Marc Faber buys more Gold

I added to my gold position about two months ago and I bought some gold related equities. But other than that I’ve done very little because I believe that in this extreme volatility when markets suddenly drop 10%, individual stocks drop 10% or 20% in one day, it’s a very difficult environment to make a lot of money unless you take huge risks.

via CNBC

Optimistic about IndoChina Region economic boom

Indo-China, It’s a boom region. It includes Vietnam, Cambodia, Laos, Thailand–which is not booming right now–but Myanmar also and in the north Yunnan province of China, and in the south Malaysia, Singapore. This region can grow at six percent to eight percent per annum for the next 10 years, provided there’s peace. 

Cambodian exports were up 20% this year. Vietnamese exports are up approximately 10% this year. So relative to the rest of the world, this is a boom region.

Stocks can go down even in low interest rates environment

Markets go up and down as we all know. And you can’t be always sitting there and say oh stocks always go up, real estate always goes up and so forth and so on. You could have zero interest rates and stocks go down as they’ve done in Japan until three years ago. So, even at these very low interest rates, something can happen that could dampen the enthusiasm of equities and I’m just a believer that the U.S. equities are now fully priced. 

Now can the indices make a new highs ? Possible.... Even if the indices make new highs, I would I would think the majority of shares will not make new highs.

Heavy capital flight out of China

We have had very heavy capital flight over the last 8 - 9 months coming out of China. And if I had to bet on someone the locals knowledge or some economist around the world talking up China and how great it is, I would bet on the locals who are shifting moving out of China at record levels at the present time............ 

[Watch the full video for Marc Faber's detailed comments on China]

Contrarian reason why Apple stock could be in trouble

The future is unknown and we are not dealing with markets that are free markets anymore. A free market is defined as a market when no market participant has a dominant influence and can manipulate the market. Now we have government interventions everywhere and you don’t know what they will buy next. They bought bonds and mortgage backed securities to depress the yields on these securities, they pushed interest rates essentially everywhere to 0, and by doing that they basically expropriate savers because money, one of the functions of paper money is to store value but at zero interest rates there is no store of value.

They may through sovereign funds, they have done it already and the Swiss National Bank already bought shares, the Swiss National Bank they own over a billion dollars in Apple stock! You can be sure that Apple will go down because whatever the Swiss National Bank does is a disaster!

That is a very good sell signal! The other sovereign funds have also bought equities. Now the sovereign funds are not going to increase anymore because most of them are oil related so they have to actually liquidate and that is a game changer from one trillion dollars in assets, sovereign funds in year 2002, they went to over seven trillion, I think they are going to come down to maybe three trillion, that will have an impact on liquidity and on yields.

Protect your gold from the government

If we think it through, the failure of monetary policies will not be admitted by the professors that are at central banks.

They will then go and blame someone else for it and then an easy target would be to blame it on people that own physical gold because they can argue, well these are the ones that do take money out of circulation and then the velocity of money goes down …  we have to take it away from them.”

That has happened in 1933 in the US…

With our brilliant governments in Europe that follow US policies and with the ECB talking every day to the Federal Reserve, they would do the same in Europe, take the gold away from people.

Gold as a hedge against Governments 

I would say an individual should definitely own some physical gold…The bigger question is where should he store it?

Euro will survive but it could be very different from its current state

We don’t know how the world will look in five or ten years´ time but I would say that I believe the euro will survive. Now the question is, in what form? Maybe there will be a euro like a US dollar, we have a US dollar, and maybe some countries like Greece, Italy, Portugal, Spain will no longer use the euro and will have essentially gone back to their local currencies. It could be, maybe not. Because you understand, the typical Italian, Spaniard and Greek, he knows very well: we leave the EU, our pensions will be paid in local currency and that will be much less than what we get now.

So on the one hand, from a nationalistic point of view, most Europeans would like to leave the EU but when they look at their pocket book, it is like when Scotland, when the vote came up to exit Britain, Great Britain, the young people, most of them voted for the exit, but the elderly people, the pensioners, they were threatened, again because as you say the media said well you leave the EU, your pensions will be cut... so if you are an elderly pensioner, what do you prefer, to get your pension and be part of the UK or leave the UK and get lower payments?

This is one reason I think the EU may stay together but of course if the economic conditions in the southern countries, Greece, Italy, Spain... do not improve, if they actually worsen again then maybe the move towards leaving the EU will become very strong. Number two, I have been writing about this, you know if you look at history, we had great empires, the Greek empire and the Roman empire and the Ottomans and the Spanish empire and the British empire and now we have the supremacy of America that I probably waning but it was certainly there after the Second World War, the point is usually if you had empires in the past, it was very costly because you had to keep armies in the so called colonies in your territories, and if there were problems you would have to send in the troops and the ships and so forth to essentially enforce your empire.

In the modern empires, like the EU, you may have to pay. It is not sending armies to Greece but basically you have to pay so that Greece stays in the empire and then comes the questions the Germans ask, how long are they going to be willing to pay for it? Because it comes out of tax payers´ money, you understand, the politicians, they don’t pay it. Most politicians don’t even pay taxes because they are with the EU in Brussels or with the IMF or the OECD, all these clowns they don’t pay tax and then they go and propose wealth taxes on the others, on us, who work. They don’t work, they don’t pay tax but the others should pay tax.

Basically the tax payer in Germany one day he will say well we don’t like the policies of Mrs Merkel and this is happening in America, they don’t particularly like Donald Trump but they like the fact that he points the finger at all these others that have abused the system so badly. My sense is that we could have not necessarily revolutions in the sense that you have armies fighting against each other in Germany and France like in the French revolution and so forth but what we could have is through the democratic process people saying we are just fed up with these bureaucrats in Brussels and the ones in Berlin and the policies that always lean on America. We are sovereign nations; we want to be free, even if it costs us something.

Inflation and asset price increases | VIDEO

Marc Faber discusses how low interest rates have helped to raise asset prices and inflation. 

Politicians not doing enough to help the poor and middle class

I have read a lot about inflationary periods in history which we have experienced from time to time, under John Law in France and then later during the French revolution and in Latin America. I also experienced periods of high inflation myself in the sense that during the very high inflationary period in Latin America in the 1980's I visited most Latin American countries because I was interested in the fact that when you have high inflation in a country, usually the currency tumbles and so although there is high inflation in local currency, in a strong currency unit, like in the 80's the dollar was strong, the price level actually went down very substantially so investment opportunities were fantastic.

You could buy buildings in Buenos Aires, the stock market in the late 1980's in Argentina... the whole stock market was worth 750 million US dollars, 750m, less than a billion. So you could essentially have bought the whole of Argentina for less than a billion dollars!! What happens in these periods of high monetary inflation is it is highly beneficial for a few families and a few well to do people because they know how to move their money between local currency and foreign currency and they know how to accumulate assets.

The people that get hurt are the masses, the middle class, the lower classes because their wages go up much less than the cost of living increases. Then what usually follows is a kind of political change of wind and you have new governments coming in and sometimes you have revolutions and sometimes you have an entire new leadership.

We had hyper-inflation in Germany and by the way there is a very good book out about the economics of inflation during the Wiemar period, but in each instance it led to a polarization of wealth and this is precisely what is happening now. You have huge merger and acquisition activity and you have stock buy-backs and if you look at the wealth inequality it is not between 1% of the population and 99, it is between 0.01%, the Carl Icahn's of this world and the big assets holders and then the masses that do not have assets so they don’t benefit from rising asset prices.

I can tell you also that here in Switzerland, 90% of the people, they think the government is no longer looking after the interests of the people but after their own interests. It is the same in Europe. I think this is a huge failure of democracy, that democracy instead of having been able to elect leaders that look after the interests of the people, they actually look after their own interests. I mean you look at the Clinton's, the Bush families and so forth, do you think they care about the ordinary Americans? They don’t care, they care about themselves, it is a power game. They care about money that is for sure.

Marc Faber speaks with Marcpolis for interview

Full interview separated in a playlist. Click the above to watch the video.

October 2015 Market Commentary | Marc Faber

The late Kurt Richebächer opined that, “Capital and wealth increases when a community produces more than it consumes. Capital and wealth decreases when the community consumes more than it produces. What is happening in the United States is the latter - with the consequences of general impoverishment.” 

In an earlier report I explained how Friedrich Hayek gained fame among English-speaking economists at the London School of Economics in 1931, because he made the distinction in the use of credit for investment or consumption his key theme. At the time he explained in detail how excessive consumer spending brings about “a shortening or shrinking of the production” and so causes recession. What shrinks is the economy’s capital base. In essence, production that uses capital gives way to production using little or no capital. In other words, the whole economy adjusts to the changes in the pattern of demand implemented by the credit excess. Looking at changes in employment in the US over the years, I note that employment in capital-intensive manufacturing has plummeted, while employment in all kinds of low-paying services has soared.  

There is a difference between excessive credit growth (defined as an “increase in money capital from credits which do not originate from savings but are created out of nothing through the banking system”) flowing into capital investments, and excessive credit growth flowing into asset inflation and financing consumption. Once the boom comes to an end, the severity of the downturn can be equally severe (most likely more severe in the case of a capital spending boom), but the capital spending boom leaves the entire system with investments such as railroads, canals, and other infrastructures, and new technologies. It is a well-documented fact that all canal companies, including the most successful of them all, the Erie Canal Company, went bust. 

Equally, by 1895, 95% of all US railroads were either in default or bankrupt; however, the transportation network that had been built by the canal and railroad companies was a huge boon to the expansion of commerce and trade within the American continent.

Similarly I would argue that, while there certainly has been capital spending excesses in China, at least there is now infrastructure in place whereas there was none 20 years ago (unlike in India, where infrastructure is still decrepit and extremely poor). On the contrary, in the case of an asset boom and excessive credit creation which financed consumption, the system is left with hardly any new capital structures but an over-indebted consumer. In addition, consumer credit allowed the consumer to advance consumption, which then leads to reduced demand once the consumer exhausts his borrowing capacity (as is now the case for the majority of American families).

This report explains why under current fiscal and monetary policies the global economy will likely enter a recessionary phase and why equities will unlikely perform well. 



via Gloomboomdoom.com