Sunday, September 18, 2016

Why Marc Faber is calling for an ugly stock market crash

Here’s the bad news: The Swiss investor, who publishes the aptly named Gloom, Boom & Doom Report, sees the large-cap benchmark SPX, -0.11% shedding more than half its value, possibly over the next year.
“When it unravels, we are going to go to 1,100 on the S&P 500,” Faber told MarketWatch.

“Maybe we go first to 2,300, then we would have a perfect topping formation. A widening-top formation is about the most bearish technical formation you can have,” he said. Faber is referring to a so-called megaphone pattern, or broadening formation, which usually is associated with a sharp reversal in an upward trend for a security.

Faber has grown increasingly pessimistic as U.S. stocks have climbed over the past several weeks.

The S&P 500 has advanced about 4% from 2,096 on June 10 when MarketWatch last spoke to Faber. And on Tuesday, the Nasdaq Composite Index COMP, -0.08% marked a record close (its second of 2016), while the Dow Jones Industrial Average DJIA, -0.07% and the S&P 500 were mostly quiescent but in positive territory.

His ursine-daubed call shouldn’t be a surprise to market participants who have followed him over the years. The 70-year-old investor has been critical of global central banks and negative on the U.S. economy, lately.

So, why should investors listen to Faber?

For one, the Swiss investor’s concerns about central bank’s propping up global economies and distorting markets echo legitimate worries expressed by smart-money investors like bond guru Bill Gross of Janus Capital.

Now, the Bank of England can be added to the list of central banks rolling out accommodative policies.

Last Thursday, the BOE revived a dormant bond-buying program and cut its interest rate to 0.25%—marking its lowest level in more than three centuries. Similar to the Federal Reserve, the BOE had been viewed as preparing to tighten monetary policy. That changed when the U.K. surprisingly voted on June 23 to exit the European Union, briefly roiling global markets.

The BOE finds itself, presently, on unsteady footing at the same time the European Central Bank and Bank of Japan are jousting with anemic growth of their own.

Faber said central banks“printing money” is a recipe for carnage that could result in “ five years of capital gains” being coughed up by the market. And if we give that back, “we’re around 1,100,” he said.

“We’re all on the Titanic.” Faber said. “When things unravel a colossal asset inflation” will burst.

Faber also gives voice to some of the persistent concerns shared by a host of investors and strategists that argue that the fundamentals of the stock market don't justify its current run-up in price.

- Source, Market Watch

Wednesday, September 14, 2016

Alan Greenspan And Marc Faber Agree The Fed Has Reached Zero Hour

Dr. Marc Faber (PhD in economics, with honors) also known as “Doctor Doom” and publisher of “The Gloom, Boom, and Doom Report.” Alan Greenspan, probably the most loved and successful Fed Chairman in history during the 18 years from 1987 to 2006, a good time for American business and markets. You would think that these two would fight like cats and dogs over just about anything to do with the markets and the economy anytime, anywhere.

These are two smart people. Faber advised clients to get out of stocks before the 1987 crash. In the 2000s, he predicted the rise in oil, gold and commodities in general, and the boom in China. He also predicted the decline in the US dollar since 2002 and also the shorter term dramatic rebound in 2008. He can be wrong (or maybe early) as in his call for a US recession in 2013, but he is right way more than he is wrong.

As for Greenspan, his era at the Fed is thought of as what the Fed was supposed to be, a modulator of cycles and protector of savings. There were nothing but mild recessions for those 18 years. One overall measure of his success is to simply consider the price of gold in 1987 at his start at the Fed and in 2005 at its end – both right at $400 an ounce. One of his famous quotes is,

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”

There was no big “gold standard” debate back then simply because Greenspan had us on a de-facto gold standard anyway...

- Source, Forbes

Sunday, September 11, 2016

The current system in the developed markets is not sustainable

The global balance of economic power has notably shifted over the past decade.

Now emerging and developing economies account for almost 60% of global gross domestic product (GDP).

Understanding the full scope of these changes, and the new roles of these participants in the global economy, is essential for investors looking to position their portfolios for the future.

Marc Faber, editor and publisher of the Gloom, Boom & Doom Report, shared his perspective on these shifting dynamics along with his concerns that policy makers have increased the risk of unintended economic consequences, at the 2016 Financial Analysts Seminar in Chicago.

China occupies an important space in the current economic landscape. The country embraced the infrastructure growth model to catapult itself into a high-growth phase — following the examples set by Japan starting in 1950 and the Asian Tiger economies of South Korea, Taiwan, and Singapore in the 1960s and 1970s — and it has been the driver of substantial economic activity for other emerging market countries, especially in Asia and Africa. The Export-Import Bank of China overtook the World Bank in 2011 as the biggest lender to sub-Saharan Africa, and China is the leading financier of infrastructure projects on the African continent.

Tourism spending has created additional economic links between China and other countries. Outbound tourism expenditures from China reached US$215 billion in 2015, which was a 53% increase over the total recorded by the World Travel & Tourism Council (WTTC) in the previous year. China’s increased travel spending boosted economic activity in other countries in the region, including a “mini-boom” in money spent by foreign visitors in Japan. During his presentation, Faber estimated that China contributed around 130 million outbound tourists each year to the global economy.

As a key driver of economic activity for emerging markets, what happens if China’s economy stumbles? According to some reports, shadow banking activity, characterized as less-regulated lending that could pose a higher risk of default,accounts for as much as two-thirds of China’s economy. Even regulated lending could pose substantial risks: According to Faber, banks in China don’t write-off bad loans, and eventually the chickens will come home to roost. He was quick to emphasize, however, that other Asian nations are ready to pick up the baton if China falls short.

As the emerging market economies in Asia have developed, they have built up their own domestic needs and capabilities. The increased consumer demand within these countries has created investment opportunities for regional partners: In the first seven months of 2016, the three largest sources of foreign direct investment in Vietnam were South Korea, Singapore, and Japan. While productivity in developed markets has stagnated due to excessive regulation and rising levels of unproductive debt, productivity is booming in Asia.

Faber said the current system in the developed markets is not sustainable and will come to a bad end. He declared that the change in hours of work needed to buy one unit of the S&P 500 composite — which climbed from 20 hours in the 1960s to almost 100 today — was evidence of the massive wealth inequality created by monetary policy that has made it more difficult for those on the lower rungs of the economic ladder to climb up.

Faber takes a dim view of central bank activities that have led to a substantial increase in the size of their balance sheets. Although central banks can continue these policies indefinitely, he noted that eventually they will own everything, resulting in backdoor socialism. The present-day reality of central bank activity is that stock market capitalizations relative to GDP are way above historical averages. Consequently, Faber thinks that US investors will be lucky to earn 1% or 2% returns per year.

With so much latent risk in the financial system, one might be tempted to shift substantial amounts of a portfolio to cash. But even cash is risky today. “Cash is the safest investment in normal times,” said Faber. “However, today the most dangerous asset is cash. Cash in bank accounts may be worthless like in Cyprus,” referring to the possibility of a state-imposed bail-in putting deposits at risk.

- Source

Friday, September 2, 2016

China's Unwind Will Be a Disaster

Marc Faber, managing director and founder of Marc Faber Ltd., comments on the state of the Chinese economy. He speaks with Trish Regan and Matt Miller on Bloomberg Television's "Street Smart."