Tuesday, December 25, 2012

Eric Sprott: Smart Investors Are Flocking to Silver

Sprott Asset Management published their monthly newsletter Market at Glance (December 2012) entitled "Why are (Smart) Investors Buying 50 Times More Physical Silver than Gold?"

Eric Sprott explains that demand for Silver relative to Gold has dramatically changed since 2008. The table below shows the US Mint gold and silver sales in ounces over the last few years:

Each year there's about 130 million Gold ounces and 1 Billion Silver ounces available per year, but due to use for industrial applications, the annual availability for investment purpose is respectively 120 million and 350 million ounces. Therefore, the ratio of physical silver availability to gold availability is roughly 3:1.

Investors are choosing to buy silver at a ratio to gold that is well above what is available. The silver price is currently mainly set in the paper market where the daily average trade on the Comex is approximately 300 million ounces. An outrageous number when you compare it to the daily mine production of about 2 million ounces, and the current price is most probably where it is because of market manipulation.

Sprott believes the current investment trend into silver is likely to continue.

The full version of the newsletters is available at http://sprottasset.com/markets-at-a-glance/why-are-%28smart%29-investors-buying-50-times-more-physical-silver-than-gold/

Saturday, December 15, 2012

GEAB 70 - 2013, The First Steps into The "World Afterwards" in Complete Chaos

Here are the highlights of GEAB 70 (December 2012) entitled "2013, The First Steps into The "World Afterwards" in Complete Chaos":

  • 2013, The First Steps into The "World Afterwards" in Complete Chaos - As the world enters into a global recession in 2013, it will become more fragmented into regional blocks. Although  the Euroland, South America and Asia should come strengthen from the crisis, the US, the United Kingdom, Israel and Japan should be greatly weakened.
  • Politics in Germany until 2017 – Weaking of main political parties, and increase in the number of small parties.
  • Yearly evaluation of LEAP anticipations – 75% success rate en 2012. By their own assessment, before new anticipations are published in GEAB 71 next month.
  • Global systemic crisis: Assessments of 40 « country-risks» - LEAP 2020 team looks into 40 countries, and how they are likely to handle the 2013 crisis.
  • Strategic and operational recommendations. Stock markets are likely to slide downwards, banks will suffer and it may be wise to spread assets among several banks,  prudence is required when investing in real estate, and keep stocking up Gold.
  • The GlobalEurometre - Results & Analyses. 66% (vs 48% in November) of respondents experienced price increases..
The full GEAB 70 report (PDF format) is available to LEAP 2020 subscribers for 200 Euros per year for 10 new issues + the 6 issues published before registration.

Saturday, December 1, 2012

Marc Faber December 2012 Market Commentary

Marc Faber has just released his December 2012 market commentary "Always try to be a little kinder than Necessary" on gloomboomdoom.com.

This month report explains that something is clearly not quite right with the economy, as the recent performance of Wal-Mart, Tiffany, Genesco, and Kohl’s show. What concerns Marc Faber greatly is that most asset markets had outsized gains since early 2009, excluding Vietnamese, Chinese, Japanese, and European equities, as well as US housing. He believes that investors’ expectations about future returns are far too optimistic, and that in a world that currently hardly grows, investors will need to reduce their future return expectations. Therefore, 2013 will most probably not be a good year for holders of assets, and he has now shifted to the preservation of the outsized gains he has achieved over the last 3 years.

Marc Faber also wishes Merry Xmas to everybody and reminds his readers to try to be as nice and kind to other people quoting Albert Schweitzer: "Constant kindness can accomplish much. As the sun makes ice melt, kindness causes misunderstanding, mistrust, and hostility to evaporate." 

The monthly market commentary including one attachment:
  • The Fed’s Last Hope by Michael A. Gayed,Chief Investment Strategist at Pension Partners, LLC.
I cannot find the attachment, but Gayed mentions it in a marketwatch.com articles, and explains bonds have now very little value, and the relative advantage of dividend yields over bonds yields, will be bullish for stocks.

If you want to access the full Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year.

Wednesday, November 21, 2012

GMO 7-Year Asset Class Forecasts - October 2012

GMO has released its monthly 7-year Asset Class Forecasts and since many markets have been pretty stable all year, the story remains more or less the same:

  • US Large caps: 0.3% per year
  • US Small caps: -0.2% per year
  • US High Quality: 4.8% per year
  • International Large caps: 4.8% per year
  • International Small caps: 4.2% per year
  • Emerging Markets: 6.3% per year
Avoid US stocks, except high quality, and emerging market stocks should offer the best returns. Obviously, all emerging markets are not created equal. The Chinese stock market which is very depressed is likely to return more than the Thai and Indonesian stock market for example, which seem really resilient at the moment with relatively high valuations.Most bonds, excluding Emerging debt, are still a terrible investment for the next few years according to GMO methology.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

Jeremy Grantham's Quarterly Newsletter November 2012 Summary

Jeremy Grantham, GMO, has just released GMO Quarterly Newsletter which includes 2 parts:

  • On the Road to Zero Growth by Jeremy Grantham (16 pages)
  • "Help, Help, I’m Being Repressed!" by Ben Inker (3 pages)
The first section Jeremy Grantham explains that GDP growth in excess of 3% a year for the US is a thing of the past, and going forward growth is likely to be within 0.9%  a year. Even this estimate is optimistic as resources price increases are not taken into account, and those could eventually lead us to growth very close to 0%.

Here are the key points brought forward by Jeremy Grantham:
  • The U.S. GDP growth rate that we have become accustomed to for over a hundred years – in excess of 3% a year – is not just hiding behind temporary setbacks. It is gone forever.
  • Going forward, GDP growth (conventionally measured) for the U.S. is likely to be about only 1.4% a year, and adjusted growth about 0.9%.
  • Population growth that peaked in the U.S. at over 1.5% a year in the 1970s will bob along at less than 0.5%.
  • Productivity in manufacturing has been high and is expected to stay high, but manufacturing is now only 9% of the U.S. economy, down from 24% in 1900 and 15% in 1990. It is on its way to only 5% by 2040 or so. But growth in service productivity in contrast is low and declining. Total productivity is calculated to be just 1.3% through 2030, if we use current accounting methods.
  • Current accounting cannot accurately handle rising resource costs. Spending $150-$200 a barrel in offshore Brazil in the future to deliver the same barrel of oil that cost the Saudis $10 will result perversely in a huge increase in (Brazilian) GDP. In reality, rising resource costs should be counted as a squeeze on the balance of the economy, as they lower our total utility.
  • Measuring the non-resource balance of the economy produces the correct effect. The share of resource costs rose by an astonishing 4% of total GDP between 2002 and today. It thus reduced the growth of the non-resource part of GDP by fully 0.4% a year.
  • Resource costs have been rising, conservatively, at 7% a year since 2000. If this is maintained in a world growing at under 4% and a developed world at under 1.5% it is easy to see how the squeeze will intensify.
  • The price rise might even accelerate as cheap resources diminish. If resources increase their costs at 9% a year, it would take just 11 years before the economic system would be in reverse in the US! If, on the other hand, our resource productivity increases, or demand slows, cost increases may decelerate to 5% a year, giving us 31 years to get our act together.
  • Increasing climate damage, reflected mainly in food prices and flood damage, is going to increase. With  any luck this will not be severe before 2030 but it is very likely to accelerate  between 2030 and 2050.
  • U.S. real growth, according to GMO forecast, is 0.9% a year through 2030, decreasing to 0.4% from 2030 to 2050.
  • GDP measures must be improved so that they begin to measure output of real usefulness or utility. The  current mish-mash of costs and of “goods” and “bads” produces poor and even damaging incentives. 
  • Investors should be wary of a Fed whose policy is premised on the idea that 3% growth for the U.S. is normal.  Remember, it is led by a guy who couldn’t see a 1-in-1200-year housing bubble! Keeping rates down until productivity surges above its last 30-year average or until American fertility rates leap upwards could be a  very long wait! 
In the second part, Ben Inker talks about the Federal Reserve monetary policy, and even though QE managed to increase assets value, it did not really succeed in creating a wealth effect. The only one who benefited are households owning a house and carrying mortgage debt. as they could refinance their debt.  However, the other side is the coin, is that banks (such as Fannie and Freddie) have to pay the bill, and since those are owned by the government (i.e. taxpayers), as a whole there is no wealth effect. Due to low interest rates. this policy actually hurts prudent investors.

Friday, November 16, 2012

5 New "Jim Rogers" Commodities ETNs: RGRC, RGRA, RGRE, RGRP and RGRI

This week, Royal Bank of Scotland (RBS) has added five new ETNs to its offering, giving exposure to commodity indexes created by Jim Rogers:
  • RBS Rogers Enhanced Commodity ETN (RGRC)
  • RBS Rogers Enhanced Agriculture ETN (RGRA)
  • RBS Rogers Enhanced Energy ETN (RGRE)
  • RBS Rogers Enhanced Precious Metals ETN (RGRP)
  • RBS Rogers Enhanced Industrial Metals ETN (RGRI)
RGRA is the ETN equivalent to RJA ETF, RGRC is the equivalent of RJI ETF and RGRE is equivalent to RJN. ETN and ETF are structured differently, but I assume the 3 new products I've just mentionned should provide similar returns to the existing ETF, unless there are important ost differences between managing those 2 different types of financial products.

The real novelty is with RBS Rogers Enhanced Precious Metals ETN and RBS Rogers Enhanced Industrial Metals ETN, which as far as I know do not have equivalent ETF products.

Thursday, November 15, 2012

GEAB 69: Katrina-Sandy : From one Storm to the Other, the End of America as we Knew it

Here are the highlights of GEAB 69 (Novenber 2012) entitled "Katrina-Sandy : From one Storm to the Other, the End of America as we Knew it":
  • Katrina-Sandy : From one Storm to the Other, the End of America as we Knew it - The LEAP team has a controversial view that says Sandy, a small storm that has put New York to its knees, has shown that America has greatly weakened, and that it's the country we once knew anymore. In this section they also address the political division of the US and its dire financial & economic situation.
  • 2013, the king is naked: The great geopolitical dislocation of America. - The US economy is slowly but surely weakening, and 2013 will be the year of the real crisis where the "dollar wall" will collapse.
  • China 2013 : The global riot laboratory - A view of riots in China, and their consequences.
  • A Canadian Tragedy – The Slump of its Real Estate Market - Contrary to the view of Canadian banks who see a market stabilization, LEAP believe the recent slumps in Toronto and Vancouver announced the popping of the Canadian real estate bubble.
  • Strategic and operational recommendations. Currencies may remain irrational for a little longer, it's not to late to escape from the stock market, get physical Gold and do not play short term trades, energy commodities are better for the long term, but may suffer in the short term, and it's really not a good time to invest in Canadian real estate..
  • The GlobalEurometre - Results & Analyses. Only 65% of respondents expect the dollar to go down, which is the lowest figure since the survey started.
The full GEAB 69 report (PDF format) is available to LEAP 2020 subscribers for 200 Euros per year for 10 new issues + the 6 issues published before registration.

Thursday, November 8, 2012

Ron Paul: The US is Broke and Already Over Fiscal Cliff

Ron Paul is interviewed on Bloomberg about the US presidential elections.

He explains that the US is broke, it already passed the fiscal cliff, and we reached a point of no return. I completely agree with this statement, and this has nothing to do with politics, it's just Maths, which most voters in the US and other "developed" economics do not seem very good at. That's actually frightening that only 1% of US voters seem to get it.

He carries on to say the problem is with the people, who just want more bailouts (and that's true both for poor, the middle class and the richest 1% of the US population). He gave the auto industry bailout as an example, and said the people in the Midwest did not vote for Mitt Romney because he had opposed the government bailout of General Motors and Chrysler. In that respect, the US is just the same as Greece as people do not wan  to cut anything, yet Greece is criticized and laughed at in the US.

Wednesday, October 31, 2012

Marc Faber November 2012 Market Commentary

Marc Faber has just released the November 2012 market commentary on the gloomboomdoom.com website.

This month report is entitled "No Rational Thought will have a Rational Effect on a Man who has no Rational Attitude" where he explains it is about time that the so called “new-Keynesians” or “neo-Keynesian” (aka Voodoo economists :)) should consider that current interventions with expansionary fiscal and monetary policies have led to the current economic crisis. He also discuss a view shared by Robert Gordon, an economist at Northwestern University, who believes that the poor US productivity performance since the 1970s is a harbinger of things to come, and that “the rapid progress made over the past 250 years could well be a unique episode in human history rather than a guarantee of endless future advance at the same rate.”

Marc Faber is now negative about most asset classes, and believes equities could easily decline by 20% or even more from their recent highs, and expects better buying opportunities to emerge sometime in 2013, although a post election rally could always take place.However, he very much doubts US equities will make new highs the next twelve months or so.

There are two attachments to this monthly market commentary (MMC):
  • "US CEO Confidence Stuck in a Rut" by Alan Zafran, a partner at Luminous Capital.
    This attachment is available on CNBC website, and discusses the lack of enthusiasm of 1,000 CEO who have been surveyed recently.
  • "Albert Einstein was right" - Some photos which clearly show that Mr. Gordon has a point.
If you want to receive the Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year

Thursday, August 16, 2012

Marc Faber: 2013 Will be a Difficult Year for Equities

Marc Faber is interviewed on CNBC Fast money about his market outlook. He explains stocks (and gold) have traded in a narrow range in the last few days, and he expects a breakout, most probably on the downside, but he does not rule out new highs... If the market goes down around 150 points, he expects the Fed to start QE3, 4, and the market could rebound, but he still think we have probably seen the high 
for the year. He concludes by saying 2013 will be a difficult year for stocks. 

Tuesday, August 14, 2012

GMO 7-Year Asset Class Forecasts - July 2012

GMO has released its monthly 7-year Asset Class Forecasts and the expected annualized returns are basically the same as last month for equities:

  • US Large caps: 0.2% per year
  • US Small caps: -0.4% per year
  • US High Quality: 4.5% per year
  • International Large caps: 5.0% per year
  • International Small caps: 5.2% per year
  • Emerging Markets: 6.2% per year
The US market still sucks ( except High quality stocks), and the rest of the world should do OK.

Bonds expected returns are getting worse and worse by the months, as the bond bubble still inflates.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

Thursday, August 2, 2012

Marc Faber August 2012 Market Commentary

Marc Faber has just published the August 2012 market commentary on the gloomboomdoom.com website.

This month report is entitled "False Knowledge; it is more Dangerous than Ignorance." where he discusses the debate between the China “bulls” and the China “bears” with the China bulls accusing the China bears of ignorance. But a close analysis of the Chinese economy reveals a meaningful economic slowdown, which is likely to have a negative impact on growth in the region since most Asian countries have larger exports to China than to Europe or the US. Markets have become complex. Few stocks are still breaking out on the upside and a large number of stocks are breaking down. Caution is advised.

There are two attachments to this monthly market commentary (MMC):
  • "Market update July 2012" by Brett Heath of KSIR Capital 
  • A report about Oslo Bors a deep value stock, by Dov Plitman and Boris Zhilin at Armor Capital.
If you want to receive the Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year

Wednesday, August 1, 2012

Jeremy Grantham's Quarterly Newsletter July 2012 Summary

Jeremy Grantham, GMO, has just released GMO Quarterly Newsletter. This time there are 2 sections:

  • "Welcome to Dystopia! Entering a long-term and politically dangerous food crisis" by Jeremy Grantham (17 pages)
  •  When Bad Things Happen to Cheap Assets by Ben Inker (4 pages)
The first part is basically an update of last year April newsletter entitled. "Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever" where he discusses constraints on resources and particularly food, water and energy, and the lack of awareness by the media and authorities saving some military establishments.

Here are the key points brought forward by Jeremy Grantham:
  1. Last year, GMO reported than we are 10 years into a paradigm shift or phase change from falling resource prices into quite rapidly rising real prices.
  2. It now appears that we are also about five years into a chronic global food crisis that is unlikely to fade for many decades, at least until the global population has considerably declined from its likely peak of over nine billion in 2050.
  3. The general assumption is that we need to increase food production by 60% to 100% by 2050 to feed at least a modest sufficiency of calories to all 9 billion+ people plus to deliver much more meat to the rapidly increasing middle classes of the developing world.
  4. It is also widely assumed that at least the lower end of this target will be achieved. Grantham believes that this is substantially optimistic. At very best, if we reach that level we will not be able to hold it. Much more likely, we will not come close because there are too many factors that will make growth in food output increasingly difficult where it used to be easy:
    • Grain productivity has fallen decade by decade since 1970 from 3.5% to 1.5%. Quite probably, the most efficient grain producers are approaching a “glass ceiling” where further increases in productivity per acre approach zero at the grain species’ limit (just as race horses do not run materially faster now than in the 1920s). Remarkably, investment in agricultural research has steadily fallen globally, as a percent of GDP.
    • Water problems will increase to a point where gains from increased irrigation will be offset by the loss of underground water and the salination of the soil.
    • Persistent bad farming practices perpetuate land degradation, which will continue to undermine our long term sustainable productive capacity.
    • Incremental returns from increasing fertilizer use will steadily decline on the margin for fertilizer use has increased five-fold in the last 50 years and the easy pickings are behind us.
    • There will be increased weather instability, notably floods and droughts, but also steadily increasing heat. The last three years of global weather were so bad that to draw three such years randomly would have been a remote possibility. The climate is changing.
    • The costs of fertilizer and fuel will rise rapidly.
  5. Even if we could produce enough food globally to feed everyone satisfactorily, the continued steady rise in the cost of inputs will mean increasing numbers will not be able to afford the food we produce. This is a key point that is often missed.
  6. On the positive side, scientists are now very optimistic that they will be able to engineer more efficient photosynthesizing “C4” genes (corn belongs to that family) into relatively inefficient but vital “C3” plants such as rice and wheat, in 20 to 30 years. If successful this would increase output up to 50% and would buy time for a less painful transition to a sustainable population.
  7. Many of these increasing difficulties were reflected in the original 2008 food crisis and the 2011 rebound. The last six weeks’ price rise is more threatening because it occurred despite very much larger plantings than were available in 2008. Global demand is now so high and rising so fast and reserves are so low that price sensitivity to weather setbacks has become extreme.
  8. It seems likely that several countries dependent on foreign grain imports have in fact never recovered from the 2008 shock. Countries like Egypt saw the percent of their consumer budget for food rise to 40%. At this level, social pressures may be at an extreme and probably have already contributed to the Arab Spring.Any price increases from here may cause social collapse and a wave of immigration on a scale never before experienced in peacetime. Another doubling in grain prices would be catastrophic.
  9. Strong countermeasures to prevent a food crisis would be effective in curtailing the current crisis and preventing the development of a much greater crisis, but these measures will likely not be taken. This is because the price signals for the rich countries are too weak – they can afford the higher price – and there is inertia in all parts of the system. Also, the problems of malnutrition in distant countries are not generally felt as high-order priorities in the richer countries.
  10. If food pressures recur and are reinforced by fuel price increases, the risks of social collapse and global instability increase to a point where they probably become the major source of international confrontations. China is particularly concerned (even slightly desperate) about resource scarcity, especially food.
  11. The general public, the media, the financial markets, and governments badly underestimate these risks. Only the military of some countries, including the U.S. and the U.K., seem to appreciate them appropriately.
  12. Natural gas supply increases buy some time, mainly for the U.S., but seem more likely to create complacency and continued dependence on hydrocarbons. The energy situation is less pressing globally in the short term than is the food problem. Supplies are sufficient to cause merely a slow and erratic price increase. The main problem with oil is in its contribution to the food problem through higher farming costs and generally increasing cost pressures on poorer countries.
  13. In the longer term, in contrast, energy costs and absolute shortage in the case of oil form a serious problem second only to food shortages and will result in prices so high that they will impact global growth and even the viability of modern, rather fragile, economies.
  14. On paper, though, the energy problem can be relatively easily addressed through very large investments in renewable and smart grids. Those countries that do this will, in several decades, eventually emerge with large advantages in lower marginal costs and in energy security. Most countries including the U.S. will not muster the political will to overcome inertia, wishful thinking, and the enormous political power of the energy interests to embark on these expensive programs. They risk being left behind in competiveness.
  15. Availability of metals is, in contrast, a minor problem in the next few decades. The prices will steadily rise but the consequences will be less. In the long run though, metals are the most intractable problem. There is no brain-intensive solution as there is for agriculture (i.e., organic farming), nor is there any capital-intensive or technology-intensive solution as there is for energy. We will just slowly run out and prices will rise.
  16. The results of these problems will be felt mainly as price pressure in rich countries. The need to obtain adequate resources will squeeze national budgets, profit margins, and economic growth. For poor countries, though, it is literally a matter of survival.
  17. We are badly designed to deal with this problem: regrettably we are not the efficient species of investment theory, but ill-informed, manipulated, full of inertia, and corruptible. Only once in a blue moon – like World War II – do we perform anywhere near our theoretical capabilities and this time the enemy is amorphous and delivers its attack very, very slowly. But the stakes globally are very high indeed. We must try harder.
  18. The following comments on this topic are Jeremy Grantham's personal comments and reflect his Foundation’s portfolio. These comments are based on a time horizon of 10 years and beyond. The portfolio investment implications are that investors should expect resource stocks – those with resources in the ground – to outperform over the next several decades as real prices of the resources rise. Farming and forestry, though, are at the top of the list. Serious long-term investors should have a very substantial overweighting in a resource package. He suggests for long-term investors a resource position of at least 30%. Another relative beneficiary of resource pressure is the quality group of equities. Resources are a smaller fraction of final sales than average and higher profit margins make them more resilient to margin pressures.
  19. Perhaps more importantly, the resource squeeze, coupled with other growth-reducing factors (to be discussed next quarter), is likely to reduce the return from the balance of the portfolio.

The second part, Bne Inker explains that bad things can also happen to cheap assets, and as expensive assets usually return to fair value, it is possible that the new value if indeed a permanent adjustment, as in the case of banks in 2008, and possibly Eurozone equities which are now 15% below fair value according to GMO methodology. GMO has increased Eurozone equities allocation (and become overweight), and Ben discusses the potential capital impairments or gains ahead.

Thursday, July 26, 2012

Marc Faber - Coming Next: Global Crash and U.S. Treasury Bubble Popping

Marc Faber is interviewed on Capital Account (Russia Today) by Lauren Lyster, where the talks about his views on US treasuries and capital markets, the Chinese economy and the consequences of a Chinese slowdown.

First, he explains that since 1981 were the yield was above 15%, US treasury have been in a bull market and is in bubble territory. But as with the Nasdaq in 1999, a bubble can continue inflation, and some friends of Marc Faber think 10 years trasuries will eventually yield less than 1%, and 30 years less than 2%. But his own view is that if yields increase again in markets such as the US and Japan, money will flow into equities, so he's not really worried if stock markets go down, even though he does not rule out a crash.

When asked about China, he basically says that Chinese government numbers are bogus, and when you look at Taiwan and South Korea, you'll find their exports to China are flat, and electricity consumption in China also show a weak picture of the Chinese economy.

Finally, he gives his outlook on what is happening now, and explains there is clearly a recession in Europe, the US is slowing down, but a China slowdown would be more important to the global economy, because it would have a strong impact on emerging economies. Currently Asia is certainly not in recession, but there is basically no growth.

Marc Faber appears in the first 10 minutes below, and the second part is about Libor with a zero hedge contributor.

Monday, July 23, 2012

Rick Rule Sprott - Most Junior Gold Mining Stocks are Worthless

VisionVictory has a very interesting interview with Rick Rule of Sprott USA, where he discuses his outlook on gold and gold stocks, water, the stock market as a whole, the economy (US debt) and finally junior gold mining stocks.

This is that last part that is very important to investors. He explains that If you put together the 400 junior gold mining companies, in a good year they would lose 2 billion dollars, in a bad year 8 billions dollars. So he sees no value in this market, unless you are a very good stock picker as the top 10-15% will thrive, whereas 80% will go to their intrinsic value: 0. Rick expects this market (where you can be invested in via ETF such as GDXJ) will stay in a consolidation phase for around 18 months more, while the weaker players (the majority) go bankrupt.

FYI, Marc Faber has the same view on  junior gold mining stocks.

Watch the whole video, it's very informative.

Saturday, July 21, 2012

Long Term Charts of the Thai Stock Market (SET) - July 2012 Update

This article is the bi-annual update of the long term charts of the SET Index, price earning ratio and price to book value posted on CNX Translation Forum.

Here we go again with our bi-annual update for the long term charts of the Thai stock market.

The chart below is the SET index between 1975 and July 2012. To my surprise, the Thai stock market has gone up sharply in the last 6 months, despite the European crisis and the slowdown in China and globally.

The PER has gone back up to around 15, mainly due to the stock market improvement, but also because of lower earnings. This metric make me bearish again, because when the Thai stock market has a PER above 15, it is usually not a good time to invest.

The price to book value went up to 2 which does not make Thai stocks really overvalued, but not cheap either. For reference, in Europe, the P/B ratio is around 1 now.

To conclude, I believe the Thai stock market is relatively overvalued both historically, and compared to other stocks markets around the world. The dividend yield is now 3.63% which is slightly higher than what you can get in a fixed deposit (Bangkok Bank now offers up to 3.25 % p.a for a 36 months fixed deposit). I also believe a recession has already hit western economies which may worsen later this year or in 2013, and we'll see a hard-landing in China, both of these events should affect the Thai stock, and I would not be surprised if we could see a 30% correction in the Thai stock market within the next 2 years.

Tuesday, July 17, 2012

GMO 7-Year Asset Class Forecasts - June 2012

GMO has released its monthly 7-year Asset Class Forecasts and the expected annualized returns have not changed much since last month:

  • US Large caps: 0.4% per year
  • US Small caps: -0.6% per year
  • US High Quality: 4.5% per year
  • International Large caps: 5.3% per year
  • International Small caps: 5.6% per year
  • Emerging Markets: 6.4% per year
And bonds are still a terrible investment for the next very years according to GMO methology,  even worse than US stocks.

You can receive GMO's forecasts (monthly) and the quarterly newsletter for free by registering at http://www.gmo.com

Marc Faber: China is Weak, Don't Short Commodities and Buy Europe

Marc faber is interviewed on CNBC on the 15th of July to discuss the (fake) Chinese GDP number and his outlook on commodities and stocks

His view is that China economy is much weaker than  expected, and there should be some stimulus. He would not short Copper, because it can be easily manipulated, and rally in commodities could be in the making.

He sees good investment opportunities in Europe in countries such as Spain, Portugal and France.

Monday, July 9, 2012

Time to Buy Commodities Again?

Commodities have gone down by nearly 30% (CRB Index) since Q2 2011. If you are a believer that money printing by central banks will eventually increase commodity prices despite the poor economy, it may be a good time to buy again.

Let's have a look at the CRB index chart (Source: stooq.com) since 1994 and draw a trend line.

This is a "dumb" method to time your investments, but it can be terribly efficient. Since the start of the bull market in 1998, the CRB index has rebounded 3 times on this trend line, and we are now very close to hitting it again. We have about the same buy signal has we have on Gold and Silver. So it might be a really good time to increase exposure to commodities (or get back into commodities).  Although the bull market is getting old (14-year), many projects have been cancelled or delayed in 2008 which should give more legs to the bull market on top of money printing by central banks.

For individual investors, the easiest way to get exposure is to buy commodities ETFs such as RJI, or funds composed of commodity stocks such as Carmignac Portf Commodities A. As usual check the chart of the ETF or mutual fund against the index tracked over at least 2 or 3 years to make sure you are not scammed into paying high fees and that the financial product you plan to buy suffer from excessive decay.

Thursday, July 5, 2012

Why You Shoud be Bullish on Crude Oil

With a recession now more and more likely, common sense should say to stay out of commodities, including crude oil, until the storm is over. However, in the case of commodities, the best time to buy is when there is a glut, and sell when there a price spike due to a shortage (which seems to have started with agricultural commodities recently).

Crude oil is no exception, and depending who you listen to, break even prices for new oil fields range between 70 to 90 dollar per barrel, which means that if the price goes below 70 dollars, companies will stop investing to add capacity and in the long run, prices will have to go lower. It's almost a no brainer.

Another long term advantage with crude oil is that global reserves are declining, and it looks like we may have reached conventional peak oil in 2005. At some point, new technologies such as oil shale and fracking, as well as a better use of natural gas, will eventually put a ceiling on how high crude oil price will be. In the meantime, it's probably wise to prudently buy crude oil between $70 and $90, and buy aggressively if it falls below $70. As long as you don't use leverage you should be just fine.

Jim Rogers has recently been interviewed on Oilprice.com, where I gave his outlook for crude oil.
Here are the key points:
  • Crude oil is in a correction, because of the economy, Saudi Arabia might try to help Obama get re-elected, and JP Morgan may have unauthorized positions they're having to liquidate.
  • $40 crude oil is possible, but that would just setting up crude oil for an even more bullish scenario for the duration of the bull market.
  • If natural gas stays this low compared to oil prices, it does give an incentive to develop natural gas powered vehicles.  Is it going to end the use of oil, combustion engines? Probably not any time soon. Someday it could, but someday is a long way away.
  • Iran and Iraq appears to get closer together which could eventually have an effect on the market
  • He does not know enough about shale gas to comment about it, but said it won't have a serious impact for years to come.
If crude oil is such a good long term investment opportunity, how do we invest into it?

First, unless you plan to trade for a few weeks or months, do not buy USO, it's a terrible long term invesmtent due to high cost and contango effect. You could invest in futures, but it's not for everyone. They best way could be to invest in companies such as TOTAL or BP for the next few years, but in the end due to declining reserves, and demand destruction, profits may fall even if prices go up. Instead of only buying crude oil, you may consider investing in an ETF tracking commodities index such as RJI. Since other commodities are also indirectly subject to the price of crude oil, RJI has about 40% crude oil exposure (WTI and Brent) and seems to suffer from less decay.

Saturday, June 30, 2012

Marc Faber July 2012 Market Commentary

Marc Faber has just released the July 2012 market commentary on the gloomboomdoom.com website.

This month report is entitled "We are most deeply asleep at the Switch when we believe to control all Switches" where he discusses investors overconfidence both on the long and short side, and the lack of diversification that may result due to this overconfidence.

He explains that investors should consider carefully that win/win transactions are far less common than win/lose transactions, and usually, either the buyer or the seller makes a big mistake. In order to be successful, you have to make sure that you do not make that big mistake.

There is just one attachment to this monthly market commentary (MMC):
  • “Money Illusion and Why the ‘Bond Bubble’ Must Burst.” by Michael A. Gayed,Chief Investment Strategist at Pension Partners, LLC
The report is no available publicly, but Gayed regularly contributes to Marc Faber MMC, and it's not the first time he talks about a "Bond Bubble". His investment outlook is that stocks are going to vastly outperform bonds, at least in real terms.

If you want to receive the Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year.

Wednesday, June 20, 2012

GMO 7-Year Asset Class Forecasts - May 2012

GMO has just released its monthly 7-year Asset Class Forecasts and the expected annualized returns  for international and emerging markets have greatly increased:
  • US Large caps: 0.8% per year
  • US Small caps: -0.5% per year
  • US High Quality: 4.8% per year
  • International Large caps: 6.1% per year
  • International Small caps: 5.3% per year
  • Emerging Markets: 6.7% per year
Emerging markets and internal large caps could even produce pretty decent returns. On the other hands, bonds are still a disaster with expected returns between -2.1% to 0.8% per annum.

One way to act on this forecast is to buy iShares MSCI BRIC Index (BKF).

You can receive GMO's monthly forecasts and the quarterly newsletter by registering at http://www.gmo.com (It's free !).

Tuesday, June 19, 2012

GEAB 66: Global Systemic Crisis Red Alert !

Here are the highlights of GEAB 66 (June 2012) entitled "Red Alert Global Systemic Crisis September-October 2012 : When the 7 Jericho trumpets will blow for the world of before the crisis":
  • Red Alert Global Systemic Crisis September-October 2012 : When the 7 Jericho trumpets will blow for the world of before the crisis. LEAP 2020 team has never seen so many economic, financial and political factors converge at the same time and this leads them to issue a Red Alert for Autumn 2012.They see 13 factors:
    1. Global recession.
    2. Insolvency of the financial system in the West.
    3. Increasing Weakness of bank assets such as sovereign debts, real estate and CDS.
    4. Slump of international trade.
    5. Geopolitical tensions, especially in the Middle East.
    6. Long term global geopolitical deadlock at the UN.
    7. Rapid collapse of funded pension plans in the Western economies.
    8. Increasing political rifts in major economies (USA, China, Russia).
    9. Lack of "miracle" solutions like in 2008/2009.
    10. Complete lack of credibility for countries battling with high private and public debts.
    11. Failure to reduce the unemployment rate and long term unemployment
    12. Failure of both monetary and financial stimulus policies and austerity policies.
    13. Complete lack of effectiveness of G20, G8, Rio+20, OMC... meetings
  • Three economic-financial chocs at the heart of the heart of the historical choc of September/October 2012. "Taxmargeddon" will start in the US this summer, the City-Wall Street will have their own Bankia moment and QE will be too weak to be effective.
  • Temporal converge of 4 major geopolitical crises for September/October 2012.  LEAP 2020 anticipate the Iran war will take place this year, along with continued conflicts in Syria, and the Afghanistan/Pakistan debacle. After the Arab Spring last year, they foresee the Arab Autumn.
  • Strategic and operational recommendations. Need to re-adjust currency holdings,  stay invested in Gold, last chance to get out before massive stock market crash and major risk for banks. 
  • GEAB $ Index June 2012 - First time since 2006 : The US dollar goes up against the currency basket €, ¥, Ұ et R$ .
  • The GlobalEurometre - Results & Analyses. The majority of respondents think that a European solution to the crisis is better than national solutions (96% this month vs 91% last month)
The full GEAB 66 report (PDF format) is available to LEAP 2020 subscribers for 200 Euros per year for 10 new issues + the 6 issues published before subscription.

Sunday, June 10, 2012

Barron's Midyear Roundup: Marc Faber Markets Outlook

Now is the time for Barron's Midyear Roundup. They had 10 experts on their panel including Marc Faber. Here are Marc Faber's picks.

Investment/Ticker Price 6/6/12
Gold (spot, per ounce)$1,619.30
Singapore REITS
Mapletree Comm Trust/MCTS$0.92
Frasers Centrepoint Trust/ FCT1.63
Mapletree Logistics Trust/MLT0.98
Ascott Residence Trust/ART1.06
Cache Logistics Trust/CACHE1.03
Parkway Life/PREIT1.81

and what he had to say:
Are things really as bad as they look?

FABER: The global economy has slowed considerably. Europe is in recession, and growth in U.S. GDP might owe more to statistical aberrations than reality. In Asia, the Chinese economy has been decelerating sharply, which impacts China's trading partners and industrial commodity prices. Lower demand for commodities hurts commodity producers, whether in Argentina, Brazil, Africa, or Russia.
Will things get worse before they get better?
Yes, possibly much worse. Central bankers will argue that more stimulus is needed. But the crisis has occurred in large part because governments have grown excessively large. The private sector produces growth. When government is 40%, 50%, 60% of the economy, the economy won't perform well. If you cut government spending meaningfully, you produce more growth, although this can be painful in the near term. Canada took this course in the mid-1990s. The outlook is grim for the federal deficit in the United States. Regardless of who wins the election, there will be compromises. But spending cuts will be back-end loaded and tax increases will be postponed. We won't see a federal deficit below a trillion dollars for a long time.

What will the stock market do for the rest of this year?
Most markets peaked in May 2011. The S&P 500 fell to 1,074 by Oct. 4 from 1,370. Then we had a strong rebound with the index making a new high at 1,422. This high wasn't confirmed by other indexes, such as the Value Line Index, the Russell 2000, and the Dow Jones Transportation index. The S&P 500 is vulnerable at this level. I anticipate further weakness in the second half of the year. Corporate profits will disappoint. Some 40% of S&P 500 earnings come from overseas, and a large proportion are generated in Europe.
There is no resolution to the problem in Europe because no one wants to accept austerity. The best outcome for Greece probably would be to exit the euro zone. But the new Greek drachma would depreciate by 50% to 70% against the euro. The Greeks don't want their pensions paid in a depreciating currency. Nor do they want austerity, as their pensions and government salaries would be cut by 50%.
How will the stalemate end?
The breaking point could be three, four, five years away. The world is heading toward a major crisis. In the meantime, central banks can continue to print money and markets might move up. Since 2009 stocks around the world have more or less doubled. But the economy hasn't performed well, and the typical household hasn't been helped. With quantitative easing, money flows into the hands of relatively few people. I am very negative about the outlook longer term.
It is safest to buy U.S. Treasuries because the U.S. can print money. It will pay the interest. But you are earning only 1.6%, and the cost of living is increasing by about 5% a year around the world. You are getting a negative real return.
So you're recommending equities, despite the poor backdrop?
I still like my January investment picks. As a group, Singapore REITS look OK. Among them I like Mapletree Commercial Trust [MCT.Singapore], Frasers Centrepoint Trust [FCT.Singapore], K-REIT Asia [KREIT.Singapore], Mapletree Logistics Trust [MLT.Singapore], Ascott Residence Trust [ART.Singapore], Cache Logistics Trust [CACHE.Singapore] and Parkway Life [PREIT.Singapore].
I am also warming to gold shares. Gold corrected to $1,522 last December from $1,921 in September. It rebounded to $1,795 in February and is back down around $1,600. The correction could last longer, but given that governments will print more money, gold is relatively effective as a currency. My preference is physical gold, but I would also own some gold shares, which have been decimated. Goldcorp [GG] is attractive because most of its properties are in the U.S., Canada, and Mexico. The company isn't exposed to regimes that are talking about nationalizing resources. In general, stock markets are oversold. The U.S. government-bond market is overbought. The U.S. dollar is overbought, and gold is oversold near term.

 Source: http://online.barrons.com/article/SB50001424053111904470204577446414018834948.html

Tuesday, June 5, 2012

Peter Schiff: Buying Treasuries is Like Buying Facebook

Peter Schiff is interviewed on Fox Business News on the 4th of June 2012.

He explains that the next recession (which is coming soon) will be worse than 2008. and the Federal Reserve will have to come up with QE 3 and eventually QE 4.
Interest rates are now too low, and they should be decide by the market instead of the FOMC.
He also compares current US Treasuries massive buys to the frenzy during Facebook IPO, and eventually bond investors will suffer, just as Facebook IPO investors have.

Friday, June 1, 2012

Jim Rogers on Gold, the Dollar, Agriculture, the US economy, 2013 Outlook and Government Statistics

Jim Rogers is interviewed by NewsMax on the 1st of June 2012.

First, he explains his views on the Eurozone crisis (particularly Spain and Greece) and the dollar: a terribly flawed currency, and certainly not a safe haven. Yet he owns the US dollar, because investors still perceive it as a safe haven.

Then he explains why he won't sell his Gold, and on the contrary expects to buy more, much more if it goes down further.

Switching to a typical subject for Jim Rogers: Agriculture. He explains that the agriculture sector will be the place to be in the decades ahead, especially as we run out of farmers.

He gives his outlook for 2013 and it's not pretty. This year should be OK, but a recession will strike hard in 2013 or in 2014 latest. Since the debt is so staggeringly high now, the next crisis will be worse, and recommend the hosts that if they are not worried about 2013, please — get worried.

Jim Rogers explains government statistics such as unemployment and inflation are massaged to look better. The US government is likely to abuse statistics at least until the presidential elections in November.

Finally, he sees the US Economic situation as being  very, very dire because at the beginning of next year, tax cuts are set to expire while automatic spending cuts,  are set to kick in at the same time, a combination dubbed by Wall Street as a “fiscal cliff.” And he says neither Romney or Obama will be able to fix the economy and they don't understand what's going on in the world.

Marc Faber June 2012 Market Commentary

Marc Faber has just released his June 2012 market commentary on the gloomboomdoom.com website.

This month report is entitled "The Political Function of Inflation is to Mislead Public Opinion" and he talks about the distortions created by inflation. He explains that scholars had longer discovered the viciousness of monetary inflation long time ago quoting Nicholas Oresme (14th century):

Among the many disadvantages arising from alternation of the coinage which affects the whole community is....that the prince could thus draw to himself almost all the money of the community and unduly impoverish his subjects. And as some chronic sicknesses are more dangerous than others because they are less perceptible, so such an extraction is more dangerous the less obvious it is.

He carries on saying that we need to consider seriously Sheila Bair’s tongue-in-cheek proposal to fix income inequality with a $10 million loan for everyone, especially if we are to believe the Keynesians that the "economy desperately needs a short run fix" (Krugman).

The main issue is that Keynesian economic policies are directly responsible for the current global economic crisis, because they have led to excessive debts in most Western societies, which will remain for a long time and be a drag on growth.

There is only 1 attachments with this monthly market commentary (MMC):

  • "Natural Gas: A Contender for the Greatest Thematic Tailwind over the Next 20 Years" by Pedro Noronha, Noster Capital LLP
I could not find the report online, but this simply makes the case for investing in Natural over the long term. With peak oil, the limitations of coal both in terms of energy as well as political & environmental reasons, natural gas will become more and more prominent in the energy mix. Pedro Noronha is long on CHK.

If you want to access the full Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year.

PS: Last month he also issued a temporary (and short) report in the middle of the month. I don't have access to it, but this kind of "urgent" report is usually not a good thing...

Thursday, May 31, 2012

Eric Sprott: The Real Banking Crisis is Back

Sprott Asset Management published their monthly newsletter Market at Glance (May 2012) entitled "The Real Banking Crisis, Part II" and I'll give a summary below.

Back in July 2011,  Eric Sprott and David Baker wrote an article entitled "The Real Banking Crisis" where they discussed the increasing instability of the Eurozone banks suffering from depositor bank runs. Even after numerous bailouts, the Euro Stoxx Banks Index have fallen more than 50% from their July 2011 levels and are now in the midst of yet another breakdown led by the events unfolding in Greece and Spain.

They explain that bank runs have started in several countries

In Greece,  1.2 billion Euros withdrawn have been withdrawn on May 14-15, 2012 and now up to 3 billions euros have left the banking systems since the May 6 elections. Greece is now €21 billion away from a complete banking collapse, unless the European Central Bank (ECB) provide an even bigger bailout.

Bank depositors have been pulling money out of banks in Spain, especially the recently nationalized Bankia bank, which is the fourth largest bank in the country. Depositors reportedly withdrew €1 billion during the week of May 7th alone, prompting shares of Bankia to fall 29% in one day.

Deny, deny some more… panic, inject capital - this is the typical government approach to bank runs, but the bailouts are happening faster now, and the numbers are getting larger.

The recent bank runs in Greece and Spain make foreign investors nervous and according to JPMorgan analysts, approximately €200 billion of Italian government bonds and €80 billion of Spanish bonds have been sold by foreign investors over the past 9 months, representing more than 10% of each market.

Eric Sprott explains further that no matter what happens in the Eurozone, the absolute worst case scenario for the authorities is a bank run, because they can spiral out of control faster than governments can react to stop them. Bank runs also prompt banks to liquidate whatever assets they can, revealing the truth about what their "assets" are actually worth. But banks don't want to show the true value of their assets so for example, many Spanish banks are avoiding property sales so they don't have to "mark to market" valuations.

We're now at the point where a bank run in one Eurozone country could quickly seize up the entire system - not just in Greece or Spain, but throughout the entire Eurozone and beyond, because banks are leveraged. For this reason, we'll likely see another ECB-induced printing program announced (with a new fancy name) before a broader bank run can take root.

However, nothing is really being solved here, everyone knows it, and we're essentially in the same place we were when the crisis erupted back in 2010, except there is now more total debt outstanding.

With increasing level of debt and interest payment, there is no way the bond market keeps pretending everything is ok in Europe, like it currently does with the UK, US and Japan… for now. Greece and Spain Minsky moment (when you realize the debt load can't be repaid) has arrived and is coming to the whole of Europe.

Eric Sprott then says that without a doubt, the most counter-intuitive aspect of the Greece/Eurozone debacle has been its impact on the price of Gold. The selling pressure in Gold once again appears to be expressed primarily through the futures markets (and not physical sales), which are highly levered and rarely involve any physical transactions involving actual bullion. The futures market sell-off also appears to be waning now, since the European banking crisis has provided central banks with a politically-palatable excuse to take action if it deteriorates any further. He further notes that China posted another record Hong Kong gold import number in March of 62.9 tonnes, for a total of 135.5 metric tonnes between in Q1 2012, representing a 600% increase over the same period last year.

The full version of the newsletters is available at http://sprott.com/markets-at-a-glance/the-real-banking-crisis,-part-ii/

Monday, May 28, 2012

Marc Faber: Global Recession in Q4/2012 Q1/2013

Marc Faber is interviewed on CNBC on the 25th of May 2012.

He explains that the best solution would be for a Greek exit, but what's likely to happen is a softening of the German position and the start of Euro-bonds which would be negative for the Euro. However, currently the Euro and the stock markets are oversold and we should anticipate a counter trend rally.

He also mentioned that as everybody focuses on Europe, the real threat to the economy could be the slowdown in India and China.

Some analysts estimate that a Greek exit could lead to a 50% correction in European stocks, but Marc Faber disagrees and views this as a good outcome likely to be positive for stocks.

He then goes into technical analysis and explains that many stocks are breaking and we should except a significant recession, so significant that he's 100% sure there will be a global recession by Q4 2012/Q1 2014 and recommends to hide in US dollars.

Tuesday, May 15, 2012

GMO 7-Year Asset Class Forecasts - April 2012

GMO has just released its monthly 7-year Asset Class Forecasts and the expected annualized returns  have not changed much since last month:
  • US Large caps: -0.2% per year
  • US Small caps: -1.7% per year
  • US High Quality: 3.9% per year
  • International Large caps: 4.6% per year
  • International Small caps: 3.4% per year
  • Emerging Markets: 5.2% per year
US stocks should still be avoided as investments, and bonds anywhere in the world will be a disaster. If the stock markets continue their slump this month, the expected 7-year return should go up in GMO May forecast.

The ways to invested based on these expected returns with ETF are the same as last month.

You can receive GMO's monthly forecasts and the quarterly newsletter by registering at http://www.gmo.com (that's free).

GEAB 65: Global Systemic Crisis / H2 2012 – Convergence of 4 Explosive Factors: Banks-Stock Markets-Pensions-Debts

Here are the highlights of GEAB 65 (May 2012) entitled "Global Systemic Crisis / H2 2012 – Convergence of 4 Explosive Factors: Banks-Stock Markets-Pensions-Debts":

  • Global Systemic Crisis:Convergence of 4 Explosive Factors: Banks-Stock Markets-Pensions-Debts - Basically the SHTF for Western economies in the second semester of 2012 with bank failure, stock market crashes, pension funds and debt crisis.
  • Which languages should your child learn so that they are useful to him in 20 years? Forecast of the main languages used within Europe and in the World by 2030.
  • Strategic and operational recommendations. Gold will prevail in the long run, preservation of capital for retirees, time to exit the stock markets before complete chaos, don't blindly trust the banks and don't be trapped in sovereign bonds.
  • The GlobalEurometre - Results & Analyses. The majority of respondents think that large banks in their country may go bankrupt by the end of 2012 increases to 66% this month against 61% last month.
The full GEAB 65 report (PDF format) is available to LEAP 2020 subscribers for 200 Euros per year for 10 new issues + the 6 issues published before registration.

Thursday, May 10, 2012

Marc Faber: If the Market Makes New Highs, It Will Crash Like It's 1987

Marc Faber is interviewed on Bloomberg on the 10th of May 2012.

When asked if Greece will leave the Eurozone, he answered that it would be much better for Greece and the entire Europe, going even further Spain, Italy or even France should leave the Euro. European countries should all go back to their local currencies and trade internationally with the Euro. If you keeping bailout them out, it just compounds the problem. The public has just been brainwashed into thinking that there would be an economic catastrophe would the Eurozone break up, although it could just be th solution to the European crisis. He then comes hard on European bureaucrat saying they make the government in the U.S. look like an organization consisting of geniuses. The problem in European is too much debt and lack of fiscal discipline.

He has a bearish view on the economy, but investments in Europe might still go up if this print enough money. Speculators should look at high quality stock in Spain, Portugal and Italy, as the market is oversold.

There has been a minor correction in the US, but it could become more serious. A new high has been made in April (S&P at 1422), but technicals look bad and he does not see the S&P 500 making new high unless there is a HUGE QE 3. But if QE 3 occurs, and the markets make new highs, you can expect a massive crash like in 1987.

Jim Rogers: Not a Good Time to Buy Stock, Might Sell Euros

American investor Jim Rogers in Madrid (Spain)...
Jim Rogers is interviewed by Henry Blodget on Business Insider on the 9th of May 2012.

Some people think it's the best time to buy stock in 50 years, but Jim Rogers disagrees. He does not own stock in the US, and heven have some shorts, and does not see how the US stock market could double within a few years as Dr. Jeremy Siegel claims, because the economy is in bad shape and will remain so for some time.

Henry Blodget then asks him if housing has bottomed, and here Jim Rogers agrees that real estate may have bottomed in some markets, and there may be good opportunities especially in the country side, but other places like Massachusetts have probably to go further down.

Switching to currencies... Although he's very pessimistic over the long term, he owns the US dollar, and might sell his Euro holdings because albeit Europeans have implemented austerities measures, they haven't managed to reduce their debt.

As previously stated, he expects Gold to correct further as it has gone up for 11 years in a row, but he will certainly buy if it goes down, and claims the Gold bull run is far from over and will probably end in a bubble, a Gold mania.

Finally, his views on crude oil haven't changed, the surprise is going to be how high it goes as reserves are going down, although a temporary correct could occur in case of serious crisis (e.g. Spain defaults on its debt).

Wednesday, May 2, 2012

Jim Rogers: The Next Recession (2013,2014) Will Be Much Worse

Jim rogers is interviewed on Business Insider by Henry Blodget on May 2, 2012.

He explains that because of the increase in debt, the next economic downturn will be much worse. We had a recession in 2002, then 2008 and the next one cannot be far away and should probably  occur in 2013 or 2014.

There is a lot of good news currently because we are in an election year and the government and the federal reserve are spending a lot of money, and the government statistics are massaged to make the economy look better than it really is. But in reality, the situation is getting worse, because the debt is getting much much worse.

Most people agree that the US is in relative decline against the rest of the world, but Jim Rogers also thinks the US in absolute decline as it is the larger debtor nation in history, and the country is over extended militarily over the world.

He concludes on a positive note by saying he's very bullish on agriculture in the US, and farm land is nowhere near a bubble yet.

Monday, April 30, 2012

Marc Faber May 2012 Market Commentary

Marc Faber has just released his May 2012 market commentary on the gloomboomdoom.com website.

This month report is entitled "Economics is the Sum of all our Choices". In this report, he refers to Alfred Marshall, one of the greatest economists that ever lived, who wrote in “Principles of Economics” that, “economics is a study of mankind in the ordinary business of life” and that, “the laws of economics are to be compared to the laws of the tides, rather than with the simple and exact law of gravitation. For the actions of men are so various and uncertain, that the best statement of tendencies, which we can make in a science of human conduct, must needs be inexact and faulty.” Mar Faber then explains that the same principles can be said about the movement of asset markets. Any forecast is therefore going to be inexact and faulty. 

There are 3 attachments with this monthly market commentary (MMC)
  • A report by Geoffrey Batt,  Managing Member at the Euphrates Iraq Fund Ltd.
  • "Another tsunami of cash is hitting Dubai, get invested!" by Peter Cooper at Arabianmoney.net
  • A newsletter by the Child’s Dream Foundation, a charitable, not-for-profit organisation dedicated to empowering marginalized children and youth in the Mekong Sub-Region, which includes Myanmar, Laos, Thailand and Cambodia.
If you want to access the full Monthly Market Commentary (MMC) by Marc Faber, it is available for 300 USD per year. Sometimes, Summaries or highlights are available on the web, I'll repost it here if one becomes available.

Marc Faber on Money Printing, Asset Allocation, Crude Oil and More

Here's a 2 part interview of Marc Faber by Future Money Trends uploaded on the 29th of April 2012.

In the first video, MArc Faber explains that money printing won't help the general population, but it will increase asset prices, so people who own assets will benefit. The other issue is that central banks can't control where the money go and as a consequence the unemployment rate has not improved much ion the US and in Europe, but people living in emerging economies have benefited.

When asked about equities, he said that also equities are not a good bargain right now, and we may have the high for the end on the S&P 500 at 1422, there is a big risk in not owning equities because of (you guessed it) money printing. He recommends to own some equities especially in Asia (dividends are good ~ 5 to 7%) possibly via ETFs, some precious metals, and for US residents, some real estate in the South of the US.

He concludes by explaining that eventually there will be a complete reset, a complete collapse because there is simply too much debt with bankrupt banks lending to bankrupt to governments and vice versa, and the Ponzi scheme will come to an end. In the second video, they discuss how the ponzi scheme could end. Marc thinks there could be significant price inflation, government may try to give more handouts to their citizen while increasing taxes on rich people, and eventually they'll go to war to put the blame on some other countries.

Then  they switch to discussing about crude oil. Marc Faber first explains that oil prices are volatile and much of it is due to government policy such as manipulating interest rates. When he looks at several aspect of the oil market (demand in the west flat, demand rising in emerging markets, supply constraint and geopolitical tensions in the middle east), he would rather be long on oil.

Marc then talks about  the declining standard of living of US citizen which has started some 30 to 40 years ago compared to the rest of the world and it will continue to fall.

Finally, he's asked what he would advice to young people in Western economies. It might not always be a good idea to borrow money to get a degree, but if your parents are rich enough to pay it, then go for it. He would then start to work for somebody successful in any industry and acquire knowledge. Obviously, you should choose something that you like. There are different kind of success, not only monetary, but a happy family, helping others may also be successes.

Friday, April 27, 2012

Eric Sprott: When (Gold) Fundamentals No Longer Apply, Review the Fundamentals

Sprott Asset Management published their monthly newsletter Market at Glance (April 2012) entitled "When Fundamentals No Longer Apply, Review the Fundamentals".

Eric Sprott and David Baker explain they still don't see a recovery:
  • US housing situation is still a bust with both existing and new home sales well below the highs reached in 2006.
  • Unemployment is still high, and despite all the news cheer-leading, the most recent numbers show week data. and the same is true for jobless claims numbers.
  • US tax receipts are only up 2% over a year (lower than inflation at 2.7%)
  • ECRI Weekly Leading Indicator (WLI) has started to trend down again in April
  • US Durable Goods Orders have dropped 4.2% in March, representing the largest decline since January 2009.
  • China's most recent Purchasing Managers Index (PMI) indicates that China's manufacturing activity has now been in contraction for six months in a row.
  • The situation in Europe continues to worsen: Spain is a complete disaster, Italy prospects do not look good either, and German PMI shows a decline in economic activity with the fastest rate of contraction since July 2009.
All those bad numbers guarantee that central banks will print money again, and the IMF most recently secured $430 billion worth of new "pledges" from various G20 member countries to increase its potential lending capacity to $700 billion in the event of further problems in the Eurozone. BRIC countries are irritated by these actions and their lack of voting power in this institution.

Possibly to counter this issue, BRICs have planned to start their own financial institution at the last BRIC summit and reports seem to indicate a BRICS central bank - an institution that could facilitate their ability to "do more business with each other in their local currencies, to help insulate from U.S. dollar fluctuations" might be created.

China has also been importing a lot of Gold via Hong Kong recently. In February, China imported 40 tons of Gold via Hong Kong, 13 times more compared to the same month last year and other emerging countries also follow suite, with 12 countries increasing their Gold reserves by more than 58 tons in March (that's 696 tons annualized). There is so much Gold bought by central banks, that Merk and Baker wonder where they'll find that Gold for delivery.

Eric Sprott concludes as follows:

We have written at length about the disconnect between the paper gold price and the physical gold market. If the demand changes stated above applied to any other market, the investing public would lose their minds. Could you imagine, for example, if the demand shifts described above were applied to the global oil market? What would happen if a single country came in from nowhere and increased its oil purchases by a factor equivalent to 30% of the world's annual oil supply? We are students first and foremost of the physical market, and the numbers stated above speak for themselves. We remain confident about gold for the simple reason that the demand we are now seeing for physical is completely unsustainable without higher prices, and we do not see that demand abating in the coming months. The US recovery is not happening. Europe is poised for yet another full-fledged economic crisis, and the BRICS countries continue to aggressively convert to hard assets like gold in order to protect themselves from currency debasement. The paper market for gold can continue its charade, but demand in the physical market will soon overpower it through sheer momentum - there's only so much physical to go around, and it appears that there are some very large buyers that are eager to take it.
The full version of the newsletter is available at  http://sprott.com/markets-at-a-glance/when-fundamentals-no-longer-apply,-review-the-fundamentals/

Monday, April 23, 2012

Anonymous Analytics Uncovers Huabao (0336.HK) Alleged Pump & Dump Scam

Last time around, Anonymous Analytics found that Chaoda Moderm (0682.HK) may have lied about their assets and since then, the company stock 0682.hk (listed in Hong Kong) has been suspended.

Today, they have released a new report on another stock listed in Hong Kong: Huabao International Holdings Ltd (0336.HK), a flavor & fragrance (F&F) and Tobacco company. They view the company as "a pump and dump scheme with the primary objective of enriching its Chairwoman, Chu Lam Yiu and her proxies at the expense of shareholders. Since the inception of Huabao, Ms. Chu has sold nearly US$1.2 billion in stock, bringing her ownership of the Company from 97.6% to 37.7%"

In the 44-page report, the research team reviewed Huabao’s backdoor listing, its history of related party transactions, massive insider selling, and suspiciously strong financial metrics.

They found the company has a much higher profit margin than peers (close to 75% vs 40 to 50 %) which is not an issue in itself, but may raise eyebrows. The disturbing part is that AA contacted their alleged customers and many claimed they did not do business with Huabao or even did not know the company.

One "funny" part (except for investors in the company) is the way they altered the picture of one of their facility in Africa to make it look much larger than it actually is.

And that's not the only place AA found where management has grossly exagerated the scale of their operations as the multi-billion US dollars R&D center in Germany with at most 12 staff.

The history of the company shows a fair amount of resignation of key manager as well as audit companies.

Their conclusion is that "management is materially overstating Huabao’s earning power. The genesis of this overstatement was the Chemactive acquisition dating back to 2007, when management reported a questionable explosion in gross margins."

There is much more in-depth analysis in the report which is available at http://anonanalytics.com/pdf/Huabao.pdf.

Investing in individual stock can be very risky, it is safer to either buy stocks in a (large) basket of companies if you have enough capital or more simply invest with ETF or mutual funds.

Friday, April 20, 2012

GMO 7-Year Asset Class Forecasts - March 2012

GMO has just released its quarterly 7-year Asset Class Forecasts and here are the expected annualized return (based on valuation and historical earning growth):

  • US Large caps: -0.3% per year
  • US Small caps: -2% per year
  • US High Quality: 3.7% per year
  • International Large caps: 3.9% per year
  • International Small caps: 3.4% per year
  • Emerging Markets: 5.4% per year
This last month expected returns have gone down for US stocks and International large caps and up slightly for international small caps and emerging markets, but the returns are still nothing to be excited about.

Different kinds of bonds are expected to return between -2.2% and 1.0% per year.
Managed Timber (stable as ever) is expected to return 6.5% 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 http://www.gmo.com

Wednesday, April 18, 2012

Jeremy Grantham's Quarterly Newsletter April 2012 Summary

Jeremy Grantham, GMO, has just released its Quarterly Newsletter entitled "My Sister’s Pension Assets and Agency Problems (The Tension between Protecting Your Job or Your Clients’ Money)".

In this newsletter, he focus on how career risk for people working in the investment business affects the markets. The first priority for professional investors is to keep their job, and for that reason they usually go with the flow to avoid being wrong on their own and be able to use the all convenient "nobody saw it coming".  Career risk (which I discovered thanks to Jeremy Grantham) is what made me realize that as an individual investor, you could beat the market over the long term, as long as you are disciplined and patient.

Here are the key points brought forward by Jeremy Grantham:
  • Career risk is a main cause of volatility: two-thirds of the time annual GDP growth and annual change in the fair value of the market is within plus or minus a tiny 1% of its long-term trend, whereas the market’s actual price is within plus or minus 19% two-thirds of the time.
  • Ignoring long term trends may be the correct response on the part of most market players, for ignoring the volatile up-and-down market moves and attempting to focus on the slower
    burning long-term reality is simply too dangerous in career terms.
  • The quote “The market can stay irrational longer than the investor can stay solvent.”  can be expressed as “The market can stay irrational longer than the client can stay patient.”  for investment companies. GMO found that clients patience time has been around 3 years on average in normal conditions.
  • 3 conditions must be met to bet against market irrationality:
    • Allow a “margin of safety” and wait for a real outlier before you make a big bet
    • Stay reasonably diversified
    • Never use leverage
He admits that his sister portfolio (managed by himself) did better than his clients' portfolio, mainly because he has only had to consider absolute return without the investment constraints some investors impose and felt absolutely no career risk.

GMO tries to find the right balance between short term client expectations and long term prospects, but this is challenging as it appears they lost 40% of their clients when they stayed out of the 1999/2000 stock market bubble. But as they were proven right as time passed by, the company  eventually "attracted a flood of new business" in 2003 to 2006.

Before the 2008 crash, his sister portfolio had virtually 0% allocation in stocks, but GMO clients still had about 45%, again because of business risk. 

GMO now offers a "Benchmark-Free Allocation Strategy" which allowed great return during last decade and reflects little career or business risk. The strategy intended to protect capital first and yet still make good money by taking into account historical trends and valuations.

The second part of the newsletter "Force Fed" written by Ben Inker provides GMO's investment outlook and explains how the Federal reverse market manipulation makes it to invest.

Here are the key points I noted:
  • The Fed has engineered a situation in which the really unattractive asset classes are the ones we have always thought of as low risk: government bonds and cash. (etfideas: That's actually the main reason why I hate the fed)
  • Stocks are expensive relative to GMO estimate of long-term fair value, but so are bonds and cash.
  • Australian and New Zealand government bonds are the only bonds (unenthusiastically) liked by GMO because of decent real yield and government spending policies that are sustainable in the
    long run.
You can read the complete newsletter for free on GMO website.

Sunday, April 15, 2012

GEAB 64 - France 2012-2014 - The Great Republican Earthquake and its International Impact

Français : Déplacement à Asnières sur Seine
François Hollande
Here are the highlights of GEAB 64 (April 2012) entitled "France 2012-2014 - The Great Republican Earthquake and its International Impact":
  • Global Systemic Crisis: France 2012-2014 - The Great Republican Earthquake and its International ImpactFrançois Hollande victory will trigger a set of massive changes in the direction of the European project, which make the French presidential election more important than the US presidential race.
  • Political Anticipation Methodology - Knowing how to decrypt the attempts to take control of the collective psyche.LEAP here talks about the methods used by government (e.g. declaring wars) to control the collective narrative, for example by inventing an Iranian threat...
  • The madness of Canada real estate, repetition of the US mistakes – Towards a slump in price between 15% to 25% from 2013. The current real estate boom in Canada is due to excessive private debt.
  • Strategic and operational recommendations. AUD and NZD outlook, the great fiscal attack starts now, the next leg down for the US stock market and economy has (re)started, Canadian residential real estate prices will sharply drop and European politician ready to counter attack against Euro speculators.
  • The GlobalEurometre - Results & Analyses. 74% of respondents (vs. 71% in March 2012) expect a sharp decline of the US dollar.
The full GEAB 64 (PDF format) is available to LEAP 2020 subscribers for 200 Euros per year (10 + 6 issues). 

Thursday, April 12, 2012

Investing in Natual Gas Revisited - FCG ETF

I've been keen on investing in natural gas for well over a year, and the timing hasn't been right until now. But with natural gas spot price dropping below 2 dollars per million British thermal units (MBTU) yesterday, and hitting a 14-year low, I thought I might deal with this investment idea again.

First let's make the case for investing in US natural gas.

The best time to buy commodities is when they are depressed. Let's have a look at US natural gas for the last 15 years (Source: IndexMundi.com)

The price is now back to 1997/1999 levels, right before the start of the massive commodities bull market and massive monetary inflation by central banks do not appear to be affecting natgas price.

If you think a 15-year low might be a good investment opportunity, what about an inflation adjusted 36-year low?
Source:Our Finite World
This chart was updated in January 2012, when natural gas was still above 2 USD per MTBU and it has since dropped to 1.98 USD per MBTU, so we are at least at a 36-year low (or very close to it) when adjusted with official inflation numbers.

Pundits explains the price is low because of the glut of natural gas attributed to new technologies such as fracking, and this is certainly a very good point. But there is another aspect which is very bullish for US natural gas: international gas market. Russian natural gas and Indonesian LNG are still in a upward trend, and currently Russian natural gas is over 6 times more expensive than US natural gas as shown in the 15-year charts below (Source: IndexMundi.com).

Russian Natural Gas (1997-2012)

Indonesian LNG (1997-2012)
Natural gas is not has easy to transport as crude oil for example, but one of the issue is the lack of LNG terminal with the ability to export liquefied gas to international markets which would increase the price of natural gas in the US and help decrease the cost of natural gas overseas. According to Wikipedia, there is only one liquefaction terminal (for export) in Alaska for the whole US, but there are 13 regasification terminals (for import). There are 2 proposed liquefaction terminals in Louisiana and Oregon. Once completed, the US will be able to export more natural gas and hopefully take advantage of the differential between local and international prices.

Finally, Crude Oil (WTI) to Natural Gas price Ratio stands now at over 50, whereas the historical norm has been around 8 to 10. See chart below (Souce: stockcharts.com)

So that means for a given amount of energy natural gas is about 5 times cheaper than crude oil. In reality, this is obviously not that easy as those 2 fuels are not interchangeable, but companies may start to invest more in power plant and transportation that can accommodate natural gas.

Now we have made the case to invest in natural gas, let's see how it can be done

There are some ETF to invest in Natural Gas such as UNG (USA) that are supposed to track natural gas price. However, their cost (due to diverse costs and contango) is prohibitive so that I would really advise against investing in those, unless you are able to correctly guess the price of Natgas within 3 months. Those types of ETF will go to zero by design.

You could potentially invest in companies such as Chesapeake or SandRidge Energy (SD), but if natural gas stays too low for too long some of those companies may go bankrupt and you'd lose all your investment. If you have enough capital, you could buy a list a companies involved in natural gas extraction and exploration, but for most of us, the simplest is to invest in mutual funds or ETF.

First Trust ISE-Revere Natural Gas Idx (FCG) is an ETF tracking ISE-REVERE Natural Gas Index which is composed of the stock of companies dealing with natural gas production and exploration.

Let's see how FCG fared in the last five years (Source: Yahoo Finance).
The first obvious thing is that it tracks natural gas rather poorly. FCG followed the price hike in 2008, but since 2009 it has more or less tracked the performance of the S&P 500. This makes me a little uneasy to buy FCG right now, but in case of further weakness (at least  below 15), it might be interesting to start buying this ETF to have some (limited) exposure to natural gas.

I'm not fully satisfied with this method of investing in natural gas, but it's the best I've found so far. If you have better ideas, let me know.

I've also seen some companies are selling Oil and Gas Royalty Rights, but I have not checked this into details yet, as it may not be easy to access such investment for oversea investors.