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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
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?
Source: Ed Yardeni, www.yardeni.com www.gloomboomdoom.com
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
Source: Ed Yardeni, www.yardeni.com www.gloomboomdoom.com
10
SHADOW SUPPLY: 14.5% OF HOUSING STOCK IS VACANT, TOTALLING 19.0 MILLION UNITS
Source: Census Bureau, Zelman & Associates estimates
11
www.gloomboomdoom.com
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
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
www.gloomboomdoom.com
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
www.gloomboomdoom.com
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!
www.gloomboomdoom.comSource: Ed Yardeni, www.yardeni.com
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
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
Source: Ed Yardeni; www.yardeni.com www.gloomboomdoom.com
THE GEOPOLITICS OF OIL
Source: Perry-Castaneda Library Map CollectionSource: The Bank Credit Analyst
Map of Iran
Chinese Share of World Oil Demandand Production
www.gloomboomdoom.com
31
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
www.gloomboomdoom.com
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
Source: Ed Yardeni; www.yardeni.com www.gloomboomdoom.com
40
Source: www.thechartstore.com
DOW JONES INDUSTRIAL AVERAGE MONTHLY – ADJUSTED FOR INFLATION BY THE CPI, 1885-2009
41
www.gloomboomdoom.com
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
LONG-TERM U.S. TREASURY CONSTANT MATURITY,1941-2009
Source: Ron Griess, www.thechartstore.com
46
(Monthly)
www.gloomboomdoom.com
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
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
www.gloomboomdoom.com
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
www.gloomboomdoom.com
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”.
www.gloomboomdoom.com
53