Social Discontent and Moral Degeneration are by-products of Central banks

The economist Jeffrey Sachs, recently penned an article entitled, The age of impunity. Sachs explains that, “Impunity means that the rich and powerful escape from punishment even when their malfeasance is in full view. Impunity is epidemic in America. The rich and powerful get away with their heists in broad daylight.”

Dubious practices, fraud and embezzlement are common during financial bubbles, which are usually created by central banks’ loose monetary policies and by a poor supervision of the financial sector.

Currently, there is a wide gap between GAAP earnings and “adjusted” earnings, which are usually reported to investors. In the first quarter of 2016, according to FactSet, the companies in the DJIA that "adjusted" their earnings inflated them on average by 28.9% over their earnings under GAAP. According to Wolf Richter, “no one wants to see it. Instead, everyone wants to believe the sweet fairy tale spun by Wall Street and Corporate America.” Richter calls this phenomenon, “Consensual Hallucination.”

The Swiss psychotherapist Carl Jung opined that, “The wickedness of others becomes our own wickedness because it kindles something evil in our own hearts.”

The flood of money that central banks are creating pollutes the Western capitalistic system and free markets, as well as democracy. The consequences are anemic economic growth, deep social discontent, a culture of cheating, and moral degeneration. At the same time, “the bureaucracy is expanding to meet the needs of an expanding bureaucracy” (Oscar Wilde). Hardly a recipe for sustainable economic growth and rising standards of living.  


via gloomboomdoom.com

Why a diversified portolifio is the best strategy

If I buy blue-chip stocks, I earn a dividend yield of 2.5% or 3%. In some cases more, in some cases a little bit less. But over a 10-year period, I think that the stocks are going to be a better investment than the bonds market.

Now, on the other hand, if I look at the US 10-year government bond yield, it’s 2.2% today. In France it is less than 1%. So I’m saying to myself, “Well, maybe government bond yields are reasonably effective,” and everybody is bearish about bonds. 

But as I said, I don’t know. I’m just saying, in absence of knowing, the best the investor can do is to say to himself, “Central banks have created a low-return environment, a low-return and high-risk environment, I may say, and in this low-return, high-risk environment, the best strategy’s probably to be diversified." I mean, I’m happy if, in the next five years, I don’t lose any money. I’m not greedy and want to earn any money. I prefer not to lose any.

Eventually we will see QE4 introduced

My impression is that the Fed will not increase rates any further this year – my impression is that the economy is actually weaker than the statistics would suggest. My impression will also be that eventually there will be some type of helicopter money in the U.S, or the launch of QE4.

We need to be diversified because we don't know how far the Fed will go

Fed is very much market dependent in my opinion.

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Overvalued vs Undervalued compared to a time perspective

What is overvalued and undervalued is a subjective judgment. Institutional investors, either they are ETF, which are passive investors, so by indices, the S&P 500, or what not... or they are active managers, and the hedge funds are also active managers. Now, they don’t care about what will happen in five years time. They care what will happen within the next week. They want to be in stocks that move within a week, within a month, because they need to show performance. If they don’t show performance, then the clients leave them. So everything has become very short-term oriented, and I would suggest to an investor to forget about the short-term and to think from a longer-term perspective, where is their value?

I happen to think and agree with Rick Rule that there is value in gold mining shares. And personally I hold, of course, much more in physical gold than in gold shares, but because I’m a director of NovaGold and Sprott Inc. and Sunshine Mining and Ivanhoe, I also own shares, and I think they’re very cheap at the present time, and they could easily double, all of them, easily.

Look. Investors buy high and sell low. Please remember that. 

I went to dinner, in 1999 in St. Moritz in Switzerland. There were lots of people with money and they said, “Oh. We make so much money buying and selling the NASDAQ and tech stocks as well. 

Then they ask me my opinion. 

I said, “Gold is very cheap.” It was, at that time, $255, or something like this. Then they said to me, “Gold only goes down,” because yes, it has gone down from $850 in 1980 to $255, but I told them, “Because it only goes down, it interests me to buy it, because it’s a neglected asset class.”

What happens if all Government bonds are bought by the Government itself

What could happen is that, in a concerted effort, central banks around the world would essentially buy up all the government bonds. It’s possible. We don’t know. The U.S. Treasury and the ECD. Actually, the Bank of Japan is a good example. They’re buying all the government bonds that the government is issuing. What the outcome will be, we don’t know for sure, but again, my view would be that the outcome will not be very favorable. At some point, yields on bonds will go up.

Now, you may say, “Okay. If the government buys all the government bonds, how can yields go up?” Well, they can go up because there is a lot of debt outstanding already, and whereas the government debt may not collapse in price, in other words, yields on government bonds may not go up substantially. What may happen is that corporate bond yields, and in particular, high yield bond yields could go up substantially.

But I’m just trying to say, in my view, the current regime, run by central bankers, is not going to end well. I mean, someone has to pay for the government’s expenditures, and if you have these kind of deficits that we have in most countries, eventually something will happen. And we do not only have rising government debt. We have rising corporate debt, rising household debt, and so forth and so on, and we have the unfunded liabilities. Nobody talks about that.

I mean, let’s put it this way, I think it’s important for the individual to think this through very carefully. I don’t think the real estate will be expropriated, because everybody owns real estate, so it’s politically not acceptable, but it can be taxed more heavily, because it’s very visible. So I’m not so sure that real estate is the best investment, but at least you’re not going to lose everything.

Then comes equities, if you compare equities, say. In Switzerland, blue-chip stocks yield, say, around, have a dividend yield of maybe 3%, two and a half, 3%, and the government bond yield now, in Switzerland, is less than 0.25% on 10-year government bonds. So if I buy a thrift government bond for 10 years, the maximum I will earn, if I hold it to maturity, is, as of today, precisely 0.24% per annum. Doesn’t even cover my fees to the bank.

Somethings are not known to anyone but this is for certain

The end will not be pleasant. We have a systemic risk, and the system, such as it is today, is not going to survive for long, maybe another five years, maybe another 10 years, maybe only one year, but the end will not be pleasant for investors. That is what I know.

Marc Faber says US Government is disliked all over the world

The US is still a superpower, from a military point of view. From a prestigious point of view, the US is in the dumps, because everybody in the world now realizes what kind of a hypo-critic leadership the US has. They go around the world and tell people about democracy. They tell people about human rights, about torture, about evil regimes, about nation-building, and what do they do? .....Torture... It has been exposed. It’s a complete joke and you had Dick Cheney and his mafia colleagues telling the world that this was absolutely legal, and so forth. I mean, it’s a complete joke. They come and advise other countries how to run their business, and so forth, and themselves, they live by American exceptionalism. 

So the prestige of the US is gone, forever, and nobody will ever trust the US anymore. The Americans, when they travel alone, they’re welcome everywhere, but nobody in the entire world likes the US Government any longer. That should be clear. They’re the laughingstock of the world, the laughingstock.

Singapore is looking attractive relative to other investing opportunities

Singapore has a well-diversified economy and on its stock market you are getting a yield of 4%. Compared to cash that´s an attractive alternative. The market could go down, but we could also see potential for it to rise.

Since their high in 2013, valuations have come back down again. The stocks are not so cheap as in 2009 for example but given other investment opportunities, they look attractive.

Thailand stocks are reasonably priced

For Thailand, there is nothing to be bullish about. You can't be very optimistic. But what investors have realized is that Thai stocks are reasonably priced. Second, what many investors have not realized is that Thailand sits on foreign reserves that in percentage of the population are larger than China's. I don't think they [Thailand stocks] will go up a lot, but downside risks aren't high, because Thai companies are paying good dividends. 

Gold core interview with Marc Faber

Our apologies for the poor audio quality

Is the classic car market in a bubble ?

Today, we are discussing art and collectibles as an investment class. 

Daniel Pembrey of the Financial Times explains how over the last twenty years the benchmark FTSE 100 index has more than tripled when measured on a total return basis. The two-bedroom flat, which he sold 20 years ago and which offered south facing views over Clapham Common plus a blue heritage plaque honoring Graham Greene, has risen in value a multiple of five - and this doesn’t take into account the stream of rental income an investor could have received. But even the increase in London property prices pales in comparison to a memorable Aston Martin Zagato, which he could have bought 20 years ago for at £500,000. Another of the 19 made - licence plate 4 RTA, also California sage-colored - recently sold at a Sotheby’s auction in New York more than £10m at current exchange rates. That’s a twenty-fold increase, and while there are auction fees to consider, it also comes with an exemption from UK capital gains tax.

Pembrey also discusses an index of classic cars that might be characterized as the mid-to-top end, which confirms the out-performance of high-quality classic cars over recent years relative to asset classes such as prime London property. But can this strong performance continue - or are classic car and other collectible valuations heading for an expensive crash?

Over the course of my life I collected many things. However, I suppose that the best collections, which we can have, consist of a happy and harmonious family, good health, great moments with friends, and integrity.