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.

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.

Hugh Hendry: Watch Out for Hyperdeflation

Barron's has posted the transcript of an insightful interview with Hugh Hendry, Electica  where he talks about hyperdeflation, China's potential hard landing, and his take on Japan (Companies are doomed, but the Japanese Yen could rise to 50 Yen per US Dollar). He's also very bullish on agriculture commodities and related companies. 

Here it is (emphasis mine):

Barron's: What makes a great macro fund manager?

 
Hendry: First and foremost, an ability to establish a contentious premise outside the existing belief system, and have it go on and be adopted by the rest of the financial community. My great hero is [Caxton Associates' founder] Bruce Kovner, who was able to imagine the dollar falling to 100 yen—when the rate was 200. I am an existentialist. To my mind, the three most important principles when it comes to investing are Albert Camus' principles of ethics: God is dead, life is absurd and there are no rules. Of course, that's a doctrine of promoting the individual. You own your own decisions. As CIO of Eclectica, with $700 million [under management], I have no engagement with the sell side.

Where do you find yourself outside the existing belief system today?

In 2009, I made a YouTube video of the empty skyscrapers in Wuhan, China. Goldman Sachs and others articulate a very reasonable and compelling argument of being invested in China. With the evidence of my own eyes, I concluded that China had a very robust system of creating gross-domestic-product growth, but forsaking the creation of wealth.
When America was having its China moment in the 19th century, it occurred against the backdrop of a gold standard, a hard-money regime, with a public sector that was minuscule versus the overall size of the economy. As an entrepreneur, if your project failed to generate a sustainable level of cash flow, you failed.

China's great opportunity is taking place within the U.S. fiat system, and so the consequences are perhaps less stark than in 19th-century America, which had stops and starts and many depressions, though with an overarching prosperity. China has not had that volatility.
If you talk about a hard landing in China, you talk about GDP growth of 5%, not minus 5% or minus 15%. The Chinese government prints money. It can build superfast railways and overbuild airports, because the rest of the economy can subsidize it. China's swollen public sector is directing asset allocation, rather than pursuing profit maximization. They see [their system] as a success. But it creates a bubble, which can prove quite damaging.

You've already had a hard landing—in the Chinese stock market.

I should add something else that is contentious—U.S. quantitative easing [that eventually sent more money flowing to China], promoted because America had two sharp recessions and pursued orthodox policies, and had very little to show in the creation of jobs.

The policy was very successful. China now has inflation. Minimum wages have grown 20% annually for the past three years. This has encouraged the Chinese to tighten monetary policy. When you have bubbles and you tighten, bad things happen. China's stock and property markets are weak, a side-effect of quantitative easing. We may now have the pricking of the Chinese bubble. A year or two down the line, it could have enormous repercussions for the global economy.

How does one play it?

The world is very fearful of hyperinflation. Pension schemes have a preponderance of real assets, from forestry to gold to TIPS [Treasury inflation-protected securities], because they are very fearful. The road to hyperinflation is via hyperdeflation. That is why it's proving so difficult for hedge funds to make money. How does the rational mind that anticipates hyperinflation own 10-year government Treasuries yielding less than 2%? It can't. That's why people are struggling. To lay the seeds of hyperinflation, you need really, really bad things to happen. I thought the U.S. housing market having a massive crash would be hyperdeflationary. But then my Chinese friends pumped $1 trillion of credit into their $5 trillion economy, and created a global recovery, which has just come to an end. I'm speculating that hyperdeflation happens before hyperinflation. What's the worst that could happen? But the sum of all my fears would be China having a real hard landing of minus 5% or minus 10% GDP growth. If we had that—and Europe—the Fed would be printing $20 trillion, and I would have gold at $5,000. You can have a modest amount of gold, but you can't have all your assets in real assets, in case we get that hyperdeflation event.

That view would be consistent with interest rates staying low forever.

Last year, our fund made 12%, mostly from investing in the short end of interest-rate curves, on the presumption that rates will remain low forever. The risk premium in fixed income was huge, but the performance of global macro last year was quite disappointing. Most people understood Europe, but chose to bet on the euro being weak, which is a hard trade, because there's no risk premium or carry in foreign exchange.
This time last year, British interest rates were at a 300-year-low at 0.5%, and if you asked an investment bank to guess where rates would be in three years, it was betting above 4%. The figure today is more like 1.3%.

So how do you make money?

Would you believe that the AIG strategy of selling too much credit protection in risky assets like mortgage-backed securities is alive and booming today in Japan? It doesn't concern mortgages. It is credit-default swaps on individual Japanese corporations.

Do you seriously believe Japanese corporations are going to fail?

Clearly, they can and do go bust. I'm buying the CDS on investment-grade Japanese corporations because of the overpricing anomaly. Japan had a bust 20 years ago, and yet today the banking stocks, relative to [Japanese bourse] Topix, are making fresh lows. If I'm a Japanese bank and I lend money to a new business, I get 1% on 10-year paper. Then the bank gets a call from me, and I'm willing to pay 50 basis points for five-year protection on this same company. So suddenly, the yield has gone from 1% to 1½%. Compare that to five-year Japanese government bonds, yielding 30 basis points. The bank thinks: This is a great trade! Japanese steel companies are investment-grade and won't go bankrupt. So, the bank gets this huge yen yield, and thinks it is not taking any risk. You'd better believe it will sell way too much of that good thing.

One of my partners told me about Japanese steel: Here is a country with no energy, no iron ore or coal, yet it's the largest exporter of steel in the world, exports half its output. To put that in context, China manufactures 700 million tons of steel and exports perhaps 30 million. Japan produces 110 million tons and exports 40 million. As long as Asia is strong, they are fine. But if Asia hiccups or reverses, plant-utilization rates go from very high to very, very low very quickly.

Then we discovered that Warren Buffett owned shares of South Korea's Posco [5490.S. Korea], and that Korea was the biggest importer of Japanese steel, but Posco and Hyundai [5380.S. Korea] are building huge, integrated steel plants. They have a surplus of steel capacity and—guess what?—they're exporting to Japan, because the yen is so strong.
Initially, I wanted to buy a three-year, out-of-the-money put on Nippon Steel. My broker said, "I've been in a 20-year bear market; my boss will kill me." Then I thought, being long credit protection is being long volatility. I redialed his credit counterpart. I said: "I'm thinking of purchasing up to a billion yen of five-year credit-default swaps in Nippon Steel." The first thing he said was, "Would you consider 10 billion?" So one part of the bank is banned from selling volatility, and the other part is having a party. I bought reams of the stuff.

In August 2010, we set up a stand-alone fund to buy this credit protection. You no longer pay 50 basis points, you pay 130 basis points. U.S. Steel credit protection is more like 650 basis points, because in America, people are cautious on selling protection on such volatile businesses. They don't share that worry in Japan. It could make them very, very vulnerable.

Any other potential disaster catalysts?

Continuing yen appreciation; an exogenous shock—like a run on the Italian bond market; a slowdown in China; a sharp Asian recession. Japan is confronted by a European sovereign-type loss of confidence in the JGB market. We bought protection on steel names, and also on businesses with a huge sensitivity to the yen. I think the yen could soar from these levels [about 79 to the dollar] into the 60s, if not the 50s, with further dislocation in European sovereigns or a China hard landing.

From the early 1960s almost, Japan began recording current-account surpluses. Unlike Germany, it always invoiced in dollars.

So Japan is short its own currency, and has an enormous private-sector hoard of foreign assets. If the Nikkei falls, and your hedge and private-equity funds fall, pension funds in Tokyo will have fewer yen assets, but their liabilities will be the same. So they'd have to sell some overseas dollar assets and retrade them back to yen. If we have a series of bad events from China to Europe, that will express itself in a very strong yen rally.

What other names have you bought protection on?

Shipping companies, such as Mitsui OSK [9104.Japan]. The only place in the world one can buy credit protection on the shipping industry is Japan. These are very leveraged businesses, and there was overbuilding. We have protection in Nippon Sheet Glass [5202.Japan], which bought Pilkington. We have protection in trading companies like Sumitomo[8053.Japan] and Marubeni [8002.Japan]—companies leveraged, opaque and very geared to the global economy.

We've barely discussed Europe.

We are partly playing it (Europe) through Japan. If events kick off again in Europe, the correlation across all [global] asset classes will go to one. So the steel CDS is 130 basis points, while to insure against default by the French government, I'd be paying the same amount. Which is riskier? A very leveraged steel company that can't tax you? Or a government that can? Our bearish bets are largely outside Europe. As for Greece, the end game will be the Greeks rejecting austerity. The euro is nothing but a gold standard lacking flexibility, and all the onus is on private citizens to take the pain. Eventually, a Greek politician will say, 'Vote for me, and I'll get us out of this system.'

What else do you own?

In the next 12 months, we'll see further pathological swings in investor sentiment. Despite my reservations, I'm modestly long equity-market futures, some nonindustrial commodities, and some bullish fixed-income positions. We are very bullish agricultural commodities and agricultural equities, and hold a global basket of businesses—with interests ranging from fertilizer to farm equipment.

Thanks. 

Via Barron's.

6 Video Interviews With Jim Rogers

TheStreetTV has uploaded 6 short video interviews with Jim Rogers on the 6-7 December 2011.

2012 Investment Strategy

Fed Is the Worst Central Bank

Own Japanese Stocks for 2 to 3 Years

Adam Smith for President?

China's #1 Problem

Euro Will Survive 2012

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

GEAB 58: H1 2012: Decimation of Western Banks

Here are the highlights of GEAB 58 (October 2011) entitled "Global systemic crisis - First semester 2012: Decimation of Western banks":

• Global systemic crisis – First half of 2012: Decimation of the Western banks

It’s this very unhealthy financial environment that will cause the "decimation of Western banks" in the first half of 2012: with their profitability in freefall, balance sheets in disarray, with the disappearance of trillions of USD assets, with States increasingly pushing for strict regulation of their activities, even placing them under public supervision and increasingly hostile public opinion, now the scaffold has been erected and at least 10% of Western banks will have to pass that way in the coming quarters... Read public announcement

• Global systemic crisis: LEAP/E2020 anticipation of 40 countries’ risks 2012-2016 (USA, Euroland, BRICS, Japan, UK, Australia, Argentina, Sweden, Egypt, Switzerland, Philippines, Mexico, South Korea, Morocco, Libya, Syria, Iran, Israel, Poland, Thailand, Indonesia, Saudi Arabia, Tunisia, Chile, …) - Widespread collapse at the heart of the global geopolitical dislocation phase... with very different prospects for exiting the crisis depending on the country

In this issue, our team sets out the annual update of "countries’ risks" under the crisis from 2012 to 2016. The assessment of country risk for the next 5 years is meant to be a decision-making tool for political and economic players and investors (individuals, companies or institutions). In a world in turmoil, it offers a medium-term perspective based on the methodology of political anticipation which has proved itself over nearly six years in terms of anticipating the global crisis and its consequences. Based on an analysis incorporating twelve criteria this year, this decision-making tool has already demonstrated its relevance for many years, faithfully anticipating developments generated by the crisis....

• GEAB $ Index – October 2011: The US$ fall accelerates against the €, ¥, Ұ and R$ basket

As our team has explained in many GEAB issues, the traditional Dollar Index (used by the financial markets) isn’t a reliable indicator for calculating the Dollar’s progress. In fact, it is based on a basket of currencies which is no longer representative, neither of the major global monetary balances, nor United States’ trade. This currency basket is, in fact, a "tiny Western club" even more illegitimate today than the G8. …

• Strategic and operational recommendations
  
  • Banks: How to avoid being trapped in the decimation of Western banks?
  • Gold – Currencies: A new inflexion point coming up
  • Commercial real estate: The moment of truth comes closer
    

• The GlobalEurometre - Results & Analyses

We note a continuation of the major uncertainty over the exact state of Euroland governance progress. This month opinion is split (48%), still showing the clash between the laborious, but real, putting in place of this governance with the solid message showing the opposite…

The full GEAB 58 (PDF format) is available to subscribers for 200 Euros per year (10 + 6 issues).

Marc Faber: Lack of Savings is the Problem of the US

Marc Faber was interviewed on CNBC on the 11th of October 2011.

He said he was bullish on the US dollar:

Despite the fact that the (European Central Bank) and the European government will flood the market with liquidity to bail themselves out, global liquidity is tightening," Faber said. "Whenever global liquidity is tightening it is bad for asset prices but good for the U.S. dollar, as was the case in 2008.

He also discussed the debt issues in the USA, Europe and Japan and explained there is no way to repay that debt without a major collapse:

We've had far too many interventions in the Western world where the share of total economy that goes to government and is government-sponsored has grown. That essentially makes it very difficult for the Western world to grow sustainably...I don't see how the Western world including the U.S., Japan and Western Europe can grow. They're going to stagnate.

Finally, he ranted against regulations in the US:

We have expansionary fiscal policies, we have expansionary monetary policies but we have restrictive regulatory policies and it curtails any initiative by the small businessman and the large businessman. He doesn't employ and invest capital in the U.S. He does that in China or somewhere else in the world where the regulatory environment is more favorable.

GMO 7 Year Asset Class Forecast (Q3 2011)

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

• US Large caps: 3.1% per year
• US Small caps: 1.5% per year
• US High Quality: 6.6% per year
• International Large caps: 7.2% per year
• International Small caps: 6.0% per year
• Emerging Markets: 7.2% per year

Different kinds of bonds are expected to return between -2.7% and 1.9% per year.
Managed Timber is expected to return 6% per year.
Those are real returns adjusted for inflation of 2.5% per year.

So the best performing assets should be international large caps (Europe & Japan?) and emerging markets and the worst performing assets should be US and international bonds.

One way to act on this forecast via ETF would be to buy 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).

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

Jim Rogers: Invest in Myanmar and North Korea if you can

Jim has been Interviewed on GoldSeek Radio on the 27th of September 2011.

QE3 has already started when Bernanke announced he would keep the interest rate close to zero for 2 years. At that time, M2 measure of the money supply when straight up.

Jim Rogers expects a correction in Gold and Silver. Gold has gone up for 10 years in a row, this is unprecedented even during the 1970s bull market and a correct should be expected. He would buy Silver and Gold on further dips as all commodities will probably end up in a bubble. Of course, if the US dollar becomes confetti, there is no ceiling on the price of Gold.

There has been a recession every 4 to 6 years in the US, so he thinks we'll get another one this year or at least one within 2013. That time will be worse since there are no bullets left. The US had a huge debt problem and they can't triple the debt again, the market won't let them. Same thing for money printing, it would become very difficult now.

Developing countries won't be spared by the next recession occurring in the US and Europe as they are major economies and trade partners of emerging economies. Jim Rogers is actually currently shorting emerging economies.

He'd rather go the Scandinavian way (take the pain now) than the Japanese way (kick the can down the road) in reference to past crises.

Finally, when asked if he saw any investing opportunities right now, he recommended people to try to invest in Myanmar and North Korea if they can, as those 2 countries are starting to opening up like China did 30 years ago. Investing in those countries if illegal for American citizen. (For other individual investors, it's also difficult to get exposure since there are no ETF available yet.)

You can listen to the interview below.

GEAB 57: Q4 2011: Implosive Fusion of Global Financial Assets

Here are the highlights of GEAB 57 (September 2011) entitled "Global systemic crisis - Fourth quarter 2011: Implosive fusion of global financial assets":

• Fourth quarter 2011: Implosive fusion of global financial assets

As anticipated by LEAP/E2020 since November 2010, and often repeated up to June 2011, the second half of 2011 has started with a sudden and major relapse of the crisis. Nearly USD 10 trillion of the USD 15 trillion in ghost assets announced in GEAB N ° 56 have already gone up in smoke. The rest (and probably much more) will vanish in the fourth quarter of 2011, which will be marked by what our team calls "the implosive fusion of global financial assets"... Read public announcement

• Advice to the G20 leaders: The G20’s three strategic priorities in 2012/2014 to avoid a « tragic decade »

On March 29, 2009, Franck Biancheri signed an open letter in the Financial Times international edition from LEAP/E2020 to the G20 leaders who were going to meet in London the next week. In its introduction, this text predicted that if the three recommendations it contained were not implemented as soon as possible, rather than a crisis of three to five years, the world would sink into a crisis for more than a decade.Here we are two and a half years later and, alas, it is now clear that not only has the crisis revealed in 2008 not been resolved…

• End 2012 – Neo-protectionism establishes itself as the new paradigm of world trade

Because of the simultaneity of the global economy relapsing into recession and key political events affecting the world’s major economies, we anticipate a sharp rise in protectionism from the end of 2012. In its initial phase, it will mainly take the form of various non-tariff barriers, more discreet than traditional customs duties, but it will, de facto, cause the most important change in the terms of world trade since the signing of the GATT (General Agreement on Tariffs and Trade, the WTO’s predecessor) in 1947…

• Gold 2011- 2014: LEAP/E2020’s anticipations

Of course, as after each significant increase in an asset’s price, the debates rage between, on the one hand, those who analyze this increase as the emergence of a bubble inevitably destined to burst in the more or less near future and, on the other hand, those who believe that it is only the beginning of a long rise culminating with the return of the gold standard at the heart of the international monetary system. Therefore, in this issue, LEAP/E2020 presents its anticipations on this subject for the period 2012-2014 to help investors make their gold arbitrage trades…

• Strategic and operational recommendations
  
  • Currencies: Watch out! Severe turbulence on the horizon
  • Swiss Franc: Eurolanders and Swiss…watch out, end of an epoque in sight!
  • Financial markets: Salvation is in flight
  • Real estate: The trend asserts itself
    

• The GlobalEurometre - Results & Analyses

A very large majority (84%) consider that private creditors will be increasingly called upon to finance European public debts. This view will have a major impact in the numerous elections taking place in the next twelve months…

The full GEAB 57 (PDF format) is available to subscribers for 200 Euros per year (10 + 6 issues).

Jim Rogers BBC Interview - 26 August 2011

Interview transcript:

Jim Rogers: I hope it's only one decade of loss that we lose in America. Japan has had two lost decades now, as you probably know, and America is in much, much, much worse shape than Japan.

America is the largest debtor nation not just in the world, Justin, in the history of the world. We have serious problems. They are not addressing the problems in America. So I hope it's only one or two decades we lose. It may be three or four.

Justin Rowlatt: So what do American politicians need to do?

Jim Rogers: First they need to get a little education about the rest of the world and about their own economic situation and then we have to change our tax code dramatically. We have to cut spending with a chainsaw; not with an axe, with a chainsaw.

We got troops stationed in over 120 countries around the world. I mean the politicians have sent them there you know, and those military establishments are making things worse for America, not better. We got to change our total way of thinking just as the British did when the British started facing reality.

Justin Rowlatt: When you say face reality, you seem to be suggesting that the age of American supremacy is over?

Jim Rogers: Absolutely, aren't you? Listen to the BBC and you will hear what's going on in the world. The 19th century was the century of the UK, the 20th century was the century of the US, the 21st century is the century of China, of Asia, Justin.

I mean, here is a simple fact. The largest creditor nations in the world now, Justin, are China, Korea, Japan, Taiwan, Hong Kong, Singapore. Those are all Asian countries. This is where the assets are. This is where the energy is, the dynamism is. You know who the debtors are and where they are.

Justin Rowlatt: I mean the Chinese economy, for example, just to take one Asian economy, isn't looking so healthy itself, is it? I mean, yes, it's still growing, but there are these real concerns about inflationary pressures within the economy, which could derail Chinese growth, couldn't they?

Jim Rogers: Extremely insightful of you. Yes, China has got some problems and they will continue to have problems. Fortunately, they realised the problem. They are trying to cut back on the inflation.

They have made some mistakes too. They should have opened their currency to make it a convertible currency. The fact that it's not convertible and all that money trapped in China is just adding to the inflation. So yeah, they are making mistakes too. Still, I'd rather be with the creditors than with the debtors any day.

Justin Rowlatt: I suppose what I am suggesting is that you look at America, you look at Europe, you even look at China and India, the two great Asian behemoths, and you see problems across the world economy. Are we entering now a period of slow growth globally?

Jim Rogers: Oh, yes. Yes, yes, absolutely. If that's what you meant, there is no question about that. You just pointed out that China has got its own problems, but this is the way the world has always worked. We have gone through long periods when things were great followed by long periods when things slowed down for a while and we cleaned up mistakes of the past.

Justin Rowlatt: So you think we are entering one of these cyclical periods of slow growth worldwide?

Jim Rogers: Unless you know something I don't know, yes, absolutely. The only areas of the world economy I see that are going to be dynamic are natural resources; farming is going to be one of the best professions of the next 10 or 20 or 30 years.

Justin Rowlatt: You seem very sanguine about it, but you don't seem very worried by it?

Jim Rogers: No, not at all. The world has been going through big changes like this throughout history. In the '20s and '30s, the world moved from the UK to America exacerbated by a financial crisis and mistakes made by politicians.

The world is going through a historic shift again from the US to Asia exacerbated by a financial crisis and mistakes made by politicians. Justin, the world has been going on for a few thousand years and there have always been big changes and adjustments.

At some times in history, the financials types have been in charge; at other times in history the people who produced real goods have been in charge. It's the way the world has always worked. The key of course is to figure out what's coming next and go there. Become a Chinese farmer, that's what you should do, Justin.

Justin Rowlatt: You say farming, why do you think farming will be such a crucial sector in the next couple of decades?

Jim Rogers: Farming has been a disaster for 30 years, Justin. The average age of farmers in America is 58 because it's been such a horrible business. The average age of farmers in Japan is 66. In Australia, it's 58. I could go on and on. In 10 years, those farmers are going to be 68 if they are still alive.

Justin, we have huge shortages developing in agriculture and great fortunes are going to be made by the people who address those problems.

Justin Rowlatt: And commodities is the other sector you said we should look up. Now hold on a second. If the world economy is entering a period of slow growth that you think is going to last not one decade but a number of decades, why on earth would you put your money in commodities?

Jim Rogers: Because you asked where the best areas of the world economy are going to be, that's where the shortages are developing. In the 1970s, most of the world's economies were in the tank, but commodities boomed.

Justin, we had one of the great world markets of history in commodities for about 15, 20 years in the '70s, between the '60s and the early '80s in commodities, because we had huge shortages everywhere and because governments everywhere printed money.

Well, governments are printing money again. It's a wrong thing to do Justin, but that's all they know to do. So between shortages of supply and money printing, if you want to be in the dynamic parts of the world economy, don't get an MBA and go to Wall Street, go and get a farming degree and move to Asia.

Japanese Yen Back to Highs Despite Intervention

Do you remember the spectacular intervention of the BOJ on the currency markets on the 4th of August ? Well that "worked" only one week, as we are back to the end of July highs.
That shows fighting the markets is futile (even for central banks), at least in the currency markets.

Jeremy's Grantham Quarterly Newsletter August 2011 Summary (Part 2)

Jerey Granthan from GMO has just released the second part of its Quarterly Newsletters entitled "Danger Children at Play".

He shortly talks about the debt ceiling debacle and how developed economies are can-kicking, but then focuses on his "Seven lean years" prediction of 2009 where he saw weak growth of 2% per year, and analysis the positives and negatives as of today.

Positives:

• Economic growth rates in emerging economy
• US / China Trade Surplus/Deficit has shrunk
• US Personal savings are up
• Corporate profits

Negatives:

• Disillusionment with Institutions, especially congress.
• Commodities price are higher than expected
• Balanced budgets now impossible without reducing spending or increasing tax or both
• Housing bust overhang to remain for years
• Modest personal income progress and large income disparities between the rich and the middle class in the US. (US Real Average Hourly Earnings Index is down over 40 years)
• Individuals must pay down existing debt
• Retirement plans (e.g. 401k) are not as good as defined pension funds
• Terrible economic policies stuck because Keynesian stimulus and Austrian cut-backs
• Risk of the US declining like the UK did in the past

He then moves on to focus on corporate profits that are so high that they seem completely disconnected from economic reality. Those profits are likely due to government spending and when it stops you can expect profits to tumble.

In his Q2 newsletter, he predicted a market correction because of Libya, Japan and high commodities price, and still recommend to keep your head down until we reach fair value (S&P to 950) and hold shares of high quality companies.

Finally, he makes some buying recommendations:

• Managed farmland and forestry
• Commodities such as hydrocarbons, metals and fertilizer over a 10 year horizon. However, since there have gone up substantially over the last few years, waiting for a pullback maybe safer
• Quality Stocks
• Emerging markets
• Japanese Stocks

To conclude, he warns that historically markets usually become cheap and stay that way for many years and that we should not normally expect any bounce when the markets reach fair value and that GMO is starting to be cautious buyer (the first time since mid 2009) at those levels with a portfolio composed of US high quality, Japan, Italy and European growth stocks

GEAB 55: Explosive fusion of world geopolitical dislocation and the global economic and financial n crisis in H2 2011

Here are the highlights of GEAB 55 (May 2011) entitled "Global systemic crisis - Confirmation of a Major Alert for the second half of 2011 – Explosive fusion of world geopolitical dislocation and the global economic and financial crisis":

• After Fukushima: The six essential features of the revolution in the nuclear power decision-making process for the 2010-2020 decade

For the sake of completeness, the title of this exercise in political anticipation applied to nuclear power should also include two other factors besides Fukushima, namely the Internet and the global energy crisis which is one of the elements of the global systemiccrisis we are experiencing. In effect, it is the combination of these three factors which, according to LEAP/E2020, radically and permanently alters the whole decision-making process on nuclear power that we have known since this source of energy took its first steps after the Second World War…

• Global systemic crisis - Confirmation of a Major Alert for the second half of 2011 – Explosive fusion of world geopolitical dislocation and the global economic and financial crisis

Our team confirms in this GEAB issue that all the conditions have now been met for the second half of 2011 to be the stage for the explosive fusion of two fundamental trends underlying the global systemic crisis, namely world geopolitical dislocation on the one hand and the global economic and financial crisis on the other… Read public announcement

• Increasing market volatility and weakening of their « powerful operators »: The case of the silver and commodity markets
  

• When Athens aims to hide London and Washington
  

• The Battle of Frankfurt or the final attempt to turn the ECB into a satellite under the influence of Wall Street and the City
  

• Barriers, security, export embargos, diversification of reserves, frenzy over commodities, widespread rising inflation ... the world is preparing for a new economic, social and geopolitical shock - Read public announcement

• Strategic and operational recommendations

Gold & Precious metals, Currencies, Basic foodstuffs and energy, Financial markets, Nuclear

• The GlobalEurometre - Results & Analyses

We see an increase in the majority of respondents (63% in May versus 59% in April) who consider that Eurozone economic governance will not be established by the end of 2011. Even though Euroland has asserted itself as a reality within a year, it’s clearly the lack of a governance structure which fuels this contrary to reality opinion...

Jeremy's Grantham Quarterly Newsletter Q1 Part 2

After explaining with he thinks we are in a paradigm shift in the commodities markets earlier last month, Jeremy Grantham published the second part entitled "Time To Be Serious (and probably too early) Once Again".

Here are the key points:

* US Stocks are overvalued by over 40% (Fair value for the S&P 500: 920) based on GMO methodology
* Year 3 is generally good for stocks, but there are many uncertainties including whether QE3 will be enacted
* He doubts the market can reach 1500 by October 1
* Now is not the time to float with the FED, but to fight it.
* GMO increased Japan equities positions are the market seems undervalued
* High Quality Stocks outperformed small caps since March 31: +5% vs -1% as expected
* Long Term recommendations: Forestry and agricultural land

Marc Faber: US Dollar will go to zero

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

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

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

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

Marc Faber April 2011 Market Commentary Highlights

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

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

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

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

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

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

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

Source: http://wallstreetpit.com/70086-marc-fabers-april-outlook-rally-to-continue-but-get-out-before-may-sell-off

Jim Rogers Bought Japanese Stocks - 30 March 2011

Interview of Jim rogers on CNBC on 30th of March 2011, where he explains he bought Japanese stocks (mainly the index actually) this week and last week.

My Take: After Marc Faber and Mish Shedlock, Jim Rogers is also bullish on Japanese equities, probably a good way to convert his Yen holdings. After a 20-year bear market, relatively good valuations (PE: 15, PBV: 1), the next bull market in Japan may start soon although there are bad economic fundamentals such as a declining population and huge government debt. If you want to invest in Japan, you can do so via EWJ‎ (iShares MSCI Japan Index) in the US, 2814.HK in Hong Kong or FEDERAL INDICIEL JAPON P (FR0000987968) in France.



In the second part of the interview, he was asked about nuclear power which he believes will recover over time (several year) since we need nuclear power to replace oil and natural gas. He's also very bullish on oil due to declining reserves.
Concerning investing in Uranium, he is not rushing, but he's watching and may step in later on.


In the last and third part of the interview, they focus on Argentina with Slim Feriani who is very bullish on it, but Jim Rogers does not buy it at all even though Argentina has a lot of agriculture commodities.

Finally, he's also said he bought a bit of silver and gold last week, which surprised me since he generally does not buy at all time (or decades) high.

Marc Faber: Accumulate Japanese Stocks, Buy Gold on Dips

Interview with Marc Faber on the 24th of march 2011 on Fox Business News.
He's negative on Japanese bonds, that should push money into Japanese Equities.
However, He expect a significant correction in world markets in Q2 2011 and a rebound for the US dollar and treasuries.

He also sees some weakness in precious metals in the short term, but recommend to accumulate gold in case of weakness.

Jim Rogers: This could be the dollar end game

Interview with Jim Rogers on Yahoo Breakout where he talks about Japan and possible opportunities although he's just watching for now. Currency wise, he thinks about selling his yen holdings (on of his largest position) and consider buying the dollar unless it goes down much further as it could be the beginning of the dollar crisis. He also notes that the dollar ought to go up with the middle east / north africa turmoil, but it does not. Finally Jim Rogers also stated his views on Silver and Gold which he plans to buy on dips, especially silver.

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