Faber Interview 1/11/08

[Jim Nickerson]

http://www.financialsense.com/fsn/main.html

Jim Puplava interviews Marc Faber--56 minutes on radio. Well worth my time. No bullshit interruptions as on bubble-head financial TV .

Faber seems to me to speak "iTulip-talk." Though not a lot may be new to long-term readers here, Faber has his perspective and he really beats on the Fed and Paulson.

He spoke about government lies, decoupling of US and global markets, emerging markets bubble, commodities, gold, deflation, hyperinflation, US dollar which he would prefer to hold now vs. the Euro. The worthiness of some US cash now.

Pretty good stuff I thought some of which provides moments of entertainment for those mostly geared to seeking entertainment.

[Mega]

Re: Faber Interview 1/11/08

Thanks Jim
Yep i listened to Peter and the next guy i heard was Marc, then EJ and then Zappta Geroge............Marc sez that i got be my own Central banker......Geroge had plenty to say about the UK, that we where finished in the 70's, but a flood of North sea oil saved us.....to now!

EJ, he don't say much, just grown's where i come on his site!
Mike

[zmas28]

Re: Faber Interview 1/11/08

http://www.financialsense.com/fsn/main.html

Jim Puplava interviews Marc Faber--56 minutes on radio. Well worth my time. No bullshit interruptions as on bubble-head financial TV .

Faber seems to me to speak "iTulip-talk." Though not a lot may be new to long-term readers here, Faber has his perspective and he really beats on the Fed and Paulson.

He spoke about government lies, decoupling of US and global markets, emerging markets bubble, commodities, gold, deflation, hyperinflation, US dollar which he would prefer to hold now vs. the Euro. The worthiness of some US cash now.

Pretty good stuff I thought some of which provides moments of entertainment for those mostly geared to seeking entertainment.

Thanks for posting this. I've always listened carefully to Marc Faber as he knows whereof he speaks.
However, I did not understand the logic of his take on emerging markets, and the idea of decoupling. He mentioned two channels of transmission of problems between the US and Asia. From an economic standpoint, he said it was conceivable that you could have the US in recession, but not elsewhere. With the financial channel, he said that retrenchment in US consumption would imply reduced liquidity transfer to Asian markets where growth rates could be knocked back from 8-9% to 3-6%. Not sure I understood this right. From a "cyclical" point of view, in the short term, with the Fed likely to cut rates, and Asian currencies holding "dirty" pegs to the dollar, this would seem to imply more liquidity for Asian markets, a point made by Gave (iTulip interview) as well as by Russell Napier.
Perhaps, he meant longer term ("structurally" speaking) that the US consumer would no longer be funding the development boom in Asia to the same extent? Although this is really the trade channel rather than the "financial" channel.

Thoughts on Faber's take and on emerging markets in general?

[Jim Nickerson]

Re: Faber Interview 1/11/08

I think this is along the same line regarding decoupling.

Felix Zulauf, Barron's round table 1/14/08

Could the U.S. decouple from the global economy, or was that just a fiction?
Zulauf: It has never happened and it won't happen this time. Several emerging economies are in a different life cycle and won't be affected as much as they might have been 10 years ago, but they will slow. China's growth rate will come down 2% or 3%.

I think Faber said same thing about China in the radio interview.

[Jim Nickerson]

Re: Faber Interview 1/11/08

Here's Bill Gross in same interview.

Gross: If U.S. growth drops toward zero, the rest of the world will be affected. But the most affected economies are the finance-based economies -- the ones that depended upon financial engineering. The U.S. is the prime culprit, and the U.K. is close in terms of its problems. These economies are paying the price as the so-called shadow banking system contracts. A normal bank reserves 15% against deposits. The shadow banking system of SIVs [structured investment vehicles] and financial conduits has no reserves. Financial engineering has run amok. This isn't going to be a normal cyclical downturn in which inventories are addressed, paving the way for the economy to be rebuilt. The contraction in the shadow banking system will probably be with us for a number of years. It is a unique situation the world hasn't faced in modern times.

[Jim Nickerson]

Re: Faber Interview 1/11/08

Barron's Art Samberg and Fred Hickey.

Samberg: The economy stinks. The subprime mess and the leveraging up of financial-company products and balance sheets are unwinding. And with energy and food costs rising, the U.S. consumer is under pressure. The U.S. will have a recession, but it's going to take one hell of a recession here to slow global growth.

Hickey: It will be one hell of a recession.

Samberg: The excesses in the U.S. have to be flushed out, and we're not close to finished. Actual mortgage defaults are just starting to accelerate in the next few months. In addition, companies like Citigroup (ticker: C), Merrill Lynch (MER) and others have to re-equitize their balance sheets, and that process is just beginning. People are way underestimating the dilution this will cause financial-services companies. They are in an awkward position. The faster they take writeoffs, the less capital they have and the less lending they can do. The market has not fully appreciated how much more equity will have to be raised. The first half looks awful, but it doesn't mean the whole year will be awful. I'm a big believer in not trying to anticipate the end of the world.


edit: It's impractical for me to put up snippets from this first installment of Barron's Round Table. If you can believe these guys, and I don't know fully that one can, this Roundtable looks to be pretty interesting in that these guys seem willing to discuss some of the negativity that has been discussed on these fora "forever." I think if you don't subscribe to online.wsj.com, I'd recommend going to newsstand and get today's (Monday's dated) Barron's.

[Jim Nickerson]

Re: Faber Interview 1/11/08

Same source as above, I'm having trouble controlling myself.

Let's talk about interest rates. Marc, you've been uncharacteristically quiet. Aren't you feeling well?

Faber: I am well and happy because I talked about many of these issues a year ago and recommended shorting the brokers. Subprime is a symptom of a much wider problem: the huge credit bubble built over the past 25 years. It is just the appetizer to something bigger, which will lead to relative illiquidity in the world. I travel around the world regularly, and every place I've gone has had a boom. The U.S. already would be in recession if government statistics were correct. The rest of the world will see a meaningful slowdown because global financial connectivity is greater than ever before.

The Fed brought about the latest boom by cutting the federal-funds rate from 6.5% in January 2001 to 1%. It kept fed funds at 1% until June 2004, even though the recovery in the U.S. began in November 2001. In other words, almost three years into a recovery [then-Fed Chairman] Alan Greenspan still had the fed-funds rate at 1%. This led to huge liquidity in the system -- asset bubbles, debt growth and growth in the trade and current-account deficits. Now those deficits are shrinking. This is an unfriendly environment for economic growth, financial markets and even industrial commodities. But it is friendly for the U.S. dollar.

[jk]

Re: Faber Interview 1/11/08

Thanks for posting this. I've always listened carefully to Marc Faber as he knows whereof he speaks.
However, I did not understand the logic of his take on emerging markets, and the idea of decoupling. He mentioned two channels of transmission of problems between the US and Asia. From an economic standpoint, he said it was conceivable that you could have the US in recession, but not elsewhere. With the financial channel, he said that retrenchment in US consumption would imply reduced liquidity transfer to Asian markets where growth rates could be knocked back from 8-9% to 3-6%. Not sure I understood this right. From a "cyclical" point of view, in the short term, with the Fed likely to cut rates, and Asian currencies holding "dirty" pegs to the dollar, this would seem to imply more liquidity for Asian markets, a point made by Gave (iTulip interview) as well as by Russell Napier.
Perhaps, he meant longer term ("structurally" speaking) that the US consumer would no longer be funding the development boom in Asia to the same extent? Although this is really the trade channel rather than the "financial" channel.

Thoughts on Faber's take and on emerging markets in general?

i haven't listened to this interview, but i've been subscribing to faber's newsletter for several years, so i think i'm up on his thoughts.

here are my own thoughts, which i THINK are similar to faber's, on the issue of em decoupling: there are 2 means of transmission of u.s. problems to em's. following itulip nomenclature, one is in the production/consumption economy, the other in the f.i.r.e./financial economy.

in the pc economy, a u.s. recession deprives the em's of their primary export market. decoupling enthusiasts point to the growth of intra-asian trade, but in fact much of that trade is in primary and intermediate goods that eventually end up in exports to oecd countries, especially the u.s.


in the fire economy, as u.s. markets tank and investors seek to reduce risk, they will sell winners along with losers to reduce beta. those funds which hold both liquid and illiquid securities will sell the liquid. in recent years most of e.g. u.s. mutual fund investment has gone to foreign markets. thus u.s. based funds will be repatriated from high-beta em markets. this will tank foreign markets while the repatriation will tend to support the dollar. [this process, i believe, is the reason faber says the dollar may in for an intermediate term rally against most - not all - currencies. i would add that this implies a rally against the euro and pound, but not the yen or the swiss franc.]

[Jim Nickerson]

Re: Faber Interview 1/11/08

When does the new accounting rule FASB 157 come into effect such that banks are forced to mark their assets to market prices?

[Jim Nickerson]

Re: Faber Interview 1/11/08

Faber again on Barron's

Faber: Equity prices have increased in dollar terms, but in euros the S&P 500 is down about 45% from its peak in 2000 and the Nasdaq is down 60%. Measured in gold, the markets have done horribly and the economy has been in a recession for a long time. I'm not bullish about U.S. stocks, but everything is so bad on a global basis that they might do better on a relative basis. That doesn't mean they go up, but the U.S. market might go down less than China, India, Vietnam and some of the other markets that are in cuckoo land. These markets have gone up because people believe in decoupling. Economically we could see a decoupling, whereby the U.S. is in a recession and China still grows by 5% or 10%. The financial markets won't decouple. Unless, Mario, they reintroduce that uptick rule.

Five years ago I visited family offices and financial institutions that had practically no exposure to international stocks. Today the same people have 50% of their money in emerging markets. Valuations in these markets aren't compelling any more, except for real estate in emerging economies.

A bit later in the conversation.

Faber: Oscar, how much have sovereign wealth funds earned so far by buying Citi and Blackstone Group [BX]?

Schafer: Just because they have a lot of money doesn't mean they are smart.

[zmas28]

Re: Faber Interview 1/11/08

i haven't listened to this interview, but i've been subscribing to faber's newsletter for several years, so i think i'm up on his thoughts.

here are my own thoughts, which i THINK are similar to faber's, on the issue of em decoupling: there are 2 means of transmission of u.s. problems to em's. following itulip nomenclature, one is in the production/consumption economy, the other in the f.i.r.e./financial economy.

in the pc economy, a u.s. recession deprives the em's of their primary export market. decoupling enthusiasts point to the growth of intra-asian trade, but in fact much of that trade is in primary and intermediate goods that eventually end up in exports to oecd countries, especially the u.s.


in the fire economy, as u.s. markets tank and investors seek to reduce risk, they will sell winners along with losers to reduce beta. those funds which hold both liquid and illiquid securities will sell the liquid. in recent years most of e.g. u.s. mutual fund investment has gone to foreign markets. thus u.s. based funds will be repatriated from high-beta em markets. this will tank foreign markets while the repatriation will tend to support the dollar. [this process, i believe, is the reason faber says the dollar may in for an intermediate term rally against most - not all - currencies. i would add that this implies a rally against the euro and pound, but not the yen or the swiss franc.]

Some further thoughts:
(a) as to the PC channel, China is more of an intermediary or end-point in the product chain that typically originates elsewhere in Asia. So, one could expect those economies (Malaysia, Vietnam, Taiwan?) to hurt more than China. In listening to several excellent interviews of Asia based economists on Financial Times video, it appears that China, in particular, is much less dependent on exports than generally believed. Some said that China has already experienced a drop off in demand from the US (I believe the number was 17% drop in the last year, but am quoting from memory here). They opine that recession in the US would likely reduce growth by 2 percentage points from the current 11% growth rate.
The Indian economy also, apart from the IT sector, is much more domestically oriented (over 60% I believe) than export oriented.
(b) not sure I see Faber's thought on money returning to the US from locations such as Asia. This time around, in contrast to the late 90's, the epicenter of the problem is the US. Asian problems would flow from US problems in the first place; and the larger Asian economies have gotten bigger and more resilient. I don't see this as a slam dunk.
(c) In the last month or so, the Shanghai index seems to be on the upswing after a 20% correction, and the Bombay Sensex is also doing much better than the DJ or S&P. Too early to tell, of course, if this divergent trend will persist.

Having said all that, I've been wrong so many times before, that I am taking a wait & see attitude.

[Jim Nickerson]

Re: Faber Interview 1/11/08

Alan Abelson, Barron's 1/14/08

Best quote I've crossed in a while:

" Even in the novel instances when its intentions are not grounded in greed, stupidity or lust for power, Washington demonstrates an unerring talent for ineptitude."

Can anyone beat that description, if so, put it up.

[jk]

Re: Faber Interview 1/11/08

Some further thoughts:
(a) as to the PC channel, China is more of an intermediary or end-point in the product chain that typically originates elsewhere in Asia. So, one could expect those economies (Malaysia, Vietnam, Taiwan?) to hurt more than China. In listening to several excellent interviews of Asia based economists on Financial Times video, it appears that China, in particular, is much less dependent on exports than generally believed. Some said that China has already experienced a drop off in demand from the US (I believe the number was 17% drop in the last year, but am quoting from memory here). They opine that recession in the US would likely reduce growth by 2 percentage points from the current 11% growth rate.
The Indian economy also, apart from the IT sector, is much more domestically oriented (over 60% I believe) than export oriented.
(b) not sure I see Faber's thought on money returning to the US from locations such as Asia. This time around, in contrast to the late 90's, the epicenter of the problem is the US. Asian problems would flow from US problems in the first place; and the larger Asian economies have gotten bigger and more resilient. I don't see this as a slam dunk.
(c) In the last month or so, the Shanghai index seems to be on the upswing after a 20% correction, and the Bombay Sensex is also doing much better than the DJ or S&P. Too early to tell, of course, if this divergent trend will persist.

Having said all that, I've been wrong so many times before, that I am taking a wait & see attitude.

in terms of risk/reward, and given the big moves in asian markets to date, i plan to wait on em investments.

[Guest]

Re: Faber Interview 1/11/08

it appears that China, in particular, is much less dependent on exports than generally believed. ... They opine that recession in the US would likely reduce growth by 2 percentage points from the current 11% growth rate. ... The Indian economy also, apart from the IT sector, is much more domestically oriented (over 60% I believe) than export oriented. ... the larger Asian economies have gotten bigger and more resilient. I don't see this as a slam dunk.

I agree with this assessment. I tried to put forward this thesis elsewhere but there is a widely held view on these pages that "decoupling" is a camp occupied by the ingenuous, while the more astute understand that global coupling is going to remain the overwhelmingly determinant issue in a US slowdown.

An air of finality and inevitability has been conferred on the rest-of-world concomitant slowdown (read primarily Asian growth). The reality may well thoroughly surprise G8 nations still fixated on the paradigm that they remain the dog wagging the global economic growth story tail.

iTulip implicitly endorses the "persistence of coupling" viewpoint (I think), after which by natural evolution one notices this thesis gains a lot of adherents around here. It appears to be the "accepted thesis". Zmas' post is an excellent warning as to why the "accepted wisdom" may benefit from being regularly reexamined.

JK - this is precisely why gold and oil are not necessarily a "must decouple" thesis. You make unquestioning assumptions that a US economic slowdown automatically results in sagging or deflating energy consumption in SE Asia - A very good case can be made meantime, that even when reduced by 3% from it's torrid pace, SE Asian growth can quickly engulf any weakness in consumption growth deriving from it's G8 client nations, even if only predominantly the US.

What appears at first glance to be an ingenuous assumption regarding decoupling could turn out to be surprisingly, (counterintuitively) the potential reality.