Monday, February 27, 2012

Lower standard of living expected

Marc Faber talks about the standard of living in the western world: "One day we will notice that the standards of living have really gone down, and the employment situation won’t improve.”

Friday, February 24, 2012

Private equity firm bets on Asia's frontier markets -

As investors chase yields by investing in high growth emerging markets, private equity firm Leopard Capital is looking beyond traditional economic powerhouses like China and India, to less talked about frontier markets including Myanmar, Bangladesh and Cambodia based on their future growth potential.

"Myanmar will be one of the great investment stories of 2013, it`s changing very rapidly now. This is a country, for 50 years that missed out on the whole Asian miracle," said Douglas Clayton, Founder and CEO of Leopard Capital, which is in talks to launch a fund there.

"It is going to catch up very rapidly as the reforms take place.... everything is being changed, (from) the foreign exchange regime to the foreign investment code, and so on," he added.

Cayman Islands-based Leopard Capital was set up in 2007 to invest in "pre-emerging" markets. The firm`s consulting partners include veteran investors such as Marc Faber and Jim Walker.

In terms of investment opportunities in Myanmar, Clayton says the firm is looking at sectors which represent the "essentials of life" including power, Internet, agriculture and financial services.

However, he notes that the lack of a stock exchange in the country means that it is difficult for institutional and retail investors to gain exposure to the market now. According to local media sources, Myanmar`s government has committed to developing a viable stock exchange in the country by 2015, and will start selling shares in state-owned enterprises this year.

Emerging manufacturing hubs

In addition to Myanmar, Clayton says Bangladesh and Cambodia, both of which are emerging manufacturing hubs and have growing consumer markets, look attractive.

"Bangladesh is one of the cheapest places to manufacture in, and as China gets more expensive, factories are rapidly moving down into places like Bangladesh and Cambodia," he said.

In Bangladesh, the potential lies in traditionally "Indian-dominated" sectors such as textiles, pharmaceuticals, technology and outsourcing, he said. "We have a chance to `relive` the now foregone India play."

According to Clayton, the best ways to invest in Bangladesh are via the stock market, the Dhaka Stock Exchange, which slumped over 35% in 2011, or private equity funds. Leopard Capital is currently putting together a USD 100 million fund for Bangladesh.

In Cambodia, where the company manages the country`s first private equity fund worth USD 34 million, sectors including financial services, consumer goods, power and telecom infrastructure and property, are the main focus, he said.

He said the 35 banks and 11 cell phone operators in Cambodia, most of which are international companies, illustrate the vast potential of the market.

While there is huge growth opportunity in these frontier markets, there are also risks to conducting business there, the most "daunting" being the lack of in-depth managerial experience within most of the local companies seeking capital, he said.

"Our team has to provide intensive operational support to help bring some portfolio companies up to international best practices," Clayton said.

Thursday, February 23, 2012

Marc Faber Likes U.S. Real Estate & Tenants

Marc Faber was back on Fox Business, Friday, with his latest thoughts on Greece, China, stocks, U.S. real estate, and some creative ideas for male real estate investors during these troubled times.

“It’s a symptom of a wider problem that we have over-indebted governments in the Western world and Japan, and this is just a small plate, a small appetizer to much larger problems and a much larger crisis,” Faber said about strained Greece negotiations with the EU.  As for stocks, generally, the Swiss pony-tailed expat from Thailand believes the rally from the December lows has been too strong to jump on board, yet, especially during the seasonally weak month of February for equities.  He also has been watching the weakest sectors of the economy (home builders and banks) for clues to the overall market direction for the coming weeks.

“Basically, what has happened, the market peaked out last May in 2011, then it dropped to 1,074 on October 4th on the S&P.  Now we’re up 25 percent,” Faber explained.  “The market is very overbought right now, and any excuse for profit taking is now being taken.  And I think February is traditionally a weak seasonal month, so we’ll go down first for a while.

“I would just wait a little bit [before buying stocks] because, take for instance the home builders and the banks: the home builders, in some cases, are up 100 percent from the lows, last October [and] November; the banks are up 60 to 70 percent from the December lows.  I would just wait here a little bit because, we don’t know how bad the correction will look like—could be 100 points on the S&P, could be 200 points.”

Faber likes high-yielding foreign stocks, especially in the area of the world that which Faber is most knowledgeable and comfortable—Asia.
“Well I bought some shares in November [and] December of last year, and I’m not going to sell them because they are high dividend shares in Asia, and I quite like the Asian markets.”

Faber especially likes “Singapore REITs and real estate related companies in Thailand, because they knocked off the industrial park companies following the flooding of the Thai … some Thai industrial states,” adding, “and some shares in Hong Kong.”

Following the lows in December, globally, stocks have move up in tandem as the so-called ‘risk-on’ trade drew investors off the sidelines back into stocks, as investors anticipated a loosening of monetary policy among the world’s dominate central banks.

Moreover, India, whose currency took a mini-crash last year of approximately 20 percent within a one-month period, has rallied back from its nearly 54 rupee level low against the U.S. dollar at the end of 2011, now trading at the 49 handle, as the risk-on trade flows back more strongly into emerging markets once again.

“Actually, what is interesting, in this rally, since early January, emerging markets have done best,” Faber pointed out.  “India is up 14 percent, and the currency has strengthened.  So you’re up almost 20 percent, in essentially, a month’s time.  So all these markets have become overbought—near term.”

Generally, Faber doesn’t like stocks in the U.S.; he likes the battered down residential real estate market, instead.

“I like real estate in the U.S…  Just buy a house,” he chuckled.

In typical Faber style, he went on to share an anecdote from his most recent destination.  This time, the vignette takes place in Phoenix, a city among the worst hit by the across-the-board U.S. residential real estate crash.

“I was in Phoenix the other day,” Faber began.  “Then, the taxi driver took me to the hotel, nice hotel, Fairmont.  And then he told me the person that I just drove before you—I drove him to a five-bedroom house.  He told me he just bought it for $120,000.  Where in the world can you buy a five-bedroom house for $120,000?  I would buy it, live in one bedroom and rent out four bedrooms to concubines.”

But he wouldn’t rent out spare rooms to any foursome of concubines, according to Faber; the concubines must pay rent to him so that the property would throw off cash.

“If you take a very bearish view of the world, then at least—if you own property, you still own it—you pay for cash and get the cash flow as I suggested [from the concubines].  And if you are very bullish about the world, it means the demand for real estate will go up.”

Faber continued, sharing his observation from his earlier stop in Miami.  There, Faber said he witnessed the ‘crane index’, firsthand.

“I was three days in Miami.  Three years ago, I counted 47 cranes, building highrises,” he said.  “This time around, I counted one crane, destroying a building.  So, the market has cleared, actually, in Miami.”

Faber noted the frustrations that foreigners across the globe face when seeking overseas bank accounts outside their native countries—which has been a growing trend since the Asian currency of 1997-8, and magnified by the current ruse by many nations disguising capital controls with ‘fighting terrorism’.

“A lot of money has come from Latin America, from Russia because, if you want to open a bank account somewhere, they ask so many questions.  But as a foreigner, you can go buy a condo,” Faber said.

Globally, Faber is less concerned with the drama playing out in Greece.  His concern focuses upon the only economy primarily responsible for driving global growth (mostly from resources purchases) since the collapse of Lehman Brothers in 2008.  That country, of course, is China (NYSEArca:FXI).

“When we talk about Greece, the major issue for the world economy is China,” he explained.  “And China has been slowing down.  Industrial production is down; electricity consumption is down; exports were down; and cement production is down; steel production is down.  So, many indicators point to a meaningful slowdown in the [world] economy.”

According to Faber, the countries of Australia and Brazil are most vulnerable to a marked decline in Chinese consumption, especially of raw materials—which has recently given rise of talk among some analysts that the Aussie dollar and Brazilian real may be due for a decline due to a China slowdown.

Monday, February 13, 2012

Profit From Singapore's Growth With EWSS -

In Barron's annual roundtable issue recently Marc Faber was very upbeat on Singapore for its valuations and dividend yields. For many years the only ETF to access Singapore was the iShares MSCI Singapore Index Fund (EWS). In the last couple of weeks iShares launched the MSCI Singapore Small Cap Index Fund (EWSS).

Similar to the large EWS the small cap Singapore ETF is very heavy in financial stocks at 48% of the fund, followed by industrial stocks at 18%; industrials have a similar weighting in the large cap EWS. The new fund has mid-single digit weightings in the other sectors like energy, tech and consumer staples.
The fund has 37 holdings and will charge a 0.59% expense ratio. It is unlikely that the stocks owned in the fund will be familiar but with such a large weighting to financials what that really means is the fund owns a lot of real estate companies.
Singapore is very difficult for the extreme volatility of that country's stock market. In the last 10 years EWS has had four years where it was up or down 30% or more and three of those four years the move was actually 40% or more. Fundamentally the country is on very firm ground; GDP growth is consistently strong, the unemployment rate is in the low single digits and its housing market did not experience anywhere near the kind of meltdown that occurred in the U.S.
In 1997 there was a market event that has been labeled the Asian contagion which caused a fast panic in all global markets. And although the actual crisis was centered in Thailand EWS was down 43% for that calendar year. This type of volatility should be expected to continue.
Despite the volatility the long-term annualized returns have been outstanding. The annualized 10-year return for the index underlying EWS has been 11.46% compared to 2.92% for the S&P 500. According to data from iShares the 10-year annualized return for the Singapore small cap index has been 17.09%.
Faber mentioned in Barron's that yields in Singapore can be found in the 5% to 7% range. EWS has always been a high-yielding ETF with the trailing yield at 4.05%. While it is too early to know what the small-cap EWSS will yield it is likely to be fairly high given the large exposure to financial stocks.

Wednesday, February 8, 2012

Faber Says 'Weak' Euro Nations Should Leave the Currency Union -BusinessWeek

Faber comments on the weaker Euro nations dragging down the stronger countries:

“It would be good if weak countries were kicked out or left the currency union,” Faber said in an interview in Zurich today. “It would be the better solution than denial.”
European leaders are struggling to contain the debt crisis, which forced Greece, Ireland and Portugal to seek external aid. German Chancellor Angela Merkel has made a deficit-control treaty the centerpiece of efforts to combat the turmoil, counting on stiffer fiscal rules to restore investor confidence in public finances across the 17-nation region.

“Last year, we have seen high volatility, large swings,” on equity and bond markets, he said. “I expect this volatility to remain or maybe even increase this year. Shares are more attractive than bonds overall.”
Faber said the ECB will “probably continue to print money in a direct or indirect manner,” and that the “worst part of the crisis is still ahead of us.”

Tuesday, February 7, 2012

Dr. Doom, says the most overlooked asset class currently is equities

Dr. Doom: Economist Marc Faber may see an upside in equities, but he doesn't shun other assets such as bonds either. Investing is often a humbling experience, he says. Even so-called experts can be wrong. "It's not advisable to be overly dramatic and say, 'I'm going to be very bearish about equities and very bullish about bonds.' There will be times when you need to be in equities, times you need to be in gold and times you need to be in bonds," he says. "I don't know when, so I'm diversified, as I pointed out, because I like to sleep at night -- ideally with someone."

The darker side of Doom: During his talk in Winnipeg, Faber demonstrated how the rise and fall of commodity prices correlate to war and peace over the last few hundred years. "It may strike you that commodity price peaks always occur during wartime, so people could conclude that wars lead to higher commodity prices," he says. "That's not correct. Rising commodity prices are symptoms of shortages, and most wars were fought over shortages of commodities because countries wanted to secure the supply of commodities." In the past, once war has broken out, commodity prices go "ballistic," he says. Unsurprisingly, Faber has a bleak outlook on the future of global peace. Given that commodities will be even more in demand due to population growth, combined with overuse of interventionist monetary policy that artificially drives up prices, war breaking out on a global scale is a possibility. "I think over oil there could be a conflict developing," he says. "The Chinese are surrounded by American military bases, and 11 aircraft carriers and 95 per cent of oil to China comes from the Middle East." China's demand for oil has tripled in 15 years, and it will continue to grow rapidly in the near term. So, too, will India's need for the commodity. "The U.S. has gotten closer to India. In the meantime, China, which has always had close relationships to Pakistan, has gotten closer," he says. These competing interests, combined with the Arab Spring -- or as Faber calls it, Arab Winter -- make for a lot of political, economic and social instability. "I don't want to go into the details of war-cycle theories, but I can tell you the conditions for war are much better today than they were 10 or 20 years ago."

With a nickname like Dr. Doom, it's not hard to figure Marc Faber might have a pessimistic take on investing, the economy and the state of the world.

Faber, a Swiss-born economist living in Thailand, is one of the world's leading investment contrarians. His investment newsletter, the Gloom, Boom and Doom Report, is widely recognized for finding good reason to be gloomy about popular investment classes while discovering opportunity in undervalued, unfashionable ones.

These days, however, contrarian viewpoints are broadly fashionable, which is both good and bad for a noted contrarian such as Faber.

On the one hand, he is more popular than ever, travelling the world on speaking engagements, including a recent stop in Winnipeg at the 47th annual CFA (Chartered Financial Analyst) Winnipeg Forecast Dinner.

On the other hand, how does an expert who makes a living talking negatively about markets differentiate himself when almost everyone is feeling much the same?

He certainly doesn't do an about-face, giving rousing speeches of unbridled enthusiasm about markets' upside.

Instead, the ponytailed Faber has taken aim at Keynesian interventionist monetary policies, the popular choice these days of governments and central banks around the globe, including here in Canada.

For those who don't remember high school social studies, British economist John Maynard Keynes is one of the grandfathers of modern monetary policy. Basically, this model calls for government intervention when economic conditions get ugly, usually after a stock market bubble bursts. Amid the fallout and uncertainty, businesses are reluctant to spend. Governments step in to save the day, spending money to stimulate the economy until it starts to grow.

But this prescription for a sickly free market has side-effects.

"The problem is Keynesian policies have always aimed at solving structural problems with short-run fixes or by creating new bubbles," he says.

Lowering interest rates, quantitative easing (a.k.a. printing money) and other measures that encourage economic activity are Band-Aid fixes.

"It just postpones the problem, but it doesn't solve it," Faber says.

He admits these policies do have their uses. It was necessary for the U.S. Federal Reserve and other central banks, including Canada's, to flood the markets with money following the 2008 credit crisis, when billions in bad subprime debt that the world's largest bankers held froze lending, bringing economic activity to a standstill. The alternative, a complete system collapse, would have been worse.

But these measures are becoming more extreme with each crisis because in the long run, they make the problems they're intended to cure worse.

"It is like giving more drugs to a drug addict or more alcohol to an alcoholic," he said. "It relieves you temporarily -- at least it does in my case."

Though a pessimist, Faber isn't dour and serious. In his mid-60s, he still enjoys a good night out on the town, and even his market analysis isn't all gloom and doom.

If he didn't find an upside somewhere, high-net-worth investors wouldn't hand over money to his advisory and investment management firm, Marc Faber Ltd. He might be cynical, but Faber has a knack for finding overlooked, undervalued assets before they become favourable and overvalued.

The overlooked asset class of the moment is hiding in plain sight: equities.

Ironically, it's loose monetary policy that makes investing in stocks favourable.

Why? The quick answer is inflation. Because central banks increase cash in the marketplace, the value of money -- in real terms -- decreases.

Goods and services haven't increased in value intrinsically, but the cash chasing them has. The effect is inflation, and that's really what governments -- and their at-arm's-length central banks -- are often trying to create. They pour money into the market to encourage growth so prices increase rather than decrease, which has a nasty habit of further slowing economic activity.

For consumers, this is both good and bad. It's good because most people stay employed; it's bad because their money buys less. For investors who hold shares of a company, however, inflation can be beneficial.

If you own shares in a good company, their price will increase over time because a buyer will need more money to buy them because the value of the currency is worth less in real terms.

The effect is the same with commodities such as copper, gold, oil and grain. When governments lower interest rates, for example, to stimulate borrowing so business can expand and consumers can borrow to buy homes, cars and other goods, demand increases and so do prices of commodities used to manufacture the goods. For central bankers, this is the intended effect. But Faber says when governments put too much money too often into the marketplace, that money pushes prices too high too quickly, creating bubbles with increasing frequency. The bubbles eventually burst, leading to equally rapid price drops.

Markets become more unpredictable and manic as a result.

That's exactly what has happened over the last decade.

The Fed cut interest rates after 9/11 and the tech bubble, and the easy money flowed into housing, consumer goods and oil. Consumer goods stayed relatively stable, but only because the money from consumers flowed to the nations producing those goods, such as China. But oil and homes hit record highs.

"The Fed cuts interest rates to stimulate consumption and support the consumer, but at the same time, oil prices go ballistic and double, and so the consumer pays an additional $500 billion for oil, which is like a tax on the consumer," he said.

By 2008, housing and oil peaked and crashed. Many investors lost money; a handful got richer. Average folk got spanked, and the world's poor sank deeper into poverty."

"That is an unintended consequence of the Fed's actions: It punishes savers, decent people who have all their lives saved and said, 'I don't understand anything about the stock market; I'll just keep my money in the bank,' " Faber says. "Now they can't live off their deposits."

Today, GICs and other interest-bearing investments yield next to nothing, but commodities and equities have ascended -- just not like anything resembling a straight, gently sloping line. They increase rapidly and tend to decrease rapidly as well -- and then repeat.

Making matters more precarious, governments become ever more indebted as they repeatedly stimulate the economy to manage the increasingly frequent crashes. If they carry on long enough without increasing taxes and/or cutting spending, they risk a very dire consequence.

Excessive government indebtedness and loose monetary policy can lead to hyperinflation, as it did during the 1980s in Mexico when an oil bubble burst and falling prices crushed the Latin American nation's oil-based economy. The peso fell in value against the U.S. dollar by 98 per cent in less than 10 years.

While bad for the Mexican people, investors in its stock market eventually made money. Mexico's stock market increased from 1,000 to a peak of 343,000.

"There was the October crash in '87, and it closed at 139,000," Faber says.

"So the index went up by 139 times while the currency plunged by 98 per cent."

Now, Faber says that doesn't mean the same thing will happen in Canada or the U.S., but governments printing money distort prices all the same, and in the long run, those owning assets should preserve their wealth.

"It's not that I'm highly bullish about equities," he said. "I'm just saying that if you're as bearish and suicidal as I am, you're probably better off in equities than government bonds."

View the original article here

Monday, February 6, 2012

Faber Says Stocks May Disappoint After April, May - Bloomberg

Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the outlook for global financial markets, Europe's debt crisis and his investment strategy. Faber also discusses Facebook Inc.'s initial public offering and reports Glencore International Plc is nearing an agreement to combine with Xstrata Plc. He speaks with Susan Li and Rishaad Salamat on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Stocks may “disappoint” after April or May after a “strong open,” Marc Faber, publisher of the Gloom, Boom and Doom report, said in a Bloomberg television interview from Hong Kong.