Barron's Midyear Roundup: Marc Faber Markets Outlook

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

Investment/Ticker	Price 6/6/12
Gold (spot, per ounce)	$1,619.30
Goldcorp/GG	40.24
Singapore REITS
Mapletree Comm Trust/MCT	S$0.92
Frasers Centrepoint Trust/ FCT	1.63
K-REIT Asia/KREIT	0.98
Mapletree Logistics Trust/MLT	0.98
Ascott Residence Trust/ART	1.06
Cache Logistics Trust/CACHE	1.03
Parkway Life/PREIT	1.81

and what he had to say:

Are things really as bad as they look?

FABER: The global economy has slowed considerably. Europe is in recession, and growth in U.S. GDP might owe more to statistical aberrations than reality. In Asia, the Chinese economy has been decelerating sharply, which impacts China's trading partners and industrial commodity prices. Lower demand for commodities hurts commodity producers, whether in Argentina, Brazil, Africa, or Russia.

Will things get worse before they get better?
Yes, possibly much worse. Central bankers will argue that more stimulus is needed. But the crisis has occurred in large part because governments have grown excessively large. The private sector produces growth. When government is 40%, 50%, 60% of the economy, the economy won't perform well. If you cut government spending meaningfully, you produce more growth, although this can be painful in the near term. Canada took this course in the mid-1990s. The outlook is grim for the federal deficit in the United States. Regardless of who wins the election, there will be compromises. But spending cuts will be back-end loaded and tax increases will be postponed. We won't see a federal deficit below a trillion dollars for a long time.

What will the stock market do for the rest of this year?
Most markets peaked in May 2011. The S&P 500 fell to 1,074 by Oct. 4 from 1,370. Then we had a strong rebound with the index making a new high at 1,422. This high wasn't confirmed by other indexes, such as the Value Line Index, the Russell 2000, and the Dow Jones Transportation index. The S&P 500 is vulnerable at this level. I anticipate further weakness in the second half of the year. Corporate profits will disappoint. Some 40% of S&P 500 earnings come from overseas, and a large proportion are generated in Europe.
There is no resolution to the problem in Europe because no one wants to accept austerity. The best outcome for Greece probably would be to exit the euro zone. But the new Greek drachma would depreciate by 50% to 70% against the euro. The Greeks don't want their pensions paid in a depreciating currency. Nor do they want austerity, as their pensions and government salaries would be cut by 50%.

How will the stalemate end?
The breaking point could be three, four, five years away. The world is heading toward a major crisis. In the meantime, central banks can continue to print money and markets might move up. Since 2009 stocks around the world have more or less doubled. But the economy hasn't performed well, and the typical household hasn't been helped. With quantitative easing, money flows into the hands of relatively few people. I am very negative about the outlook longer term.
It is safest to buy U.S. Treasuries because the U.S. can print money. It will pay the interest. But you are earning only 1.6%, and the cost of living is increasing by about 5% a year around the world. You are getting a negative real return.

So you're recommending equities, despite the poor backdrop?
I still like my January investment picks. As a group, Singapore REITS look OK. Among them I like Mapletree Commercial Trust [MCT.Singapore], Frasers Centrepoint Trust [FCT.Singapore], K-REIT Asia [KREIT.Singapore], Mapletree Logistics Trust [MLT.Singapore], Ascott Residence Trust [ART.Singapore], Cache Logistics Trust [CACHE.Singapore] and Parkway Life [PREIT.Singapore].
I am also warming to gold shares. Gold corrected to $1,522 last December from $1,921 in September. It rebounded to $1,795 in February and is back down around $1,600. The correction could last longer, but given that governments will print more money, gold is relatively effective as a currency. My preference is physical gold, but I would also own some gold shares, which have been decimated. Goldcorp [GG] is attractive because most of its properties are in the U.S., Canada, and Mexico. The company isn't exposed to regimes that are talking about nationalizing resources. In general, stock markets are oversold. The U.S. government-bond market is overbought. The U.S. dollar is overbought, and gold is oversold near term.

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

Peter Schiff: Buying Treasuries is Like Buying Facebook

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Jim Rogers is interviewed by Henry Blodget on Business Insider on the 9th of May 2012.

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

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

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

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

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

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

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

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

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

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

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

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).

2012 Recession Likely

A recession in the US is likely according to indicators used by John Hussman of Hussmann Funds and the WLI (Weekly Leading Indicator) growth by the ECRI.

John Hussman created a chart (below) corresponding to the average of standardized values (mean zero, unit variance) of the following variables:

• 6 month change in S&P 500
• 6 month change in nonfarm payrolls
• 12 month change in nonfarm payrolls
• 6 month change in average weekly hours worked
• ISM Purchasing Managers Index
• ISM New Orders Index
• OECD Leading Indicator - total world, 
• OECD Leading Indicator - US, 
• ECRI Weekly Leading Index growth
• Chicago Fed National Activity Index 
• 3 month average, credit spreads (Baa vs 10-year Treasury), 
• Industrial commodity prices - 12 month and 6 month change
• New building permits 6 month change.

Here's the chart between 1952 and 2011.

The level we currently get (-0.5) has always been associated with recessions, except with the false positive in 2003, right after the 2001/2002 recession. It correctly predicted or coincided with 10 recessions, never missed one and gave one incorrect signal as previously mentioned.

The WLIG currently stands at -8.4 (6 Jan 2012), a level usually associated with recession. ECRI insists however they use other leading indicator to make a recession call. That's why they did not make a recession call in 2010, but did make one for 2012.

There is now a fair amount of optimism in AAII survey (~50% bullish), although its' not extreme yet, and lagging indicators give a positive outlook for the US economy, so those recession calls still have many critics, but I believe they will eventually be proven right this year.

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.

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.