Monday, September 29, 2014

Faber outlines reasons for diversification

We are in a world that is driven by money printing and, in general, I believe the standards of living for many people in the Western world will continue to decline as they have declined over the last 20 years, if we look at median income in real terms. 

How the world will look in 5 or 10.... you and I and nobody knows, although some people think they know. So my advice is to be diversified. Hold some real estate, stocks, bonds and gold and you have to also diversify your assets geographically – don't hold everything in the US. Hold some outside the US as well; hold some outside Germany, outside Switzerland. 

You have to be diversified. Then you have to hope for the best.

Wednesday, September 24, 2014

Coming crisis will be different from last

Margin Debt level is at very high as a percentage of stock market capitalization, its essentially up to 2007 high and we have of-course a lot of leverage in the government sector, we have a lot of leverage in the corporate sector. And unlike the crisis in 2007 - 2008 when at that time the recovery came in 2009 emerging economies had a lot of momentum and they were still buoyant in terms of consumer expenditures increases, and notably China was very strong.

Now the emerging market complex is slowing down and isn't going to grow nearly as much as everyone have expected. If emerging economies overall can grow next year at say 4 percent, that would be actually an optimistic scenario, I think it could be even lower. 

Monday, September 22, 2014

Marc Faber wants his investments diversified hoping to avoid huge losses

I have always argued that we don't know how the world will look in five years' time. Maybe the S&P is at 3,000, but it could also be at 1,500—we just don't know. 

There's a lot of manipulation through fiscal and monetary policies. So I want to be diversified. I want to own some gold, I want to own some shares. I own the most in Asia and some in Europe because I think in Europe they are still better value than in the US. And I own some bonds, cash and real estate. I hope when the collapse happens, I'm only going to lose 50 percent of my money.

Wednesday, September 17, 2014

Western countries such as US heavily indebted

Well, my view is that the current monetary arrangements are not sustainable in the long run. We have sensitive, overly indebted Western economies in the US and Europe. It is not visible yet, because the unfunded liabilities are probably not accounted for. 

A company under GAAP would have to account for them, but governments don’t have to. What this means is that the benefits of people will eventually have to be cut either through inflation and adjustments that are below the true cost of living increases or through reduced payments to the individuals. With benefits going down or through outright expropriation over the last two or three years, more and more voices have come up talking about wealth inequality. 

I previously discussed the problem of wealth inequality brought about by expansionary monetary policies where the main beneficiaries become the asset holders. Wealth inequality should be largely addressed through monetary policies in the sense that you should have an interest rate structure that does not favor the kind of asset inflation we have. 

Monday, September 15, 2014

Rich have gotten richer

Credit expansion and money printing hasn't filtered much to ordinary people. It's boosted asset markets, real estate and stocks.

So well-to-do-people have done very well. High-end restaurants are packed. Now, some money flows to people who are serving there, because well-to-do people give generous tips, but ordinary people have a much higher cost of living increase than 2 percent.

Wednesday, September 10, 2014

Financial markets should pay attention to middle east crisis

Today, we find ourselves with the same anti-free market interventionists who set up the Federal Reserve, the US Treasury and the US government. These same incompetent professors and academics also run foreign policy in America and then go and intervene in the affairs of Libya, Syria, Egypt, Iraq or Afghanistan. And as can be expected, they mess up just about everything. 

We have this Wolfowitz Doctrine that says they don’t want to tolerate any other major power such as the Soviet Union or China. So they want to contain these countries. When these countries become economically more and more important, the tensions, in my view, are only going to increase. 

I think it’s unlikely that the West will take any action. 

First of all, they don’t have the money. 

Second, a survey done by the US military stated that over 71% of their youth are unqualified to join the military for a number of reasons, including educational, behavioral and health conditions. So, if 71% of American youth are not qualified, it means the US doesn’t have the labor force to actually implement its foreign policies. And so they resort to private contracting companies that create more problems than solutions. I’m very negative about the Middle East. I think the whole region will blow up. Eventually Iraq will be divided into three different countries: the Kurds, the Sunni in the North and the Shiites in the South. All I can say is that, in general, financial markets are not paying sufficient attention to this.

Monday, September 8, 2014

Water and Food investments can be big in future in emerging economies

I think there is an opportunity in real estate in some emerging markets because they are depressed and so forth. But in terms of industries, I tend to stay away from the new industries until they've gone through a bubble stage and then the bubble bursts and then they become cheap. At the present time, I want to be rather in liquid investments than in these kind of sectors. I think an underappreciated sector is probably water and food. I think this will be a big issue in the future.

Tuesday, September 2, 2014

Economic power shifting from Western countries to Asia

Everything is connected and interrelated. We had a colonial system until the end of the Second World War, followed by the rise of individual countries. And over the last twenty-five to thirty years what we had as the rise of China with 1.3 billion people. Because of China’s rapid growth and resource dependence (iron ore, copper from Australia, Brazil and Africa, and oil principally from the Middle East), the Chinese have obviously become a very important economic force.
Sky scrapers dot the cities across China and Hong Kong

Take Africa twelve years ago: trade between Africa and the US was twice the size of trade between Africa and China. But today, the situation is reversed. As a result, China has gained large geopolitical influence due to its growing economic relations. This helped shift alliances from the US to the East, which has led to tensions. China has many provinces that are larger than a European country and as an economic block, China is huge! It dwarfs everything else in Asia. But now China is surrounded by military bases in Asia, by American aircraft carriers and by the signed defense treaties between the US and Japan.

Moreover, the Chinese never forgot that Japan had attacked them numerous times over the past 200 years. Additional disputes between China and its surrounding countries, Vietnam, the Philippines, Taiwan, and especially Japan about maritime rights will cause further tension in the region. Despite these tensions, the power shift is still underway. 

You have a superpower like the one Britain was until the First World War and you have a rising power like Germany whose economy in 1910 overtook that of the British. Here you have the superpower that believes in the old order and the new power that believes it should have more influence on global affairs. The
resulting tensions create an environment that is favorable for confrontation. But it doesn’t have to come to war. In my view, China’s long-term objective is to kick out the US from their military bases, particularly after Hillary Clinton and Mr. Obama announced the American Pivot to Asia two years ago; it was a kind of direct attack or confrontational behavior towards China.

Last Update: Sep 5, 2014