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. 

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.

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/

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

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 Impact.  François 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). 

Marc Faber: Well to-do People Will Lose Up To 50% of Their Total Wealth

Marc Faber is interviewed on CNBC on the 2nd of April 2012.

He explains that down the road their will be a massive wealth destruction and that in the next 10 years, investors should not think how could I get the highest return, but how do I need to invest to lose the least. He expects rich people to lose up to 50% of their wealth.

For US residents, he recommends real estate in the south of the US (Arizona, Georgia), some gold and equities.

Peter Schiff: Ben Bernanke is Public Enemy No. 1

Peter Schiff is interviewed on CNBC Fast Money on the 26th of March 2012 and explains the Federal Reserve is now blowing a massive bubble in US treasury and government debt and once this pops (as interest rate must be increased due to inflation), banks will fail and the crisis will be worse than 2008/2009.

The Next 20 Years: Inflation vs Deflation

Steve Keen, an Australian economist and contrarian strongly opposed to neo-classic economists views, has recently posted an article entitled "Economics without a blind-spot on debt" where he discusses the importance of private debt during the great depression and now.

He managed to gather the data for aggregate private debt in the US and Australia and drew the result in the chart below:

There was a debt bubble in the 30s which led to the great depression, and now it appears we have the same kind of bubble, only more pronounced. The main difference is that now we live in a world of fiat currencies and what happens next is highly depending on monetary policies.

I encourage you to read his blog post for details about private debt. I'm going to focus on 2 scenarios:

• Deflation where the central banks do not really fight the debt deflation (or debtflation).
• Inflation where the central banks decide to keep the aggregate private debt constant and works thru the years via inflation.

If we consider 150% of GDP to be a normal level of aggregate private debt then the debt bubble started around 1987 and peaked in 2010 (a 23-year debt increase). Historically, bubbles have a tendency to be somewhat symmetric, so in the case of debt deflation let's assume it to last 23 years that is until 2033, or about 20 years from now.

In this scenario, there would be massive deflation, and, in theory, the preferred asset would be cash (under the mattress) and many companies and banks would have to go bankrupt, but in reality, the system would probably have to collapse, and I'm not so sure what the value of cash would be. This is the kind of scenario envisioned by Robert Prechter who sees the Dow Jones at 1000 USD.

The other scenario (flat private debt to GDP ratio) would assume massive money printing. Let's assume somehow the federal reserve can keep this ratio constant by printing money during 23 years. If the GDP growth is flat, it would require about 3% (extra) inflation per year. However, during that period, there is actually a good chance of negative growth because Peak oil consequences will be in full effect unless we find some energy alternatives. This also excludes public debt and unfunded liabilities (about 100 trillions USD or 600% of GDP) which would require inflation north of 10% to get monetized.

If you think the US is in bad shape, just look at the aggregate private debt in the UK in the chart below. This country (and the British pound) are going to have a very rough time in the years and even decades ahead, as its private debt stands at 450% of GDP.

You may also want to read "Currency Crisis:Why is the British Pound a doomed currency ?" for a more detailed analysis of the United Kingdom debt and upcoming GBP currency crisis.

GEAB 63: Global Systemic Crisis: The 5 Devastating Storms of Summer 2012 at the Heart of the Global Geopolitical Dislocation

Here are the highlights of GEAB 63 (March 2012) entitled "Global Systemic Crisis: The 5 devastating storms of summer 2012 at the heart of global geopolitical dislocation":

• Global Systemic Crisis: The five devastating storms of summer 2012 at the heart of the global geopolitical dislocation.  Global recession, debt crises, stock market crashes, potential war with Iran.
  
• Summer 2012: The US falls back into recession as Europe stagnates and BRICs slow down. LEAP 2012 predicts a global recession in 2012.
• Summer 2012: Central banks roadblocks and the rise of interest rates. The US federal reserve must now manage two new problems: the lack of demand for US treasuries and the rise of two other currencies: the Euro and the Chinese yuan.
• Summer 2012: Storm on currency markets and western public debts. After several attempts to stabilize exchange rates over the last few quarters, the failure to come to an agreement for a new currency at the G20 in order to build a new monetary system will lead to more currency volatility and further debt crises in western economies.
• Summer 2012: Iran, the war "too many". Whether this war occurs or not, it will be the war too many for the western world.
• Summer 2012: The new stock market and financial institutions crash. Iran's allies, such as China, are likely to hurt Washington financially by diversifying US dollar assets into other currencies.by announcing with Moscow that they will stop buying US treasuries in order to stop the US war machine.
• 2015: "The great fall of western real estate" - Excerpt of the chapter on the evolution of US residential real estate. As the US manufactures less and less, the country will become poorer and accelerated the fall of American real estate.
• Strategic and operational recommendations. Consequence of the emergence of 3 main monetary zones (US Europe and China). Inflection point for Gold. Commodities: conflict vs recession. End of the illusion for the US economy. Orange alert (whatever that means) on financial products..
• The GlobalEurometre - Results & Analyses. 85% of respondents think of European governance is being put into place.

The full GEAB 63 (PDF format) is available to LEAP 2020 subscribers for 200 Euros per year (10 + 6 issues).

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.