While we have all heard the apocalyptic prognostications by the accented Swiss, and there is little doubt where the Gloom and Doom reside, here is some very unexpected advice on the Boom. Make that the "Boom Boom"... room.
During an interview with The Globe and Mail, 'Gloom, Boom, and Doom's Marc Faber unleashed some awful truthiness about gold "I buy gold every month", real estate "bubble territory", and the likelihood of a crash in smoke-and-mirrors-like asset markets - "In the 40 years I’ve been working as an economist and investor, I have never seen such a disconnect between the asset market and the economic reality... Asset markets are in the sky and the economy of the ordinary people is in the dumps, where their real incomes adjusted for inflation are going down and asset markets are going up... Something will break very bad."
All Empires Crash Soon After They Reach Their Peak
Perfectly summarizing the cognitive dissonance of the mainstream media (and their drone-like viewers), this duel of the Soft-Money-Honey Maria B and Hard-Money Golden Boy Peter Schiff was a tragic farce. Maria comes out swinging, "whether this is a manufactured market or not, you've got no alternative but stocks - where's my yield?" Schiff counters, "there are alternatives" - summarily scoffed at (a-la his housing appearances in 2006/7) by Maria - "we have a completely phoney economy driven 100% by cheap money; the minute you take it away, the whole thing implodes." And while the 'fight' moves on, we are left thinking they are in two different rings since whatever point is made by Schiff is summarily ignored for the status quo. "QE will be here until we have a USD crisis and the Fed can't get away with it anymore," Schiff reminds, adding, "There is no exit strategy... the Fed is bluffing; exit is impossible." The glancing blows continue deep into the late rounds. "The reality is we are living in a bubble; and all bubbles burst," (reminding us of Sam Zells' comments to the very same CNBC anchor a few weeks back), "it's unfortunate we didn't learn that lesson in 2008 but we're about to learn a much bigger lesson." Disingenuous laughter follows at Schiff's suggestion at holding Gold with Maria's anchoring bias loud-and-proud - "I'm looking for alternatives to stocks, and I can't find any."
"The late Margaret Thatcher had a strong view about consensus. She called it: “The process of abandoning all beliefs, principles, values, and policies in search of something in which no one believes, but to which no one objects.” The same applies to most market forecasts. With some rare exceptions (like our commodity analysts? recent prescient call for a slump in the gold price), analysts don?t like to stand out from the crowd. It is dangerous and career-challenging. In that vein, we repeat our key forecasts of the S&P Composite to bottom around 450, accompanied by sub-1% US 10y yields and gold above $10,000."
"Gold has become much more affordable in recent days as the price has collapsed. Such a collapse is unpleasant, but not cause for concern," advises Dylan Grice. "Gold remains durable," as a source of protection from loss of confidence in the system, and, he adds "a correction was overdue. Now, the gold market has become healthier." Critically, Grice warns during this interview with Finanz und Wirtschaft, "gold will not protect against a crash in the financial markets, it showed 2008," since if many investors simultaneously urgently need cash, they sell everything they have, including gold. However, Europe is a time-bomb, China's credit bubble is ow where the US was before the financial crisis, and while inflation may not be an imminent threat (and likely shuffled more gold holders out leaving "a more stable investor base,") Grice concludes, "Gold endures. If confidence in the currency is lost, or in the bond market; Gold is a safe haven." There are good reasons to own gold. And to buy gold, there is now a reason more than a week ago: It's 30% cheaper.
A Roundup of Opinions
The stock market is not crashing yet, but there are lots of other market crashes happening in the financial world right now. Just like we saw back in 2008, it is taking stocks a little bit of extra time to catch up with economic reality. But almost everywhere else you look, there are signs that a financial avalanche has begun.
There's never been coordinated global money printing of the scale of today and it's likely to end badly. Here's how you can protect your investment portoflios from what's to come.
There's never been coordinated global money printing of the scale of today. It will end badly and investors need to prepare accordingly.
We cautioned readers in 2011 that in a broke world in which the ridiculously named "muddle-through" has miserably failed, a global wealth tax seeking to expropriate some 30% of all financial assets is coming. Few took it seriously, and why should they - after all the market has been blissfully rising before and ever since then, which implies everything was ok, right? Wrong, as those who are lining up right now in the Cyprus late of night not to buy a shiny new iTrinket, but to access a measly €300 of their own money would promptly admit. Naturally, if more of our Cypriot readers had paid attention, they would have far more of their own money at their disposal right now, instead of having to beg Merkel's emissaries for a €300 handout tomorrow. Now, a year and a half later, the realization that the global wealth tax is not only coming but is inevitable in practically every developed country, is finally sinking in, as this interview with Marc Faber confirms: "Until now, the bailouts in Europe and the U.S. were at the expense of the taxpayer. And from now onwards, in my view, the bailouts will also be at the expense of the asset holders, the well-to-do people. So if you have money I am sure the governments will one day take away 20-30% of my wealth."
He is correct, but probably optimstic.
For the first time, a mainland Chinese company has defaulted on its bonds. SunTech Power Holdings has been clinging on by its teeth but after failing to repay $541mm of notes due on March 15th - and following four consecutive quarters of losses through the first quarter of 2012 and since then having failed to report quarterly earnings - owed to Chinese domestic lenders, the firm is restructuring. As Bloomberg reports, Chinese solar companies are struggling after taking on debt to expand supply, leading to a glut that forced down prices and squeezed profits - and most notably were unable to renegotiate its liabilities and obtain “additional flexibility” from creditors. This is highly unusual and perhaps is the beginning of a trend for Chinese firms. We already know the little discussed but gargantuan size of China's corporate bond market (which dwarves the US relative to GDP) as the mis-allocated credit tsunami of the last few years begins to hit its lending limit - just as Chinese corporate leverage is surging. If Suntech, the world’s largest solar-panel maker as recently as 2011, could not renegotiate its loans, we humbly suggest there are more problem firms out there about to find their friendly local banker a little less enthusiastic - just as Marc Faber warned recently.
As Marc Faber noted, we hardly expect China to report GDP growth rates that do not perfectly fit the goal-seeked solution for utopian society, but under the covers, there appears to be some considerably more ugly real data. One of the hardest to manipulate, manage, or mitigate for a centrally planned economy is Electricity production. The year-over-year drop in China's electricity production is the largest since the slump in Q1 2009; and the seasonal drop (associated with the New Year) is the largest on record at 25.3%! So on one hand China is discussing tightening monetary policy amid inflation anxiety and a potential real estate bubble - thanks to the rest of the world pumping free money - and on the other hand Chinese officials are faced with the reality of a drastically slowing 'real' economy. At the same time, we note that it appears China's export-import data appears overstated. Rock meet hard place.
Though infamous for his doom and gloom more than boom, Marc Faber explains in this brief CNBC clip how the herd-like behavior in stocks and real estate is actually not totally irrational as it is merely a reaction to the central banks forcing people not to hold cash and instead but "gold watches and Ferraris." His point is that if (and when) interest rates are ever normalized, everything changes (and not in a good way) as valuations become severely stretched on all these inflated assets. While the world tells us that bonds are unattractive and stocks are attractive, Faber rhetorically asks, "who knows, maybe the bonds are telling us something about the future return on equities." He warns of paying too much attention to government headline statistics, "what is published does not necessarily reflect the reality," But, just as we have warned, China is his biggest fear for knocking the world' exuberance: "Whether they [Chinese government] can ensure continuous growth will depend on reforms and how to deflate the colossal credit bubble we have in China. This is going to be a huge problem because we have so much underground credit, questionable loans outstanding and questionable investments."
Gold has come under pressure from heavy liquidation by hedge funds and banks on the COMEX this week. The unusual and often 'not for profit' nature of the selling, at the same time every day this week, has again led to suspicions of market manipulation.
Gold’s ‘plunge’ is now headline news which is bullish from a contrarian perspective. As is the fact that many of the same people who have been claiming gold is a bubble since it was $1,000/oz have again been covering gold after periods of silence.