Marc Faber March 2013 Market Commentary

Marc Faber has just published the Gloom Boom Doom market commentary for March 2013 entitled "I do not believe in a deflationary Collapse but I am afraid of it".

After telling investors to relax about short term volatility last month, he explains why he worries about the time when the current asset inflation will give way to a serious asset deflation, which has to happen eventually.

The decline in the gold prices concerns him, as it could mean we are about to enter a period of asset deflation. He stresses 2 points:

• Uncertainty about the asset deflation timing. Most likely, different asset classes will deflate at different times and with different intensity. 
• In a deflationary environment, financial assets (stocks, government and corporate bonds especially high yield bonds) would likely be the most vulnerable assets. That's why he can envision money flowing into a sound currency, and move out of fiat money. This is why he still continues to  recommend the gradual accumulation of physical gold.

This month market commentary comes with one attachement:

• “The Indian Budget & the Broken Window Fallacy” by Shanmuganathan “Shan” Nagasundaram. This report shows well-intentioned government plans may not have been as beneficial as thought, and it my have even hurt the ones it intended to help (poor people).

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

Marc Faber February 2013 Market Commentary

Marc Faber has just released the market commentary for February 2013 entitled "A good Life is not a State to arrive at - but a Way of Traveling" on gloomboomdoom.com.

Marc Faber first explains that investors should learn to relax and ignore what markets do in the short term in order to outperform. He takes one of his reader question as example:

"Why I would rather not sell my gold and subsequently buy it back at a lower price.?" 

The reason he is not selling his gold is because he wants to diversify and keep approximately 25% of his assets in gold (also 25% in equities, 25% in corporate bonds and cash, and 25% in real estate). That way if the price of gold declines, it is likely that the value of his financial assets would increase, so a decline in the price of precious metals would actually be beneficial to the overall value of his assets since he has around  50% of his portfolio in bonds, cash and equities. But now that stocks and bonds have both rallied very strongly, he feels much more comfortable holding gold than financial assets.

There is no attachment with this month MMC.

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

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.

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

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

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

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 !).

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).

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

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.

Marc Faber April 2012 Market Commentary

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

This month report is entitled "He had been one of those People who was greatly improved by Death".

This month, there are 2 MMC attachments:

• Stocks, Bonds, and the Efficacy of Global Dividends by Jim O´Shaughness, chairman, and CEO of O'Shaughnessy Asset Management,
• Value Subjectivism and Monetary Instability by Ron Hera,  founder of Hera Research, LLC.

The first report by Jim O'Shaughness is available as a free download at http://osam.com/research.aspx (January 2012 research paper) after registration. In this report, Jim O'Shaugness looks at bonds and stocks investing as well as global dividend investing. He compares different strategies over a long(-ish) period of time. Here's the conclusion of this study:

Bonds seem poised for low single-digit returns and, potentially, negative real returns. A conservative analysis of historical equity returns leads us to believe that equities could see mid to high single-digit nominal equity returns, though still below average. Dividend investing has historically been a reliable strategy producing superior excess returns in both U.S. and foreign markets. Expanding the universe of potential investments to include a global framework provides a greater opportunity set of high-quality, cash-rich multi-national companies with strong dividend yields.

Dividends are historically a significant component of total equity returns during low-return environments. When applied to pre- and post-tax income investors, a high-yield dividend strategy not only offers protection of purchasing power but also growth of income on a real basis.

The second attachment "Value Subjectivism and Monetary Instability" is an article published on Goldseek.com where Ron Hera pinpoint 15 fundamental issues with fiat currencies.

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 become available.

Jim Grant: How About Capitalism, Ben Bernanke ?

James Grant is interviewed on Bloomberg and the 13th of March 2012 after the federal reserve meeting.

He first talks about the Federal Reserve monetary policy and the bond market.

He explains that by distorting interest rates, the Federal reserve has suppressed price mechanisms and with little value in bonds (he calls the bond market a "desert of value"), many people flock to high yielding junk bonds.

Ben Bernanke

He also "translates" terms of Bernanke speech:

• Highly accomodative = high manipulative
• Quantitative easing = money printing

He explains that Gold price is a function of the action of central banks and note that the ECB has increased its balance sheet by an astounding 89% on an annual basis, the British central bank by 67% and the fed by only 15%. All those numbers are unprecedented and the way they do it is by simply taping numbers on a computer screen.

Jim Grant also took a stab at Warrent Buffet's "Stocks outperform Gold" by showing a chart between 1996 and today with the prices of Gold, sugar and Coca-Cola stock. During that period Gold was the best performer, followed by sugar and then Coca-cola. He explains that valuation is important. Whereas Coca-cola had a PE ratio of 39 in 1996, it now has a much better 16 PE ratio. He also mentioned that while Gold is now the refuge of the fearful, back in 1996, Gold was considered to be the refuge of the idiots. :)

Finally he says he's bearish on the Chinese economy and worries about the consequence of a Chinese slump, since many people think the Chinese have found the formula to make it work...

GMO 7-Year Asset Class Forecasts - February 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: 0.4% per year
• US Small caps: -1.8% per year
• US High Quality: 4.4% per year
• International Large caps: 4.0% per year
• International Small caps: 3.3% per year
• Emerging Markets: 5.0% per year

Different kinds of bonds are expected to return between -2.5% and 0.8% per year.
Managed Timber is expected to return 6.5% per year. Those are real returns adjusted for inflation of 2.5% per year.

Those returns look lackluster, and the chart above is as of 29th of February 2012. The different market have generally rallied since then, so the expect returns over 7-year should even be lower today.

Over the next 7 years, the best performing assets are expected to be emerging markets and US high quality stocks and the worst performing assets should be US and international bonds. The US market (except High Quality Stocks) should also be avoided with returns between -1.8% and 0.4% per year.

The ways to act on this forecast is to buy iShares MSCI BRIC Index (BKF) on the long side (I'm not sure how you could get exposure to high quality stocks as defined by GMO), and buy short ETF for bonds such as ProShares Short 20+ Year Treasuries (TBF). If you can short, you could do so with SPDR Barclays Capital International Treasury Bonds (BWX). However, the expected returns on the short side, may not warrant taking this risk just yet, especially with the decay inherent to short and leveraged ETFs.

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

Marc Faber March 2012 Market Commentary

Image by Getty Images via @daylife

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

This month report is entitled "When we are no longer able to change a Situation, we must change ourselves", possibly referring to the massive debt load of western economies and the change of attitude required in those economies.

There is one attachment with this monthly market commentary (MMC):

• "China's Leadership Transition - Social Stability May Require a Stronger Renminbi" by Kieran Osborne, Director of Research of Merk Investments.

In this free report, Kieran Osborne describes the current political system in China (2012 will see a new leader) and analyses different metrics of China economy (inflation rate, bonds issuance, currency swaps ...) that may impact the Chinese Yuan.

He concludes as follows:

Any marginal change in the governance of China is likely to have far reaching implications. Most notably, we expect an increased focus on developing the Chinese middle class and domestic economy over time, with less reliance on the export sector. In turn, political and economic realities are likely to force Chinese policy makers to allow the RMB to appreciate, to help manage domestic inflationary pressures, and thus maintain social stability. We consider that China has the ability to allow its currency to appreciate and put in place steps towards a free-floating framework, due to increased pricing power resulting from manufacturing of a wider range of value-added goods. Indeed, we have seen steps put in place to ready the country for appreciation of the currency, including conducting scenario analyses on local businesses, while concurrently increasing the internationalization of the currency. China is likely to become a global financial hub and a more attractive place for global business, as a bi-product of such initiatives. Such dynamics are likely to lead to ongoing strengthening in the Chinese currency over the foreseeable future.

If I can find a summary, I'll post highlights of the Gloom Boom Doom market commentary, although in recent months it has been hard to find.

GMO 7-Year Asset Class Forecasts - 4Q 2011

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: 1.4% per year
• US Small caps: -0.5% per year
• US High Quality: 5.3% per year
• International Large caps: 6.12% per year
• International Small caps: 5.0% per year
• Emerging Markets: 6.8% per year

Different kinds of bonds are expected to return between -2.5% and 1.2% per year.
Managed Timber is expected to return 6% per year as always in GMO forecats.
Those are real returns adjusted for inflation of 2.5% per year.

The expected returns have slightly decreased since last quarter, but the best performing assets remain international large caps (Europe & Japan?) and emerging markets and the worst performing assets should be US and international bonds. The US market (except High Quality Stocks) should also be avoided with returns between -0.5% and 1.4% per year.

The ways to act on this forecast remain the same as last time, e.g.  iShares MSCI Japan Index Fund(EWJ), iShares S&P Europe 350 Index Fund (IEV) and iShares MSCI BRIC Index (BKF) on the long side, and buy short ETF for bonds such as ProShares Short 20+ Year Treasuries (TBF). If you can short, you could do so with SPDR Barclays Capital International Treasury Bonds (BWX). However, the expected returns on the short side, may not warrant taking this risk just yet, especially with the decay inherent to short and leveraged ETFs.

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

Jim Rogers and Jeremy Gratham: Bonds are a Terrible Investment

Jim Rogers recently told Fox Business Network that he plans to short US bonds in the future and to buy them now would be a “terrible mistake”.

"I am not short bonds yet but I plan to be short bonds," he said. "If the world economy gets better, you are going to make money in commodities because that is where the shortages are. If the economy does not get better, they are going to print money and when it does get better, you better own commodities, such as silver and rice."

Rogers warned it would be dangerous to own US T-bills now but admitted he had been burned a few times recently when he attempted to short the asset class.

Yesterday, GMO (Jeremy Grantham) released their 7-year forecast, and all bonds (except Emerging Debt) are expected to provide negative returns every year (on aggregate) over the next 7 year.

Here are GMO forecasts:

• US Bonds: -1% per year
• International Bonds: -2.1% per year
• Emerging Debt: 1.5% per year
  
• Index Linked Bonds: -1% per year
  
• Cash: -0.7% per year

The best 2 investments over this 7 years would be international large caps (6.4%) and emerging markets (6.5%).

Marc Faber: The Derivative Market Will Cease to Exist

Marc Faber is interviewed by Reuters (8th of December 2011) and says there will be a global market collapse and the entire derivatives market will one day cease to exist.

Most people will be lucky if they still have 50% of their money in 5 years time. That's why he recommend equities as they should still have some values, would avoid government bonds, and said cash is only useful for short period of time.

Marc Faber: Limited Upside for Stocks

Short 3 minutes interview of Marc Faber on Fox Business News (28 November 2011).

GMO 7 Year Asset Forecast Says Stay Away From Bonds

GMO has just released its monthly 7-year Asset Class Forecasts (November 2011).
Here are the expected annualized return (based on valuation and historical earning growth):

US Large caps: 1.8% per year
US Small caps: -0.4% per year
US High Quality: 5.4% per year
International Large caps: 5.8% per year
International Small caps: 4.6% per year
Emerging Markets: 5.6% per year

Different kinds of bonds are expected to return between -2.3% and 1.3% per year so that is all bonds are expected to return negative interests except emerging market bonds. Managed Timber is expected to return 6% per year.
Those are real returns adjusted for inflation of 2.5% per year.

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

Marc Faber: US Markets Could Outperform

Interview with Marc Faber on the 14th of November 2011.

They discussed the current European debt crisis, his current portfolio allocation recommendation (25% stocks, 25% real estate, 25% bonds and 25% gold) and his views on the market.

He thinks emerging markets have bottomed out for the time being and that US market will probably continue to outperform other market, because of the Federal Reserve policy. The fed is considering a target of 7.5% unemployment before raising rates, but it may actually never happen.