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

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: 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, 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.