Prechter, who has written 13 books on finance, believes that the stock market is historically overvalued in terms of dividends and earnings, because of a “great rise in positive social mood.”
But the mood changed in 2000 and the “trend toward negative social mood will lead to an economic contraction,” according to Prechter.
“Small bear markets lead to recessions, big bear markets lead to depressions. The current bear market will be the biggest in nearly 300 years, so the depression will be correspondingly deep,” Prechter said.
Prechter goes onto to suggest the bear market is of super-cycle degree, the biggest since 1720-1784 and will therefore see a decline for equities deeper than the decline during the great depression, which saw the Dow fall 89 percent.
“The trend toward negative social mood that has been in progress since 2000 and which is about to accelerate will continue to curtail lending and lead to a tidal wave of defaults and a terrific deflation,” he said.
“The amount of outstanding credit today is so large that system-wide defaults could lead to as much as an 80 percent –90 percent decline in the volume of dollar-denominated credits worldwide,” according to Precther.
“In such an environment, surviving dollars and dollar credits, representing the denominator of the DJIA, will rise in value, and the Dow —along with everything else not used as money — will fall in dollar price,” he added.
Faber’s Response
Marc Faber says before dismissing Prechter as a lunatic you should look at his record. In 1978 when he predicted the Dow would reach 2,300 in his book Elliot Wave Principle no one believed it possible.
“Prechter is right when says that when manias come to an end, prices tend to retreat to where the mania started. So from this point of view, a Dow Jones at 1,000 should not be excluded,” Faber said.
Faber also sympathizes with Prechter’s view that there will one day be a complete credit collapse. Where he differs from Prechter is on that crucial factor, timing.
“It is likely that if the Dow where to fall by more than 20 percent from the present level there would be further massive fiscal and monetary stimulus packages – not just in the US but worldwide,” Faber said.
“These economic policy measures would likely fail to boost economic activity in the US but could support asset markets,” he added.
Faber’s biggest problem with Prechter’s theory is his view that surviving “dollars and dollar credits, representing the denominator of the DJIA, will rise in value, and the Dow – along with everything else used as money – will fall in dollar price.”
“The question here is really, with the Dow below 1,000, what kind of dollars – and especially what kind of dollar credits – will survive,” Faber said. “It is safe to assume that almost all banks in the world, and almost all governments, will be bust.”
“I want my readers to think very carefully about the implications of a Dow below 1,000 (or even just below 5,000). Does anyone really think that the money printing presses won’t run 24 hours a day? For sure I don’t,” he wrote in his August report.
And how do you trade the Dow at 1,000?
One suggestion from Faber is buying a self-sustainable farm in the middle of nowhere surrounded by high voltage fences and barbed wire and equipped with booby traps and an arsenal of machine guns, hand grenades and armed vehicles guarded by vicious Dobermans.
Source: 2010 CNBC, Inc.
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
]]>The causes may have been different, but the collapse of the U.S. markets in early 2008 followed the same behavioral patterns as the collapse in 1929. The recovery pattern seen in 2010, is also very similar to that developed in 1930.
The crash of the Dow Jones Industrials in 1929 was signaled by the development of a well defined head and shoulder pattern, seen most clearly in its monthly chart. It is a reliable pattern that captures the behavior of investors who are becoming increasingly disillusioned about the future prospects for economic growth.
The downside pattern targets in the 1929 Dow were exceeded with a fall of around 49% before the market recovered in 1930. The 2008 dow pattern targets were also exceeded with a market fall of around 52%.
In 1930, the market developed an inverted head and shoulder rebound pattern recovery that led to a 46% rise in the market. The Dow rebound in 2009 also developed from an inverted head and shoulder pattern. This was a powerful rise of around 69%.
The historical development of the recovery in the DOW in 1930 ended with a new head and shoulder pattern. This was followed by a rapid market decline that created the first part of a long term double dip pattern. This retreat also exceeded the pattern projection targets with a fall of 28%.
Fast forward to today, we’re seeing the Dow is developing a new head and shoulder pattern which indicates a beginning of a bear market. The rally peaks in the Dow appear in January and May and June. The downside projection taken from the neckline of the pattern sets a target at 8,400, or a 25% decline.
A very bearish analysis using the pattern of retreat behavior in 1930 suggests the Dow could retreat to around 7,500 in 2010.
The head and shoulder pattern in the Dow and its downside targets, are invalidated with a sustainable rise above 10,600. A move above this level does not signal a resumption of the uptrend, but it does reduce the probability of a double dip.
It must be noted that while the behavioral patterns in 1930 and 2010 are similar, they don’t necessary point to the same result. But it does sound a warning that markets could continue to stand on the edge of a precipice.
Source: 2010 CNBC, Inc.
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
]]>The Dent Method, developed by company Founder and economic expert Harry S. Dent, Jr. in the late 1980’s, is a long term economic forecasting technique based on the study of and changes in demographic trends and their impact on our economy. It works by showing how predictable consumer spending patterns combined with demographic trends allow us to forecast the economy years or even decades in advance. Harry S. Dent, Jr. is the author of “The Great Depression Ahead”, “The Next Great Bubble Boom”, “Roaring 2000s Investor”…etc.
Source: HS Dent
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
]]>7 reasons for my pessimism:
1. Sovereign debt crisis leaving investors worried: More and more investors are viewing Europe’s sovereign debt crisis as a sneak preview of the future in U.S. After all – U.S. debts is far greater than the PIIGS (Portugal, Ireland, Italy, Greece, Spain)!
2. High U.S. unemployment rate: Despite everything Washington has tried to do, nearly 1 in 4 American workers is still struggling to get by without a paycheck. Worse: The job growth of recent months has now dwindled to nearly nothing. After 431,000 new jobs were created in May, only 83,000 appeared in June.
3. 70% of the U.S. economy is beginning to shut down: Domestic consumption is responsible for 70% of all economic activity in U.S. – and consumer confidence is cratering. Worse: U.S. retail sales are already plunging!
4. The housing slump in U.S. has returned with a vengeance: New home sales just cratered by 33%, the biggest decline on record. Foreclosures are increasing again, creating new nightmares for U.S. largest banks. Worse: ARM(Adjustable Rate Mortgage) resets just started in May this year and more foreclosures is expected, as explained in my post U.S. Housing Crisis Over? Re-think Again! 2nd Wave Maybe Coming!
5. Most U.S. states drowning in debt, eg. New York, California and others going down for the 3rd time: The 50 U.S. states now have a cumulative deficit of US$127.5 billion. Plus, states have more than US$1 trillion in pension obligations they can’t pay. They must make massive spending cuts to survive - cuts that are sure to impact corporate earnings and stock prices from coast to coast.
6. U.S. economy is quickly running out of gas: The recovery that followed the bear market was bought and paid for with US$2 trillion in government stimulus money. Now, that money is running out! U.S. economy and stock market are running out of steam. And with no new stimulus on the horizon, there’s nothing left to keep stocks from declining. If U.S. goes down, rest assured that the rest of the world will be pulled down as well, including our little red-dot called Singapore.
7. China’s economy maybe slowing down: With Europe as one of its largest exporter, the Europe’s debt crisis is going to hit the demand for Chineses goods.
In my humble opinion, I feel that we have NOT seen the low of the global stock markets and I expect to see further decline from here. Short-selling is the way to ride this current market weakness. In fact, people should consider liquidating their long positions into any rallies, rather than buying aggressively into the market right now. In view of the possibility of high inflation, precious metals, like gold, silver, commodities, natural resources and hard assets are also good instruments for us to protect our precious wealth.
I really hope that I am wrong and I have to admit that I always am! Please be prepared for the worst as we will see more bumpy road ahead!! I want to stress again that the downside risk is much higher than the upside potential at this point of the time. So please be extremely careful!
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
]]>As with the weather, there were some hints of trouble here and there on Wall Street. But all in all, things could not have seemed better. Little did we know, the stormy end of 9/10/07 signaled a very large bubble that had just popped.
That was the day when the Dow Jones Industrial Average hit its historic peak. From there, it was all downhill — slowly but steadily at first, and then violently after August — until the Dow bottomed (for now) on March 9 of last year. Over that span, the index lost 54% of its value.
It’s been a crushing blow to just about everyone. But it’s already being referred to as the crash. As if the unpleasantness were now all behind us. More likely, in the future it will be seen as, simply, the first crash.
Don’t believe it? In a moment you will, when you see the scariest graph of the year.
But let’s quickly recall what’s already happened. During the late, great housing boom, interest rates were at microscopic levels, while bankers were encouraged to grant home loans on little more than a wink and a nudge. In order to inflate their balance sheets, those bankers resorted to all sorts of gimmicky, adjustable rate mortgages (ARMs), whose common feature was an interest rate that would eventually reset. That is, it would balloon somewhere down the road. And those most likely to come quickly to grief were the riskiest borrowers, who held loans known as “subprime.”
“But not to worry,” borrowers were told. “Betting on ever-rising home prices is the safest wager in the whole wide world. If you have problems with cash flow when the ARM resets, your house will be worth a lot more, so you can simply sell it and walk away with a nice chunk of change in your pocket.” Uh-huh.
The bankers themselves were a little more concerned about the deterioration of their portfolios. They took out insurance in the form of credit default swaps (CDSs). These were a brand-new invention in world financial history, allowing mortgages to be sold and resold until they were leveraged 20 times over. They became the shakiest part of a huge global derivatives market, with a nominal value in the tens of trillions of dollars.
For a while, this Ponzi scheme even worked. But then, as they had to, the ARMs began resetting, and there were defaults. Then more of them. Because at the same time, the housing market was cooling off and the economy was stalling out. More and more people were trapped in a situation where they owed more on their home than they could sell it for. Many simply mailed their keys to the bank and moved on.
All of this wreaked havoc in the derivatives market. Sellers of these exotic packages could no longer establish what they were worth. Buyers couldn’t determine a fair price and so stopped buying. As the ripples spread through the world financial system, trust disappeared and liquidity dried up.
Now consider that the base cause for all that dislocation was the subprime sector. And how big is that? Not very. Subprime mortgages account for only about 15% of all home loans. Their influence has been way out of proportion to their numbers, because of derivatives. Here’s the good news: the subprime meltdown has about run its course. These loans were resetting en masse in 2007 and the first eight months of ‘08. Now they’re pretty much done.
And the bad news? No one in the mainstream media seems to be asking what should be a pretty obvious question: What about loans OTHER THAN SUBPRIME? Truth is, the banks didn’t just trick up their subprime loans. ARMs were the order of the day – across the board.
Now, here’s that frightening graph we referred to earlier.
Take a good, long look. You can see that from the beginning of 2007 through September of 2008, subprime loans (the gray bars above) were resetting like crazy. Those are the ones people were walking away from, sending a shockwave from defaults and foreclosures smack into the middle of the economy. Now they’re gone.
The ARM market got very quiet between December 2008 and March 2009, hitting a low that won’t be seen again until November of 2011. Small wonder a few “green shoots” have poked their heads above ground. But in April, resets began to increase and will reach an intermediate peak in June. After that, they tail off a little, going basically flat for the next ten months.
It’s not until May of 2010 that the next wave really hits. From there to October of 2011, the resets will be coming fast and furious. That’s 18 months of further turmoil in the housing market, and the beginning is either HERE or not too far away!!
While it isn’t subprime ARMs that are resetting this time, neither are they prime loans. Those eligible for prime loans wisely tended to stay away from ARMs in the first place, as indicated by the relatively small space they take up on each bar.
No, the next to go are Alt-A’s (the white bars), Option ARMs (green) and Unsecuritized ARMs (blue). Alt-A’s are loans to the folks who are a small step up from subprime. Unsecuritized loans are a 50-50 proposition; either the borrowers were good enough that they weren’t thrown into the CDS pool, or they were so risky no one would insure them.
Those two are bad enough. But Option ARMs are the real black sheep, loans with choices on how large a payment the borrower will make. The options include interest-only or, worse, a minimum payment that is less than interest-only, leading to “negative amortization”-a loan balance that continually gets bigger, not smaller. Imagine what happens with those when the piper calls.
Once the carnage begins, will it be as bad as the subprime crisis? That’s the $64K question. Perhaps not. For one thing, subprime loans were a much larger chunk of the market when they started going south. For another, there’s been a lot of refinancing as interest rates dropped; that should help ease the default rate. And the government has massively intervened, with measures designed to prop up those who would otherwise lose their homes.
On the other hand, we’re experiencing a slow down in the economy, which wasn’t the case when the subprime crisis started. More people will be unable to meet payments. And the housing market has continued to decline, pressuring both marginal homeowners and banks that can’t sell foreclosed properties.
Is the stock market’s next 9/10/07 on the way? Yes. Which day will it be? That’s unknowable. It could be HERE, in a week, or not for another year.
But make no mistake about it, the second crash is coming. It can’t be prevented, no matter what desperate measures Obama and his hapless financial advisors come up with. All we can hope for is that, with a little luck, it won’t be as severe as the first one. But it will last longer. We aren’t even in the middle of the woods yet, much less on the way out.
Source: www.gold-eagle.com
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
]]>Since March 2009, we have seen a tremendous bull run, driven more by stimulus plans and bailouts from central governments around the whole world, rather than a solid recovery in the real economy. This year 2010 alone, we have just seen a 9.6% correction in January and till to date a 8.6% decline in STI in 3weeks. I believe the damage has been done, we MAY have just seen the start of the 2nd wave of Tsunami or very strong signals that we are not too far away from it. Several reasons:
1) PIIGS(Portugal, Ireland, Italy, Greece and Spain) debts crisis,
2) U.S. total funded and unfunded debt amounting to about US$130 TRILLION, it may go into double dip recession in 2011
3) China economy maybe over-heating and possible property bubble there
4) Goldman Sach criminal fraud charges imposed by SEC
5) Dramatic increase in Option Adjustable Rate Mortgage(OARM), Agency and Alt-A Monthly Mortgage Resets in U.S. 2nd wave of mortgage resets are around the corner and they are peaking in 2011, thus causing more foreclosures in U.S.
6) Terrorism (a major terrorist activity occur around once every 8-9 years, based on the book “The Great Depression Ahead” by Harry S. Dent, Jr. The last major terrorist attack was on 11 September, 2001.
Fundamentally, Singapore is well prepared for this financial crisis :
1) Opening of 2 Integrated Resorts (IR)
2) Youth Olympic will be held on 14 – 26 August this year
3) Possibility of General Election happening in 2010 (based on history, Singapore stock market has normally performed well prior to the election)
But we have to understand that Singapore is just a little red dot which relies very much on export, we will be badly hit if huge economies like U.S., Europe, Japan, China…etc were to run into crisis again, like what had happened in 2007 and 2008.
Personally, I believe we MAY have just seen the start of the 2nd wave of Tsunami or very strong signals that we are not too far away from it, rather than just any normal correction. I am not saying that the stock market is going to straightaway collapse from here, it may rally along the way and people should be selling into rallies, rather than buying aggressively into the market. If the market slides further, it will be a good time to start doing short-selling to ride the downtrend. Precious metals, like gold and silver are also good instruments for us to protect our wealth and hedge against inflation, which is slowly showing its ugly face.
Above is just my personal view and I have to admit that I may be wrong! I would rather be cautious and defensive now than to be an aggressive buyer into the market. The downside risk is much much higher than the upside potential at this point of the time. Please be careful!
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
]]>Dow 5,000 in 2010?
In my last column I predicted a “dead cat bounce” in the stock market and a possible Dow plunge to 5,000 this year. Obviously, many readers mocked my prediction.
But the dead cat bounce is very important, especially in today’s market.
Simply put, ‘a dead cat bounce’ looks like Diagram 1 below:
The market crashes, rebounds, and runs out of steam, then crashes again…unfortunately, and possibly, to a lower low. When professional investors observe a ‘dead cat’ forming, many will begin to sell. If their selling leads to a panic, the stock market goes even lower.
Putting today’s numbers to the ‘dead cat’ diagram gives this topic more meaning.
In 2002, the Dow hit a low of 7,286.
In 2007, the Dow hit a high of 14,164
In 2009 the Dow fell and stopped at 6,547.
Dow 6,547 is where the market stopped falling and the dead cat bounce began. At 6,547 the market was oversold and buyers came rushing back in, looking for bargains. The Dow headed back up, and a bear market rally began.
On February 5, 2010 the Dow closed at 10,012.
What Does This Mean?
So the question is, “What do these numbers mean to me?” The answer to that question depends upon you. If you are a bullish person, you will be optimistic, reassured by these numbers, and looking forward to the Dow breaking 14,000 soon.
If you are bearish, you will be waiting for the dead cat to finally die and for a double dip recession to begin.
One of the theorists (and writers) I follow is Richard Russell, a wise sage who is in tune with markets and the madness of crowds. He has been in the business for about 50 years, so he has the wisdom and perspective of time. Lately, he has been writing about the ‘50% Rule’ of Dow Theory. I thought I would pass it on to you because it may assist you in seeing the future of the economy, even if –like me — you do not trade in stocks.
The following is my interpretation of the ‘50% Rule’ using real numbers.
In 2002 the low of the Dow was 7,286.
In 2007 the Dow hit a high of 14,164.
The ‘50% Rule ‘number is 10,725…the halfway point between 7,286 and 14,164.
In 2007, when the market headed down and broke 10,725, professional traders who follow the Dow Theory ‘50% Rule’ knew what was going to happen next. On March 9, 2009, the crash stopped at Dow 6,547.
On that day, what I believe is a ‘dead cat bounce’ began as the market moved up.
On January 19, 2010, the Dow stalled at 10,725 and headed down again. This is spooky. The 50% rule came true.
The next interesting point is 7,286, the low of 2002, when the rally began. According to Russell, if the Dow holds at 7,286 and begins a rally, this might be a good time to buy. But if it fails to hold at 7,286 and slides past 6,547, then look out for dead cats dropping from the sky. Russell predicts that Dow 1,000, the number at which the Dow began its rally in the 1970s, may not be out of the question. If that happens, there will be millions of baby boomers joining the dead cats falling from the sky as their 401(k)s and IRAs implode.
Other Markets
This ‘50% Rule’ may apply to other markets such as gold, the hot commodity of this era.
In 1971 gold was $35 an ounce. I began buying gold in 1972 when I was a pilot in Vietnam, watching the Vietnamese panic when they knew the U.S. was not going to win the war.
Gold hit a peak of $850 an ounce in January of 1980.
Gold dropped to a low of $252 in July of 1999. Obviously, I bought a lot of gold in 1999. Gold was at an all-time low because Central Banks, such as the Fed and the Bank of England, were dumping gold in an attempt to protect the value of their counterfeit currencies.
According to the ‘50% Rule’ of Dow Theory, when the price of gold was passing $600 an ounce(halfway between $850 and $252), a rally in gold was on. When gold passed $600, mainstream financial experts began warning of a crash in the price of gold… stating that gold was in a bubble.
Today gold fluctuates between $1,000 and $1,200 an ounce.
Is Gold in a Bubble?
When you factor in inflation and devaluation of the U.S. dollar, $850 gold in 1980 is $2,500 an ounce in today’s dollars. In other words, gold might be at 50% at $1,200, which is the highest of highs. Could there be a run to $2,500?
Your personal answer to that question will depend upon how confident you are in Fed Chairman Ben Bernanke, President Obama, and Wall Street. If you have faith in our leaders of commerce, don’t buy gold. If you do not have faith in them, maybe you should buy gold or silver.
If the dead cat bounce dies and the Dow drops to 5,000 in 2010, as I predict, then the price of gold and silver may die with the dead cat of the Dow, as investors cling to cash. The next question you need to answer is, “If the Dow dies and the price of gold and silver drop, what should you invest in at the bottom…stocks, gold and silver, or cash?”
I know what I will do. I will buy more gold and silver. Why? The answer is because I trust gold and silver more than Central bankers, the Oval Office, and Wall Street. Gold and silver have been real money for thousands of years.
The Lost Decade
The people I am most concerned about are the average investors who have bought their financial planner’s advice of “Invest for the long term in a well-diversified portfolio of stocks, bonds, and mutual funds.”
Many investors are calling the past 10 years The Lost Decade. That means those who invested for the long term in stocks, bonds, mutual funds, and cash are long-term losers. Japan has been in a Lost Two Decades.
A ‘lost decade’ means:
1. Zero job creation.
2. Zero economic gains for the typical family. Home values are down and many families owe more on their home than the home is worth.
3. Zero gains in the stock market.
Over the next few months, it is important to watch both the Dow and gold. As I write, the Dow is around 10,000 and gold is at $1,000. If the Dow breaks 7,286, the 2002 low, and continues down below 6,547, the 2009 low, watch out below. If 6,547 is broken and gold passes $2,500 an ounce, you’ll have even more to worry about.
Source: Yahoo Finance
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them. ]]>
Bill Gross is the managing director of PIMCO—one of the world’s largest fixed-income asset management companies, with $1,001 billion in assets under management as of the end of 2009. He has being ranked No. 10 in Fortune magazine’s list of the 25 most powerful people in business. In 2007, he was named “fixed-income manager of the year” by Morningstar for the third time in 10 years.
In his February online investment outlook letter, entitled “Ring of Fire”, Gross lumps the U.S. in the “ring of fire” along with vulnerable countries such as Spain, Greece, Italy, Ireland, and the U.K. in terms of investment risk. He said all these countries have government debt approaching 90% of GDP!! And this, says Gross—citing a book by Carmen Reinhart and Kenneth Rogoff called This Time is Different—is bad news, as such high debt levels slow growth by 1% or more, slashing returns on investment and on financial assets.
Gross also cites a McKinsey Global Institute study titled “Debt and deleveraging: The global credit bubble and its economic consequences.” It looks at total debt, public and private, and concludes that countries that enter financial crises with lower initial debt levels can respond far better—explaining why India, Brazil, China, and Canada were relatively shielded from the recent financial downturn.
Gross advises investors to put growth and currency assets in developing economies, especially in Asia. He wrote: “When the price is right, go where the growth is, where the consumer sector is still in its infancy, where national debt levels are low, where reserves are high, and where trade surpluses promise to generate additional reserves for years to come. Look for a savings-oriented economy which should gradually evolve into a consumer-focused economy. China, India, Brazil and more miniature sized examples of each would be excellent examples.”
Similarly, he recommends investing fixed income assets in those same countries if possible, though, since emerging markets have less developed financial markets and lower liquidity, fixed-income investors may need to turn to developed economies. His top choice for now would be Canada, because its “conservative banks never did participate in the housing crisis and it stayed closer to fiscal balance than any other country.” His next choice is Germany. The one to avoid at all costs: the U.K.
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
]]>
Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor said the governments of every developed economy will eventually default on their sovereign debts, so the one thing he will never do in his life is ’sell my gold.’
Potential defaulter include the US, the UK and Western Europe.
Speaking to CNBC in a live interview via telephone, Faber said: “In the developed world we have huge debt to GDP, in terms of government debt to GDP and unfunded liabilities that will come due. These unfunded liabilities are so huge that eventually these governments will all have to print money before they default,” he added.
Speaking at Russia’s Troika Dialog Forum in Moscow last week, Faber said: “I’m convinced the US government will go bankrupt, but not tomorrow, and before they do they will print money and you’ll get a depression with very high inflation rates.”
“If you ask me about the correction in the gold market, sure, we already corrected 10% from the peak and it could last somewhat longer. But when I look at Mr.Obama, Mr.Bernanke, Mr. Tim Geithner and Mr. Larry Summers, the one thing I will never do in my life is sell my gold.”
In an interview with Bloomberg Television in Hong Kong on Thursday, Faber reiterated he doesn’t see a “huge downside risk” for gold. “I won’t rule out that gold will go down to US$950 or US$1,000, but I don’t expect more downside.” “I don’t see any scenario where gold will collapse,” he added.
The famed investor told Bloomberg the Euro may rebound to US$1.40 against the US dollar because the currency is currently “oversold” amid concerns over Greece’s deficit, the largest in the European Union. “The region, along with the European Central Bank, will probably “bail out” the country, in turn creating more deficits” he also said.
“When Greece is bailed out, it’s a further indication that paper money is losing its purchasing power because it’s diluted through larger and larger bailouts and more and more deficits,” Faber said. “Now it can rebound to around US$1.40 but more than that, you shouldn’t expect.”
Any other recommendations?
“Other commodities haven’t gone up yet, such as the grains,” he said. “It may take time until they start to go up substantially but if you have time, you should be long wheat, corn, soya beans or own a farm, which is one way to participate in future food price increases.”
The global stock markets, which have mostly fallen about 10%-20% from their peaks, have begun a correction phase that Faber expects to continue. He said he thinks the new resistance level for the S&P 500 will be 1,100, though an oversold market could cause a relief rally over the next ten days.
Faber has said in many interviews that he sees dips in gold as an opportunity to buy some more bullion. But how long can the gold bull market last? “The gold bull market will come to an end when sovereign wealth funds – sick and tired of their investments in financial stocks – will finally purchase gold,” wrote Faber back in January 2008 in his Gloom, Boom & Doom report.
Source: BI-ME (Posted: Thurs, February 11, 2010 6:38 pm)
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
]]>Is the recession over? Are happy days really here again? Paraphrasing Dickens, my answer is, “For people who are prepared, 2010 will be the best of times. For many, 2010 will be the worst of times.”
The following are a few of my predictions and reasons behind them :
Prediction #1: The real estate market will crash again.
Pictured above is a graph of mortgage resets. In simple terms, a mortgage reset is when a mortgage comes due. In normal times, refinancing was a simple process…but these are not normal times. Some points of interest:
1. In September 2008, the mortgage resets hit $35 billion that month. That was the exact time the financial crisis hit. When people could not afford to refinance and began to default, the stock market and banking industry crashed.
2. The eye of the storm: In the summer of 2009 mortgage resets were low — around $15 billion a month. This is when optimists began to see “green shoots” in the economy. The green shoots were the eye of the storm. In 2010, as I see it, the second half of the financial hurricane hits. By late 2011, the resets climb to nearly $40 billion a month. The storm will not end until 2012.
3. The first half of the storm was primarily due to subprime defaults. The second half of the storm will hit more solid homeowners. The question is, can they weather the storm? Will Mac Mansion foreclosures be next?
4. In America, there are over 40 million people who own more than two homes. Can they afford to carry and refinance two or more mortgages?
5. Since home values have gone down, many homeowners will find they owe more than their home(s) are worth. Will the bank be kind to them?
6. The time for using your home as an ATM is over. This is crushing retailers and retail real estate. Shopping centers are in trouble. Strip malls are empyting as shopkeepers close — permanently. This will lead to the crash of the office, warehouse, and other commercial properties.
My prediction: Obviously these are the best of times if you are a buyer of distressed properties and the worst of times if you are a seller.
Other things I am watching for in 2010:
1. Will China crash? America’s crash has hit China in the gut. The Chinese are laying off millions of workers. Only massive government bailout is keeping the economy afloat. The Chinese boom will eventually go bust…but will it bust in 2010? Only time will tell.
2. When America stopped importing from China, China stopped importing from the rest of the world. This affects Asian countries as well as Australia, Brazil, and other suppliers of raw materials.
3. Fed Chairman Ben Bernanke is replacing toxic debt with new debt. By protecting his friends in the mega-banks, he is turning the U.S. into a zombie nation. The recession is over, but America is entering an era we will be calling The New Depression, a period when the rich become extremely rich but everyone else becomes poorer. Taxes will kill anyone working for a paycheck.
4. The U.S. dollar will grow weaker. If the dollar strengthens, we will have more unemployment because our goods become too expensive and we will export less.
5. The deficit will increase. The bailouts for the rich are killing the economy.
6. Israel may attack Iran. Israel will not tolerate Iran developing nuclear power, even if Iran claims it is for peaceful purposes. If there is an attack, oil prices will go through the roof.
7. Dead cat bounce. The current stock market rally will probably turn into a dead cat bounce. If the Dow drops below 6500, 5,000 may be the next stop.
The Best of Times
I know I sound painfully pessimistic. I know my predictions are bad news for most people. Yet, for others, bad news is good news.
The following are the bright spots for people who are prepared.
Prediction #2: Gold, silver, and oil will continue to be safe investments in 2010.
The following recaps the year-end prices of gold and silver:
YEAR GOLD SILVER
2000 $ 273 $ 4.57
2001 $ 279 $ 4.57
2002 $ 348 $ 4.78
2003 $ 416 $ 5.92
2004 $ 438 $ 6.79
2005 $ 518 $ 8.80
2006 $ 638 $12.78
2007 $ 838 $14.77
2008 $ 882 $11.33
2009 $1100 (approx) $17.50 (approx)
In 2009, the Dow rose approximately 18%. Gold rose approximately 25%. Silver rose approximately 50%.
By the end of 2010, I predict gold will be at $1,775 an ounce, silver at $24 an ounce, and oil at $85 a barrel. If Israel attacks Iran, these predictions will be blown away.
Prediction #3: The next market to crash will be commercial real estate.
Cash flow positive real estate will be even more affordable. 2010 through 2012 will be a real estate buffet for those with cash and access to credit.
My Personal Investments
As I stated in 2002, “You have up to the year 2010 to become prepared.”
The following are things I have done to prepare myself:
1. I started The Rich Dad Company in 1997 because I saw this crisis coming. For the past three years, I have tightened internal controls and prepared for global expansion via a franchise distribution system. The company is debt free with strong income.
2. 2009 was my best real estate year to date. With the Fed handing out large sums of money and pension funds looking for projects to invest in, my real estate holding company has acquired tens of millions of dollars for acquisition of bankrupt properties and development projects. Development projects are affordable again, as labor, material, and land costs are low and the government is generous with 40-year, low interest, non-recourse loans. People still need a roof over their heads.
3. My oil development projects have done well. We drilled three wells and hit oil on two of them. Government tax breaks for oil exploration remain generous, even for dry holes. Even if the economy crashes, we will still burn oil.
4. I took 90% of my money out of the stock market in 2007. If the Fed raises interest rates, the stock market and real estate market will collapse.
5. I loaded up on gold and silver between 1996 and 2004.
6. With the Fed printing trillions of dollars, cash is trash and savers are losers. As soon as I have excess cash I invest in oil, real estate, gold, and silver.
7. In a zero-interest-rate environment, debtors are winners…but only if you have good debt…debt that’s paid by tenants.
In Conclusion
A few years ago, Japan was ‘King of the Financial World.’ Japan’s economy was the world’s second largest economy — till the bubble burst in 1990. Japan’s budget went into deficit in 1993. Since then, the deficit has averaged 5.4 percent of GDP per year. As a result, Japanese government debt is now 200 percentof GDP today. The U.S. is following Japan, and China will follow the U.S.
We will not see much inflation because the Fed is not able to print enough money to replace the losses from the burst of the credit bubble. Also, factories have too much excess capacity due to lack of demand, which means prices for consumer goods will remain low and unemployment will remain high. Instead, we will see inflation in gold, silver, oil, some stocks, some real estate sectors, and food — not because values are going up but because the dollar is going down.
Welcome to The New Depression. And may these times be the best of times for you.
Source: Yahoo Finance
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
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