Thursday, April 28, 2011

Jim Chanos and Mohamed El-Erian on China's Real Estate Bubble and Economy

Jim Chanos, a famous short seller, and Mohamed El-Erian from Pimco were interviewed on CNBC on the 14th of April 2011.

Firstly, Chanos was asked about shorting opportunities and he said he could find a few more opportunities in the U.S due to higher valuations notably in the alternative energy and healthcare sectors.

But most part of the interview was focus on China where both acknowledged the real estate bubble and that property prices started to move lower in China. Jim Chanos sees a hard landing and even compared China to the Soviet Union which had 6-8% growth rates for almost 40 years based on illusion. However, El-Erian rather sees China having a soft landing and dismissed the ideas of comparing China to the Soviet Union as China is "tested" daily by the markets.

Monday, April 25, 2011

Jeremy's Grantham Quarterly Newsletter April 2011 Summary

Jerey Granthan from GMO has just released its Quarterly Newsletters entitled "Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever".

He explains that the world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value and that we all need to quickly adjust our behavior to this new environment.

Here are some interesting quotes from the newsletter:
  • "no compound growth is sustainable "
  • "From now on, price pressure and shortages of resources will be a permanent feature of our lives"
  • "not just “peak oil,” but “peak everything,”"
He then states that after a 100-year downward trends in commodities, we are either in a massive bubble or paradigm shift. He clearly believes the later, surprising for the master of mean reversion.

He have specific paragraph for peak oil (N.B: 70 to 80 USD per barrel for new oil fields, same figure as Marc Faber) metals and agricultural commodities which he all see increase in price.

Finally he also notes the possible downward risks (short term) namely the weather for agriculture commodities and China could experienced a crash as its economy overheats (ce cited Jim Chanos). Out of those events he suggest a 25% chance commodities prices stumble, but if the weather is good (for farming) or China crashes the odds are 80%.

He concludes with "The U.S. and every other country need a longer-term resource plan, especially for energy, and we need it now! "

I strongly recommend you read the complete 19-page newsletter which is available for free on GMO website

I completely agree with Jeremy Grantham, that we would have to live a more simpler live, possibly control the population in order to avoid a catastrophe (massive loss of life) longer term.
Investment wise, I would not buy commodities right now (that's also a risk) and wait for a correction (as we have so many risks) before loading up massively either buying commodities themselves, commodities related stocks (might be risky due to demand destruction and reverses decrease) or ETF. Those are not really safe in case of financial collapse, but the easiest to acquire, some physical gold and silver stored in your home can not hurt, although the best would probably to have production capacity such as a farm or a mine, but it's very difficult to do for most people. In case a major crisis, the rule of law will go out of the window (martial law), and nothing is safe. Let's hope it does not go that far.

Finally, here's an excellent video playlist (8 videos - over one hour) of a lecture (year 2002) explaining the exponential function and showing the problems that will occur when it is applied to population and economic growth.

Monday, April 18, 2011

Marc Faber: US Dollar will go to zero

Interview with Marc Faber on CNBC Asia on the 18th of April 2011.

In the first segment, he talks about the US budget deficit and the need to raise taxes and reduce spending, but he does not see democrats and republicans achieve anything

In the second segment, he talks about the dollar direction (i.e. possible strength in the short term and going to zero in the long term) and his outlook on precious metals which he sees not as speculative investments and simply as the best currencies.

In the final part, he answers viewers question and explain that compared to other equity markets, japan is probably the most attractive right now and should be accumulated, some more advise on investing in Gold (accumulate physical gold), crude oil which he sees going up whether the economy tanks or further recovers and than in the short term he expects a correction in asset markets.

Sunday, April 17, 2011

GEAB 54: Breakdown of the global economic, financial and monetary system by Q3 2011

LEAP 2020 releases an economic anticipation newsletter every month (except in August). The overall theory is valid, but they are often off with the timings (always difficult) and very much pro-European.

Here's the summary of their latest GEAB 54 (April 2011) entitled "Global systemic crisis: Autumn 2011 – Budget/T-Bonds/Dollar, the three US crises which will cause the Very Serious Breakdown of the global economic, financial and monetary system":

  • The budgetary crisis, or how the United States plunges willingly or by force into this unprecedented austerity and takes whole swathes of the global economy and finance with it
  • The crisis in US Treasury bonds, or how the US Federal Reserve reaches the "end of the road" which began in 1913 and must face up to its bankruptcy whatever accounting sleight of hand is chosen
  • The US Dollar crisis, or how the jolts in the US currency that will characterize the ending of QE2 in the second quarter of 2011 will be the beginnings of a massive devaluation (around 30% in a few weeks).… (page 2) - Public Announcement
  • Military operations in Libya: A powerful boost to global geopolitical breakup.
    In January 2011, in GEAB N°51, LEAP/E2020 anticipated that 2011 would be a ruthless year, especially for those who weren’t prepared for further shocks from the global systemic crisis, having spent two years in trying to treat the symptoms instead of causes of the crisis. Military intervention in Libya seems emblematic of this situation because it involves a set of participants who are not prepared for the changes brought about by the crisis and who are trying to respond in a confused and therefore dangerous manner… (page 12)
  • Strategic and operational recommendations
    US Dollar & Pound Sterling, Gold & Precious metals, Basic food commodities, Real estate, Financial markets (page 22)
  • April 2011 GEAB $ Index: The US Dollar accelerates its fall in value against the €, ¥, Ұ and R$ currency basket
    This index, measuring GDP expressed in US Dollars, allows, for example, the assessment of the very substantial decline in the US economy relative to the global economy’s key players. And, as regards investments in currency terms, it gives a pertinent indication of the actual loss in value of assets denominated in US Dollars… (page 23)
  • The GlobalEurometre - Results & Analyses
    We have seen a rise in the majority of respondents (59% in April versus 45% in March) believing that Eurozone economic governance will not be established by the end of 2011, which is quite surprising because this governance is, in fact, in the course of being put into place. How opinion evolves in the coming months will show if Euroland is capable of communicating effectively on this subject… (page 24)

Friday, April 15, 2011

Jeremy Grantham (GMO): -2.8% annual return forecast for small U.S caps

GMO has just released its monthly 7-year Asset Class Forecasts and here are the expected annualized return (based on valuation and historical earning growth):
  • US Large caps: -0.1% per year
  • US Small caps: -2.8% per year
  • US High Quality: 4.6% per year
  • International Large caps: 3.2% per year
  • International Small caps: 0.2% per year
  • Emerging Markets: 4.3% per year
Different kinds of bonds are expected to return between -0.7% and 1.7% per year.
Managed Timber (how to invest in this?) is expected to return 6% per year.
Those are real returns adjusted for inflation of 2.5% per year.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at

Thursday, April 7, 2011

Bearish Sign: Extreme Bullishness for US stock market

The latest Market Harmonics intelligence survey shows a Bull/Bear Ratio of 3.65, the highest ratio of the last 5 years.

See bull and bear charts here:

The 14-day Relative Strength Index (RSI) for the S&P 500 is around 60, if we pass the previous high of 1344 on the S&P500 with an RSI at 70 or over, it might be better to be prudent and decrease positions in stock that have outperformed worldwide, especially since the RSI has not gone below 30 since July 2010. Said that, we are not near the top of the channel we followed since March 2009.

Finally, I'll have a look on the percentage of stocks above their 200-day moving average with a chart from for $nya200r.

Currently 83.70 percent of stocks are above the 200 MA, this is not extreme, but certainly does not encourage us to buy stocks especially this has been around 80 for a while.

To conclude, if the S&P 500 reaches a new high this month, it is most probably wise to sell part of your investment in stocks and possibly industrial commodities be it ETF or other financial instruments.

Wednesday, April 6, 2011

Marc Faber April 2011 Market Commentary Highlights

Here are a few highlights of the latest Marc Faber market commentary entitled "Will America Produce 'all these Wonderful Things'?" initially posted on Wallstreetpit

1. Stocks–World markets are likely to continue their recent rallies, due in large part to non-stop liquidity from central banks. Furthermore, April is seasonally a good time for stocks, which provides a favorable background for rising stock prices. However, Faber is looking for a correction in May/June and advises investors to sell their winners in anticipation of lower prices. He would not be adding to positions at this point. If the market does fall, as Faber expects, then prepare for QE 3,4,5,etc. by the Fed to support asset prices.

2. Gold and Gold Stocks–Continue to accumulate gold. The best way is to dollar cost average every month. Gold may decline in the short-term, but the long term trend is up. Faber also mentions that gold remains undervalued compared to the egregious amount of fiat money which has been printed by central banks worldwide. If the US ever needed to back the dollar with gold, it would take a price of $7500 per ounce of gold to accomplish this. Thus, gold remains an attractive asset. Furthermore, gold is still under owned by individuals and institutional investors. Regarding gold stocks, Faber is buying Newmont and Barrick.

3. Japan post earthquake/tsunami—Faber has been getting more bullish on Japan over the last few months, citing attractive valuations after a 20-year bear market. Even after the Japanese earthquake, Faber likes Japanese equities, but he thinks they will fall in the short-term. This will represent a good buying opportunity for investors. He still hates the Yen and believes recent BOJ money printing will lead to a lower Yen longer-term (bullish for Japanese equities).

4. Commodities–Faber is still bullish on energy shares like CHK,BTU, XOM, CVX etc. However, he would only add to these positions on weakness as he is cautious on the general market.

5. Model Portfolio–Faber mentioned that his ideal portfolio right now would be: 20-30% gold and gold equities, 30-40% equities, 20-30% real estate (including REITS) mainly in Asia, and 20-30% cash and corporate bonds. Faber cautions that while US blue chips look relatively cheap, he would prefer emerging market stocks because they represent better growth opportunities and have good dividend yields.

6. America’s Long Decline–Faber devotes a large amount of time discussing the dire outlook facing the US. The country is bankrupt and, meanwhile, the ruling elite is busy looting the last drops from the American Empire. Americans can get used to perpetual war, more terrorism, and a continuous decline in general living standards. The elite directs scholars to produce reports and arguments to justify whatever actions are taken by the oligarchs. This is the sorry state of America today. Is there any hope to rescue America from its troubles? Faber is not optimistic.


Jim Rogers: I would buy Myanmar Stocks

In an interview with Forbes on the 6th of April, when asked about which Asian market he would buy, Jim Rogers replied:

I’m not buying shares anywhere right now because I would rather own commodities. I’m still skeptical of the world economy. If Myanmar opens a stock exchange – and they’re trying, I would buy shares there in a minute.
Well, there are 80 million people (that are) disciplined (and) educated, and vast natural resources. There is India on the left and China on the right, It’s starting to open up – not according to the western press, but you know, it’s time (for them) to open up. It’s got enormous potential. They don’t have to compete with Westerners because the Westerners are all boycotting. They don’t have to compete with Exxon because Exxon is not there, so it’s wonderful for anybody who’s there in business. They’re going to make a lot of money, because a lot of Westerners are not going there yet.

Forbes article:

Mike Maloney about timing the sale of Gold & Silver

This video was released to Insiders over 1 month ago.
They made it available to the general public yesterday.

Mike Maloney explains when you should sell your gold & silver and when you should buy you real estate. Do not only set a price in USD or Euro when you'd like to sell, but consider the real value of Gold / Silver by considering metrics such as inflation and Dow to Gold ratio. He also explain real estate is the U.S is still in bubble territory using the price to rent ratio.