U.S., voicing at times their concerns publicly of the future purchasing power of its $2 trillion of dollar-denominated assets.


No too surprisingly, the Chinese have opted to skip-out of the annual meeting of central bankers at Jackson Hole, Wyoming, slated for August 27, according to a Reuters report, released Friday.


“China will skip next week’s annual conference of central bankers in Jackson Hole, Wyoming,” according to Reuters.  But the news agency couldn’t get a comment from Beijing as to the reason for the no show, it stated.


“It’s a suicidal investment to own 10-year or 30-year U.S. Treasurys,” Faber said of U.S. paper, adding that “U.S. government bonds are junk bonds.”


If Beijing, who holds $2 trillion in dollar-denominated assets, is upset with the West’s devaluation of the future purchasing power of those paper assets, Faber’s point that if U.S. paper is indeed junk, than the preservation of capital should be priority one to every investor during these troubling times, leaving capital appreciation for a later time when central bankers finally must give up on the debt pyramid scheme, and stop the race to the bottom in the currency devaluation war.


For now, Faber’s recommends the safest of all financial vehicles, gold, taking a page from history as his guide for investors to survive the coming catastrophic endgame to this financial crisis.


“Physical gold in a safe deposit box is the safest,” Faber added. “Forget about huge capital gains. I would look at capital preservation. I want to preserve my capital.


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A beginner's guide to investing in commodities - Interactive Investor

Commodities are a hot topic at the moment, with prices soaring as other asset classes falter. In August, the price of gold hit a record-breaking $1,800 an ounce, and the price of a barrel of Brent oil - dubbed 'black gold' - is consistently hovering above $100.

Recent stockmarket volatility and increasing UK inflation have driven investors towards tangible assets. Commodities, like much else, are subject to the economies of supply and demand.

When supply falls, as in the case of oil, the price will steadily rise. Likewise, when demand rises, as in the case of gold, the price goes up.

The basics

Commodities are physical assets. They include metals like gold and silver, oil and gas, and so-called 'soft' commodities such as wheat, sugar and cocoa beans. Agriculture, which was traditionally hard for investors to access, also comes under the commodities umbrella. They are often called 'safe havens' as they preserve wealth in a physical way.

"Commodities are often referred to as the 'fifth' asset class, after the conventional investment asset classes of cash, fixed interest securities, equities and property," says Martin Bamford, managing director of IFA Informed Choice.

The sector has little correlation with the stockmarket and currencies, which means if equity markets fall, then the price of commodities won't necessarily plummet. Bamford adds: "They tend to behave differently to these conventional asset classes, which means they can be very useful for the purposes of diversification within an investment portfolio.

"Investment into precious metals has gained significantly greater visibility over the past decade," says Russ Koesterich, global chief investment strategist at BlackRock's exchange traded fund (ETF) arm, iShares.

"While gold has acted as a store of value for thousands of years, the recent performance of precious metals, their diversification benefits and inflationary concerns have restarted the discussion of this investment category among many institutional and private investors."

Commodity prices have rocketed over the past 10 years, much of their success deriving from the ongoing growth story of the emerging markets. Due to an increasing population - there are now 6.94 billion people in the world, according to the United States Census Bureau - global demand is now much higher, and commodity prices have risen to reflect this.

China, as an example from the emerging markets, has seen GDP growth of around 9% a year, with its consumers richer and more numerous than ever before. They can now afford to use more oil and gas, and consume more expensive food like beef and dairy produce. As a result, prices for these commodities have rocketed.

How to invest

You can invest in commodities physically, by investing in a mining or exploration firm or indirectly through a fund or an investment trust. Investing physically means actually buying and holding the asset, although this comes with storage problems.

In the case of buying a physical asset, gold is typically the most popular, with several bullion firms offering online gold dealing and safe storage of the asset. Buying physical gold coins also offers an easy way to access the metal. The World Gold Council gives details of reputable companies on its website, so always check there first.

"Real direct exposure in commodities usually involves buying physical assets, such as gold coins or bars. This can be expensive, with buying and selling costs to consider in addition to the cost of storage and insurance. Investors will also need to ensure they buy the asset at a good price. This can be difficult to achieve, particularly when buying smaller quantities," comments Bamford.

As for other natural resources such as oil and gas, one way to access them is to buy shares in companies, such as BP (BP.), Royal Dutch Shell (RDSB) and Tullow Oil (TLW). The same applies to 'soft' commodity companies, although they are less numerous on the Footsie indices in the UK. However, your investment will be subject to movements in the stockmarket, as well as changes in the price of the commodity.

To spread risk, an investment fund is an easy way to access the sector. They also provide a degree of diversification, as they will invest in a variety of commodities.

Several natural resources funds have posted spectacular results in the wake of soaring gold prices. BlackRock's Gold & General fund, investing primarily in the shares of gold mining companies, has gained 296% over seven years to 1 August. The group's World Mining investment trust has most of its assets in gold, platinum, silver and diamonds as well as base metals. Its performance is not shabby either - up 316% after seven years.

Evy Hambro, who manages both BlackRock vehicles, puts the outperformance down to a variety of factors, although the increased jewellery demand from the emerging markets will continue to "play a part".

"Demand for jewellery has soared in the developing world, particularly in India and China. Jewellery now accounts for 56% of all gold demand excluding that from the official sector, with Indian imports of gold and silver reported to have risen by a staggering 222% in the past year to May," he says.

The JPMorgan Natural Resources fund, investing in shares of commodity production companies with some exposure to soft commodities, is up 293% over seven years, while the First State Global Resources fund has soared 288% over seven years and is ranked first in the global sector.

Specialist agriculture funds have opened to new investors hoping to capitalise on rising food prices, with the Baring Global Agriculture and First State Global Agribusiness funds up 13 and 20% respectively over the past year to 1 August.

Passive funds have also risen in popularity over the last few years, with ETFs becoming a viable way to access commodities. Equity-based commodity ETFs will invest in shares of commodity companies through an index such as the FTSE 100 (UKX), whereas exchange traded commodities (ETCs) are instruments that track the future price of the commodity, or a basket of commodities. They can either be physically-backed by the commodity itself, or use swaps with other financial institutions to provide the exposure.

However, as they only track an index such as oil futures, there is little room for manoeuvre. Should the price of the commodity fall, so will the investment, as the ETF will simply track its performance. ETCs also allow investors to 'short' or 'leverage' their investment, allowing investors to either take bets on the price falling, or the price rising.

Investors should be careful here, as although there are potential gains to be made, there could be huge potential losses too.

ETCs are available from Deutsche Bank's ETF arm, db X-trackers; iShares and ETF Securities.

Another avenue to explore is investing in a futures contract of a particular commodity. This investment will track the price of the metal, for example, at a particular point in the future, and are typically limited to large institutional investors who have the resources to take these positions. While this investment is linked more directly to the price of the metal than commodity equity funds, it might diverge from the current (spot) price of the metal because of the access costs to the future market.

What investors should be aware of

BlackRock's Koesterich highlights four reasons to invest in the sector: portfolio diversification, inflation hedge, being a safe haven and to take a bet on specific industries or regions. However, he says that investors should be aware of whether or not the investment provides exposure to the underlying metal.

In addition, commodities already make up a significant proportion of the FTSE 100. Overall, the oil and gas industry makes up 17% of the index, while basic materials makes up 13% - which translates as a large part of any UK-focused portfolio.

Jason Witcombe, chartered financial planner at Evolve Financial Planning, advises investors to look at their current portfolio carefully before ploughing money mindlessly into the sector, as it's likely a large part will already be invested in commodities, albeit through listed commodity companies. Also, with a smaller portfolio worth £50,000 or less, such a large percentage will already be invested in the sector so it makes little sense to invest further.

Instead, for beginners with a taste for commodities, Witcombe suggests upping exposure to the emerging markets, as it is here where some real growth can be gained from commodities.

"The commodity sector is even more pronounced in the emerging markets," he says. "A large part of South America's output, for example, is very commodity-driven. Investors can put a little bit extra into emerging market equities, which are heavily weighted towards commodities."

Witcombe counsels against "jumping on the bandwagon" of rising oil prices though. "It's more speculation rather than investment, as there is no reliable return mechanism, which makes them so volatile."

Witcombe also suggests investing in the physical metal or commodity itself, or spreading risk by investing in a fund. He adds: "Keep a good focus on costs. That's why I favour tracker funds. If you are enticed to invest in a commodity fund, there can be up to a 5% initial charge. The more specialist the fund, the more you can expect to pay. If 5% is disappearing before you're started, you're on the back foot."


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Monday, August 22, 2011

Avoid cash, load up on gold, says Marc Faber

Marc Faber is to financial-market optimists what the Grinch is to Christmas. The Hong Kong-based investment manager and publisher of “The Gloom Boom & Doom Report” doesn’t often like what he sees, and nowadays he finds even less to like about the world’s economic situation than he did in 2008 — as if that wasn’t bad enough.

In an interview with MarketWatch’s Jonathan Burton, Faber outlines five places where investors should put – and pull out – their money. Namely: avoid Treasurys and cash, selectively buy stocks, stick with emerging markets, and load up on gold.


View the original article here

Friday, August 19, 2011

What Can the Fed Do To Help Markets? Collectively Resign, Says Marc Faber - Lew Rockwell


Marc Faber the Swiss fund manager and Gloom Boom & Doom editor spoke Tuesday about the Fed's decision to keep interest rates low for a prolonged period of time and the prospects of QE3. He says the Treasury market is a gigantic bubble and long-dated T-bonds are the short of the century. Faber suggests that sometimes the best the Fed can do for markets is to do nothing!


He also talks about gold and how "every responsible adult should gradually accumulate gold".


Speaking in an interview from Chiang Mai, Thailand, with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart", Faber said: "The Fed did the right thing" by not announcing QE3, so they can now watch the reaction of assets prices.


Faber, who predicted the stock market crash in 1987, turned bearish shortly before the 2007-2009 bear market and called the 2009 lows, believes the markets will now test the July 2010 lows for the S&P 500 at 1,010 and "after that we'll get a QE3 announcement."


The technical picture is so horrible that "I would use the rebound as a lightening up opportunity – I would reduce positions," he told Carol Massar.


Faber also warned that by selling 'in such a rapid way and with such a momentum,' the markets are signaling that "something really wrong [would] happen in the next 2-3 months...maybe there is geopolitical problems, maybe the Middle East blows up, maybe the economy is horrible"


The speculative practice of short-selling will be restricted from Friday in Belgium, France, Italy and Spain to combat "false rumors" that have destabilized the markets, European regulators said.


Short-sellers sell borrowed shares with plans to buy them back later at a lower price.


Some believe a ban will have unintended consequences. “EU policy makers don’t seem to understand the law of unintended consequences,” Jim Chanos, told Bloomberg yesterday. “The vast majority of short-selling financial shares is by other financial institutions, hedging their counterparty risks, not speculators. The interbank lending market froze up completely in October to December 2008 – after the short-selling bans.”


It is the worst thing to do right now," says Abraham Lioui, economics professor at France's Edhec business school. "This would signal to the market there may be something fundamentally bad that is happening."


"The Fed is underestimating the severity of the coming economic downturn and they have spent – shot out- their bullets," Faber told Bloomberg.


It is very difficult to follow with QE3 right here because gold prices are going ballistic and the dollar is very weak and there are unintended consequence with implementing QE3 right here,' he added.


What can the Fed do to support the economy?


"The best they could do for markets would be to collectively resign," Faber suggested.


"Everybody in the world has become a Keynesian, everybody thinks the government should do this and that, the Fed should do this, the Treasury should do that.....I think sometimes the best is to do...nothing!


Reiterating his views on the prospects for another asset purchase program, Faber asked: "What has QE1 and QE2 done for the labor market? Nothing at all, and nothing for the housing market."


"It [QE] has lifted stocks and it created wider wealth inequality in the sense that people who own assets have done well and people who are in the lower income recipient groups are getting hurt from rising energy and food prices," he added.



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Marc Faber Sees Short-Term Bounce

Marc Faber, who predicted just last week that a bear market was on its way, says the current selloff in equities is overdone and he expects a short-term rebound.

Dr. Marc Faber"I think that near-term stock markets around the world are very, very oversold and most oversold since February, March 2009 and 1987," Faber said. "(It) doesn't mean that they can't go lower, but I think they will rebound."

Faber, the editor and publisher of The Gloom Boom & Doom Report hasn't, however, changed his bearish view. He still expects the S&P 500 to drop to 1100 by October, but he says the selloff came even earlier than he had expected.

"The strategists in the US, mostly brainless people, who are predicting S&P between 1400 and 1500 by year end, I think they will have to re-adjust their views and I think the markets may actually go lower," he told CNBC on Tuesday.

Faber says the correction has been so vicious because investors have lost faith in politicians and current economic policies.

"Nobody trusts (anyone) anymore, the Obama administration, the U.S. government, Congress, the people that voted for the debt increase and so on," he said.

The selloff in stocks has boosted safe-havens including Treasurys, driving 10-year yields down to 2.35 percent, despite Standard & Poor's downgrade of the U.S. credit rating. Faber, along with Jim Rogers, believes Treasurys are overvalued and that yields will have to rise.

"In my opinion, around this level, government bonds in the US are the short of the century," he added.

View the original article here

What Can Fed Officials Do To Help the Markets?


Marc Faber the Swiss fund manager and Gloom Boom & Doom editor spoke Tuesday about the Fed's decision to keep interest rates low for a prolonged period of time and the prospects of QE3. He says the Treasury market is a gigantic bubble and long-dated T-bonds are the short of the century. Faber suggests that sometimes the best the Fed can do for markets is to do nothing!


He also talks about gold and how "every responsible adult should gradually accumulate gold".


Speaking in an interview from Chiang Mai, Thailand, with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart", Faber said: "The Fed did the right thing" by not announcing QE3, so they can now watch the reaction of assets prices.


Faber, who predicted the stock market crash in 1987, turned bearish shortly before the 2007-2009 bear market and called the 2009 lows, believes the markets will now test the July 2010 lows for the S&P 500 at 1,010 and "after that we'll get a QE3 announcement."


The technical picture is so horrible that "I would use the rebound as a lightening up opportunity – I would reduce positions," he told Carol Massar.


Faber also warned that by selling 'in such a rapid way and with such a momentum,' the markets are signaling that "something really wrong [would] happen in the next 2-3 months...maybe there is geopolitical problems, maybe the Middle East blows up, maybe the economy is horrible"


The speculative practice of short-selling will be restricted from Friday in Belgium, France, Italy and Spain to combat "false rumors" that have destabilized the markets, European regulators said.


Short-sellers sell borrowed shares with plans to buy them back later at a lower price.


Some believe a ban will have unintended consequences. “EU policy makers don’t seem to understand the law of unintended consequences,” Jim Chanos, told Bloomberg yesterday. “The vast majority of short-selling financial shares is by other financial institutions, hedging their counterparty risks, not speculators. The interbank lending market froze up completely in October to December 2008 – after the short-selling bans.”


It is the worst thing to do right now," says Abraham Lioui, economics professor at France's Edhec business school. "This would signal to the market there may be something fundamentally bad that is happening."


"The Fed is underestimating the severity of the coming economic downturn and they have spent – shot out- their bullets," Faber told Bloomberg.


It is very difficult to follow with QE3 right here because gold prices are going ballistic and the dollar is very weak and there are unintended consequence with implementing QE3 right here,' he added.


What can the Fed do to support the economy?


"The best they could do for markets would be to collectively resign," Faber suggested.


"Everybody in the world has become a Keynesian, everybody thinks the government should do this and that, the Fed should do this, the Treasury should do that.....I think sometimes the best is to do...nothing!


Reiterating his views on the prospects for another asset purchase program, Faber asked: "What has QE1 and QE2 done for the labor market? Nothing at all, and nothing for the housing market."


"It [QE] has lifted stocks and it created wider wealth inequality in the sense that people who own assets have done well and people who are in the lower income recipient groups are getting hurt from rising energy and food prices," he added.



View the original article here

Thursday, August 18, 2011

Marc Faber: Long Term U.S. Treasuries Are A Bubble And The Fed Did The Right Thing Delaying QE3

  Marc FaberMarkets were noticeably higher yesterday on expectations that the FOMC would keep interest rates low till 2013. That rally has disappeared today.

Investment guru, and author of Gloom, Boom & Doom Report, Marc Faber said in an interview with Bloomberg Television that the Fed's non-Keynesian move yesterday was spot on but that the Fed would announce a third round of quantitative easing in the future that would do little to help the economy:


"I think they did the right thing that they didn't allow QE3. They can watch the reaction of assets, whether they will go lower. I think the market is more likely to move still lower... in general I think we will test the July lows of last year, the S&P at 1,010. After that, probably we'll get probably a QE3 announcement."


…What has QE1 and QE2 done for the labor markets? Nothing at all. It's done nothing for the housing markets.  It's lifted stocks and it created wider wealth inequality in a sense that people who own assets have done very well, and people that are the lower-income recipients groups, they are hurt by rising energy prices and food prices."


As investors look for safe havens to pour their money into, Faber suggested turning to gold, instead of U.S. treasuries that saw their yields move lower despite the S&P downgrade of America's credit rating:


"I personally think the Treasury market, the long-dated, are a bubble and it will be one of the worst investments for the longer term if you buy a 10-year, a 30-year U.S. Treasury so I'm a bit puzzled that Treasuries are now yielding, are essentially near record lows. I would rather sell Treasuries."


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I Can Smell QE3, QE4, QEMany

'I Can Smell QE3, QE4 and Many More,' Says Marc Faber

Business Intelligence Middle East



Marc Faber the Swiss fund manager and Gloom Boom & Doom editor spoke today about the Standard & Poor's credit rating downgrade of US sovereign debt, and how the downgrade was long overdue as the 'junk bond' was no longer worth of an AAA rating.


He views the downgrade as moderately positive for equities because it shows investors there is a risk in holding government bonds and discusses the conditions that will lead to QE3.


Speaking in an interview from Chiang Mai, Thailand, with Susan Li on Bloomberg's "Asia Edge" this morning, Faber said a government bond is rated AAA when the issuer is willing to pay the interest in a stable currency. "We are not dealing, in the case with the US Dollar, with a stable currency."


"The downgrade was overdue," Faber told Li, adding that the agency "basically downgraded a junk bond because it was no longer an AAA"


"The US fiscal position is a disaster if we include the unfunded liabilities and some kind of default will occur," he predicted.


He went on to explain that there are two ways that can lead to default: 1) Not paying interest and restructuring debt or 2) repaying the debt and the interest in a depreciated currency. Faber argues that the US Dollar is losing more value in terms of purchasing power than other currencies.


Faber, who believes markets began a bear market on May 2 2011, sees the impact of the US downgrade on equities as positive.


"I personally think the downgrade of US debt is actually moderately positive on equities because it shows investors very clearly there is a risk in holding government bonds anywhere in the world," he said.


He sees risks rising from two factors: 1) Interest rates go up and the value of bonds decline, or 2) you have a sovereign downgrade and "when the AAA turns to DDD, yields go up."


"I am the most bearish person in the world but I think over the next 10 years, you will be better off in equities and precious metals than in government bonds," he told Bloomberg's Susan Li earlier today


Faber expects a market rally soon because equities are 'oversold,' however he doesn't see new highs this year above the May 2 2011 high on the S&P 500 of 1,370.


The S&P 500 Index slumped another 32 points, or 2.6% in early trading this morning, to below 1,170.



View the original article here

Faber: Market Headed For Short-Term Rebound

Economist Marc Faber, publisher of The Gloom, Boom and Doom report, says markets are headed for a short-term rebound.

"I think that near-term stock markets around the world are very, very oversold and most oversold since February, March 2009 and 1987," Faber tells CNBC.

"(It) doesn't mean that they can't go lower, but I think they will rebound."

This hasn't changed Faber's long-term bearish view of markets, especially those in the U.S.

"The strategists in the U.S., mostly brainless people, who are predicting S&P between 1400 and 1500 by year end, I think they will have to re-adjust their views and I think the markets may actually go lower," says Faber.

According to Faber, the sell-off that began after Standard & Poor’s downgraded U.S. credit to AA-plus from AAA has been so dramatic because investors don’t believe in the integrity of politicians and current economic policies.

"Nobody trusts (anyone) anymore, the Obama administration, the U.S. government, Congress, the people that voted for the debt increase and so on," Faber says.

The equities sell-off has boosted so-called “safe-haven” investments including Treasurys, driving 10-year yields down to 2.35 percent, despite the S&P downgrade.

Faber believes Treasurys are overvalued and that yields will have to rise.

"In my opinion, around this level, government bonds in the U.S. are the short of the century," Faber says.

Economist Nouriel Roubini says Standard & Poor's decision to downgrade the U.S. at a time of such severe market turmoil and economic weakness only increases the chances of a double-dip recession and even larger fiscal deficits.

"Paradoxically, however, U.S. Treasuries will probably remain the world’s least ugly safe asset: risk aversion, equity declines and a looming slump could even see treasury yields fall rather than rise," Roubini writes in the Financial Times.

However, avoiding another recession “might simply be mission impossible,” says Roubini.

© Moneynews. All rights reserved.


View the original article here

Gold Beyond US$1800 Level – What Do Jim Rogers, Gerald Celente, Marc Faber Say? - My Loans Consolidated

Ever since the debt ceiling bill passed on Aug 2, 2011, everything went downhill for America, dragging the whole world down with them. Standard & Poor downgraded the US credit rating from AAA.The Dow Jones dropped sharply within the past 8 days by over 500 points. Gold price rose from a little over the $1600 level up beyond the $1800 level. Within only 8 days, gold gained more than $200 per troy ounce.This only means that the US dollar is not even worth the paper it is written on. Being the world’s reserve currency, the greenback is dragging down most of the value of other currency down with it. Still, economists predict that another round of quantitative easing is already on the way.

Jim Rogers, investor and author, has always warned the masses that gold price is going to go up despite what other economists say that gold is currently in a bubble. He made it loud and clear that this is not a bubble. Gerald Celente, CEO of Trends Research,  has never trusted the US dollar and has suggested people invest in gold. Recently he even tells Russia Today that the US dollar is not even worth the paper it is written on. Marc Faber believes that Federal Reserve Chairman Ben Bernanke will continue doing the only thing that he knows best – printing more money. This will only drive the price of the yellow metal even higher and higher.

The past few days the world panicked following the Aug 2, US debt ceiling lift, Dow Jones plunge and gold price increase. Jim Rogers believes if people keep panicking like this than the economy is for sure going to go down. “If we have more panic this week, then everything is going to go down, but you should probably step in and buy commodities. If they do collapse, with everything else I would prefer to buy agricultures. I said before if gold goes down for some reason or silver, then I might buy silver,” Rogers said. With the gold price being in a rally, Rogers is playing cautious about buying into it.

Meanwhile, Gerald Celente predicted this collapse accurately in his latest Trends Journal published on the 13th of June. He has always made it clear that the economic recovery that US media experts are so eagerly promoting is bogus. Celente also predicted that a global economic collapse was imminent. “The economy is on the threshold of calamity… another violent financial episode is looming,” he wrote. And he was right. The collapse is happening right now!

Marc Faber, in an interview with Bloomberg said that even with gold price above the $1800 level, he does not think it is a bubble. He said, “I don’t think it is a bubble, but I think the gold market has exploded to the upside recently and the correction is overdue. But as I have always maintained for the last 12 years, every responsible adult should gradually accumulate gold, because not owning any gold is the trouble with government. I don’t understand. People of Bloomberg, I hardly know anyone who owns any gold physically. All of the Bloomberg employees are intelligent people. They listen to the news every day. They make the news every day. Hardly anyone owns any gold.”

Popularity: 2% [?]


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Wednesday, August 17, 2011

Marc Faber Will Steal Your Girlfriend After He’s Done Rifling Through Your Shit And Insulting Your Commodity Picks

“I don’t think [gold] is a bubble, but I think the gold market has exploded to the upside recently and the correction is overdue. But as I have always maintained for the last 12 years, every responsible adult should gradually accumulate gold, because not owning any gold is the trouble with government. I don’t understand. People of Bloomberg, I hardly know anyone who owns any gold physically. All of the Bloomberg employees are intelligent people. They listen to the news everyday. They make the news everyday. Hardly anyone owns any gold…I disagree [that you can't do anything with gold.] You give your girlfriend copper rings and I give them gold rings and I keep them longer.”


View the original article here

Debunking Myths of a U.S. Monetary Collapse

Printing Money Does Not Create Wealth



'The US will collapse because the US is printing money. As everyone knows, printing money does not produce wealth.'


Marc Faber, who needs doom in order to sell subscriptions to his Gloom, Boom and Doom report, likes to say, "If debt and money printing equaled prosperity, then Zimbabwe would be the richest country.”


Seems logical, does it not?


Maybe.


Let's pretend we start a useless government agency (not hard to pretend, I know) that hires 10,000 people to do nothing more than pick their ear and report on their experience. I agree, this in fact is useless and non-productive, a seeming waste of money. The government prints money to fund this agency and pays these useless workers.


Is that money wasted and gone forever, and wealth never to be created?


The example I like to give is that the Sovereign US Government can start this totally useless agency, yet the money will eventually flow to those who create wealth. Therefore, printing can eventually lead to wealth creation. Sounds absurd, I understand, but keep reading. Money is demanded by capitalists in the current monetary system because it allows them to stay out of jail for not paying their taxes in US Dollars, while at the same time providing a better lifestyle for their family.


How will the "wasted" money get into the hands of the wealth creators? If the new ear pickers go into their communities and spend it at local businesses, the printed money goes from useless employees, into the accounts of productive businesses (of course the producers get less after layers of tax bites). So the act of spending printed dollars itself will get those dollars into the hands of businesses who are able to create wealth.


By true wealth creators, I am talking about the modern day alchemists who turn something worthless like oil, into something valuable like gasoline.


I try to stay away from businesses who leech the system of wealth creation when I invest. Entertainment companies for example do nothing to create wealth in America. These businesses would not exist unless producers created wealth, which in turn allows that wealth to be spent on these types of businesses. I am a big believer of going through your portfolio and ridding yourself of the leeches. Spend money with the leeches, but don't invest in them. They do not create wealth, they take it.


So the answer is, yes, printed and worthless money eventually flows into the hands of those who create wealth, but, because of taxes and mis-allocation, it is not very efficient on the journey there. Is it fair? Absolutely not. Is it wrong to start an agency like this? Absolutely.


But to argue that government spending is all a waste and the money spent ends up being vaporized, is wrong. Government spending, even wasteful spending, is someone's income. Food stamps become the income of Safeway and Albertson's. Employees who work there get paychecks, and the shareholders get dividends. That money ends up being spent as well. Again, not fair to some who are productive, but also not a waste. If you run a productive business, chances are you too have received some of this "stimulus" money. If you are that against government spending, go to great lengths to make sure you don't let any of that money get into your hands, and then watch your business struggle.


Take a look at any defense contractor such as LMT, GD, NOC and LLL.


They are all cash cows, and most all of them get over 90% of their revenues from government spending.


They spend money on stuff that kills people and blows things up. Not very "productive".


Yet, those businesses are gushing cash. Other businesses and investors lent them money, which they use government spending to pay back. So that debt from investors is now those investors' income, which comes from government spending. Government spending = debt investors' income. These defense companies buy technology and metal from somewhere to make their weapons. Therefore, those that sell them technology and metal get paid from revenues that come from government spending.


There are 412,000 people who work for these 4 companies. Assuming they average $50,000 per year in income, that is about $20.6 billion in income. Where does that $20.6 billion go? Some goes to taxes, of which some gets wasted. But those taxes pay teachers, build roads in neighborhoods, pay for police etc. It also gets spent at the local grocery store, hardware store, invested in other companies (which produce and employ). Another $2.5 billion gets paid out in dividends. I know some of my clients get that money. Those dividends get spent somewhere in our local community.


How about the pay of the 2.3 million soldiers? That is "wasted" government spending. But it is income for those 2.3 million soldiers. That is roughly what, $100 billion? It seems like "spending", but is in fact income that gets spent at all the places mentioned above. So the spending gets into the hands of businesses.


So the hard answer, as much as I hate it, is yes, government spending does end up flowing throughout the economy.


I agree, we need to focus more on getting that money into the hands of the citizens, rather than Wall Street, who blow it. There are reforms that need to happen as well. If you read some of my past articles, I am VERY against POMO and the manipulation going on in our markets. I say use that $600 billion and give it to Main Street. Don't just prop up asset prices "higher than they otherwise would be" (Fed member quote).


The government should spend more - and tax less. Build roads with the money. Instead of paying 99 weeks of unemployment insurance for people to sit around and watch TV, pay unemployed workers to go to school so that they can keep their skills up and become productive for society again.


Find ways to manufacture things here, not China. A lot of what happens now is the government spends money here, and then that money flows to people who send it to China by buying Chinese stuff. Now China has the money to buy and build cities made for 1.7 million people in which no one lives.


Government spending is not always bad. Unfortunately, with the plutocracy we are heading towards, the spending gets filtered through the Wall Street crooks first, and not Main Street. Spending does not need to stop, per se, but what it gets spent on needs to change.


Businesses and Foreigners Will Stop Accepting US Dollars


For some reason it is just assumed that the marketplace will all of a sudden stop accepting paper US dollars. Gold bugs are storing up precious metals for the day when they will only be able to buy and barter with precious metals. If the US keeps printing, it does seem logical that this could actually happen.


Can it?


No. Not anytime soon.


There is this funny little thing that keeps us from being truly free men. Taxes. Grocery stores don't have the luxury of deciding to exist on barter as some would have you believe. It's not that they don't desire such situations, but the government mandates they continue to accept paper money by force. The US Government has determined that taxes are to be levied on owners of property and services, and those taxes will only become extinguished in the form of paper dollars. Failure to submit to this monster will require time in prison. So under the motivation to not spend time in jail, citizens work tirelessly, offering labor and goods in exchange for paper dollars so they can feed the tax monster. I am not saying I approve, but it is the system in which we currently live. Thus, individuals and businesses who can create wealth are forced to figure out ways to obtain paper dollars. Capitalism allows a small carrot of incentive in that the more dollars you can obtain by productivity, the better lifestyle you can live, even though taxes go up with the higher income.


Will foreigners stop accepting US Dollars? Not unless they plan on ceasing sales into the world's largest market. How then will the world stop using them?


America Will Soon Not Be Able to Afford the Interest on the National Debt



"A major depression is inevitable for America because decades of growing debt-financing by consumers, businesses, and state and (especially) federal governments have undermined the health of the economy, giving the appearance of wealth when in fact there is poverty. The enormous private and public debts bring the law of compound interest into play, and it takes no great mathematician or economist to figure out that those who live beyond their means for too long must finally reach the point at which they not only cannot pay off their debts, they can't even pay the interest on them—or find anyone willing to lend enough to cover the interest." (www.ecalvinbeisner.com/reviews/BurkettReview.pdf)


The statement in quotations above is based on doom and gloom from Larry Burkett in his book about the coming financial earthquake back in 1990! How similar to what we hear being sold today as fact.


He was wrong 20 years ago, and his new worry-wart cohorts will be wrong the next 20 as well.


Burkett prophesied that America, by the turn of the century, would have so much debt that they could not afford the interest on the debt. Since his book made this claim, the debt has doubled. Now the current doom and gloom crowd is saying, yet again, that we will not be able to afford the interest on the debt. They conclude impending collapse is right around the corner. We are warned foreign confidence in the US Dollar will cease, and they will sell Treasuries indiscriminately, causing an epic collapse in our bond market which leads to 'economy-choking' higher interest rates. High interest rates, of course, will supposedly mean the US Government can't afford the interest on the outstanding debt because it is so large.


As the saying goes, "The more things change, the more they stay the same."


Other versions of fear and doom might sound similar to these:



"In their ill fated attempt to get something for nothing the Fed is going to cause a currency crisis and a massive surge in global inflation. The price we will all pay when the house of cards comes crashing down again will be multiples more expensive than last time.


"The problem is debt. Hyperinflation is the result of a government debt spiral. At some point the debt becomes so large that a nation can't even service the interest on the debt. At that point there are only two options. Either default or inflate."


Oh me, oh my, the sky is falling! It must be time to hoard gold (GLD)!


My advice? Cancel your doom and gloom subscriptions. The US Government is not revenue constrained. For those who want to find out why, I highly encourage you to read: Understanding Modern Money by L. Randall Wray. You will realize Dick Cheney got it right when he said "Deficits don't matter," (at least while there is a capacity utilization gap - once that gap is filled, then they will matter) and will rest well knowing the US will not default through non-payment, nor hyper-inflation. Worry about the deficits once factories are at capacity. At that point, the government will use their tools (taxes, rates) to slow down the economy.


Paper Dollars Are Worthless and Backed By Nothing


Dollars are just worthless pieces of paper. It has no value by itself and is today backed by nothing. I agree with this argument. Consider this though: Oil in and of itself is also worthless. It is just sticky goo that could ruin the environment if it ends up in the wrong place.


Only in the hands of a company that knows how to create wealth can oil have any actual value.


A company that takes resources which have been given freely to us by God, converting them into something useful and productive, is worth more than gold. Gold is a store of value, but it does not create wealth just as paper dollars do not create wealth. Oil, lumber and coal, by themselves, are worthless too. While oil is useless by itself, when a company like Exxon Mobil (XOM) or Chevron (CVX) figures out a way to take this free and useless commodity out of the ground and turn it into gasoline, they in turn have created wealth by making something that was useless, useful. Modern day alchemy at work. Investors reading this can feel confident investing in these types of companies, knowing that all money flows to them eventually. Any company that makes something out of nothing is a wealth creator. Your only job is to figure out what price you are willing to pay for the profits the company generates.


So like oil, dollars by themselves are worthless until an event takes place creating demand. The event that causes worthless oil to be in demand is when a company turns it into gasoline. The event that causes worthless paper dollars to be in demand is the prosecution process for failing to pay taxes.


Every Fiat Currency System Eventually Fails


I hear (and used to believe myself), that the fiat currency system is about to collapse because all fiat currency systems in history have collapsed. Here are a few examples of such claims:

dailyreckoning.com/fiat-currency/ www.thedailycrux.com/content/6653/Porter_Stansberry

Some of our own dear Seeking Alpha writers claim as much also:

Fiat Currency Is Doomed to Fail Is This Time Different for the Dollar and Precious Metals

The problem is, these proponents are comparing apples with oranges. Never in history has the entire world been on a coordinated, floating exchange-rate, fiat-currency, system. Therefore, do they really have anything with which to compare today's situation?


Fiat currencies have collapsed in the past because countries print money to pay debts which are denominated in foreign currencies. If the US Government owed trillions in Euro denominated debt, and then printed US Dollars to buy Euros in order to satisfy those debts, the value of the US Dollar would collapse, as we would be forced to flood the world with dollars and soak up Euros. Ellen Brown does a fantastic job in explaining why the US situation will not end like Zimbabwe or Germany.


Sorry to say gold bugs, but Zimbabwe we are not.


Printing Money Will Cause the US Dollar to Lose Reserve-Currency Status


These words are usually stated as a matter of fact, rather than conjecture. Well known newsletter writer Porter Stansberry warns almost daily, "The world has officially entered what we believe will be the final chapter of the U.S. Dollar's reign as the world's reserve currency. " (www.thedailycrux.com/content/4751/Porter_Stansberry)


It is assumed that the rest of the world will stop accepting payments in US Dollars overnight for business transactions, and only if we subscribe to their information service will we be able to protect ourselves and family using their timely advice.


Will the US Dollar lose the coveted reserve currency status from all the printing going on?


Not any time soon.


The US economy is still the biggest in the world by a large margin. The military, which we are not afraid to use, is the most powerful. Until another country holds title to either one of these claims, our reserve currency status will likely remain intact. While it feels as if China will surpass us soon as they maintain their rapid growth, they are still many trillions of dollars in GDP away. Think about this - if the US is the world's largest customer, and China has become richer by selling to us, is China really going to tell us which currency we can spend? Don't we dictate what currency we are willing to give them? Who is truly in charge? If China stops accepting dollars, could we not easily find a group of other nations to do business with? Would us dumping China as a business partner not cause other nations to line up to take China's place? Would any of these other nations refuse to do business with us in US Dollars?


Until China or another country surpasses us as the world's largest economy or strongest military, loss of our reserve currency status is not imminent, as sellers of fear would like you to believe.


Granted, China is growing at roughly 10% a year, and we are only growing at 3%. I get that. Let's do the math though and see if we should worry. If China is a $6 trillion economy, growing at 10%, they grow by $600 billion a year. If we are a $14 trillion economy growing at 3%, we grow by $420 billion a year. In this close to reality example, China is closing the gap at $180 billion a year. At this rate - it will take China 44 years to even match the US in GDP. Can they continue to grow at 10% a year, while their largest customer grows at 3% for 44 straight years? We are a far cry from no longer being the largest economy. The biggest economy in the world should be blessed with the reserve currency.


If Money Printing is Good, Then Just Print Enough To Give Everyone $1 Million


If printing is not a big deal, then why not just print away? The doom and gloomers jump to the conclusion that if I think printing won't cause the collapse of America, it must be a good thing. So why not seek more of that good thing? The answer is simple.


There is a limit to the productive capacity of the economy. If the government printed money to buy 40 million cars, and gave that new money to Americans under the auspice it only be spent on automobiles, Americans could do one of two things, buy cars or sit on the cash. If the capacity of the world's auto manufacturers is 20 million cars, and the government printed enough money to buy 40 million cars, the market's ability to produce only 20 million cars would be overwhelmed by car demand - thus creating a price surge. In a perfect environment, this price surge would bring demand in line with production. If the demand happened overnight, we could be certain that the price of a car should, at a minimum, double overnight. 20 million cars would be produced because that is the capacity of the market, but the price would double to soak up the new money that was printed to buy 40 million cars at yesterday's prices. Of course, new wealth could be created from all of this printed money if other firms decided to take free resources, like iron ore, and convert it into steel to make more cars to meet this demand.


So the answer to how much money printing we can handle is this: how much demand for goods will the printing create for the economy? If everyone received $1 million but took a vow to never spend it and instead put it under their mattress, I doubt prices would move much, because the demand is not there. If the economy gets to maximum production, then new money in the system via demand will cause the rise of prices across the board.


We are seeing some of this happen now with food prices in certain areas of the world. Capitalism will, over time, right this ship though. Farmers will see the ability to make more money selling beans and wheat, and will invest in planting more acres for these crops. They will purchase technology that will help reap more crop yield per acre. Right now there is an imbalance, but it won't last. The doom and gloom crowds will have you believe that this current "crisis" is permanent, causing the collapse of society as we know it. No need to fear, but in the meantime while the imbalance is in place, buy the businesses that turn the commodities into wealth. Don't buy oil itself, but Exxon or Chevron. Don't buy wheat or soybeans, buy fertilizer companies which allow farmers to produce more wheat and agriculture, companies like Potash (POT). But always make sure the current profitability of the company is worth investing in. If you invest with the idea that the crisis will be without end, you may end up overpaying for a stock.


7/6/11 Update to the above paragraph:


From Reuters:




Despite excessively wet conditions, a scramble to get corn seeded in key growing areas that was fueled by high prices has set the stage for a potentially record-large corn crop, and conversely a smaller soybean crop, according to the report issued Thursday by the U.S. Department of Agriculture.


"There are some big surprises in this report," said Karl Setzer, commodity Trading Advisor for MaxYield Cooperative in West Bend, Iowa. "All in all, what this shows us in the quarterly stocks report, we are not using grain at the pace we thought we were."


USDA said farmers planted 92.282 million acres with corn this spring, above an average trade estimate for 90.767 million acres and well above the USDA's June 10 forecast of 90.700 million acres.


The department estimated quarterly corn stocks as of June 1 at 3.670 billion bushels, above an average trade estimate for 3.302 billion and compared with 4.310 billion a year ago.


Traders said the fact that farmers were able to get so much corn in the ground despite flooding and heavy rainfall through the U.S. Midwest underscored how recent high prices pushed farmers to plant corn over soybeans despite the adverse conditions.


"Getting this much acreage planted is a surprise," said Shawn McCambridge, an analyst with Prudential Bache Commodities.


(Looks to me like the proof a few months later is in the pudding. Farmers - seeing higher prices for corn - are planting much more corn, thus crushing the price of corn. So much for never ending higher corn prices for the rest of our lives.)

The US Dollar Has Lost 96% of its Purchasing Power - Thus Printing Makes Us PoorerThis argument only covers one side of the story. While each individual dollar buys less goods, the argument is incomplete. To bust this myth, we just need to look at how much time it requires to pay for those goods. Instead of looking at how many dollars it takes to buy a candy bar today compared to 30 years ago, I would challenge you to instead value the candy bar in hours of labor to obtain it. While it might take many more dollars to buy that candy bar, you get many more dollars for each 60 minutes of work. So even though the candy bar costs 1000% more, it may take you 30% less work now to buy it. Therefore, you are in fact richer, even though the value of your dollar does not go as far. The next time you are told you are poorer because the price of gas is higher, remember to ask yourself this:If I have to work 15 minutes to buy 1 gallon of gas at today's prices of $3.00 per gallon, compared to 10 years from now when I may have to pay $10.00 per gallon but only have to work 10 minutes to afford, does the price actually matter?

After asking that question, remember these quotes:



"The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it... But though labour be the real measure of the exchangeable value of all commodities, it is not that by which their value is commonly estimated... Every commodity, besides, is more frequently exchanged for, and thereby compared with, other commodities than with labour."


- Adam Smith, The Wealth of Nations, 1776


"What is a cynic? A man who knows the price of everything and the value of nothing."


- Oscar Wilde, Lady Windermere's Fan, 1892


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The Next Crash Will Be Much Worse Than 2008

Marc Faber: The Next Crash Will Be Much Worse Than 2008 ? Before Then Expect More Money Printing and More War

The Daily Bell

On August 8th, 2011 Dr. Marc Faber was interviewed on CNBC about the future of the US dollar-debt crisis and what investor's can expect to take place in the markets.

During the interview, among several timey questions, Dr. Faber was asked, "What's the end game here? Is it the collapse of Western civilization as we know it? ... Where are we going here? How must It inevitably end in your opinion?"

To which Dr. Faber replied, "You have a computer and occaissionally the computer will crash and need to be rebooted. That will happen to the global economy. So basically, the central banks are willing to do that. By printing money the problems are not solved but they can be postponed and they become larger. … The next time we have a global economic crisis it will be much worse than 2008. Before this happens there will be money printing and war."

Marc Faber, Ph.D, publishes a widely read monthly investment newsletter, The Gloom Boom & Doom Report, which highlights unusual investment opportunities. Dr. Faber is the author of several books including Tomorrow's Gold – Asia's Age of Discovery, which was first published in 2002 and highlights future investment opportunities around the world.

Dr. Faber describes himself as a free-market economist, but also notes that he uses other disciplines in his analysis as well. As an adviser he is not strictly speaking a value investor but uses a variety of tools. His clients, he says, expect some sort of profit on their funds every year. Simply beating market averages is not enough.

Here at the Daily Bell we are regular followers of Dr. Faber's prescient work. In fact, Marc was interviewed at the DB recently. Here is a link to that interview: Marc Faber on 21st Century Investing, Why It's too Late for the Dollar and Why Emerging Markets Look Good.

Reprinted with permission from The Daily Bell.

August 11, 2011

Dr. Marc Faber [send him mail] lives in Chiangmai, Thailand and is the author of Tomorrow's Gold.

Copyright ? 2011 The Daily Bell

The Best of Marc Faber


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Even at These Prices, You Should Consider Investing in Gold - DailyFinance

Remember when bell-bottoms were hip? Or back when people valued their privacy -- before social media (and reality TV) enabled people to broadcast their every move? The prevailing attitude toward gold has also shifted over the years.


During the 1970s, gold was as popular as bell-bottoms. Then people moved away from the ancient monetary metal and, by the 1980s, placed their full trust in governments and central banks to safeguard the value of their unbacked paper currencies like the almighty U.S. dollar.


Now the tastes have shifted once again -- and for good reason.

The Problem with Paper Money


Most onlookers scoffed at the recent downgrade of the nation's credit rating. Because the Federal Reserve can print dollars at will, they might argue, the risk of a U.S. default must be zero. But as economist Marc Faber points out, history is full of examples of nations essentially defaulting on their debt -- not by refusing to pay their creditors, but by paying them back in "a worthless currency."


So the credit downgrade is perhaps best understood as a downgrade of the U.S. dollar, based on an outlook that the only practical means of repaying our growing mountain of debt will be by continually devaluing the world's primary reserve currency. Ben Bernanke's announcement last week that the Federal Reserve will keep interest rates artificially low through mid-2013 offered powerful confirmation of that unfortunate outlook for the currency of the land.


Our 40-year experiment with unbacked paper currencies is not faring well. And while gold has gradually nudged its way closer to the mainstream of financial markets, it's not there yet. And that's good news for those who missed the metal's run-up until now.


The Start of a Sea Change

Even as recently as six years ago, there were still strong prejudices against investing in metals. In 2005, I first began encouraging people to place a portion of their assets into gold and silver. The typical response? People looked at me like I had grown a second head.


Since that time, I've watched as attitudes toward gold have run the gamut of indifference, disbelief, and even anger -- all natural human reactions when a new reality challenges someone's long-held beliefs. Consider what economist Nouriel Roubini said last year, perhaps his worst call ever, when he characterized as "delusional" anyone who believed gold would remain above $1,200 per ounce.


It has taken the first 10 years of gold's resurgence in price for its reputation to recover accordingly. Just recently, we can see some acceptance of gold's resurgent role in the modern financial world now that the metal has proven its value as an ultimate safe haven.


How to Make Room for Gold in Your Portfolio


I can certainly identify with anyone who may be feeling uncertain about whether to initiate some exposure to gold at these unprecedented prices. I do sense that gold could encounter some selling pressure after the incredible run it has had lately, and in fact as a gold investor, I am hopeful for a correction in the near term to help ensure a more orderly long-term advance.



Because I know bubbles form only sometime after an asset has percolated its way into the mainstream consciousness of financial culture, I am confident in saying that gold remains comfortably removed from bubble territory. Though plenty of newcomers may have entered the gold market this summer, I think most investors still have not made room for gold in their portfolios.


Fortunately for latecomers, most gold miners' stocks have failed miserably at matching the price gains of gold bullion to date, creating a compelling opportunity to acquire exposure to gold at what amounts to a significant discount to the metal's current price.


Newmont Mining (NEM) beneath $60 per share and Goldcorp (GG) under $50 represent incredible bargains relative to the enormous quantities of gold reserves these miners have amassed over time. Given the choice between paying full price for gold through a bullion vehicle like the SPDR Gold Trust (GLD) or building a stake in a deeply undervalued producer like Northgate Minerals (NXG) or Eldorado Gold (EGO), my inner bargain hunter keeps my own focus squarely upon the miners. Some of the silver producers, particularly Hecla Mining (HL) and Silver Wheaton (SLW), offer a similarly effective discount for those seeking exposure to the "poor man's gold."


The markets for gold and silver are growing increasingly volatile, so please tread with caution and consider building exposure in stages rather than all at once. If you ever need some guidance or encouragement along the way, stop by my blog.


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Tuesday, August 16, 2011

Hedge Funds' Year of Investing Dangerously - TheStreet.com

BOSTON (TheStreet) -- Hedge-fund managers, who get rich by skimming off a fifth of their clients' investment gains, are posting larger losses than the average American after their risky bets proved to be the wrong choices during last week's stock-market crash.

This year is turning out to be almost as bad as 2008 for hedge-fund managers, with inflows slowing at a "torrid pace," according to the latest fund flow data from research firm TrimTabs. After raking in more than $67 billion in the first several months of the year, the hedge fund industry pulled in only $1.8 billion in June and July, according to the report.

Performance, for which investors pay a premium over traditional mutual funds, has been underwhelming this year. The Barclay Hedge Fund Index was up 1.1% through July, trailing a 2.8% rise in the S&P 500. August has so far witnessed a bloodbath for equity prices, with the S&P 500 falling more than 8%, and leverage hedge funds expected to perform as badly, if not worse.

Many comparisons are being drawn between this month's selloff and the market collapse in late 2008. Hedge funds are already seeing an eerie increase in blow-ups. Hedge Fund Research estimated that by the end of the first quarter, 684 funds liquidated in the previous 12 months, resulting in the highest net increase since 2007.

Hedge funds, which tend to take on more risk than mutual fund managers, have seen their strategies undermined by unforeseen circumstances, from the earthquake and tsunami in Japan in March to the growing debt crisis in Europe and the downgrade of U.S. debt by Standard & Poor's Aug. 5. Several media reports have hedge fund manager John Paulson's Advantage Plus Fund down 31% this year as of Wednesday.

"Absent a reversal of fortune, many mangers will not collect performance fees for the fourth straight year," TrimTabs analysts write in the latest flow report. Most hedge funds charge a 2% management fee and take 20% of clients' investment profits. Most mutual funds charge only management fees amounting to less than 1% of assets.

Prior to May and June, hedge funds had not seen two losing months in a row since the financial crisis, HedgeFund.net notes. "The European debt crisis has likely resulted in lowered exposures to risky assets and losses in May and June were the result of this de-leveraging," the firm notes.

Hedge fund performance will be scrutinized more closely as today is the deadline for managers to report holdings to the Securities and Exchange Commission for the second quarter. Hedge funds that manage more than $100 million are required to disclose their equity holdings, options and convertible debt on a Form 13F filed to the SEC within 45 days of the end of a quarter. These filings can give individual investors a roadmap for where the so-called smart money is flowing.

Although investors will have to wait for the full filings to find out what some of the largest and most prominent hedge fund managers bought and sold during the second quarter, TheStreet has combed through SEC filings and investor letters to get a peek at what the full 13F filings will show. From Paulson and Soros to Ackman and Einhorn, their known moves are detailed on the following pages.


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Is it time to jump back into stocks? - Reuters Blogs (blog)

Should I stay or should I go?

This compelling theme, referring to stock investing and not the great Clash song, is like a little gnat buzzing in one’s ear.

The answer depends on how well you can predict the future, your gut check for risk and history. I know that’s a weaselly response, so let me explain.

I could easily make a case for buying stocks now. There are some bargains out there and thousands of companies are profitable.

If I was a gloomy Gus or just patently realistic about Euro Zone debt travails, the moribund U.S. housing market or slack economy, I would wait. How long? Until it’s safe, whatever that means. Let’s explore both points of view.

My re-entry is largely predicated on two options: 1) gradual purchases of stocks, ETFs or mutual funds over time (also known as “dollar-cost averaging”) or 2) a lump-sum, all-in buy into stocks.

On this difficult subject, I’m guided by some excellent research by Craig Israelsen, who teaches finance at Brigham Young University and designed the versatile “7Twelve Portfolio“.

Prof. Israelsen has studied the performance of the all-in stock strategy versus gradual re-entry, which he calls “the annuity” approach through investing $10,000 a year over a three-year period in equal monthly amounts from 2008 through last year.

The nominal winner was the dollar-cost averaging investment of $277.78 per month over that period, averaging an 11.6-percent return. The lump-sum garnered a negative 0.9-percent annualized return.

Yet that’s not the whole story.

What if the period was only two years — 2009 and 2010? You’d knock out the dreadful returns of the meltdown year (2008) and you’d capture all of the rebound. Not only would you have invested at exactly the right time, if you were in Treasury bills for all of 2007 and 2008, you would have protected all of your capital.

Ahh, if we only could convert hindsight into foresight, then we’d all be billionaire geniuses. Performance always depends on the time in which you’re investing. You can hit incredible sweet spots like most of the 1990s or rough patches like the 1930s or 1970s.

Much of the mythology that stocks are always good in the long run is based on the fact that since 1926, stocks produced positive annual returns 70 percent of the time. What’s buried in that number is that the Standard & Poor’s Index had 61 positive years and 24 negative years.

The bear patches were clumped together: 1929-32; 1939-41; 1973-74; 2000-2002. Moreover, there’s a 30-percent chance of a lump sum losing money in the first year, and 15-percent chance of a multi-year loss, Israelsen has found.

Still, a 70-percent chance of making money isn’t too bad, is it? Beats the heck out of Vegas or the lottery.

Again, it’s easy to conflate these nominal returns with what investors actually do. Most people pull out of down markets when they should be re-investing and obtaining better prices. They jump back in when prices are high or near collapse. Witness the lemming-like cash flows into technology mutual funds in 1999 before the dot-com bubble burst.

Investment horizon is another part of the eternal question of choosing the right time. If you chose a lump-sum approach in 2006 and were retiring in 2009, you would have gotten creamed. So if you’re retiring soon or need funds for college bills, don’t even think about the all-in method.

Granted, if you have a long time to invest before you retire, you have a better chance of hitting a bull run than a bear patch, but it depends on what happens during the years in question. The first decade of this century was gloomy for most stock investors.

The lump-sum approach is also crippled by timing risk. Does anyone truly know the best time to get out and back in? Maybe a handful of gurus can warn of an impending crash — Prof. Nouriel Roubini comes to mind — but how many of them can accurately predict the beginning and length of the next bull run?

No doubt some investors who can’t afford to lose anything have no business in the stock market. Yet if you need the growth and dividends that healthy companies provide, “systemically investing 10 percent of your monthly income into a well-diversified portfolio,” Israelsen advises, will help you stay the course.

There’s one more constant that is common to lump-sum and gradual investments. Neither way will eliminate the uncertainty, risk or volatility of the stock market, no matter how long you invest. The psychology of investing in jittery markets will always have you on edge if you watch them every day.

Or, as my favorite musical economists Mick Jones and Joe Strummer have sung many times of market volatility: “If I go, there will be trouble, if I stay there will be double … “


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

This is a special free reprint of the current Revolution Investing newsletter published here on Markewatch.  You can also sign up for a free one-week trial of my independent trading diary with just your email address by signing up here.

The guys on TV say we’re supposed to be talking about the Standard & Poor’s downgrade of the U.S. debt. The newspapers say we’re supposed to be talking about Spain and Italy and whether or not the ECB, and the World Bank can redistribute enough wealth upward to the elite and bank shareholders and lenders that they “save” the E.U. Wall Street analyst reports tell us that the markets might or might not be pricing in a new global or U.S. recession.

And certainly, we do need to talk about these market crashes over the last week. But just how sure are we that these guys are focusing on the right things? That anybody’s even looking at the primary catalyst for this sell off?

I got this instant message last night at 1:00 am from a friend of mine in Iceland:

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

She’s in her mid 20s and was active in stopping the bank bailouts in her own country. Iceland, to review, had a bunch of corrupt bankers who created and invested and gambled on a bunch of lousy mortgage securities and needed a huge bailout and drastic austerity cuts to their social services to avoid bankruptcy and default.

The youth in the country revolted and the markets and economy tanked for a couple quarters … and then the resurgence started. Turned out that when the country forced corrupt bankers and the government they owned out and allowed smarter, more ethical managers to take over that things improved. And fast. And now the Iceland government is already back borrowing from the global markets are low rates and the country’s economy is expanding once again.

This is a special free reprint of the current Revolution Investing newsletter published here on Markewatch.  You can also sign up for a free one-week trial of my independent trading diary with just your email address by signing up here.

Contrast that to the approach that we took here in Ireland and Greece. Where they propped up the bank shareholders and lenders with welfare money, allowed the banks to continue fraudulent accounting practices by institutionalizing them, kept the corrupt bankers and traders and managers and regulators in place, and allowed them to pay out record bonuses with that welfare money while making drastic cuts to generations-old social services. You know, sort of like the Republican/Democrat regime did here in the U.S. And like they did in England. And in Norway and every other country that’s allowed the E.U. to pervert its mission of uniting the currencies and countries to one of simply looting for the elite and banks.

And people are angry. And now they’re taking to the streets and doing exactly to the establishment what the establishment has started explicitly doing to them — looting.

Likewise, the average American is also freaking out over the news that the same guys who took out bin Laden were themselves killed over the weekend. One of the guys had recently told New York magazine that they had been ordered to take Bin Laden out from the beginning, in contrast to what the Republican/Democrat regime leaders had originally told us.

People, even those like me who don’t consider themselves to be conspiracists or even-conspiracy-minded, wondered about the way Bin Laden was killed and disposed of, and now this? It rattles people to the core that our own soldiers are dying. When heroes/elite soldiers like the Green Beret guys who were taken out this week are killed en masse in one ugly attack like this, it’s horrific.

The upshot of all this is that whatever the reason for this current trashing of our stock markets, it’s the kind of ethereal, intangible catalyst that is truly the hardest kind to work through. It’s not going to be quick or easy because solutions to all of these issues are not going to be quick or easy.

But all that said, let’s also look past these issues. Unless you truly think that both the U.S. and E.U. economies and therefore societies are about to implode upon themselves and that we are headed into a Great Depression or something worse, then we’re likely already closer to pricing all off these problems into the markets already.

More likely, the reactions to these issues — U.S. debt downgrade, flash looting, mortgage title anarchy, E.U./euro debt crisis, threat of recession, etc — will be yet more corporate welfare, monetary easing, tax tricks for the biggest companies with the best lobbyists…in other words, more bubbles.

We added a short on Wells Fargo last week and the stock dropped 25% in the next few trading days, as the broader markets also tanked (though not quite that badly!). Our many smartphone/tablet/cloud stocks from Apple to Google and Marvell also took a big hit. That said, I’d also outlined repeatedly for subscribers to TradingWithCody.com that I’d been buying Cisco calls aggressively on weakness heading into their earnings report last week, catching a near-20% pop in the stock and doubling/tripling the value of the calls.

But our overall positioning of getting long for a new tech bubble while getting short for collapsing banks and other sectors that would be insolvent without ongoing welfare has helped us wildly outperform the markets since launch.

That continues to look like the right positioning.

This was a special free reprint of the current Revolution Investing newsletter published here on Markewatch.  You can also sign up for a free one-week trial of my independent trading diary (where you get access to all my stock and option trades as I do them in real-time) with just your email address by signing up here.

Cody Willard writes Revolution Investing for Marketwatch and posts the trades from his personal account at TradingWithCody.com. At time of publication, Cody was net long Cisco, Marvell, Apple, Google and net short Wells Fargo.


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