Tuesday, March 20, 2012

Metal markets are bottoming out - MarketWatch

  By Avi Gilburt

We have had quite a nice and successful run in the metal markets over the last year. For example, you may recall that on Feb. 25, we explained that we expected one last push up in the markets, after which, a correction would ensue. In our trading room on Feb. 28, I suggested that traders exit their short-term metals positions, and some to even short the market.


The next day, the precious metals entered into what some termed a "flash crash" of its own, and proceeded to begin a corrective decline. Our thoughts were that the correction would potentially target the 30-32 region in the futures, and the 158-161 SPDR Gold Trust /quotes/zigman/41663/quotes/nls/gld GLD +0.18%  region.


As you know, this past week we dropped right into our target zone for this correction. So, the question many have been asking is what is going to happen in the market now.


What I have recently noticed on investor sites, such as Seeking Alpha, is that a predominant sector of the readership and contributors are normally quite bullish with respect to the metals. However, at this point in time, there seems to be more bearish calls, as well as some confusion. In fact, one article even cited that Jim Rogers and Marc Faber are both bearish on gold at this point in time.


Additionally, on CNBC Friday afternoon, there were two shows back-to-back after market hours where they suggested a short trade on gold in the first segment and the next had a segment entitled "Gold: The Glitter is Gone."


I have always found it interesting how so many become so negative on the metals once they witness a drop in the market. In fact, the drop occurred right after many people and market "gurus" entered the market, expecting a further breakout. These market "gurus" have been so badly whipsawed over the last year in gold, I am actually surprised that many of them are still in the market, and even more surprised that many investors continue to follow their advice.


But what has always astonished me is that, outside of the investment world, people have always prided themselves upon being able to find "the deal" with their acquisitions of cars, houses, clothes, etc., but do not seem to be able to bridge this perspective over to the financial markets. In fact, the opposite is often quite true.


This phenomena actually prompted me to write an article on MarketWatch not too long ago (" Riding the Elliott Wave to amp up gains ," on Feb. 17), which many of you have read, and which was designed to alert investors to this psychological phenomena, so that investors may be aware of market psychology before they make their next investment.


However, at this point in time, I believe that we are quite close to a bottom in the metals markets. In fact, such a bottom would be the base from which an exceptionally strong rally should begin. Since many market participants are now entering short positions, at least according to some articles written on Seeking Alpha and suggestions made on CNBC, their short-covering may add more fire to this expected potentially strong rally.


For those who question the potential power of the expected rally in the metals, please refer to the beginning of 2011 in the silver market, when silver went from 27-50 in three months. While GLD did not begin this type of rally until several months later, it went from 144-186 in just under seven weeks.


At this point in time, gold and silver seem to be displaying mirror patterns, and will likely move up in tandem, as they did from their respective market bottoms at the end of 2011. In fact, both can see the type of parabolic rally that was seen last year, and potentially even more powerful due to being in a stronger wave degree.


It is possible that we may have bottomed just above the GLD 158 level and at the 31.60 level, which is slightly below our top target of 31.90. However, I think we may still see one more decline that takes us toward the 158 level, and possibly slightly below it, and maybe as low as the 30.50 region in the silver futures, although a double bottom is not out of the question. Since we still do not have an impulsive move up from the lows made this week, we cannot be confident that the low is in. However, any further small decline should represent a significant bottom for both metals.


Since our analysis of third waves utilizes "Fibonacci Pinball," we can set, in theory, relatively well-defined targets for both markets. Assuming that silver has bottomed or even may make a double bottom, which is common for silver, I would expect the first target for silver would be the .382 extension (36) or as high as the .618 extension (38.70), before a smaller consolidation, on its way to the 43 region, which is the 1.00 extension. Of course, if silver does drop to the 30.50 level, then we will modify the target levels to the upside.


As for GLD, assuming a bottom at 158, the targets would be 168 (.382 extension) or 175 (.618 extension) before a smaller consolidation, on its way up to the 184 level.


Since this pattern is has an 85% probability in my humble opinion, there is always a 15% chance that this pattern will not play out, and that is why I suggest a stop just below the GLD 154 level. This provides for a low-risk/high-probability entry, with a defined point at which you would exit the market with a small 3% loss, but with much larger potential gains, which could very well exceed 20%, and multiples of that if you use options.


As for silver, there is also the 15% possibility that the pattern fails. This is why I always trade with stops, which I suggest just below the 30 level in the futures, and even use out-of-the-money hedges in the silver market, due to its volatility.


Although the suggested stop is a much larger stop than I would normally set, the upside potential is for silver to move up by 40% relatively quickly, and, thereafter, potentially double, so I believe the risk is well worth it at this time. Once silver begins its move up and confirms the pattern, I then suggest hedges to be removed, and stops moved up to the actual low.


Disclosure: Avi Gilburt is long the GLD and SLV.


View the original article here

Gold Far From Bubble Phase: Marc Faber - Jutia Group

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


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


TGR: Could that happen in 2012?


MF: Yes, and some thereafter.


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


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


TGR: Did yields change much with these recent downgrades?


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


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


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


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


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


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


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


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


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


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


TGR: What captures the imagination of investors?


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


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


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


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


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


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


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


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


TGR: But not since then?


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


TGR: Which do you think it will be?


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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With Iran-Israel clash 'inevitable', Marc Faber says go for precious metals - Economic Times

Political risk in the Middle East has increased significantly with war between Iran and Israel almost inevitable, and precious metals and equities investments offer some safety, Swiss money manager and long-term bear Marc Faber said on Tuesday.


"Political risk was high six months ago and is higher now. I think sooner or later, the US or Israel will strike Iran - it's almost inevitable," Faber, who publishes the widely read Gloom Boom and Doom Report, told Reuters on the sidelines of an investment conference. Brent crude traded near $123 per barrel in volatile trade on Tuesday on fears of a disruption in Iranian supplies. Israeli Prime Minister Benjamin Netanyahu showed no signs of backing away from possible military action against Iran following a Monday meeting with US President Barack Obama.


"Say war breaks out in the Middle East or anywhere else, Bernanke will just print even more money -- they have no option...they haven't got the money to finance a war," said Faber.


"You have to be in precious metals and equities... most wars and most social unrest haven't destroyed corporations - they usually survive," he said.


He said that Middle East markets had largely bottomed out, though regime changes from the Arab Spring revolutions were unlikely to be investor-friendly.


Faber said that in uncertain times, investors had to reconcile themselves to volatility. "If you can't live with volatility, stay in bed," he said, pointing out that even cash.


The 66 year-old, who has earned the moniker "Dr Doom", earlier told the conference that the likelihood of war in the Middle East was boosted by Western powers' imperatives of keeping China in check, given its dependence on Middle Eastern oil.


"The Americans and the western powers know very well they cannot contain China economically.... but one way to contain China is to switch on and switch off the oil tap from the Middle East," he said.


"I happen to think the Middle East will go up in flames," he said.


View the original article here

Monday, March 19, 2012

Solar 15% Returns Lure Investments From Google to Buffett - BusinessWeek

U.S. solar developers are luring cash at record rates from investors ranging from Warren Buffett to Google Inc. (GOOG) and KKR & Co. by offering returns on projects four times those available for Treasury securities.

Buffett’s Berkshire Hathaway Inc. (BRK/A) together with the biggest Internet search company, the private equity company and insurers MetLife Inc. (MET) and John Hancock Life Insurance Co. poured more than $500 million into renewable energy in the last year. That’s the most ever for companies outside the club of banks and specialist lenders that traditionally back solar energy, according to Bloomberg New Energy Finance data.

Once so risky that only government backing could draw private capital, solar projects now are making returns of about 15 percent, according to Stanford University’s center for energy policy and finance. That has attracted a wider community of investors eager to cash in on earnings stronger than those for infrastructure projects from toll roads to pipelines.

“A solar power project with a long-term sales agreement could be viewed as a machine that generates revenue,” said Marty Klepper, an attorney at Skadden Arps Slate Meagher & Flom LLP, which helped arrange a solar deal for Buffett. “It’s an attractive investment for any firm, not just those in energy.”

Jim Barry, the chief investment officer on Blackrock Inc.’s renewable energy team, joins Pensiondanmark A/S Managing Director Torben Moger Pedersen in assessing infrastructure finance in a panel discussion hosted by New Energy Finance in New York today.

With 30-year Treasuries yielding about 3.4 percent, investors are seeking safe places to park their money for years at a higher return. Solar energy fits the bill, with predictable cash flows guaranteed by contract for two decades or more. Those deals may be even more lucrative because many were signed before the cost of solar panels plunged 50 percent last year.

Buffett’s MidAmerican Energy Holdings Co. agreed to buy the Topaz Solar Farm in California from First Solar Inc. (FSLR) on Dec. 7. The project’s development budget is estimated at $2.4 billion and it may generate a 16.3 percent return on investment by selling power to PG&E Corp. at about $150 a megawatt-hour, through a 25-year contract, according to New Energy Finance calculations. It will have 550 megawatts of capacity and is expected to go into operation in 2015, making it one of the world’s biggest photovoltaic plants.

“After tax, you’re looking at returns in the 10 percent to 15 percent range” for solar projects, said Dan Reicher, executive director of Stanford University’s center for energy policy and finance in California. “The beauty of solar is once you make the capital investment, you’ve got free fuel and very low operating costs.”

The long-term nature of solar power-purchase deals make them similar to some bonds. And because a solar farm is a tangible asset, these investments also function much like those for infrastructure projects, with cash flows comparable to toll roads, bridges or pipelines, said Stefan Heck, a director at McKinsey & Co. in New York who leads their clean-tech work.

Once a project starts producing power, investors can earn a return that’s “higher than most bonds,” he said. “There are a lot of pension funds with long-term horizons that are very interested in this space.”

Governments remain the biggest backers of the solar industry, and President Barack Obama’s administration suffered criticism for investing in Solyndra LLC (SOLY), a solar manufacturer that went bankrupt last year.

Worldwide, the U.S. Treasury’s Federal Financing Bank was the biggest asset-finance lender for renewable energy companies in the past year, arranging 12 deals worth $11.2 billion, according to New Energy Finance. The Brazilian development bank BNDES, Bank of America Corp. and Banco Santander SA followed.

In 2009, solar technology was so unfamiliar that few banks would back projects that required billions in upfront investment and wouldn’t begin producing revenue for years, Klepper said. The biggest financiers for the industry that year were Madrid- based Santander, HSH Nordbank AG of Hamburg and Banco Bilbao Vizcaya Argentaria SA of Bilbao, Spain, New Energy Finance said.

That year, the U.S. Energy Department began funding a program to guarantee loans for solar farms and other renewable energy projects that supported almost $35 billion in financing before winding down in September.

The government’s endorsement assuaged investors’ concerns and built up a bigger community of people who understand how to make money from solar deals, said Arno Harris, chief executive officer of Sharp Corp.’s renewable power development unit Recurrent Energy.

“Solar is now bankable,” Harris said. “When solar was perceived as more risky it required a premium,” and now it’s “becoming part of a much broader capital market.”

Long-term power-purchase contracts are the key to making solar a reliable investment, Harris said. Utilities in sunny states such as California, Arizona and Nevada have agreed to pay premiums for electricity generated by sunshine.

In California, where the largest plants are beginning to produce power, regulators approved contracts in 2010 for utilities to pay $161 to $232 a megawatt-hour for solar energy. That’s at least four times the $40 average wholesale price in Southern California at the time. Most such contracts are confidential to promote competition.

Solar investing isn’t just for specialist banks any more. MetLife on Feb. 29 said it purchased a stake in Texas’s largest photovoltaic project, a 30-megawatt plant with a contract to sell the output to Austin’s municipal utility for 25 years. The insurer has put more than $2.2 billion in clean power.

Google has allocated $1 billion to renewable energy, including $94 million in December for a portion of four California solar farms. They will provide enough power for about 13,000 homes and will generate cash through a contract to sell power to the Sacramento Municipal Utility District.

KKR acquired the remainder through SunTap Energy, a fund it formed in December to invest in solar projects. It committed $95 million to the venture and will use some of that for its share of the four California projects.

KKR, Google, MetLife, John Hancock and MidAmerican each declined to comment on the returns from their renewable energy investments, citing company policies.

“We’re going to see more and more investors entering this sector,” said Todd Foley, senior vice president of the American Council on Renewable Energy in Washington. “There’s a great opportunity here for institutional investors, insurance companies and pension funds as an alternative to bonds.”

There’s a finite supply of solar projects that make for good investments, Harris said. Recurrent and other top developers have plans for about 5 gigawatts to 6 gigawatts of projects with power-purchase agreements that guarantee a long- term revenue stream. Smaller developers have another 4 gigawatts to 5 gigawatts of projects that may be traded, he estimated. A gigawatt is enough to power about 800,000 homes.

A solar farm is “a nice cash-flow instrument,” said Nat Kreamer, chief executive officer of Clean Power Finance in San Francisco, which bundles solar projects to create investment products. “Private equity firms are all over it but you’re also starting to see utilities and insurance companies that want to own the whole thing.”

Wal-Mart Inc. (WM) is the second-biggest buyer of electricity from renewable sources and is also considering buying projects. The steady returns from solar farms may meet the retailer’s threshold, said Greg Pool, Wal-Mart’s renewable energy director.

“There may come a time when Wal-Mart decides to enter the market as an investor on projects with returns in line with our return requirements,” he said.

To contact the reporter on this story: Christopher Martin in New York at cmartin11@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


View the original article here

Wednesday, March 14, 2012

MARC FABER: Markets Are Overbought And A Correction Is Coming - Business Insider

Marc Faber, the publisher of the Gloom, Boom & Doom Report, is typically optimistic on equities as an asset class.


However, Faber told CNBC that he expects a correction in global stocks in the near term:


“Markets are overbought, technically they have deteriorated, and we have very heavy insider selling, so I think a correction is coming. ...I don’t think (investors) should be shooting for huge gains, but rather for preservation in capital.”


Faber said while the government bailouts and monetary easing had benefited Asia, the current optimism is only transitory and the whole system will have to be reset one day:


"I think they can postpone it with monetary measures and fiscal measures for another few years but one day the whole system will have to be reset. The question is what do you do as an investor between now and the reset when the computer crashes and the whole financial system ceases to exist.


...Like if you have a drug addict people say the economy is recovering. Well yeah if you have a bar and you give free alcohol then everybody is happy for a while, and you  know they have a hangover, you have to give them again white beer in the morning to make them feel good. With these bailouts and these easy monetary measures people feel good and for a while the economy recovers, disappointingly it doesn't help really the standards of living."


Continuing along the same thread, he told CNBC the S&P has done well so far because of QE1 and QE2, and said a third round of easing in the U.S. would depend on whether the S&P drops 100 - 200 points.


For now, Faber said the ideal asset allocation is 25 percent each in equities, real estate or real estate related equities, cash, and gold


View the original article here

Faber: S&P Drop Would Trigger Fed to Unveil QE3 - Moneynews

If the S&P 500 broad stock index falls between 100 and 200 points, the Federal Reserve will unleash a third round of quantitative easing, an ultra-loose monetary policy designed to kick-start economic growth, says Marc Faber, publisher of the Gloom, Boom and Doom report.

"(QE3) depends on the S&P, if the S&P drops 100-200 points, then yes, for sure we will have QE3 but if the S&P stays here or even goes up, the likelihood of QE3 diminishes," Faber tells CNBC.


The S&P is up 9 percent on year. The Fed has already launched two rounds of quantitative easing, known widely as QE1 and QE2.

QE1 saw the Fed buy $1.7 trillion in assets from banks, mainly mortgage securities, while QE2 saw the central bank snap up $600 billion of Treasury bonds.


Critics say the policy weakens the dollar, stokes inflationary pressure and hasn't done much to better the economy anyway, as unemployment remains high and consumer spending and growth lackluster.


Supporters say the policy steers the economy away from deflation and aims to boost hiring via keeping pushing interest rates low and stock prices high.


"Bernanke targets asset prices, he doesn’t admit that, but he doesn’t want asset prices to go down," Faber says, pointing out QE1 and QE2 pumped up stocks in 2011.


"The S&P went up from 666 on March 6 2009 to 1,370 [currently] so it has more than doubled and that has to do with QE1 and QE2," Faber says.


Fed Chairman Ben Bernanke recently told Congress that the economy was not performing as strongly as it should but made no real mention of a third round being in the cards.


"The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer-term trend," Bernanke told the U.S. House of Representatives Financial Services Committee, according to Reuters.


The markets interpreted Bernanke's lack of direct allusion to bond purchases as a sign the policy remains on hold for now.


"Bernanke implied that the Fed was no closer to QE3 ... Investors were disappointed," says Cary Leahey of Decision Economics in New York, according to Reuters.

View the original article here

Tuesday, March 13, 2012

Oil, Alternatives, and Nuclear Weapons - An Interview with Marc Faber - OilPrice.com

As the world economy teeters on the brink and rising oil prices threaten to de-rail the delicate roots of recovery we asked legendary investor Dr. Marc Faber to join us and give his views on high gasoline prices, the shale boom, alternative energy, developments in the Middle East and much more.


In the interview Mark talks about the following:


• Why investors shouldn’t buy oil right now
• Why alternative energy investments are a bad idea for investors
• Why Iran should be allowed Nuclear weapons
• Which direction oil prices could go and why
• Why Investors should be taking money off the table NOW.
• Why we shouldn’t be pinning all our hopes on natural gas
• Why selling down the strategic petroleum reserve to reduce oil prices is a useless strategy.
• Why the shale boom won’t affect US foreign policy priorities
• Why Obama is a disappointing president


Dr. Faber is a very well known commentator throughout the investment community. He regularly appears on CNBC and is a member of the Barrons round table.
Marc is the editor and publisher of the Gloom Boom & Doom Report, which is a very popular investment newsletter that highlights unusual investment opportunities for its subscribers. You can find out more about the Gloom Boom & Doom Report at Marc's website: www.GloomBoomDoom.com.


OilPrice.com: A number of our readers have been enquiring about the recent oil price increases, where a few weeks ago we saw them rise to a ten month high. Where do you see oil prices going from here, and what do you see as the main reasons for the rapid increase?
Marc Faber: I think there is a risk that oil prices will go much higher. At the same time, the bullish consensus on oil is now at one of the most elevated levels it's ever been. In other words, from a contrarian point of view, you shouldn't buy oil right now.
I think it may go down somewhat. In general, if trouble breaks out in the Middle East, or if there is a war, I think the price of oil could go much higher.
OilPrice.com: What are your 3-5 year projections for oil prices?
Marc Faber: Well, you’ll have to give me a second. I need to call Mr. Ben Bernanke and ask him how much money he will print. Commodity prices were in a bear market from 1980 to 1998, and since then they've gone up. But because of expansionary monetary policies and artificially low interest rates they have increased more than would have otherwise been the case. We don't know exactly how long this asset bubble will last - but say if you had interest rates in real terms, of five percent, instead of negative five percent, then I think all commodity prices, including gold, would be lower.
OilPrice.com: Obama is being pressured by the Democrats to use the Strategic Petroleum Reserve in order to flood the market with a large supply of oil in an attempt to drive down prices. Some commentators seem to think that this will help, although only in the short term because low supply isn’t the cause of the high prices. Do you think it’s sensible advice to use the reserves now to lower short term prices or should Obama remain strong and only use the stockpile for what it was designed for?   
Marc Faber: I think selling down the reserves would be a useless strategy as one of the main reasons prices are rising is due to international tensions. It’s possible for an increase in supplies to drive down the price a little bit. But in emerging economies like China and India, the demand continues to go up. Now, it may not go up every year by the same quantity it did in the last 3 years, because in the last 15 years, oil demand in China tripled, from 3 million barrels a day to 9 million barrels a day.
So it's conceivable that in a recessionary environment in China, oil demand will not go up substantially for one or two years. But because the per capita consumption is so low in countries like China and India compared to say the U.S. and Japan and Western Europe, I think the trend will continue to increase.
OilPrice.com:  There's a great deal of political theater going on around the Keystone XL pipeline. Do you see the pipeline as being essential to U.S. energy security and something that has to be pushed through at some point?
Marc Faber: Yes, I think it would be important to have the pipeline. But as you say, there's a lot of political pressure and so forth. I think it would be very desirable for the U.S. to become energy self- sufficient.
Some observers and forecasters say they can achieve this goal within ten years, due to advances in natural gas extraction. I don't believe it, but I have to respect the view of some
experts.
OilPrice.com: The media has been full of reports on the coming shale gas boom. What are your thoughts on shale gas? Is it the energy savior we are hoping for?
Marc Faber: I doubt it. But as long as the market believes it, we have to translate every forecast and every view into investment opportunities. I think a lot of people believe in shale Gas’s potential and so this may underpin some strength in equities and currencies. But as I said, I don't believe it.
OilPrice.com: Do you think the shale boom could lead to a change in U.S. foreign policy priorities?
Marc Faber: Well, I don't really believe it. But as you know, Mr. Obama has engaged in more foreign policy initiatives in Asia. For what, I'm not quite sure. The thinking is in the U.S. is that China is a threat. Therefore, they have to increase their cooperation with Asian countries, such as India and the Philippines.
Personally, I think it's an ill-timed move, because I don't think that China has any military ambitions in Asia. But put yourself into the chair of China's leadership. What is the top
priority? China obtains 95% of its oil from the Middle East. The top priority is to make sure that this oil continues to flow and that the supply is secure. So they have to secure the oil shipping lanes, from the Middle East, past the southern tip of India, through the Straits of Malacca, up the Vietnamese coast, into China.
Each time they do that or attempt to do that, America and it allies in Asia perceive it as a threat. So the tensions increase.
OilPrice.com: You just mentioned that you don't believe China has any military ambitions in Asia, but we're seeing quite a lot of tension in the South China Seas, especially the Spratly Islands and the energy resources located there. How do you see the situation playing out between China and its small neighbors in this region who all have a good claim on the resources?
Marc Faber: As I just mentioned, China's a huge country. They have certain views about territories in Asia, and I think the U.S. would not react particularly positively if say China or Russia or any other nation had numerous military and naval bases, in the Caribbean or in the Pacific, and military bases in Canada and Mexico.
You have to look at the world from the perspective of the Chinese. I'm not saying that because I'm super-bull about China. On the contrary, I think the Chinese economy faces numerous problems. But I'm saying that if you put yourself into their position, a top priority is to secure a regular supply of oil, iron ore, and copper. If you look at the Kondratiev Cycle where Kondratiev said it's not a business cycle. It's a price cycle, and certain things happen during the downward wave, and certain things happen during the upward wave.
During the upward wave, we have rising commodity prices, which is a symptom of shortages. Then countries become more belligerent, because they begin to be concerned about the supply of commodities, and so tensions increase.
I'm not saying war will break out tomorrow. I'm just saying the conditions have improved.
OilPrice.com: Aside from the South China Seas, where do you see the potential flash points in the world over resources?
Marc Faber: Well, I think a big potential flash point is obviously the Middle East and Central Asia, because neither Russia nor China wants permanent American military bases in Central Asia and to be encircled. The Chinese are encircled by the Americans in the Pacific with naval bases, plus the Americans have 11 aircraft carriers. The Chinese have just one.
Plus, in the last 12 months, Mr. Obama has made initiatives to have India as a strategic ally. The result of this is that China, which always had good relationships with Pakistan, has
strengthened their relationships with Pakistan. This of course has increased tensions in the region.
OilPrice.com: Moving off fossil fuels, what role do you see renewable energy playing in the future? Do you think government should help innovation in this area?
Marc Faber: This is a very difficult question to answer. Basically, I'm convinced that, over time, to drill a hole in the ground in the Middle East or in other emerging economies and then bringing that oil through a pipeline onto a ship into the countries that consume oil is not an elegant solution to the energy problem.
I think eventually this will go away. But in the meantime, alternative sources of energy are extremely expensive. Unless the oil price collapses to like $50, most alternative sources of
energy will not be profitable.
If someone says to me, we need alternative sources of energy for security reasons, yes, I agree. But for profitability I doubt it.
OilPrice.com: As an investor then, are there any renewable sectors you're bullish on? Or would you stay away from the space entirely?
Marc Faber: I would stay away from it.


OilPrice.com: Following the Fukushima disaster Japan has now shut down 54 nuclear power plants. The population’s trust in nuclear energy has been shattered – but do you think this is only temporary and how would Japan make up the energy shortfall - as before Fukushima Japan met around a third of its energy demand with nuclear?
Marc Faber: Well, I guess they’ll lean towards more natural gas and more oil so they can offset this shortfall of nuclear energy. Now I don't think that this will change the nuclear energy prospects long term in the world, because other countries like India and China will build their numerous nuclear energy plants. In the case of Japan, I think the power plants which had the problems were antiquated. In other words, they were not up to modern standards.
OilPrice.com: Iran has finally offered to resume talks about its nuclear program and has agreed to allow UN inspectors from the International Atomic Energy Agency to visit its Parchin military complex where a nuclear weapons program is suspected of be being developed.
How do you see events developing here and how can investors protect themselves from an escalation in this region? 
Marc Faber: Well, if there are escalations, then obviously you have to be long, oil and gold. My sense is that the Iranians are playing the same game the Japanese played in the '70s and '80s. They always negotiated but never did anything about the changing balances - they just want to delay the hour of truth. Every day, I think the Iranians are getting closer to having nuclear weapons. I can understand why. The whole world is hostile towards Iran, and they are encircled.
In the west, France has nuclear weapons and Britain and the U.S., and their neighbor Israel, towards the west. Then in the east, India and Pakistan and of course China. So why shouldn't they have nuclear weapons?
Mind you, either there is all around abandonment of nuclear weapons by all the powers, or every country should be allowed to have them. We in the Western World, we have the misguided belief that we are there to judge which countries may have and which countries should not have nuclear weapons.
But maybe our view is wrong. My view is that if I were looking after Iran, for sure I would want to have nuclear weapons. For sure!
OilPrice.com: Okay. So on to investments - you've mentioned oil and gold, but which other sectors are you bullish on, and what would you advise investors to avoid?
Marc Faber: Basically, since March 2009, equities have doubled in value by and large. Some have gone up more than 100%, some a little bit less, we’ve had a huge bull market. Last year, almost a year ago on May 2nd, the S&P reached a high of 1,370. Then we dropped into August and into October, and we bottomed out on the S&P at 1,074 on October 4th. Since then, we have a 25% rally. The mood in October and November of last year was extremely negative.
I think this is the time to be rather cautious. Personally, if I had heavy exposure to equities, I would take some money off the table.
OilPrice.com: Where do you see the best opportunities for investors in Asia at present?
Marc Faber: Right now, for the next one or two months, I don't think that stocks will go up a lot. I personally think they will correct.
But long term, I still like Asia. My concern is if the Chinese economy slows down meaningfully that we could have economic weakness spreading around Asia as well, as well as in countries that supply commodities to China, like Australia, Brazil, Argentina, and so forth.
Right now, say for the next two months, I'm very cautious.
OilPrice.com: I was looking through some of your previous interviews as well, and in one of them, you mentioned Barack Obama. You said he was by far one of the worst presidents that the U.S. has had, and that you still believe he'll be re- elected. In what ways do you think he is unsuitable as a president? I mean, are you fundamentally against his ideas and position on certain topics? 
Marc Faber: I don't want to get into an overly political discussion, but I think that first of all, we have in the U.S. and elsewhere highly expansionary fiscal and monetary policies, but we have restrictive regulatory policies. In other words, Obamacare is a big problem for many medium sized and even large companies, because they don't know exactly how much it will cost them. That has retarded hirings of people.
Mr. Obama has intervened into the economy massively, left, right, and center. Every government intervention has consequences. Just to give you an example, the U.S. government debt - I'm only speaking about the government debt, not the prime debt - has gone from essentially zero 200 years ago, to a trillion dollars in 1980.
By the year 2000, we were roughly at $5 trillion. Now in 12 years, we've gone to close to $16 trillion. That excludes the unfounded liabilities. Under Mr. Obama, the fiscal deficit has
exploded.
The big question is: Will we ever, in the U.S., have a fiscal deficit of less than $1 trillion or $1.5 trillion? I don't see it.
Under Mr. Obama, spending has gone up and tax revenue has gone down. Change, if there was any change under Mr. Obama, it was for the worse. In my view, he's a very disappointing president.
OilPrice.com: Marc, thank you for taking the time to speak with us. It's been a pleasure speaking with you.
Marc Faber: It was my pleasure.


View the original article here

"Dr Doom" sees Iran-Israel clash, says buy precious metals - Reuters

Dr. Marc Faber, publisher of investment newsletter ''The Gloom Boom & Doom'' speaks at the 16th annual Sohn Investment Conference in New York May 25, 2011. REUTERS/Jessica Rinaldi 


DUBAI (Reuters) - Political risk in the Middle East has increased significantly with war between Iran and Israel almost inevitable, and precious metals and equities investments offer some safety, Swiss money manager and long-term bear Marc Faber said on Tuesday.


"Political risk was high six months ago and is higher now. I think sooner or later, the U.S. or Israel will strike Iran - it's almost inevitable," Faber, who publishes the widely read Gloom Boom and Doom Report, told Reuters on the sidelines of an investment conference.


Brent crude traded near $123 per barrel in volatile trade on Tuesday on fears of a disruption in Iranian supplies. Israeli Prime Minister Benjamin Netanyahu showed no signs of backing away from possible military action against Iran following a Monday meeting with U.S. President Barack Obama.


"Say war breaks out in the Middle East or anywhere else, (U.S. Federal Reserve chairman) Mr. Bernanke will just print even more money -- they have no option...they haven't got the money to finance a war," said Faber.


"You have to be in precious metals and equities... most wars and most social unrest haven't destroyed corporations - they usually survive," he said.


He said that Middle East markets had largely bottomed out, though regime changes from the Arab Spring revolutions were unlikely to be investor-friendly.


Faber said that in uncertain times, investors had to reconcile themselves to volatility.


"If you can't live with volatility, stay in bed," he said, pointing out that even cash was subject to a lot of volatility.


The 66 year-old, who has earned the moniker "Dr Doom", earlier told the conference that the likelihood of war in the Middle East was boosted by Western powers' imperatives of keeping China in check, given its dependence on Middle Eastern oil.


"The Americans and the western powers know very well they cannot contain China economically.... but one way to contain China is to switch on and switch off the oil tap from the Middle East," he said.


"I happen to think the Middle East will go up in flames," he said.


View the original article here

Go for gold — there is no bubble - gulfnews.com

Gold is nowhere near a bubble phase and there is no better time to buy it than now considering the violent volatility global markets could face in the context of the economic uncertainties and excessive liquidity central banks are pumping in.

That's the opinion of Marc Faber, an unconventional economist who edited the Gloom, Doom and Boom report released in Dubai last week.

"I don't believe gold is heading into a bubble," Faber said.

"A bubble is characterised by the majority of market participants being involved in a market space. I saw a gold bubble in 1979-1980, when the whole world was dealing — buying and selling gold 24 hours a day, globally."

Article continues below


Faber said the rush by central banks across the world to monetise massive government debts will result in negative real interest rates, asset price inflation and debasing of all major currencies.

Considering the threat of huge value erosion of both real and financial assets in the future as a result of the cheap money policy pursued by governments, Faber said all classes of investors should keep gold as an integral part of their portfolios.

According to Faber the safe haven charm of US Treasuries will be short-lived as the bulk of liquidity will come back to haunt them in the form of inflation in the future.

The economist predicted that the time is not far off when investors will begin to shun US Treasuries.

"The US will pay the interest as long as it can print money," Faber said.

"But suppose you buy a ten-year government bond that yields 2 per cent and inflation is perceived to be 5-7 per cent. To what extent would investors still buy these bonds? That question is not too far away."

US default looming

He said at some point people will wake up to the reality that the US is in default through a depreciating currency — in other words, by printing money.

Printing more money will weaken the currency and produce higher inflation in consumer prices, asset prices and commodity prices. So being in US government bonds will result in losses to investors.

Faber argues that negative real interest rates will eventually force people to speculate, which could create enormous market volatility.

He expects the cash remaining on the sidelines may not go into equities. It could go into some other asset classes, perhaps hard currencies such as gold and silver, or real estate, which is now relatively inexpensive in the US.

Faber is not ruling out corrections in gold prices in a risky market where the level of speculation will be high and will have a bearing on all asset prices.

"All I'm saying is that, in my opinion, the gold price correction is not yet entirely completed," he said.

"I see significant support around the $1,500 an ounce level, but it could drop lower."

He said in the short to medium term the gold price depends on global liquidity and on money printed by central banks.

"We could have a big correction if global liquidity tightens or they stop printing money," he said.


View the original article here

Monday, March 12, 2012

World economy faces more crises - gulfnews.com

The world economy is nowhere near to achieving stability, but could face more violent business cycles, largely resulting from government intervention in financial markets, said Marc Faber, the Editor of Gloom, Doom and Boom Report.

"So far, governments in the developed world have been addressing long-term structural economic problems such as low economic growth and persistent unemployment with short term fixes, largely through big doses of liquidity," said Faber at the Middle East Investment Summit on Tuesday.

In the last two decades central banks have been using a cheap money policy to boost economies when faced with the threat of a slowdown. Although asset bubbles and inflation are the ultimate consequences of money printing, its impact on nations and various income strata will differ, Faber said. The influx of massive doses of liquidity means negative real interest rates and negative gains for savers.

While Keynesian economists have been advocating government intervention and stimulation through liquidity, economists like Faber are warning that the consequences will manifest themselves in huge volatility.

Article continues below


"The politicians love to print money, as it is off-budget, off-balance sheet and most importantly off-accountability. The central banks are effectively performing the dirty job of crisis management in stealth mode," Steen Jakobsen, chief economist of Saxo Bank, said.

The boost in asset prices resulting from new liquidity will benefit the rich, mostly asset owners and speculators, while lower income groups will be the hardest hit.

The debasing of currencies along with high unemployment will result in rising social tensions, political turmoil and revolutions, like those witnessed by the Middle East and North Africa over the last year.

Faber said the political and economic tensions in the Middle East are far from over, and the region could face more turmoil on a much larger scale, resulting in disruptions of oil supplies from the region.

While the US and European economies are destined to suffer low growth, high unemployment and eventual high inflation for a long period, the high growth Asian economies like India and China are likely to slow down.

"Everyone is talking about a soft landing of China through a managed deflating of the bubble. If there are signs of a crash, we can almost certainly expect a massive liquidity infusion into the economy," said Faber.


View the original article here

Wednesday, March 7, 2012

Marc Faber: Gold Will Be Taken by the Government - My Loans Consolidated

Marc Faber still buys physical gold and warns that at one point the government will take the gold away from physical gold owner as it happened back in the 1970's. Below is the whole interview with Marc Faber:




Sentiment hit hard by big gold sell-off - could be more falls to come - Mineweb

That the gold market can be manipulated on COMEX by big forward paper sales now seems to be obvious from the major dive suffered by gold last week when the yellow metal initially fell over $60 in a matter of minutes - and then got pushed down further before making a relatively minor recovery.  Talk about shades of the big end-April-early May silver sell-offs last year when silver was knocked even further in percentage terms, initially  by a huge out-of market hours sale, widely believed to be a concerted move by big short sellers seeing the need to drive prices down to cover huge potential losses.


What is particularly worrying for the markets though is the massive effect this has had on sentiment for gold investors.  Some comments see the big gold sale as a move to drive weak holders out of the market so the big boys can maintain control.  A cynic would see this as yet another way big money tries to manipulate markets to make huge returns at the expense of the small investor as money is just used with little more purpose than just to make more money - no real productive use of it here.


Bill Bonner writing recently in the Daily Reckoning had this to say about the whole system - democracy and capitalism as practiced in the USA - and in many other parts of the world too - "democracy, as practiced by the US and other developed countries, is a fraud. It is just a way for the insiders to scam money and power from the outsiders, by pretending that the voters are in charge...... American democracy, circa 2012, has no more in common with real democracy than American capitalism has in common with real capitalism. Both are degenerate...corrupt...and geriatric".


Strong words - but how true!  The machinations in the commodity exchanges are just a small example of how the rich get richer.  The man (or woman)-in-the-street just can't play this game.  True it is possible to pick up crumbs by reading the trends right - maybe investing in the general stock market which has been artificially boosted by the huge flows of money entering circulation, inasmuch as the bankers pass it on - due to Quantitative Easing programmes from acquiescent governments and central banks.


For the prospective individual investor in silver, last year's machinated dive in the market set sentiment back for nearly a year before the metal started to recover - and now it's been knocked heavily again by the gold plunge - although still remains well above its low points of last year.  Similarly putative gold investors seeing how much the yellow metal fell in such a short space of time are more and more likely to think twice before putting their money into it however much the gold pundits call the fall a buying opportunity.


We could yet see further falls in gold - as we did in silver after its initial dive last year - as safe have sentiment wanes again - after all in a safe haven investment one doesn't want to see volatility of this type.  One is just looking for a gradual appreciation to mitigate the ravages of ever upwards inflation.


As many gold commentators have been pointing out, gold's fundamentals remain pretty much unchanged.  A couple of months' better employment figures in the U.S. shouldn't change things much - there's still a huge number of people unemployed and much of the government hype on these matter is just that - hype - to make people feel better and spend more money to try to help stimulate the economy.


What may be a worry though for the gold investor in the short term is the impact such falls may have on the burgeoning growth in precious metals purchases by the people in countries like China and India - the big gold-buying sectors in the past couple of years whose purchases have underpinned precious metals prices.  There is a strong possibility that those looking at buying gold and silver right now may well hold off until they have a better ideao of where prices are likely to move in the short term.  As I write gold has slipped below the key $1700 level and silver fell back to $34 (although both remain substantially higher than they were at end-December - for the moment at least.)


There are some observers of the market (and I'm ignoring the gold-is-in-a-bubble merchants who have been wrong continually for the past decade) who say that gold could well fall back to $1500, with at least a likely corresponding fall, or worse, in silver, although gold's bull market would remain intact even at these levels.  Such corrections are seen as normal in a bull run by those who understand these things!  So although the setback may provide a buying opportunity even now one shouldn't be surprised to see initial losses: Savvy investors like Marc Faber - quoted in these pages - say you should only hold gold long term - maybe buy monthly and ignore the short term ups and downs.  Ultimately, they say, you will remain ahead of the game as global currencies continue to crumble in the light of a virtually insuperable global economic malaise which will be with us for many years yet.


View the original article here

Tuesday, March 6, 2012

If S&P Falls 100-200 Points, We Will See QE3: Marc Faber - CNBC.com

Another round of quantitative easing in the U.S. will depend on the direction of the S&P 500, Marc Faber, editor of the Gloom, Boom & Doom Report told CNBC Monday, following Federal Reserve Chairman Ben Bernanke’s failure last week to hint at a QE3.

Investor Marc Faber

“(QE3) depends on the S&P, if the S&P drops 100-200 points, then yes, for sure we will have QE3 but if the S&P stays here or even goes up, the likelihood of QE3 diminishes,” Faber said.

Since the start of 2012, the S&P has risen 9 percent, compared to gains of 11 percent for the Nasdaq Composite and a 6 percent return for the Dow Jones Industrial Average.

“Bernanke targets asset prices, he doesn’t admit that, but he doesn’t want asset prices to go down,” he said, adding that the first two rounds of quantitative easing were largely responsible for the upside in U.S. stocks last year.

“The S&P went up from 666 on March 6 2009 to 1,370 [currently] so it has more than doubled and that has to do with QE1 and QE2,” he said.

Faber adds that the movement in oil prices will also contribute to the Fed’s decision on whether to implement QE3 or not.

If Brent crude prices were to soar to $150 a barrel, or rise 20 percent from current levels, he believes the Fed would have an “even more excuse” to flood the market with liquidity.

Correction Ahead for Equities

While Faber is generally upbeat on equities as an asset class, he is calling for a short-term correction in global stocks in the “period directly ahead”.

“Markets are overbought, technically they have deteriorated, and we have very heavy insider selling, so I think a correction is coming,” he said.

Faber, who expects to see high volatility in all asset classes over the next few years, says the ideal asset allocation for the moment is 25 percent each in equities, real estate or real estate related equities, cash and gold.

“I don’t think (investors) should be shooting for huge gains, but rather for preservation in capital,” he said.

Discussing his outlook for gold, Faber, a well-known gold bull, says it doesn’t offer an attractive buying opportunity right now. He believes the precious metal is in “correction time” and doesn’t rule out the prospects for gold to fall down to $1.500 an ounce this year.

“We made a peak at $1,921 on September 6 and we dropped to $1,522 on December 29, so around $1500 is very strong support."


View the original article here

Faber Says ECB Loans to Only Help Short-Term, Handelsblatt Says - Bloomberg

Marc Faber said the European Central Bank’s latest loans to European banks will only calm markets short-term, lead to inflation in the long-term and push banks’ funding problems into the future.

Investors target property tax deadbeats - CNNMoney

Big profits can be made buying liens on homes with overdue property taxes.

Big profits can be made buying liens on homes with overdue property taxes.

NEW YORK (CNNMoney) -- Jean Norton's first foray into tax lien investing was hands-down a lucrative one.

Norton, who was a marketing director at a tech firm at the time, had bought and sold real estate for years. She had heard about investors who were making nice profits buying liens on homes with overdue property taxes. So in 2009, she attended a seminar to learn how to put her own skin in the game.

Soon afterward, she bought more than $20,000 in liens at auctions in foreclosure-riddled Florida that were promising to pay 17% to 18% in interest. Within two years, she got her entire investment back, plus double-digit returns.

"It was always a nice surprise to get a check in the mail," said Norton, now 55.

Now big institutional investors have joined individual investors. But like any investment offering tempting yields, the potential pitfalls of tax lien investing are pretty huge: Those who lose out could either end up saddled with a worthless property or with nothing at all.

Between $7 billion and $10 billion in property taxes go delinquent each year, according to Brad Westover, executive director for the National Tax Lien Association. For many state, county and local governments, the failure to collect on these debts weighs heavily on their already-overburdened budgets. In 29 states, plus the District of Columbia, they turn to investors for help.

In these states, investors buy tax lien certificates at auctions, effectively owning a claim against the property until the homeowner pays the county or municipality back or until they default on the debt entirely. In return, the county gets the money it needs to fund schools, pave roads and pay for other infrastructure and services.

Homeowners who pay back what they owe, pay the county, which then repays the investor the principal, plus whatever interest rate was set at auction.

The interest is where the real money can be made. States set rates that the counties can charge delinquent taxpayers on overdue taxes and they can range anywhere from 12% to 24%, according to Larry Loftis, an attorney, tax lien investor, and author of "Profit by Investing in Real Estate Tax Liens."

There are several different kinds of tax lien auctions. In one of the most common methods, the winning bidder is the one who will accept the lowest interest rate. That can lower the rate to far below what state laws allow, but it can still be much higher than other investments.

"I just [invested] $1 million last week and most of the liens I won were at 7%, with a handful at 8%, a few at 9%, two at 10%, and one at 11%," said Loftis.

The big gamble: Most homeowners pay off their back taxes within a year and nearly all of them pay what they owe eventually. According to local tax authorities in Colorado, about 95% of back taxes are paid off within two years, a rate that Donald Dinan, general counsel for the National Tax Lien Association, said generally holds true for the nation as a whole.

For the 5% of liens that don't get repaid, however, things can get pretty messy. Lien holders may have to pursue a foreclosure, and, if that doesn't get the homeowner to pay their taxes, then the investor will likely have to take possession of the property. That means going through a legal process that often includes getting a sheriff to evict the old occupants. If an investor fails to do either of those things, the lien will eventually expire and it will become worthless.

In a foreclosure, the tax lien holder usually has first claim on the property, even over the bank that holds the mortgage (should the homeowner still owe money on the home).

Foreclosures go through the county, which has to notify the delinquent taxpayer that a foreclosure sale is pending and advertise the sale, usually online and in local newspapers.

In many states, the tax lien holder can get full title free and clear on the property in a foreclosure: The bank gets nothing. However, to protect its interest, the bank will often pay off the back taxes, plus interest.

If there's no mortgage, the lien holder can repossess the home. That's not a bad deal if the home is worth more than the amount the lien buyer has already put into the deal. In fact, some investors look for that potential when they bid on the debt.

However, wading into tax lien foreclosures -- on purpose -- is a tricky and time-consuming business that can easily backfire.

"Risks come mainly from not knowing what you're doing," said Loftis. "The biggest risk is getting a lien on a worthless property. Contrary to what you see and hear on the 'Get rich quick' infomercials on tax lien investing, the county government does not guarantee your investment."

Almost all counties that sell liens sell hundreds of them on worthless properties each year. That's especially true in blighted inner-city neighborhoods where foreclosures have wrecked the housing market and many homes are selling for $10,000 or less. If the property owner doesn't pay, there's no way for investors to get back their money by foreclosing and selling the house.

Buyers have to make sure that the total amount of debt the house carries is less than its market value. You don't want it to total much more than 60% or so of the home's market value, said Westover, and, ideally, much less.

Other potential pitfalls include buying a lien on a home that also has an IRS lien on it (the agency also has a first claim on the assets), bankruptcy of the owner, which can delay a foreclosure even longer, and environmental hazards.

For intrepid investors, buying a tax lien can be a lucrative bet -- just be prepared for the fact that you may end up the unwitting owner of a home that could cost you your investment and then some.  To top of page



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Monday, March 5, 2012

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

Some people can have a lot of experience and still have good judgment. Others can pull a great deal of value out of much less experience. That’s why some people have street smarts and others don’t. A person with street smarts is someone able to take strong action based on good judgment drawn from hard experience. For example, a novice trader once asked an old Wall Street pro why he had such good judgment. “Well,” said the pro,“Good judgment comes from experience.” “Then where does experience come from?” asked the novice. “Experience comes from bad judgment,” was the pro’s answer. So you can say that good judgment comes from experience that comes from bad judgment!-- Adapted from "Confessions of a Street Smart Manager” by David Mahoney
Years ago I read a book that a Wall Street professional told me would give me good stock market judgment by benefiting from the bad experience of others who had suffered various hard hits. The name of the book was One Way Pockets. It was first published in 1917. The author used the non de plume “Don Guyon” because he was associated with a brokerage firm having sizable business with wealthy retail investors and he had conducted analytical studies of orders executed for those investors.

The results were illuminating enough to afford corroborative evidence of general investing faults that persist to this day. The study detected “bad buying” and “bad selling,” especially among the active and speculative public. It documented that the public tends to “sell too soon” and subsequently repurchase stocks at higher prices by buying more stocks after the stock market has turned down, and finally liquidate all positions near the bottom -- a sequence true in all similar periods.


For instance, the book shows that when a bull market started, the accounts under analysis would buy for value reasons; and buy well, albeit small. The stocks were originally bought for the long term, rather than for trading purposes, but as prices moved higher on the first bull-leg of the rally, investors were so scared by memories of the previous bear market and so worried they would lose their profits, they sold their stocks. At this stage the accounts showed multiple completed transactions yielding small profits liberally interspersed with big losses.


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


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


The book’s author concluded that the public’s investing methods had undergone a pronounced, and obvious, unintentional change with the progression of the bull market from one stage to another -- a psychological phenomena that causes the great majority of investors to do the exact opposite of what they should do! As stated in the book:

The collective operations of the active speculative accounts must be wrong in principal [such that] the method that would prove profitable in the long run must be reversed of that followed by the consistently unsuccessful.
Not much has changed from 1917 and 2012, just the players, not the emotions of fear, hope, and greed, or supply versus demand, as we potentially near the maturing stage of this current bull market. Of course stocks can still travel higher in a maturing bull market, but at this stage we should keep Don Guyon’s insight about maturing “bulls” in mind. Verily, this week celebrates the third year of the Bull Run, which began on March 9, 2009, and we were bullish. With the S&P 500 (SPX) up more than 100% since the March 2009 “lows,” this is one of the longest bull markets ever. As the invaluable Bespoke Investment Group writes: Going all the way back to 1928, the current bull market ranks as the ninth longest ever. Even more impressive is the fact that of the nine bull markets that lasted longer, none saw a gain of 100% during their first three years. Based on the history of prior bulls that have hit the three-year mark, year four has also been positive.
Now, recall those negative nabobs who told us late last year the first half of 2012 would be really bad? W-R-O-N-G, for the SPX is off to its ninth best start of the year, while the Nasdaq (COMPQ) is off to its best start ever!

In seven out of the past 10 “best starts,” the SPX was higher at year-end, which is why I keep chanting, “You can be cautious, but don’t get bearish.” Accompanying the rally has been improving economic statistics, and last week was no exception.


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


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


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


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



And then there’s this from my friend Jim Kennedy of Atlanta-based Divergence Analysis, whose proprietary algorithms I use on a daily basis:

The currently developing negative divergence pattern by our Risk Indicator is a model event that historically leads to a correction phase. This correction "is not in play" now, as the Risk indicator (historically) turns up again to show the final surge of the rally. Once Risk reverts down after that, the correction phase is "in play." For your review a picture of the 2007 Risk negative divergence pattern and resulting correction. In 2007 this negative development led first into a smaller, trading range correction, a new higher top (with Risk diverging), and then the larger price correction of approximately 150 S&P points. This one may play out differently, but we have a nice guide to show the way.
The call for this week: I am at the Raymond James 33rd Annual Institutional Conference this week and suggest you exercise “street smarts” in my absence. While I remain cautious (not bearish), there are still things to do. For example, I continue to like the strategy of looking at companies whose share price has collapsed for a one-off event. Recall, this was the case with Acme Packet (APKT) back in January, where in my firm's analyst’s view the stock swoon had taken a lot of the price risk out of the equation. A similar sequence occurred last week with Vocus (VOCS), where our fundamental analyst maintains his positive view. I will speak with everyone next week.

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

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


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


TGR: Could that happen in 2012?


MF: Yes, and some thereafter.


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


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


TGR: Did yields change much with these recent downgrades?


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


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


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


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


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


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


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


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


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


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


TGR: What captures the imagination of investors?


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


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


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


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


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


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


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


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


TGR: But not since then?


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


TGR: Which do you think it will be?


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


 


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From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.


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