Time for a hartal

Time for a hartal
28 July, 2009

Are we truly independent? Or did we just switch the white British colonialists with brown colonialists? Did we merely kick out one dictator, ten thousand miles away, and replace it with ten thousand dictators one mile away?

NO HOLDS BARRED

Raja Petra Kamarudin

The federal government is sending each of us a $600 rebate.
If we spend that money at Wal-Mart, the money goes to China.
If we spend it on gasoline, it goes to the Arabs.
If we buy a computer, it will go to India.
If we purchase fruits and vegetables, it will go to Mexico, Honduras and Guatemala.
If we purchase a good car, it will go to Germany and Japan.
If we purchase useless crap, it will go to Taiwan.
In short, none of it will help the American economy.
The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in the US.

Dr. Marc Faber

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Dr. Marc Faber's company, Marc Faber Limited, acts as an investment advisor company concentrating on value investments with tremendous upside often based on contrarian investment philosophies. Faber also invests and acts as a fund manager to private wealthy clients. Faber is a regular speaker on the investment circuit, often quoted in the financial press for his non-conformist viewpoint and alternative investment philosophies. His current — if eccentric — tagline is: 'buy a $100 US bond and frame it to teach your children about inflation by watching the US bond value diminish to almost nothing over the next 20 years'. Faber is famous for advising his clients to get out of the stock market one week before the October 1987 crash. - Wikipedia

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Hartal is a term in many Indian languages for strike action, used often during the Indian Independence Movement. It is mass protest often involving a total shutdown of workplaces, offices, shops, courts of law, etc., as a form of civil disobedience. In addition to being a general strike, it involves the voluntary closing of schools and places of business. It is a mode of appealing to the sympathies of a government to change an unpopular or unacceptable decision.

Hartal was originally a Gujarati expression signifying the closing down of shops and warehouses with the object of realising a demand. MK Gandhi, the Indian national leader from Gujarat, organised a series of anti-British general strikes, which he called hartals, thereby institutionalising it.

In Bangladesh a hartal is a constitutionally recognised political method for articulating any political demand.

In Sri Lanka, it is often used to refer specifically to the 1953 hartal of Ceylon. Hartals are still common in India, Bangladesh and in northern and eastern Sri Lanka.

In Malaysia, the word "hartal" was used to refer to various general strikes in the 1940s, 50s and 60s, such as the All-Malaya hartal of 1947 and the Penang hartal of 1967.

The word hartal in India is also used in humorous sense to mean abstaining from work. Another variant, which is common in Hindi-speaking regions, is the bhukh hartal, which translates as hunger strike. - Wikipedia

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The recent Manik Urai by-election proved even more that Barisan Nasional, in particular Umno, depends on money for its survival. RM1,000 in cash was paid to every voter in Manik Uria, resulting in Pakatan Rakyat almost losing the by-election. One just can’t ignore the power of money. And money is one thing that Barisan Nasional has plenty of. Plenty of money would translate to plenty of power as well.

To cut Barisan Nasional and Umno down to size, we have to hit them where it hurts most. And it hurts most when the pocket is hit. So, to hurt Barisan Nasional and Umno, we must hit them in the pocket. And this means hitting the source of that money, the companies that are paying Barisan Nasional and Umno huge sums of money to help them stay in power.

Who are these crony companies? Which are the companies that are paying Barisan Nasional and Umno huge sums of money? Where did all this money come from? How much of that money actually belongs to you and me, the rakyat?

Companies are in the business of making money. You do not set up a company to do charity. Companies have only one philosophy in mind and it can be summed up in just three words: profit, profit, profit.

So we need to reduce the profit of these companies. We need to cut into their war chest so that they have very little left to give to Barisan Nasional and Umno. Companies depend on licences, permits, quotas, government contracts, political patronage and whatnot to survive. And to procure these licences, permits, quotas, government contracts, political patronage and whatnot, they need to pay ‘under the table’ money to those who walk in the corridors of power. Bribery makes the world go round in corporate Malaysia. Bribery fuels the government machinery. Business empires are built on bribery, corruption, political patronage and cronyism.

Look for alternatives. Buy products and services from those that are not crony companies. Deny yourself whatever it is you normally indulge yourself in so that these companies do not earn your money, which in the end ends up in the pockets of Barisan Nasional and Umno.

Another way to hurt them financially would be to launch a hartal. On 8 August 2009, a few NGOs and civil society movements are organising a hartal in Perak. They want to turn Perak into a ‘ghost town’. Stay home on 8 August 2009. Don’t leave your house. Empty the streets, shops and restaurants. Do what you need to do the day before. And on 8 August 2009 stay behind the locked doors of your home.

On 31 August 2009 we shall, again, be celebrating Merdeka or Independence Day. Independence was declared on midnight of 30 August 1957. On that day the Union Jack was lowered and proudly replaced with the Malayan flag.

But are we truly independent? Or did we just switch the white British colonialists with brown colonialists? Did we merely kick out one dictator, ten thousand miles away, and replace it with ten thousand dictators one mile away?

No, we are not yet Merdeka. What we have done is merely to replace one colonial government with another. The present government is continuing the oppression and discrimination of the previous government. We need to be truly Merdeka by ending the dictatorial rule of the present government.

There is no reason to celebrate Merdeka. There is no justification to raise the flag this 31 August 2009. Merdeka has not been achieved yet. It will only be achieved when we see a change in government or at least a change in government policy. Only then would it be feasible to celebrate Merdeka.

We need a hartal. We need many hartals. The rakyat need to vote with their feet. They rig the ballot box. Voting with our ballot paper is an uphill task. We must use our feet to vote. And the way to vote with our feet would be to launch and participate in many hartals and boycotts.

Civil disobedience is the order of the day. If we stay home and refuse to buy the products and services of those who are propping up the illegitimate regime the government will eventually crumble. Without our participation the government can do very little. Without our money we will starve them.

If we come out and protest they can use the police against us. If we demonstrate they will brutalise us. But they can’t do anything to us if we launch a hartal. No government can clamp down on civil disobedience.

So do nothing. No one can harm you if you do nothing. And doing nothing involves staying home and not allowing your money to leave your pocket. And if you still need to buy products and services make sure it is not from one of the crony companies.

Marc Faber on Economy, Lehman and AIG

AIG bigger problem than Lehman; emergency rate cut possible, says Marc Faber

16 Sept, 2008

INTERNATIONAL. The Federal Reserve could make an emergency move and cut the federal funds rate by half a point during trading Monday, investment advisor Marc Faber told CNBC.

"Whether there will be a follow up on the downside is not sure, we could have kind of a reversal, simply because central banks will flood the system with liquidity, and I wouldn't rule out, in America, an emergency rate cut, say by half a percent in the trading session and also interventions into the market."

"I would expect markets to temporarily bottom out between now and the middle of October and then have a fairly strong rebound, but of course, no new highs," Faber said.

"The takeover of Bank of America of Merrill Lynch is, of course, an exchange of bad paper for even worse paper," he added.

"In other words, the one-eyed bank buys the blind bank. Bank of America, having already bought a terrible asset, which is Countrywide Financial, is buying another asset about which they have little idea about the value of its securities."

"I'm not so sure than even a rate cut will lead to a strong recovery in financial stocks," he said.

"Personally, I shake my head: why would Bank of America pay a 70% premium for Merrill Lynch?"

Meanwhile, Faber told Bloomberg Television that AIG could be a "much bigger problem" than Lehman Brothers Holdings, the securities firm that filed for bankruptcy protection Monday.

AIG shares plummeted Tuesday after the insurer's credit ratings were cut, heightening concerns it might file for bankruptcy and further upset the global financial system.

In late-morning trading, AIG shares were down US$2.29, or 48.1%, at US$2.47 on the New York Stock Exchange, after earlier falling as low as US$1.25. The shares had fallen 60.8% on Monday.

The shares recovered much of their early losses after CNBC television said government money might be used in a bailout of AIG. But the shares later fell back after the network said U.S. Treasury Secretary Henry Paulson opposed using government money and that a private sector solution wasn't likely.

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How to protect yourself from the Lehman collapse

By Deputy Editor John Stepek

Sep 16, 2008

Chancellor Alistair Darling might permit himself a rueful little chuckle this morning.

A mere couple of weeks after the pundits lined up to shoot him down over his claim that Britain was facing the worst economic conditions in 60 years, the papers are now full of comparisons to 1929.

Of course, he won’t be laughing for long. After all, the collapse of Lehman will just leave him with yet more headaches, and doubtless there’s still plenty of drama to come on both sides of the Atlantic.

But forget him – how does all of this affect you?

There will be a whole new round of disruption to interbank lending

Stock markets around the world took a hammering yesterday, unsurprisingly. The Dow Jones ended below 10,000, slumping 504 points. The FTSE 100 was off 212 points at 5,204.

This isn’t over. Lehman Brothers is gone, Merrill Lynch has been sold off, but the impact will be felt throughout the markets for a long time. No one is entirely sure what will happen as Lehman’s liabilities are unwound. That means a whole new round of disruption to interbank lending as banks become more afraid to lend to each other again. So forget about mortgages getting any cheaper any time soon.

As Philip Aldrick points out in The Telegraph, there’s the debt that Lehman actually has outstanding (around $150bn, about five times that of telecoms group WorldCom, which was until now the biggest debt default in history). The debt is still worth something – Lehman itself clearly has some valuable assets – so we’re not talking about a loss of that entire $150bn. But whatever it’s worth, it’ll be a lot less than its face value.

Then there’s the credit default swaps (CDS) issue to worry about. CDSs are basically a type of insurance written on corporate debt, guaranteeing payment of the debt in the event of a company going bankrupt. Sandy Chen at Panmure Gordon reckons there was about $350bn in CDSs written on Lehman debt. Again, because the debt is worth something, we’re not looking at an entire $350bn – but using an “optimistic” 60 cents in the dollar, that’s still $140bn the banks writing the insurance will have to pay out.

Then of course, as Lehman sells off its dodgy assets, the market price of these will fall further, which will also mean that other banks have to take further writedowns on their own dodgy portfolios. All in all, it looks a bit like the subprime meltdown all over again.

Then there’s the small matter of insurance giant AIG, which is struggling to raise emergency funds as I write this. As Kenneth Lewis, chief executive of Bank of America told CNBC, “I don’t know of a major bank that doesn’t have some significant exposure to AIG.” A collapse would “be a much bigger problem than most that we’ve looked at.” We’ll have more on this story on the website later today.

So what does all this mean for you?

Unsurprisingly, the main losers in the UK amid the sea of red – the only risers were utility stocks – were the banks. HBOS was the top faller, down 17.5%, with Royal Bank of Scotland and Barclays close behind. As the three British banks most exposed to ‘toxic’ assets, they’ve been hit hardest.

Now we’ve been warning readers away from investing in banks for a long time, so hopefully most MoneyWeek readers will have avoided taking a hit from their share prices collapsing. As for concerns about another Northern Rock - on this point, we’ve already suggested, along with every other newspaper, that it’s a good idea to make sure you only have a maximum of £35,000 saved with each individual bank. That’s the limit covered by the Financial Services Compensation Scheme.

That’s not to say that anything is going to happen to any of the high street banks that would imperil people’s savings. If Northern Rock was deemed too big to fail, the government can hardly pull a Lehman Brothers on a genuinely important bank like HBOS, for example. But it’s always better to be safe than sorry.

As for the rest of your portfolio - something interesting happened yesterday amid all the carnage. The oil price took a dive. This could be put down to Hurricane Ike being less disruptive than feared, or to increased fears about the state of global growth. But I’d argue that it’s yet more proof that much of the recent surge above $100 a barrel was due to a flood of speculative money, which is now being yanked out of the markets. We suggested selling out of oil at the start of August and I wouldn’t be looking to buy back in again yet.

The real value of gold – insurance against financial disaster

At the same time, the gold price moved higher. Gold – as my colleague Dominic Frisby has pointed out – has had an awful time recently, partly down to the dollar rally and some thoroughly misplaced optimism about the US economy. But events like yesterday’s demonstrate the key reason for holding gold – as insurance against financial disaster.

In a recent edition of his Gloom, Boom and Doom newsletter, Marc Faber argued: “I am not a great believer in insurance policies, but since I think that sooner or later the entire financial system will blow up I want to make sure that… I shall still be left with some assets that are mine (physical gold in a safe deposit box – not in the US).”

Now that’s a very downbeat way to look at things. But the point is that the more that things like the Lehman collapse happen, the more people start to wonder if Mr Faber is right. That’ll drive demand for gold higher, regardless of whether a total financial collapse happens or not. And if it does, well, there are worse things to be holding than gold.

So I’d suggest you keep holding on to your gold. You can find out more in our current issue, where Dominic has more on why physical demand has been rocketing. If you’re not already a subscriber, you can get your first three issues free by clicking here.

Our recommended article for today

Where now for oil and gold?
There's a saying that bull markets 'are born on pessimism, grow on scepticism, mature on optimism and die on euphoria'. Given all that's happened lately, are the bull markets in gold and oil over - and are they now primary bear markets?

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AIG approaches Fed as shares plummet amid scramble to raise capital
September 16, 2008

Shares in American International Group (AIG), the largest US insurer by assets, fell by half in early trading yesterday as the company failed to present a plan to raise capital and stave off credit downgrades.

AIG, seeking to raise $20 billion (R160 billion) in capital and sell $20 billion in assets, had rejected investments from buyout firms Kohlberg Kravis Roberts, TPG and JC Flowers & Co, according to people familiar with the talks. AIG instead sought a $40 billion bridge loan from the Federal Reserve, the New York Times reported, citing an unnamed person. The shares plunged by $6.25 to $5.89 at 9.42am in New York.

Business news channel CNBC said AIG was seeking funds from the Fed as a temporary measure and planned to repay the Fed with proceeds from asset sales.

Warren Buffett, the chairman of Berkshire Hathaway, "is thought to be in talks" with AIG about a possible investment, the Insurance Insider reported, citing unidentified sources.

No comment could be obtained from representatives of Berkshire or AIG.

"People are afraid of what they are not hearing," Robert Bolton, the managing director at Mendon Capital Advisors, told Bloomberg Television. "The only thing people have to trade on right now are the rumours."

Chief executive Robert Willumstad is under pressure to raise capital and sell units after three quarterly losses totalling $18.5 billion. Investors are concerned that the insurer cannot raise enough cash to withstand further write-downs from credit-default swaps.

AIG might report write-downs of $30 billion, resulting in its "worst quarter yet", if Lehman's bankruptcy led to distressed sales of mortgage assets, said Citigroup analyst Joshua Shanker. He downgraded AIG to hold from buy.

Downgrades could hurt AIG's insurance business, since some policies carry clauses that nullify a contract in the event of downgrades below a certain level.

Marc Faber, the managing director of Marc Faber Limited, told Bloomberg Television that AIG could be a "much bigger problem" than Lehman Brothers Holdings, the securities firm that filed for bankruptcy protection yesterday.

Standard & Poor's said on Friday that it might downgrade AIG's credit ratings because the share declines could crimp the insurer's access to capital. The shares had fallen 79 percent this year before yesterday.

JC Flowers had offered $8 billion for a stake that would have given the firm an option to buy the rest of AIG, the Times said.

Faber: Forget Stocks, Buy Dollars

Faber: Forget Stocks, Buy Dollars

Monday, August 25, 2008 12:06 PM

Acknowledging that many investors see weaker oil prices as bullish, Marc Faber says lower oil prices actually signal that the global economy has entered recession.

"I think that what has happened is that starting in the fall of last year, the U.S. trade and current accounts were diminishing rapidly. It led to a tightening of global liquidity, (and) foreign official dollar reserves were not growing at the same pace as before," the managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report told Bloomberg.

"Whenever liquidity tightens, it leads to poor markets but is very dollar-supportive. Weak demand in the U.S., lower imports, and the demand for oil also declining led to a tightening of global liquidity," Faber explains.

That's why Faber isn't buying stocks now, he's buying dollars.

However, if he was buying stocks, Faber says he'd buy into the U.S. market because the U.S. economy is in relatively better shape than Europe's.

The weaker dollar makes it easier for U.S. companies to sell overseas, and the stronger euro makes it more difficult for Europe to sell goods to the U.S., he says.

Faber believes the dollar will continue to rally against the euro. "My view is that after four years of under-performance, the U.S. dollar would now outperform for three to six months. I still maintain that," Faber says.

"I think the dollar can continue to rally somewhat to $1.47 against the euro," Faber observes.

The euro recently fell the most in almost eight years against the dollar as traders scaled back their bets that the European Central Bank will raise interest rates.

Faber thinks the dollar can continue to rally somewhat to $1.47 against the euro.

Faber also suggests unloading commodities now.

Last October, he forecast a drop in commodity prices in the second half of 2008 due to a tightening of global liquidity.

Faber now foresees individual commodities dropping as much as 50 percent, which some have already done, but he believes the bull market in commodities will then reassert itself.

"In nominal terms, we had a bear market in commodities from1980 until 1999 or 2001. "Depending on the commodity we are seven years into a bull market for commodities."

Faber is also very optimistic about Japan's economy, but very wary of long bets on steel stocks and iron companies.

"That kind of thing I would avoid," he says.

Marc Faber - Bullish On The US$, Bearish On Commodities

Marc Faber - Bullish On The US$, Bearish On Commodities

Here is an interesting interview with Marc Faber on the dollar, the Euro, commodities and global equities.

Q: Is the Euro Doomed to keep falling?
A: Whenever global liquidity tightens relatively speaking, it is very US$ supportive. Obviously, there are always time lags between economic events until the the market perceives them. So as a result of weak demand in the US, lower imports, the demand for oil declines, and that led to a tightening of global liquidity which led to the strong dollar. Investors speak of weak oil price as being bullish but the point is that it signals the global economy is in recession already.

Q: Is your point that if Europe slows the US economy slows further?
A: Relatively speaking the US economy is in better shape because of the weak dollar. My view was that after 4 years of underperformance in the US compared to Europe, that the US would now outperform for 3-6 months and I still maintain that. The dollar can continue to rally somewhat as Europe will have to cut interest rates as well, and their economies are most likely much weaker than perceived. On a relative basis, if you put a gun to my head and said you had to buy somewhere it would be in the US.

Q: What about commodities Marc, is this the end of the bull run?
A: We are in a seven year bull market for commodities, so commodities can easily drop 50%. Some have already done that like nickel, lead, and zinc. Others will follow. But after that, I think that the bull market in commodities will reassert itself. But my view was that for the second half of 2008 commodities would go down.

Q: Is there any other currency or stock market that looks good to you?
A: I am not buying US stocks, but I am long the US dollar. Relative performance may not mean that US stocks go up, they may just go down less than others. Where I am long and optimistic is essentially about Japan. And I would be very wary of the favorite trade of the last two years, long commodities, long steel stocks, long iron ore companies, etc.

Gold sheds its sheen in bullion-dollar 'bloodbath'

Gold sheds its sheen in bullion-dollar 'bloodbath'

By Feiwen Rong and Dave McCombs

Saturday August 16 2008

GOLD plunged below $800 an ounce, silver dropped as much as 12pc and oil, corn and copper slumped as the dollar's rebound drew investors away from commodities after a six-year boom.

Commodity prices have tumbled into a bear market, down 21pc from their July 3 record. Oil traded near its lowest for over three months, gold for eight months and silver for almost a year as copper and corn reached six-month lows.

"Prices have made a peak," according to investor Marc Faber (62), who publishes the Gloom, Boom & Doom Report. He warned: "It could go lower."

Gold fell to $781 an ounce, its lowest since last December. Silver's 12pc drop was the most since June 2006.

Mark O'Byrne, director of Gold Investments in Dublin said: "The bloodbath in the precious metals arena continued yesterday, overnight and this morning and the scale and speed of the sell-off has surprised even the very bearish.

"It is worth remembering that gold's price of 12 months ago was $650 and we are still up 20pc since the start of the credit crisis. No mean feat considering the extent of declines in other markets," he added.

Arjuna Mahendran, head of investment strategy at HSBC Private Bank in Singapore, expects commodity prices to remain subdued until "mid- 2009". He explained: "The major issue is the proliferation of ETFs (exchange traded funds) and hedge funds. As they unwind positions, this leads to the price overshooting."

The dollar has climbed 5.3pc against the euro this month and reached a five-and-a-half-month high yesterday, topping $1.46 to €1 as it headed for its fifth weekly gain.

The rallying dollar was boosted by news that US consumer prices rose at their fastest pace in 17 years in July, reducing the Federal Reserve's scope to lower interest rates further.

Charles Dowsett, head of structuring and trading of precious metals at ABN Amro saidgold's rally was "dollar-driven, probably because we are supposedly seeing more writedowns in the European banks."

"We could see gold go all the way down to $750 an ounce."

Citigroup analysts believe gold will rebound in 2010, as jewellery demand rises and on expectations that the dollar will resume its decline.

The bank's analysts John Hill and Graham Wark wrote in a report: "Longer term, we would not be surprised to see gold double . . . We would be aggressive buyers at current levels."

Crude oil for September delivery, meanwhile, dropped as much as 3pc on the New York Mercantile Exchange to $112.02 per barrel. (Bloomberg)

- Feiwen Rong and Dave McCombs

Freddie, Fannie Should Split, Not Get Aid, Faber Says (Update3)

Freddie, Fannie Should Split, Not Get Aid, Faber Says (Update3)

By Carol Massar and Alexis Xydias

July 23 (Bloomberg) -- Freddie Mac and Fannie Mae should close down their business or split into private companies and not get government aid, investor Marc Faber said.

``They should close down Fannie Mae and Freddie Mac or what they should do is split them into 10 different companies and let them run as private companies,'' said Faber, who forecast the so-called Black Monday crash in 1987, in an interview with Bloomberg Television from Chicago. ``What Freddie Mac and Fannie Mae should right away do is not obtain any federal aid, but issue additional shares'' to avoid using taxpayers' money in a rescue plan, he said.

Fannie Mae and Freddie Mac, which own or guarantee about half of the $12 trillion of U.S. mortgages, have fallen 31 percent and 41 percent respectively this month, on concern the companies have insufficient capital to cover writedowns and losses amid the mortgage-market collapse.

The U.S. Congress may vote today on a rescue plan for Fannie Mae and Freddie Mac after lawmakers reached a deal on legislation aimed at alleviating the worst housing recession in a quarter century.

Fannie Mae gained $2.24 to $15.65 at 11:47 a.m. in New York. Freddie Mac added $1.07 to $10.77.

`Colossal Bust'

Faber said the ``world may already be in recession,'' and reiterated a prediction for a ``bust'' in global markets.

Markets may enter ``a vicious cycle on the downside'' whose worst scenario is a ``colossal bust with inflation,'' as central banks are unable to manage the economic slowdown and faster growth in prices.

Still, Faber forecast the Standard & Poor's 500 Index may climb about 5.7 percent from current levels, to 1,350. Oil may drop $30 a barrel to ``about'' $100 in the near term, he said, although the ``long-term'' prospect for oil prices is to remain ``tight.''

``In the last two months I've asked businesses around the world, and business is down everywhere, and slowing down very considerably,'' Faber said. ``A lot of earnings will start to decelerate. One sector that is quite vulnerable is technology.''

Stocks worldwide have tumbled this year, erasing about $11 trillion in value, as $467 billion in credit-related losses and accelerating inflation weigh on the outlook for economic and profit growth.

Oil is down 14 percent from a record $147.27 on July 11 in New York as the dollar strengthened and high prices curbed gasoline demand.

Investment gurus differ on China

Posted by Mark Bunting on July 23, 2008

They are gurus of a different kind, if for no other reason than their ideas usually pan out far better than, say, Mike Myers’ ill-conceived brainstorm, The Love Guru. Yes, these gurus of the investment sort might be the most successful and well-respected emerging market investors there are:

Jim Rogers, author of many books including the recent A Bull in China, which makes a very compelling case for investing in that country for years to come.

Mark Mobius, he of the Man from Glad look, when he’s wearing a white suit, that is. Mobius handles $47 billion US in assets for Templeton Funds and is highly-regarded for his stock-picking. (BNN’S managing editor Marty Cej recently interviewed Mobius.)

And Marc Faber, publisher of the Gloom, Boom and Doom Report. You might have guessed that he’s slightly more bearish than other money managers.

Two of these gurus think the time is right to put money to work in some beaten-down emerging markets, especially China and India.

China’s CSI 300 Index is down 45% year-to-date. It’s the third-worst performing index this year of 88 tracked by Bloomberg. Only Iceland and Vietnam have performed worse in 2008.

China’s gross domestic product is rising at the slowest pace since 2005, albeit at about a 10% clip. India’s Sensitive 30 Index is down 30% this year. And inflation in that country is running at the fastest pace in 13 years.

But Rogers and Mobius smell opportunity.

Rogers is well-known for predicting the commodity bull market way back in 1999. That’s also the year he started buying Chinese stocks. He says he’s never sold any of them. Rogers says it’s no time to give up on China.

At the same time, Mobius has been rearranging his portfolio to take advantage of valuations for Chinese stocks that have fallen ‘’pretty dramatically’’ as he puts it. The price/earnings ratio on the CSI 300 is now at 21 after having hit a balloon-like 53 as the index rose over 160% in 2007.

The Sensitive 30 Index p/e is a reasonable 14.

Mobius also likes Brazil and Russia because of the energy and mining companies. He says the countries are ‘’swimming in liquidity." Having said that, Mobius’s main fund is down 19% this year.

As for Marc Faber, he thinks piling into Chinese stocks right now would be a mistake. Investors doing that would be setting themselves up for more losses.

Three gurus, three opinions and not a weak idea in the bunch.

Faber Says Oil May Decline as Global Growth Weakens (Update3)

Faber Says Oil May Decline as Global Growth Weakens (Update3)

By Shani Raja

July 21 (Bloomberg) -- Marc Faber, who told investors to bail out of U.S. stocks before 1987's so-called Black Monday crash, said oil prices may fall to $100 a barrel as demand slows in a global economy at the ``tail end'' of its expansion.

Accelerating inflation and rising interest rates worldwide are likely to dent the value of commodities including oil, said Faber, who publishes the Gloom, Boom & Doom Report, at an investment forum in Sydney today. Real-estate in India and Cambodia were among his favored Asian investments, he said.

``Global liquidity is under some relative tightening, and that is unfavorable for all asset classes,'' said Faber, 62. There will be ``sharp corrections'' in commodities prices.

Central banks from Vietnam and Russia to Brazil are raising rates as inflation replaces the global credit crunch as their biggest concern. The World Bank said last month that global economic growth will probably slow to 2.7 percent this year from 3.7 percent in 2007, amid spiraling food and fuel costs and mounting losses tied to credit-market investments.

``What you've had since 2001 is a global synchronized boom,'' Faber said. ``In the history of capitalism this is most unusual. When it comes to an end it should affect all countries.''

Stocks worldwide have tumbled this year, erasing almost $12 trillion in value, as financial institutions piled up $447.6 billion in credit-related losses, and investors braced themselves for a U.S. economic recession.

Bull Market

The U.S. went into recession last October and current statistics are hiding its ``severity,'' Faber said in a July 1 interview with Bloomberg Television. Growth in the world's largest economy faces ``significant downside risks,'' Federal Reserve Chairman Ben S. Bernanke said July 15.

Those comments contributed to crude oil in New York falling more than a tenth from its record high of $147.27 on July 11. Oil has still gained 72 percent in the past year. Arjun N. Murti, a Goldman Sachs Group Inc. analyst, in May predicted that crude may rise as high as $200 a barrel within two years.

``When you have volatility, any market can drop 50 percent and still be in a bull market,'' said Faber, who told today's forum that he prefers holding physical commodities rather than shares or futures.

Corn, soybeans and wheat have surged to records this year, amid rising incomes in emerging markets. Macquarie Group Ltd., Australia's biggest investment bank, said on July 10 global demand for food will continue to drive a rally in soft commodities.

Commodity prices will come down, says Marc Faber

Commodity prices will come down, says Marc Faber

INTERNATIONAL. The price of commodities face a "correction" after a seven-year rally, which will help ease global inflation, reported Bloomberg quoting investment guru Marc Faber (see below).

"Commodity prices will come down in the next six months to one year," Faber, said at a briefing in Taipei today. Commodity prices will resume their gains after the correction, he said, with demand for oil doubling in the next 12 years.

Prices of commodities have continued to surge this year. The Reuters/Jefferies CRB Index, a measure of commodity futures prices including oil, has climbed 26% this year. Crude oil futures are up 100% in the past 12 months.

"Some inflation pressures will abate" as commodity prices decline, said Faber. "It doesn't mean I am bearish about commodities. I think commodity bull markets will last about 20 years," he said.

Faber said he's negative about the dollar in the long term, though the US currency may "strengthen somewhat" in the short term.

The index hit an historical low of 70.698 points on 17 March.

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Marc Faber Says Commodities Will Fall in Second Half (Update3)

By Tim Culpan

June 26 (Bloomberg) -- Commodities face a ``correction'' after a seven-year rally, which will help ease global inflation, investor Marc Faber said.

``Commodity prices will come down in the next six months to one year,'' Faber, publisher of investment newsletter the Gloom, Boom and Doom Report, said at a briefing in Taipei today. Commodity prices will resume their gains after the correction, he said, with demand for oil doubling in the next 12 years.

Faber said Taiwan equities will outperform global stocks, while China ``is not yet a buying opportunity.'' Taiwan's Taiex Index has dropped the least among Asian benchmark indexes this year and China's CSI 300 Index has slumped 44 percent.

Prices of commodities from oil to wheat have continued to surge in 2008 due to floods in Southeast Asia and the U.S. and demand from India and China. The Reuters/Jefferies CRB Index, a measure of commodity futures prices including wheat, copper and oil, has climbed 26 percent this year. Crude oil futures have doubled in the past 12 months.

``Some inflation pressures will abate'' as commodity prices decline, said Faber. ``It doesn't mean I am bearish about commodities. I think commodity bull markets will last'' about 20 years, he said.

``Corporate profits in China will by and large disappoint as well as in India, so overall I am not very optimistic about these markets,'' he said.

World's Worst

China's CSI 300 has tumbled the most in 2008 among benchmark indexes from the world's 20 biggest equity markets, as the central bank took action to curtail rising consumer prices. India's benchmark Sensex index has dropped 29 percent this year.

U.S. equities could `` outperform markets like China and India'' after underperforming in the past four years, Faber said. Japanese stocks may also beat peers, he said.

Faber said he's negative about the dollar in the long term, though the U.S. currency may ``strengthen somewhat'' in the short term.

The U.S. Dollar Index, which tracks the greenback against six major currencies, has fallen 5 percent this year to 72.904 points at yesterday's close in New York. The index hit an historical low of 70.698 points on March 17.

Faber also said he prefers Taiwanese to U.S. technology companies, although the outlook for the industry is ``bad.''

Last Updated: June 26, 2008 06:39 EDT

A World War III portfolio

A World War III portfolio

Financial market analysts and strategists are quick to dismiss the upward trend in commodities as speculative, for it interferes with their unwavering and unrelenting plug for equities

Bare Talk | V. Anantha Nageswaran

Posted: Mon, May 19 2008

Noted international economist Paul Krugman’s blog is called “Conscience of a Liberal”. In one of my regular visits to his blog, I noticed his reference to an article written by well-known investment guru Marc Faber in 2004. Faber had been prescient on the crude oil price in that article: “…And, in the case that oil prices were to rise in real terms to their 1980s highs — well over $100 — then the foundation for World War III would be laid and most certainly begin to weigh heavily on equity prices for which I cannot share the prevailing widespread optimism anyway…” The article is well worth a read and it can be found at Just how high will oil prices go? or http://www.ameinfo.com/47129.html .

Faber was not engaging in scaremongering. With forecasters and oil producers setting their sights on $200 per barrel of oil, it’s time to review your investments

The price of crude oil is now well past $100 per barrel and has shot up 25% in the last two months. Financial market analysts and strategists are quick to dismiss the upward trend in commodities as speculative, for it interferes with their unwavering and unrelenting plug for equities, regardless of the outlook for economic growth and corporate earnings. Plugging stocks is supposedly fundamental and God’s work while buying commodities is speculative and devil’s design.

A quick glance at the facts would show that while it is convenient to dismiss the rise in commodities as speculative, it is not correct.

Production of crude oil has stagnated at around 84 million barrels per day (mbpd) for the last four years. The earlier big oil producers such as Indonesia and the UK do not figure any more in the world’s top 15 producers. In other words, oil production has peaked in those places.

China’s per capita oil consumption, which was just under 0.7 barrels per annum in 1985, has tripled to just under 2.1 barrels in about two decades. China continues to import huge quantities of crude oil. Its import of crude oil jumped to 17.3 million tonnes (mt) in March from 12.8mt in December. It has gone up every month in the first three months of the year. This clearly puts paid to the claim that economic activity in the country is either slowing or is sought to be slowed. With this voracious consumption, what would happen if China becomes a middle-income country such as Mexico, let alone a developed nation in GDP (gross domestic product) terms such as the US?

Mexico’s per capita GDP in purchasing power parity (PPP) terms has gone up by just under three times in the last quarter century to around $12,000. China’s per capita GDP (also in PPP terms) has gone up a little more than 18 times to reach around $4,600 by 2006. If China’s per capita oil consumption were to reach Mexican levels of 6.8 barrels per annum from the current 2.1 barrels, it would overtake America’s total oil consumption of around 20.7 mbpd in 2006.

China would consume 24.8 mbpd (versus 7.2 mbpd in 2006). Even then, its oil consumption per capita per annum would be less than 30% of America’s. India’s per capita oil consumption was 0.8 barrels per day in 2006. If it were to catch up with China’s per capita consumption, India would consume 6.2 mbpd against the 2.6 mbpd in 2006.

Given stagnant production in the last four years, how realistic is it to expect that production would catch up with the surge in consumption implied by these modest assumptions? Therefore, now, does $200 per barrel of oil sound speculative or too conservative a forecast?

One colleague asked me how it is that the world economy survived the rise in the price of crude oil from $15 per barrel (it is not a typo) in end-2001 to $115 now. In the same breath, he also commented that inflation was now a global phenomenon and not confined to housing. The answer to his question and the explanation for his observation are the same.

Most central bankers across the world have run an enormously loose monetary policy over the last six years. That explains the “robust” world economy in the face of the relentless rise in the price of crude oil and the universal and pervasive inflation we see around us. It is a confession of ignorance to dismiss the rise in commodity price as speculative, faced with such compelling facts.

Now that $100 per barrel has been firmly entrenched and forecasters, including oil producers, are setting their sights on $200 per barrel, perhaps it is important to start preparing one’s portfolio for the third world war.

That would mean buying gold and agricultural commodities after the correction in the last few weeks, maintaining at least a small exposure to crude oil at all times and exiting equities after their recent run driven in equal parts by speculation, ignorance and escapist logic.

V. Anantha Nageswaran is head, investment research, Bank Julius Baer & Co. Ltd in Singapore. These are his personal views and do not represent those of his employer.

Gloom & Doom Economist: Credit Crunch Will Spread

Gloom & Doom Economist: Credit Crunch Will Spread

By CNBC.com | 19 May 2008

The credit crunch is far from over and is likely to hit sectors other than housing, Marc Faber, Editor and Publisher of “The Gloom, Boom & Doom Report”, told "Squawk Box Europe."

Consumers will cut spending because of the high oil and energy prices, and all that the recent rally in stocks has shown is that investors think shares offer a better cushion against inflation than bonds, Faber added.

"I personally think we are just starting the credit crunch and it is going to be worse," he said. "I think the economy really stinks and the next sector to be hit, in America and elsewhere, is retail."

The strength of oil and energy stocks has offset some of the current market weakness, and many people believe we are moving into an environment like the one in the 1970s, with high inflation, Faber added.

But the oil price "is not going to go up another 10 times," unless the Federal Reserve prints money and causes hyperinflation; "but then we should worry about other things, we should worry about civil unrest," he said.

China and India, which for a long time have kept world prices down because of their cheap workforce, are on their way for a change.

"Because they cannot survive unless they push up manufacturing prices, they are an inflationary force on the global economy," Faber said.

However, global monetary conditions are likely to tighten as the shrinking U.S. current account deficit deprives the world of liquidity, he added.

Just how high will oil prices go?

I maintain the view that we may see sometime in future far higher prices than anybody envisions. The current oil bull market is purely a function of increased demand coming principally from Asia at a time global oil production has practically no spare capacity. China’s car population has more than doubled since 2002.

Marc Faber

Monday, October 11 - 2004 at 09:42

Since its last major low in 1998 at $12 (when The Economist published a very bearish piece about oil), crude oil prices have climbed to around $50 at present. The question, therefore, arises whether oil prices are headed for a sharp fall, as most analysts seem to think, or whether far higher prices could become reality in the years to come.

Over the last two years we have repeatedly explained how rising demand for oil in Asia would likely lead to higher prices – this especially because we took the view that the oil producing countries in the world were unlikely to be in a position to increase their production meaningfully.

At $50, one might, however, be tempted to think that oil prices are substantially over-bought – certainly from a near term perspective - and ready to decline again. Therefore, I have noted that numerous market participants have been shorting oil futures in the hope of a sharp fall.

I do agree that near term oil prices might succumb to some profit taking. Bullish consensus runs above 80% and oil has become a popular topic of discussion in the media and at every investment conference I attend.

Moreover, the US administration could decide to sell oil from its strategic reserve, which currently exceeds 630 million barrels. Thus to sell daily 2 million barrels into the market amounting in total to 120 million barrels over a two months period would be an option if prices continued to soar.

Also, since Chinese oil imports were up so far in 2004 by more than 40%, I suspect that some inventory accumulation also occurred in the Middle Kingdom.

Therefore, if the Chinese suddenly decided to curtail their oil imports the same way they stopped buying soybeans in March 2004 – an event which led to an almost 50% decline in prices – prices could come under some near term violent pressure! Still, I maintain the view that we may see sometime in future far higher prices than anybody envisions.

First of all, if we look at oil prices in real terms – that is oil prices adjusted for inflation - the real prices is right now still about 50% lower than it was at its January 1980 peak. In fact, oil is now not much higher than it was in the early 1970s, when the last big oil bull market got underway.

But, what is important to understand is that whereas the 1970 oil price increases were coming from a supply shock, which was driven by OPEC cutting its production all the while large production excess capacities existed, the current oil bull market is purely a function of increased demand coming principally from Asia at a time global oil production has practically no spare capacity which could lead to much higher production than the current 80 million barrels per day.

So, whereas we can say that the 1970s oil shock was 'event driven', today’s oil price increase is structural in nature. Specifically the current demand driven oil bull market is fueled by the incremental demand coming from the industrialization of China and the rising standards of living around Asia, which increase the population of energy using consumer durables such as motorcycles, air-conditioners, and cars very rapidly.

Just consider that China’s car population has more than doubled since 2002 and that it is up tenfold since 1994! Thus, as mentioned above, oil imports of China have risen by 40% so far in 2004. And while I certainly do not believe that Chinese oil imports will rise every year by 40%, it is equally unlikely that oil imports into China will ever decline again meaningfully.

In fact, if we look at what happened to per capita oil consumption during phases of industrialization in the US between 1900 and 1970, we see that per capita consumption rose from one barrel per year to around 28 barrels. In the case of Japan’s industrialization between 1950 and 1970 and South-Korea’s between 1965 and 1990, per capita oil consumption rose from one barrel to 17 barrels.

In the case of China, oil demand per capita is still only 1.7 barrels per year, and for India it has only reached 0.7 barrels. By comparison Mexico consumes annually about 7 barrels of oil per capita and the entire Latin American continent around 4.5 barrels.

Therefore, starting from such a low base, oil consumption in Asia will, in my opinion, double in the next ten to 15 years from currently 20 million barrels per day to around 40 million barrels per day.

Remember also, that if China’s per capita oil consumption went to the level of Mexico’s per capita consumption China would consume 24 million barrels of oil daily, which would be close to 30% of global production. And since it is most unlikely that current total global oil production of 80 million barrels per day can be increased much – in fact, it may begin to decline because no major oil field has been discovered since 1965 – I expect that prices will increase further in future - possibly far more than anyone is now expecting.

I would, therefore, be very careful when shorting oil and would rather use any weakness, as a buying opportunity.

Lastly, I do concede that if oil prices tumbled to say USD $40 or possibly even $35, equities around the world might well rally temporary (in fact equities would rally in anticipation of such a decline). However, if I am right that in future oil prices could rise much further than is generally expected, geopolitical tension would likely increase dramatically, as countries such as the US and China would increasingly become concerned about adequate supplies.

And, in the case that oil prices were to rise in real terms to their 1980s highs – well over US$ 100 – then the foundation for World War Three would be laid and most certainly begin to weigh heavily on equity prices for which I cannot share the prevailing widespread optimism anyway. Financial stocks have begun to weaken and this is an indication that something is not quite right!

Marc Faber - Guru of Modern Investing

Dr Marc Faber is the guru of modern investing. His opinion on markets and currencies are meticulously implemented across the world. He is one of the savviest observers of trends across different asset classes in the global markets. His own firm, Marc Faber Ltd, offers investment advisory and fund management. Dr Faber publishes a widely read monthly investment newsletter The Gloom Boom & Doom. He is also the author of several books including the highly acclaimed Tomorrow’s Gold — Asia’s Age of Discovery published in 2002, which highlights the investment opportunities around the world. Below are a few of his quotes:

“As an investor, you need to buy a post-office scale. When all the reports on a stock or sector are light, it means ‘buy’. Conversely, when the weekly reports you receive on an industry add to several kilos then ‘sell’!”

“It is much easier to pick bottoms than to judge market tops. Tops are usually formed with spikes and no one knows when the bubble will burst but the bottom is a long extended period of side ways movement.”

“Follow the course opposite to custom and you will almost always be right.”

“A bear market is a financial cancer that spreads. Intermediate rallies (occasionally very strong ones) keep the hopes of investors alive. Furthermore, by continuously publishing bullish reports, brokers and economists, like good nurses, keep the flame of hope from burning out. But after 18 to 36 months of continued losses, total capitulation usually sets in and a major low occurs.”

“At the start of a bear market, nobody knows it is a bear market — they just think it is a correction.”

“Whenever an economy has high dependence on a single commodity, the business cycle will correlate very closely to the movement of that commodity.”

“Inflation works in three ways. One, by lowering real prices and, two, by threatening continued erosion in purchasing power of cash. A third is through the “wealth effect”: When asset prices inflate, people misperceive the inflation as true wealth and increase their spending.”

“In the long run most things will appreciate in value, but the problem is that most companies live only 30 years and then they die. In other words, they go bankrupt. So when people talk about stocks going up in the long run, one would have to constantly re-balance one’s portfolio. One could also argue that stocks go up sometimes but they fall as a result of inflation adjustment or in other words against another currency or gold.”

Why rising inflation will trigger a bond market rout

In bailing out the US housing and banking sectors with a huge monetary injection the Federal Reserve has released the genie of inflation. Goldman Sachs sees oil prices of $150-$200 within the next 18 months as a result. And if inflation gets out of control central banks will have to raise interest rates and even a whiff of that possibility will mean a big sell-off for bonds.

Sunday, May 18 - 2008 at 13:59

For who will want to hold US treasuries that are falling in value as well as paying low interest rates in a depreciating currency? The risk of a rout in the US treasury market is therefore a very real one.

This would have a highly damaging impact on the balance sheets of global central banks which have huge amounts stashed in so-called safe US treasury bonds. There has already been a gradual shift out of these dollar-denominated assets in response to the devaluation of the greenback.

But in a real bond crisis that trickle would become a flood. Bond sellers would be buyers of higher yielding currencies, quasi-money assets like gold and silver as well as hard assets in the form of commodities from energy to food.

Terrible investment

The problem is that as Dr Marc Faber argues bonds could well prove to be currently the worst value as a major asset class in 30 years. They pay a miserable return in a devaluing currency and are highly vulnerable to capital value erosion through inflation.

Indeed, the way the market works ensures a rapid re-pricing of bonds depending on inflation and interest rates, which will have to be adjusted to dampen inflation. If inflation goes up the market begins to anticipate higher interest rates, and so the price of bonds goes down.

Hence if inflationary prospects are judged to have significantly risen, then the risk to bond prices is obvious. And why hold an asset class that is going to fall?

That inflation is rising around the world is so blindingly obvious that it is not necessary to quote statistics, most of which are exceedingly misleading as they remove items like food and energy. Oil at $128 a barrel is both highly inflationary and a symptom of inflation in the system.

Fed policy

But let us not forget what caused this inflation. It has been a deliberate policy of the Federal Reserve to pump money into the system to offset the impact of the housing crash and banking crisis. Unfortunately the well known side-effect of loose monetary policy is inflation, and pumping in more and more money produces more and more inflation.

That brings us back to the US treasury market. How long can bond prices hold up under pressure from inflation? It is clearly not easy for central banks to all sell their treasuries simultaneously and buy euros or gold instead.

Yet bond markets will have to re-price for higher inflation – and that higher inflation is on the way ought to be obvious and is probably why the US stopped publishing its M3 money supply figures over a year ago. So get ahead of the yield curve and dump US treasuries for a more defensive asset class. This could all get very nasty before its gets better

Marc Faber Says Dollar May Rebound for Three Months

Marc Faber Says Dollar May Rebound for Three Months

By Lynn Thomasson and Kathleen Hays

April 30 (Bloomberg) -- The U.S. dollar may rise against world currencies for the next two or three months, sending commodity prices and stocks lower, said Marc Faber, managing director of Marc Faber Ltd.

``The U.S. economy is in a recession but that doesn't mean the whole thing is going to fall apart,'' said Faber, publisher of the Gloom, Boom & Doom report, who told investors to buy gold at the start of its six-year rally. A ``relative tightening of global liquidity should be supportive for the dollar and negative for asset markets and commodities,'' he said.

Forecasts that companies in the Standard & Poor's 500 Index will earn $110 a share in 2009 are too high, the Hong Kong-based investor said in an interview with Bloomberg Television. ``Earnings will be much lower than that and that will keep some pressure on equity prices,'' he said.

The U.S. economy expanded at a 0.6 percent annual pace in the first quarter, reflecting an increase in inventories, the Commerce Department said today. The dollar has lost 10 percent against the euro since Sept. 18, when the U.S. Federal Reserve began lowering the fed funds target from 5.25 percent. The bank cut the rate to 2 percent today.

A tribute to Marc Faber

A tribute to Marc Faber, part one: US dollar, Nasdaq, gold and oil

Dr Marc Faber once said that any journalist could write a positive or negative article about him by picking out his good or bad calls. But just as Nury Vittachi could sit down in the late 1990s and pen a whole book that sided with the postive view of Faber, AME Info has scanned over 100 articles and reached a similar opinion.

Sunday, March 16 - 2008 at 00:05

So what did Dr Doom get wrong in the 2000s? Not a great deal really, but actually his biggest error was a repeat of the error of pessimism he committed in the 1990s about the length and durability of the US stock market upturn.

What he missed entirely was that the start of the Second Gulf War in spring 2003 would be a 'Bottom War’, marking the bottom of the US stock downturn that began in early 2000. He thought US stocks were down and would fall still further.

His record on the US dollar was much better, and in February 2003 he was perfectly correct in saying: 'In the course of 2002, we have repeatedly warned that US dollar weakness was only a matter of time.

'Since the summer of 2002, the dollar has weakened considerably and we feel that the 1995-2002 bull market has definitely come to an end and that, after a brief technical rally, more dollar weakness should be expected in 2003, as the US economy continues to disappoint.’

What actually happened was that the nominal US stock market rally was then supported by the declining value of the US dollar, and the value of US equity investments if denominated in non-US dollar currencies drifted sideways.

So in that sense Faber’s pessimism about the performance of US equities throughout the 2000s was proven correct as US stocks went nowhere in foreign currency terms.

Nasdaq spot-on

He was also right as regards the Nasdaq. In October 2000 his AME Info column noted: 'This Nasdaq 5000 level may very well turn out to be as much of a 'milestone' in financial history as the Nikkei 39,000 level reached in December 1989.

'When the Nasdaq reached in March the 5000 level, this Index consisted of about 4,800 stocks with a market capitalisation in excess of US $6 trillion. Based on combined Nasdaq earnings estimates for the year 2000 of US$25bn, these stocks had, in March 2000, collectively a P/E of about 240!

'Now, let us assumes that the Nasdaq with its $6 trillion valuation can grow its earnings at a compound rate of 20% per annum for the next 10 years 'without interruption.' At the end of the period, in 2010, let us also assumes that the P/E of the Nasdaq will be twice its earnings growth rate (of 20% per annum). In other words the Nasdaq will sell for 40 times earnings.

'Since the S&P 500 sells for about 28 times earnings, the assumption of a P/E of 40 for the Nasdaq is quite realistic. Under this scenario, the Nasdaq's current $25bn in earnings will grow to $155bn in 10 years time and with a P/E of 40, these $155bn would have a value of $6.2 trillion. In short, even under this extremely and, in my opinion, totally unrealistic scenario, the Nasdaq would at best be in 10 years time where it was in March of this year.’

With the benefit of hindsight this is a superb application of sober investment analysis to the dot-com boom folly that still held some investors fixed like rabbits in a car headlights in late 2000. And as we now know even seven years later the Nasdaq was still only worth half of its 2000 peak.

Gold tipped in 2001

But his most brilliant call was undoutedly to buy gold in early 2001, way ahead of most other market commentators and following a 20 year bear market that had left the gold market in a mood of deep depression and dispondency. It was an incredibly radical call, and first appeared in an article in February 2001 with a groundbreaking fundamental analysis of the gold market.

'Today, I should like to advocate the purchase of a group of stocks, which has over the last 20 years been the worst under-performer. This group consists of gold mining companies around the world, all of which have a combined stock market capitalisation of only $30bn.

'In other words, you could buy the world's entire gold mining industry for just $30bn. A bargain when you consider that Cisco and Microsoft alone had earlier last year a combined stock market capitalisation of more than $1 trillion, and that Amazon.com was valued at its peak at $35bn.

’Every year in the 1990s, physical gold demand has exceeded the annual supply of approximately 2,500 tons - valued at present at about $35bn - by about 300 to 500 tons. Compare this to the annual supply of bonds in the world, which amounts to about $3.5 trillion and it becomes evident, how small the supply of gold is.

'Then consider this. In the year 2000, Indians bought about 850 tons of gold. In other words, in India, where the GDP per capita is only $300 per annum, every man, woman and child bought almost one gram of gold each. If gold became one day as popular as platinum or the Nasdaq is at present, and every person in the world bought just one gram of gold, it would generate an annual demand of 6,000 tons, which is about 2.5 times its annual supply from mines.’

Probably nobody has written a better assessment of the fundamental case for investment in gold, and at the same time Faber also correctly called for an emerging market stock rally based on a resurgent China that also had an important message for the commodity markets in general:

'As more and more foreign companies start to produce in China, its domestic economy will remain robust and lead to rising property prices in the long run. In this respect, I believe that Shanghai properties are one of the most interesting investments at the present time.

'In India, I can see that the software industry will continue to grow. The Indian software industry will not only penetrate the domestic market but it will also gain market share from software providers in Europe and the US thanks to its cost advantages.'

Investment classic

Indeed, by the middle of 2001 Faber had made the critical market judgments that would be the subject of his own classic investment book, 'Tomorrow’s Gold’ published at the end of 2002. This book correctly forecasted the bull market in commodities, particularly for oil and gold and the growth of emerging markets.

No review of Faber’s popular column on AME Info could be complete without also looking at his assessment of the oil market which in 2004 forecast continued strength in the oil market, and as with the earlier gold item gives a superb summary of the bullish long term case for oil. In fact, as far back as 2000 he suggested that oil would hit $100 a barrel.

In 2004 he said: 'Since its last major low in 1998 at $12 (when 'The Economist’ published a very bearish piece about oil), crude oil prices have climbed to around $50 at present. The question, therefore, arises whether oil prices are headed for a sharp fall, as most analysts seem to think, or whether far higher prices could become reality in the years to come.

'Over the last two years we have repeatedly explained how rising demand for oil in Asia would likely lead to higher prices - this especially because we took the view that the oil producing countries in the world were unlikely to be in a position to increase their production meaningfully.

'At $50, one might, however, be tempted to think that oil prices are substantially over-bought - certainly from a near term perspective - and ready to decline again. Therefore, I have noted that numerous market participants have been shorting oil futures in the hope of a sharp fall…Still, I maintain the view that we may see sometime in future far higher prices than anybody envisions.

Oil outlook

’First of all, if we look at oil prices in real terms - that is oil prices adjusted for inflation - the real prices is right now still about 50% lower than it was at its January 1980 peak. In fact, oil is now not much higher than it was in the early 1970s, when the last big oil bull market got underway.

'But, what is important to understand is that whereas the 1970 oil price increases were coming from a supply shock, which was driven by OPEC cutting its production all the while large production excess capacities existed, the current oil bull market is purely a function of increased demand coming principally from Asia at a time global oil production has practically no spare capacity which could lead to much higher production than the current 80 million barrels per day. So, whereas we can say that the 1970s oil shock was 'event driven', today's oil price increase is structural in nature.’

It is hardly any wonder that Marc Faber remains a popular commentator with his successful investment calls far outweighing his occasional mistakes.

A tribute to Marc Faber, part two: Calling the US housing top

The second of a two-part series looking back at the recent financial predictions by Dr Marc Faber, the man who also warned investors for months about the coming 1987 crash. This article looks at how Faber correctly called the top in the US housing bubble far earlier than most commentators in his AME Info column.

Monday, March 24 - 2008 at 12:18

In June 2005 he waded into the debate, pointing to the uneven distribution of property price gains in the US and the fact that market bulls were taking comfort from the fact that since 1952, the value of household real estate holdings had never declined.

While that may be true, he said, 'We must take into account that every year the stock of homes is increasing. Consequently it is only natural that the value of household real estate has a rising tendency. Still, whereas the value of household real estate has never declined in nominal terms, it has declined in real terms and for selected markets on numerous occasions.’

When real price gains were strong in 1971/72, 1979/80, 1986/87, inflation adjusted prices declined in 1971, 1974, 1981/82 and in 1990/91. 'Therefore, following the extended period of real price gains we had since 1997, it is more than likely that prices will decline at least in real terms at some point in the future,’ he said.

Global impact

Our Swiss investment adviser also firmly grasped what a US housing downturn meant for the global economy. As far back as June 2004, when the US housing market was booming he wrote: 'US consumption since 2000 was not driven by capital spending and employment gains, but purely by asset inflation in the housing market, which allowed people to take out larger and larger mortgages and spend the additional funds on consumer durables such as cars and consumer non-durables.

'Now, however, there is a problem with the housing market. If the US economy continues to strengthen, interest rates, which are negative in real terms, will have to rise considerably and this could lead - if not to a housing crash - at least to a less buoyant market.’

Dr Doom made this prediction two years before the US housing crash that enveloped the nation from the middle of 2006. Another seminal forecast greeted the appointment of Ben Bernanke in place of Alan Greenspan at the Federal Reserve.

In November 2005, Faber thought: 'So, at latest by the middle of next year, I would expect the Bernanke money printing press to shift into high gear. This should lead to more consumer price inflation, a weakening US dollar and tumbling bond prices.’

Bernanke disaster

He described Bernanke as the 'greatest disaster that has ever hit the US bond market’ and believed that 'the worst long term investment will be to own a 30-year US treasury bond with the view to hold it for 30 years’.

He added: 'Granted, long term treasuries could rally somewhat from here for the next few months, but new interest rates lows are most unlikely. With Bernanke at the Fed, disaster will strike sooner or later and long term bonds will plunge precipitously….’

In June 2007 the US bond market reversed a 17 year trend and Faber’s call on the market seemed remarkably astute, if a little ahead of its time. Gold and precious metals continued to be his favorite asset class for the long term, if only because monetary inflation made a higher gold price certain in his view.

Middle East investors loved to read about gold and Faber’s opinions are always eagerly sought about the yellow metal. But it was not often that he had much to say about the region and its markets.

That changed in June 2006 when the recent sell-off in the Middle Eastern bourses attracted his attention as seeming to be remarkable, because it had occurred at a time of increasing liquidity and near-record oil prices.

Liquidity trap

His view was that the problem was not liquidity, but that the rate of growth of liquidity had been slowing down. In other words, yes oil money had been pumping into the stock markets of the region. But as Faber noted, the expansion of this cash flow was slowing down, and from the end of 2005 oil production had been declining slightly and prices had stabilised.

Thus, while liquidity was still strong, it was not strong enough to support an exponential growth in stock market prices. And once stock markets lost their upward momentum then the same multiplier effect that had pushed them upwards moved into reverse, and they had fallen back sharply. Ergo, Middle Eastern economies had experienced a tightening of monetary conditions in 2006 almost without realising it.

Yet even our Dr Doom reckoned that the regional stock market crashes might have gone too far, and in his AME Info column he forecast a 'rebound in Arab bourses by 20-30% over the next few months, although new all-time highs are out of the question.’

For the Saudi bourse his prediction was spot on, the UAE took another year and only after Faber had repeated his forecast at a seminar in Dubai, which appeared to spark a local rally.

He continued be be a major gold bug, arguing in October 2006: 'Despite its correction from $730 to the current level, gold is still up 12% year-to-date compared with a gain of 7% for the S&P 500. I continue to believe that over the next few years gold and silver will significantly outperform US financial assets. In fact, I am leaning increasingly towards the view that both buyers of bonds and equities could get it badly wrong.’

Bond crisis

Bond buyers would get it wrong, he predicted, because inflation would continue to increase despite a weaker economy and the stock buyers would get it wrong because corporate profits would disappoint.

The result would be 'a more meaningful downside correction starting soon, or even a nice little crash’, he said.

'In addition, the US dollar has begun to weaken significantly against the Chinese RMB, which could add to inflationary pressures. So I am far less optimistic after the recent strong US stock and bond market performance than the complacent buyers of bonds and stocks. There are many factors affecting US financial assets that could in future have a negative impact on their pricing.’