dr marc faber 2009 presentation for agora financial investment symposium tuesday 21 july 2009 the...

Dr Marc Faber 2009 Presentation for Agora Financial Investment Symposium

Tuesday 21 July 2009The Fairmont Hotel, Vancouver

Canada

YES, THERE IS A LIGHT AT THE ENDOF THIS TUNNEL!

Marc Faber LimitedSuite 3311-3313Two International Finance Centre8 Finance StreetCentralHong Kong Tel: (852) 2801-5411Fax: (852) 2845-9192Email: [email protected] www.gloomboomdoom.com

“Give me control of a nation’s money and I care not who makes the laws" - Amschel Rothschild

www.gloomboomdoom.com

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.

1

HOW ARTIFICIALLY LOW INTEREST RATESCAUSED THE CRISIS!

Fed Fund Rate remained at 1% until June 2004

www.gloomboomdoom.comSource: Ed Yardeni, www.yardeni.com

2

EASY MONEY EXACERBATES VOLATILITY

Source: Ed Yardeni, www.yardeni.com www.gloomboomdoom.com

3

WEST TEXAS INTERMEDIATE CRUDE OIL PRICE

4


U.S. DEBT RATIOS HAVE BEEN PUSHED HIGHERBY REFLATION

Source: Bridgewater Associates and The Bank Credit Analyst www.gloomboomdoom.com

5

2001-2007: NO MONETARY TIGHTENING!

6

Source: Ed Yardeni; www.yardeni.comwww.gloomboomdoom.com

Bond Yield & GDP

EACH CRISIS PRODUCED MORE MONETARYEASING AND HIGHER STOCK PRICES!

BUT WILL IT WORK THIS AND NEXT TIME?


7

FROM THE ILLUSION OF WEALTH TO TOTAL WEALTH DESTRUCTION,

1997 - 2009

www.gloomboomdoom.comSource: Robert Prechter, www.elliottwave.com

8

WORLD STOCK MARKET CAPITALISATION:FROM $63 TRILLION TO $28 TRILLION!

www.gloomboomdoom.comSource: Ron Griess, www.thechartstore.com

9

GLOBAL COLLAPSE IN HOME PRICES – NEXT SHOE TO DROP: COMMERCIAL REAL ESTATE


10

SHADOW SUPPLY: 14.5% OF HOUSING STOCK IS VACANT, TOTALLING 19.0 MILLION UNITS

Source: Census Bureau, Zelman & Associates estimates

11


CREDIT GROWTH COLLAPSES AS LENDING STANDARDS TIGHTEN

Source: Bridgewater Associates, Goldman Sachs www.gloomboomdoom.com

12

Total New Borrowing by Households and Non-Financial Business % PGDP

Lending Standards Tighten

13

THE U.S. TREASURY’S ATTEMPT TO STIMULATECREDIT GROWTH IS LIKELY TO FAIL

Source: Ed Yardeni; www.yardeni.com www.gloomboomdoom.com

CORPORATE BOND SPREADS HAVE WIDENED


14

Source: Ed Yardeni; www.yardeni.com

Source: Ed yardeni, www.yardeni.com www.gloomboomdoom.com

15

OVER-LEVERAGED CONSUMER IS RETRENCHING

U.S. Current Account Deficit as % of GDP

Source: Estudio Broda; Bridgewater Associates www.gloomboomdoom.com

16

EXCESSIVE CONSUMPTION LEADING TO A SOARINGU.S. TRADE AND CURRENT ACCOUNT DEFICIT

U.S. OVERCONSUMPTION STIMULATED THE CHINESEECONOMY, LIFTED COMMODITY PRICES, AND

ENRICHED RESOURCE PRODUCERS

Source: Ed Yardeni; www.yardeni.com

World Crude Oil Outlays, 1996-2009


17

FIRST SYNCHRONIZED GLOBAL BOOM AND BUST IN 200 YEARS OF CAPITALISM BUT…

In 2006/2007: only one country in recession – money-printing Zimbabwe!

Source: ABN Amro www.gloomboomdoom.com

Global economy has becomemore synchronized

Risk Premiums remained low for too long!

Source: Morgan Stanley

18

… A NEW WORLD HAS EMERGED

Monthly Motor Vehicles Sold (million units)

Source: Jonathan Anderson, UBS

19


20

GROWTH IN U.S. TRADE AND CURRENT ACCOUNTDEFICIT LED TO INCREASING INTERNATIONAL

RESERVES AND A WEAK U.S. DOLLAR

Strong inverse correlation between the growth rate in International Reservesand the U.S. dollar!


FROM NOW ON FASTER GROWTHIN EMERGING ECONOMIES

Source: Barry Bannister, Stifel Nicolaus & Co; Goldman Sachs www.gloomboomdoom.com

21

PER CAPITA GDP (IN 1960 U.S. DOLLARS)

Rising wealth inequality between the MDCs and the LDCsover the last 250 years has reversed for good!

Source: Paul Bairoch, Victoires et déboires www.gloomboomdoom.com

22

CHINESE YUAN, 1982-2009

23


AUSTRALIAN DOLLAR, 1980-2009

24


KOREAN WON / U.S. DOLLAR, 1982-2009

25


26

NO PROPERTY BUBBLE IN CHINA!

Source: The Bank Credit Analystwww.gloomboomdoom.com

URBANIZATION IN ASIA

27

Source: The Bank Credit Analyst, UNDP www.gloomboomdoom.com

FOR WHICH COMMODITIES WILL DEMANDNOT COLLAPSE?

Source: Bank Credit Analyst www.gloomboomdoom.com

28

OIL CONSUMPTION DURING PHASES OF INDUSTRIALISATION

Source: Barry Bannister, Stifel, Nicolaus & Company, Inc www.gloomboomdoom.com

29

CRUDE OIL DEMAND IN CHINA AND INDIAAND ANNUAL CHANGE, 1987-2009

30


THE GEOPOLITICS OF OIL

Source: Perry-Castaneda Library Map CollectionSource: The Bank Credit Analyst

Map of Iran

Chinese Share of World Oil Demandand Production


31

THE GEOPOLITICS OF OIL IN ASIA: THE CONTROL OF SEA LANES


32

THE SCO INCLUDES CHINA, RUSSIA, KAZAKHSTAN, KYRGYZSTAN, TAJIKISTAN AND UZBEKISTAN

Source: 1999 MAGELLAN GeographixSM, (805) 685-3100: www.maps.com www.gloomboomdoom.com

33

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


34

COMMODITY PRICES IN REAL TERMS,1800 - 2009

Source: Barry Bannister; Nicolaus & Co. www.gloomboomdoom.com

35

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 www.gloomboomdoom.com

36

ZERO HOUR! 1954-2009

37

2000-2007: Nominal GDP Growth: + $4.2. trillion Total Credit Market Debt: +$21.4 trillion

Source: Barry Bannister, Stifel Nicolaus www.gloomboomdoom.com

AN EARNINGS BUBBLE?S & P EARNINGS PER SHARE, 1871-2007

38

From 1990-2007, financial sector earnings up 5 times. Non-financial sector earnings up 100%.

Source: UBS, The Bank Credit Analyst www.gloomboomdoom.com

DECLINING PERSONAL SAVING RATE TURBOCHARGED THE ECONOMY

AND CORPORATE PROFITS

39

Source: Bureau of Economic Analysis, Merrill Lynch www.gloomboomdoom.com

Personal Saving Rate, 1960-2009

THE COMING COLLAPSE IN CAPITAL SPENDING


40

Source: www.thechartstore.com

DOW JONES INDUSTRIAL AVERAGE MONTHLY – ADJUSTED FOR INFLATION BY THE CPI, 1885-2009

41


42

MARKET CAPITALIZATION AS A PERCENTAGE OF NOMINAL GDP, 1924-2009

Source: Ron Griess, www.thechartstore.com www.gloomboomdoom.com

U.S. STOCK MARKET 10-YEAR COMPOUND ANNUAL TOTAL RETURN

Source: Barry Bannister, Stifel Nicolaus www.gloomboomdoom.com

43

S & P 500 TOTAL RETURN INDEX, 1945-2009

44

Source: Ron Griess, www.the chartstore.com www.gloomboomdoom.com

20 year rate of return

TOO MUCH SPECULATION

Source: Alan Newman, www.cross-current.net www.gloomboomdoom.com

45

LONG-TERM U.S. TREASURY CONSTANT MATURITY,1941-2009

Source: Ron Griess, www.thechartstore.com

46

(Monthly)


47

Source: www.sharelynx.com

DOW TO GOLD RATIO, 1800-2009


ASIA: HIGHER DIVIDEND YIELDS THAN BOND YIELDS

Source: Christopher Wood, CLSA www.gloomboomdoom.com

48

NIKKEI 225, 1970-2009

49

Source: Ron Griess, www.thechartstore.com

(Monthly)

NIKKEI 2251970-2009


HANG SANG INDEX1969-2009

50

Source: Ron Griess, www.thechartstore.com www.gloomboomdoom.com

INVESTMENT THEMES

Real Estate in Emerging Avoid real estate in financial sectorsEconomies:

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 commoditiesis warranted

Tourism: Hotels, casinos, airports, beach resorts.Potential problem is oversupply

Financial Services: Banks, insurance companies, brokers, REITs inemerging economies

Infrastructure: Bottlenecks everywhere. Potential problem couldbe cancellation


51

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


52

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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