I have already referred today to Faber's interview on Minesite.com and would like to pull out one or two strands:
Faber thinks "...all real estate markets around the world are in cuckoo land and that they will all correct at some stage meaningfully even if you print money".
Asked whether he has real estate himself, he says, "I own properties in Asia, in New Zealand and in Vietnam in particular and in Thailand, and Indonesia and some in Switzerland; but ... I never borrow money to buy my properties, I pay cash ... I also own gold, and I also own some shares of course, I’m just diversified; but in general, I am very liquid at the present time... I’m holding a lot of cash at all times."
Re precious metals and inflation: "I tell you, the US has no other option but to print money. And they’ll go down like the Roman Empire in a huge hyperinflation. " He is bullish on silver and gold (especially gold), though he notes the danger that in a crisis, the government may simply expropriate investors' holdings of precious metals, as has happened in the US before.
Faber also notes that the expansion in the money supply in the West is not matched by increases in GDP, which is why we have speculative bubbles and a stalled standard of living: "...in the 50s and 60s and 70s if you increased your debt in the United States by $1 you got essentially also a dollar's worth of GDP growth. Now in the last 5 years, total credit market debt in the US has grown by $13 trillion but GDP by just $2.3 trillion." By contrast, in the East, living standards have risen: "I moved to Hong Kong in 1973. When I came, Taiwan, South Korea were very, very poor countries, as well as Singapore was like a dump at that time. Today, Singapore is the richest country in the world and, you see that the standards of living of people, has over the last 30 years, improved very dramatically in these countries. Whereas in Switzerland I go there, back, a few times a year I don’t see any meaningful improvements in the standard of living."
I think I have to speak personally now. What worries me, since I'm not rich and live in a large ex-industrial city, is not how to profit from the crash, as Peter Schiff advises, but what my life is going to be like when my neighbours and their children are strapped for cash, unemployed (or in Mcjobs) and increasingly resentful. Shouldn't we get our noses out of the financial press and start to become concerned about the social cost of the folly and cynicism of our banks and governments?
Sunday, July 15, 2007
How long can Japan power world stockmarkets?
An interesting audio file of Gary Dorsch (Global Money Trends, Sir Chartsalot) being interviewed by Jim Puplava (Financial Sense) on 16 June.
He notes UK Chancellor of the Exchequer (i.e. finance minister) Gordon Brown's denial that increases in the money supply are closely correlated with inflation, and says that this is why governments around the world don't raise interest rates fast enough and high enough. (Now that Gordon Brown is Prime Minister, I don't expect a sudden change of heart.)
Dorsch also notes that foreigners are becoming reluctant to keep pumping cash into US Treasury bonds, and bond yields are rising. He regards the yield on the 10-year bond as critical for housing and stockmarket valuations.
He also notes that Japan is resisting rises on its own 10-year bond yield, for fear of a strengthening yen and weakening trade balance; but the rate (c. 2%) is still so incredibly low that traders are borrowing vast sums (the Japanese have $7.5 trillion in bonds, I think Dorsch stated) to invest in global equities. So until there is a significant hike, the "carry trade" will continue to help inflate stocks. He wonders whether at some point, "bond vigilantes" will have enough strength to force an interest rate rise.
Meanwhile, Dorsch notes growing interest in commodities. He likes producing countries such as Canada, Australia and Brazil, and thinks that the ever-growing demand for base metals and energy (especially oil) from China and India will bear them up on the tide.
He notes UK Chancellor of the Exchequer (i.e. finance minister) Gordon Brown's denial that increases in the money supply are closely correlated with inflation, and says that this is why governments around the world don't raise interest rates fast enough and high enough. (Now that Gordon Brown is Prime Minister, I don't expect a sudden change of heart.)
Dorsch also notes that foreigners are becoming reluctant to keep pumping cash into US Treasury bonds, and bond yields are rising. He regards the yield on the 10-year bond as critical for housing and stockmarket valuations.
He also notes that Japan is resisting rises on its own 10-year bond yield, for fear of a strengthening yen and weakening trade balance; but the rate (c. 2%) is still so incredibly low that traders are borrowing vast sums (the Japanese have $7.5 trillion in bonds, I think Dorsch stated) to invest in global equities. So until there is a significant hike, the "carry trade" will continue to help inflate stocks. He wonders whether at some point, "bond vigilantes" will have enough strength to force an interest rate rise.
Meanwhile, Dorsch notes growing interest in commodities. He likes producing countries such as Canada, Australia and Brazil, and thinks that the ever-growing demand for base metals and energy (especially oil) from China and India will bear them up on the tide.
Housing corrections and stock corrections related
Tim Wood, in Financial Sense (13 July), tracks housing cycles and the Dow, and predicts a drop in the Dow sometime, to follow the drop that has already occurred in housing. He also sees a series of 4-year cycles; Contrary Investor connects the Dow and Presidential terms, in an article earlier this month.
More on housing loan losses
Stephanie Pomboy's MacroMavens site gave this worrying picture of banks' exposure to real estate risk, on 7 June 2005 - (I'd be grateful for an update for 2007). The Mogambo Guru recently (12 July) quoted her firm as saying (in Barron's) that $693 billion of mortgages are now in the red, with a possible $210 billion in outright losses.
Marc Faber interview on Commodity Watch Radio
Inflation, housing losses and a stockmarket bubble.
Richard Daughty aka The Mogambo Guru lays about him on 12 July. The housing bubble continues to deflate and inflation is up.
Apparently M3 (no longer reported as such by the Fed) has risen from 8% to 13.7% since figures ceased to be released officially. Looking across the water at the UK, our M4 (bank private lending) has averaged over 13.5% over the four quarters ending 31 March, so it seems we're in the same boat.
A disturbing element in Daughty's report is the notion (relayed from Gary Dorsch at Global Money Trends) that the strategy of US Treasury chief Henry Paulson is to engineer a stockmarket bubble to offset the losses in the housing market. This, as cinemagoers used to say in the days of continuous showing, is where we came in.
Apparently M3 (no longer reported as such by the Fed) has risen from 8% to 13.7% since figures ceased to be released officially. Looking across the water at the UK, our M4 (bank private lending) has averaged over 13.5% over the four quarters ending 31 March, so it seems we're in the same boat.
A disturbing element in Daughty's report is the notion (relayed from Gary Dorsch at Global Money Trends) that the strategy of US Treasury chief Henry Paulson is to engineer a stockmarket bubble to offset the losses in the housing market. This, as cinemagoers used to say in the days of continuous showing, is where we came in.
Saturday, July 14, 2007
Puru Saxena: natural resources at bargain prices
Like Jim Puplava, Puru Saxena (yesterday) sees a bull market in commodities, not merely on account of monetary inflation but also in view of increasing demand.
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