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Dr Marc Faber 2009
Presentation for Agora Financial Investment Symposium
Tuesday 21 July 2009
The Fairmont Hotel, Vancouver
Canada
YES, THERE IS A LIGHT AT THE END
OF THIS TUNNEL!
Marc Faber Limited
Suite 3311-3313
Two International Finance Centre
8 Finance Street
Central
Hong Kong
Tel:
(852) 2801-5411
Fax:
(852) 2845-9192
Email:
[email protected]
“Give me control of a nation’s money and I care not
who makes the laws"
- Amschel Rothschild
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1
TOPICS FOR DISCUSSION
Credit crisis is very serious. Fed can keep Fed fund rates at zero percent and pursue even
more expansionary monetary policies. Also, fiscal measures can be expanded further.
However, in the current conditions such policy measures may actually aggravate and
prolong the problem.
Non-financial credit growth has declined from an annual rate of 16% in late 2006 to
currently between 1% and 2%. Also, deleveraging is occurring among financial
intermediaries. This is extremely negative for an economy addicted to credit growth.
Regardless of policies followed by the U.S. Government and its Agencies the consumer
is in recession, and the recession will deepen. U.S. trade and current account deficits will
shrink further and diminish international liquidity. The shrinkage of global liquidity is
bad for all asset prices.
We had an unprecedented global economic boom between 2002 and 2007. A colossal
global economic bust has followed. In 2008, almost all asset prices collapsed.
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HOW ARTIFICIALLY LOW INTEREST RATES
CAUSED THE CRISIS!
Fed Fund Rate remained at 1% until June 2004
Source: Ed Yardeni, www.yardeni.com
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3
EASY MONEY EXACERBATES VOLATILITY
Source: Ed Yardeni, www.yardeni.com
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4
WEST TEXAS INTERMEDIATE CRUDE OIL PRICE
Source: Ed Yardeni, www.yardeni.com
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5
U.S. DEBT RATIOS HAVE BEEN PUSHED HIGHER
BY REFLATION
Source: Bridgewater Associates and The Bank Credit Analyst
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2001-2007: NO MONETARY TIGHTENING!
Bond Yield & GDP
Source: Ed Yardeni; www.yardeni.com
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EACH CRISIS PRODUCED MORE MONETARY
EASING AND HIGHER STOCK PRICES!
BUT WILL IT WORK THIS AND NEXT TIME?
Source: Ed Yardeni, www.yardeni.com
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8
FROM THE ILLUSION OF WEALTH
TO TOTAL WEALTH DESTRUCTION,
1997 - 2009
Source: Robert Prechter, www.elliottwave.com
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9
WORLD STOCK MARKET CAPITALISATION:
FROM $63 TRILLION TO $28 TRILLION!
Source: Ron Griess, www.thechartstore.com
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GLOBAL COLLAPSE IN HOME PRICES –
NEXT SHOE TO DROP: COMMERCIAL REAL ESTATE
Source: Ed Yardeni, www.yardeni.com
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SHADOW SUPPLY: 14.5% OF HOUSING STOCK
IS VACANT, TOTALLING 19.0 MILLION UNITS
Source: Census Bureau, Zelman & Associates estimates
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CREDIT GROWTH COLLAPSES AS
LENDING STANDARDS TIGHTEN
Total New Borrowing by Households
and Non-Financial Business % PGDP
Source: Bridgewater Associates, Goldman Sachs
Lending Standards Tighten
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13
THE U.S. TREASURY’S ATTEMPT TO STIMULATE
CREDIT GROWTH IS LIKELY TO FAIL
Source: Ed Yardeni; www.yardeni.com
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14
CORPORATE BOND SPREADS HAVE WIDENED
Source: Ed Yardeni; www.yardeni.com
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15
OVER-LEVERAGED CONSUMER IS RETRENCHING
Source: Ed yardeni, www.yardeni.com
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EXCESSIVE CONSUMPTION LEADING TO A SOARING
U.S. TRADE AND CURRENT ACCOUNT DEFICIT
U.S. Current Account Deficit as % of GDP
Source: Estudio Broda; Bridgewater Associates
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U.S. OVERCONSUMPTION STIMULATED THE CHINESE
ECONOMY, LIFTED COMMODITY PRICES, AND
ENRICHED RESOURCE PRODUCERS
World Crude Oil Outlays, 1996-2009
Source: Ed Yardeni; www.yardeni.com
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FIRST SYNCHRONIZED GLOBAL BOOM AND BUST
IN 200 YEARS OF CAPITALISM BUT…
Global economy has become
more synchronized
Risk Premiums remained low for too long!
Source: Morgan Stanley
In 2006/2007: only one country in recession – money-printing Zimbabwe!
Source: ABN Amro
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… A NEW WORLD HAS EMERGED
Monthly Motor Vehicles Sold (million units)
Source: Jonathan Anderson, UBS
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GROWTH IN U.S. TRADE AND CURRENT ACCOUNT
DEFICIT LED TO INCREASING INTERNATIONAL
RESERVES AND A WEAK U.S. DOLLAR
Strong inverse correlation between the growth rate in International Reserves
and the U.S. dollar!
Source: Ed Yardeni, www.yardeni.com
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FROM NOW ON FASTER GROWTH
IN EMERGING ECONOMIES
Source: Barry Bannister, Stifel Nicolaus & Co; Goldman Sachs
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PER CAPITA GDP (IN 1960 U.S. DOLLARS)
Rising wealth inequality between the MDCs and the LDCs
over the last 250 years has reversed for good!
Source: Paul Bairoch, Victoires et déboires
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23
CHINESE YUAN, 1982-2009
Source: Ed Yardeni; www.yardeni.com
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AUSTRALIAN DOLLAR, 1980-2009
Source: Ed Yardeni; www.yardeni.com
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KOREAN WON / U.S. DOLLAR, 1982-2009
Source: Ed Yardeni; www.yardeni.com
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NO PROPERTY BUBBLE IN CHINA!
Source: The Bank Credit Analyst
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URBANIZATION IN ASIA
Source: The Bank Credit Analyst, UNDP
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FOR WHICH COMMODITIES WILL DEMAND
NOT COLLAPSE?
Source: Bank Credit Analyst
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OIL CONSUMPTION DURING PHASES OF
INDUSTRIALISATION
Source: Barry Bannister, Stifel, Nicolaus & Company, Inc
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30
CRUDE OIL DEMAND IN CHINA AND INDIA
AND ANNUAL CHANGE, 1987-2009
Source: Ed Yardeni; www.yardeni.com
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31
THE GEOPOLITICS OF OIL
Map of Iran
Chinese Share of World Oil Demand
and Production
Source: The Bank Credit Analyst
Source: Perry-Castaneda Library Map Collection
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THE GEOPOLITICS OF OIL IN ASIA:
THE CONTROL OF SEA LANES
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THE SCO INCLUDES CHINA, RUSSIA, KAZAKHSTAN,
KYRGYZSTAN, TAJIKISTAN AND UZBEKISTAN
Source: 1999 MAGELLAN GeographixSM, (805) 685-3100: www.maps.com
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RISING COMMODITY PRICES LEAD TO
INTERNATIONAL TENSIONS –
WARS LEAD TO SOARING PRICES
Source: US Bureau of the Census, Historical Statistics of the
United States, Colonial Times to 1970, Legg Mason Format
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COMMODITY PRICES IN REAL TERMS,
1800 - 2009
Source: Barry Bannister; Nicolaus & Co.
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M3 MONEY SUPPLY Y/Y GROWTH
VERSUS OIL PRICE PER BARREL Y/Y GROWTH
(10-yr moving average of yearly percent change), since the Fed’s creation in 1913
Source: Barry Bannister, Nicolaus Stifel
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ZERO HOUR! 1954-2009
2000-2007: Nominal GDP Growth:
+ $4.2. trillion
Total Credit Market Debt: +$21.4 trillion
Source: Barry Bannister, Stifel Nicolaus
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AN EARNINGS BUBBLE?
S & P EARNINGS PER SHARE, 1871-2007
From 1990-2007, financial sector earnings up 5 times. Non-financial sector earnings up 100%.
Source: UBS, The Bank Credit Analyst
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DECLINING PERSONAL SAVING RATE
TURBOCHARGED THE ECONOMY
AND CORPORATE PROFITS
Personal Saving Rate, 1960-2009
Source: Bureau of Economic Analysis, Merrill Lynch
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THE COMING COLLAPSE IN CAPITAL SPENDING
Source: Ed Yardeni; www.yardeni.com
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DOW JONES INDUSTRIAL AVERAGE MONTHLY –
ADJUSTED FOR INFLATION BY THE CPI, 1885-2009
Source: www.thechartstore.com
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MARKET CAPITALIZATION AS A PERCENTAGE
OF NOMINAL GDP, 1924-2009
Source: Ron Griess, www.thechartstore.com
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U.S. STOCK MARKET
10-YEAR COMPOUND ANNUAL TOTAL RETURN
Source: Barry Bannister, Stifel Nicolaus
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S & P 500 TOTAL RETURN INDEX, 1945-2009
20 year rate of return
Source: Ron Griess, www.the chartstore.com
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TOO MUCH SPECULATION
Source: Alan Newman, www.cross-current.net
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LONG-TERM U.S. TREASURY CONSTANT MATURITY,
1941-2009
(Monthly)
Source: Ron Griess, www.thechartstore.com
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DOW TO GOLD RATIO, 1800-2009
Source: www.sharelynx.com
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ASIA: HIGHER DIVIDEND YIELDS THAN BOND YIELDS
Source: Christopher Wood, CLSA
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NIKKEI 225, 1970-2009
(Monthly)
NIKKEI 225
1970-2009
Source: Ron Griess, www.thechartstore.com
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50
HANG SANG INDEX
1969-2009
Source: Ron Griess, www.thechartstore.com
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INVESTMENT THEMES
Real Estate in Emerging
Economies:
Avoid real estate in financial sectors
Equities in Asia:
Many markets are near 20-year lows. Major lows
occurred in October/November 2008
Healthcare in Asia:
Pharmaceutical, hospital management companies
Local Brands:
May displace some international brands
Commodities:
Volatile, but uptrend intact. Corrections of 50%
are common. Caution about industrial commodities
is warranted
Tourism:
Hotels, casinos, airports, beach resorts.
Potential problem is oversupply
Financial Services:
Banks, insurance companies, brokers, REITs in
emerging economies
Infrastructure:
Bottlenecks everywhere. Potential problem could
be cancellation
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Investment Themes cont’d.
Plantations & Farmland:
Indonesia, Malaysia, Latin America, Ukraine
Japan:
Very depressed, banks look interesting
New Regions:
Cambodia, Laos, Myanmar, Mongolia
Africa as a play on Asia
Gold and Silver:
Long
U.S. Government Bonds:
Short
Corporate Bonds:
Long
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CONCLUSIONS
The current synchronized global economic boom and the universal asset bubble,
which lasted between 2002 and 2007, has led to a colossal bust.
The wealth destruction arising from falling asset prices is unprecedented post
Second World War.
Expansionary Monetary, which caused the current credit crisis in the first place are
the wrong medicine to solve the current problems. But, what options does the Fed
have with a total credit market debt to GDP of almost 370%?
Have central bankers become hostage to inflated asset markets? Will tight money whenever necessary - be implemented again?
In 2008 money became extremely tight even though central banks aggressively cut
interest rates. It is not central banks that tightened monetary policies but the market
participants. By curtailing the availability of credit through tightening credit standards
by lenders and because of rising risk aversion by investors, credit growth collapsed.
Ludwig von Mises: “the dearth of credit which marks the crisis is caused
not by a contraction but by the abstention of further credit expansion”.
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