Marc Faber Interview on Bloomberg July 23, 2008

[LargoWinch]

Some Pearls of Wisdom from Mr. Faber:

"...bull market in financial markets...that bull market is over. Its over for a long time to come."

Mortgage rates will go up due to market pressure, regardless of the Fed. The Fed is ineffective and inept organization.


Anyway, enjoy:

Part 1


Part 2

Mr. Faber seems also very surprised by the speed of the slowdown.


So in summary:

a) Substantial downturn in the global economy (World is in recession)
b) Technology sector is vulnerable
c) Equities in the US and financial stocks may be oversold in the short-term
d) Industrial commodities are due for a correction in Q3/Q4
e) Freddie/Fannie should issue stocks and be splitted up in 6-10 entities

Worst case scenario: stagflation thanks to CBs.

Take away: No place to hide...

[Jim Nickerson]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Some Pearls of Wisdom from Mr. Faber:

"...bull market in financial markets...that bull market is over. Its over for a long time to come."

Mortgage rates will go up due to market pressure, regardless of the Fed. The Fed is ineffective and inept organization.


Anyway, enjoy:

Part 1

Part 2

Mr. Faber seems also very surprised by the speed of the slowdown.


So in summary:

a) Substantial downturn in the global economy (World is in recession)
b) Technology sector is vulnerable
c) Equities in the US and financial stocks may be oversold in the short-term
d) Industrial commodities are due for a correction in Q3/Q4
e) Freddie/Fannie should issue stocks and be splitted up in 6-10 entities

Worst case scenario: stagflation thanks to CBs.

Take away: No place to hide...

He also conjectured oil could go to ~100 from its 130 near when he was being interviewed and that current bounce in market could carry SPX to 1350.

It's a good thing (for central bankers) Faber is not "king of the world," because were he, then there would be a lot of central bankers without government jobs.

[phirang]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Methinks Faber is a bit overboard on declaiming the downfall of steel...

[FRED]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Methinks Faber is a bit overboard on declaiming the downfall of steel...

Faber, like 99% of analysts, does not understand China. They think China "consumes" commodities. It does, but in the way a factory consumes parts.

For example, the chart to the left. iTulip pop quiz.

Q: What nation was the largest importer of steel in 2002?
A: China

Q: What nation was the largest exporter of steel in 2006?
A: China

China is a factory the masters production of one high value product in global demand after another.

[phirang]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Faber, like 99% of analysts, does not understand China. They think China "consumes" commodities. It does, but in the way a factory consumes parts.

For example, the chart to the left. iTulip pop quiz.

Q: What nation was the largest importer of steel in 2002?
A: China

Q: What nation was the largest exporter of steel in 2006?
A: China

China is a factory the masters production of one high value product in global demand after another.

Well, there's also proof in the earnings: Look at FDG's recent results(I am long FDG).

Also, some Bahrani fund is working with Libya and India to build a steel plant in the middle east... I don't think they're that stupid to build a steel plant in the midst of a deflationary spiral???

Finally, China's subsidies are, in effect, a form of economic warfare, and so hurdle-rates and IRR's are irrelevant: secure meaningful natural resources and expand markets for their exports to diversify away from you-know-who. The necessary blandishments are condoning tyrants and building everything, from stadiums to power plants to MiG's.

[bart]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Q. What nation do most think is expanding its GDP at about 10% per year, when it's real "inflation" adjusted growth rate is around 4-5%?

A. China

[GRG55]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Well, there's also proof in the earnings: Look at FDG's recent results(I am long FDG).

Also, some Bahrani fund is working with Libya and India to build a steel plant in the middle east... I don't think they're that stupid to build a steel plant in the midst of a deflationary spiral???

Finally, China's subsidies are, in effect, a form of economic warfare, and so hurdle-rates and IRR's are irrelevant: secure meaningful natural resources and expand markets for their exports to diversify away from you-know-who. The necessary blandishments are condoning tyrants and building everything, from stadiums to power plants to MiG's.

Steel making is an energy intensive activity, and I would imagine the Chinese will decide they do not need to subsidize the energy input for steel for the rest of the world. Could we see their low-value, non-specialty steel exports dry up?

Even harder for many to imagine, could we see US exports of steel to China rise dramatically? CIBC Capital Markets (Jeff Rubin) judges the US industry, with its integrated iron ore supply [and cheapening US$] the worlds low cost producer now.

Bahrain already produces large volumes of iron ore pellets [for re-export] from Brazilian ore shipped in to take advantage of low labour and low energy costs in that jurisdiction. Long term low cost energy supply would appear to be the primary driver for relocating to the Gulf. Good access to raw materials from Africa, good access to markets in India and Asia. The region is already on its way to be a dominant aluminum producer for that reason.

[phirang]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Steel making is an energy intensive activity, and I would imagine the Chinese will decide they do not need to subsidize the energy input for steel for the rest of the world. Could we see their low-value, non-specialty steel exports dry up?

Even harder for many to imagine, could we see US exports of steel to China rise dramatically? CIBC Capital Markets (Jeff Rubin) judges the US industry, with its integrated iron ore supply [and cheapening US$] the worlds low cost producer now.

Bahrain already produces large volumes of iron ore pellets [for re-export] from Brazilian ore shipped in to take advantage of low labour and low energy costs in that jurisdiction. Long term low cost energy supply would appear to be the primary driver for relocating to the Gulf. Good access to raw materials from Africa, good access to markets in India and Asia. The region is already on its way to be a dominant aluminum producer for that reason.

http://www.globalcoal.com/news/coalnews.cfm

... and yet, coal sells off!

[LargoWinch]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Although early in Q3, it appears that Faber is right about industrial commodities.

Case in point; in addition to softening Crude and Gas prices, Silver and Platinum also corrected somewhat sharply and rapidly. Only Gold is holding relatively well so far...


(What goes up...:eek


(again, having a hard time keeping above the $18 mark)

Like he said: water torture...

I guess he meant highly volatile environment.

[phirang]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Although early in Q3, it appears that Faber is right about industrial commodities.

Case in point; in addition to softening Crude and Gas prices, Silver and Platinum also corrected somewhat sharply and rapidly. Only Gold is holding relatively well so far...


(What goes up...:eek


(again, having a hard time keeping above the $18 mark)

Like he said: water torture...

I guess he meant highly volatile environment.

When LME starts trading 10 year copper, then we'll see what's up.

[LargoWinch]

Re: Marc Faber Interview on Bloomberg July 23, 2008

phirang, what do you mean by "LME"?

[Jim Nickerson]

Re: Marc Faber Interview on Bloomberg July 23, 2008

phirang, what do you mean by "LME"?

London Metal Exchange, but, phirang, what do you mean by the rest of your comment?

I take it you are a person with expertise is something to do with the markets, but not any expertise in communication. Speaking from a lot of experience, youngsters who gain special knowledge, or think they have done so, often speak or write using the vernacular they have learned; either thinking they are displaying their superior knowledge or blindly assuming everyone should just know--some way--of what they speak or write.

If you have special knowledge, and wish to contribute to the masses here, you might do better, in my opinion, in getting your opinions over if you can bring yourself to use language that will more likely be understood.

[santafe2]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Some Pearls of Wisdom from Mr. Faber:

"...bull market in financial markets...that bull market is over. Its over for a long time to come."

Mortgage rates will go up due to market pressure, regardless of the Fed. The Fed is ineffective and inept organization.

So in summary:

a) Substantial downturn in the global economy (World is in recession)
b) Technology sector is vulnerable
c) Equities in the US and financial stocks may be oversold in the short-term
d) Industrial commodities are due for a correction in Q3/Q4
e) Freddie/Fannie should issue stocks and be splitted up in 6-10 entities

Worst case scenario: stagflation thanks to CBs.

Take away: No place to hide...

Thanks for posting this interview. I find Faber engaging and generally agree with his overview. I was a bit surprised to see Fred take him on regarding China's role in the world as his overall sentiment seemed in line with the iTulip POV. I don't find Faber to be like 99% of any standard advisory group. Like all of us, he's not perfect but his points are well taken.

[FRED]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Thanks for posting this interview. I find Faber engaging and generally agree with his overview. I was a bit surprised to see Fred take him on regarding China's role in the world as his overall sentiment seemed in line with the iTulip POV. I don't find Faber to be like 99% of any standard advisory group. Like all of us, he's not perfect but his points are well taken.

We agree with most of Faber's perspective, but are compelled to point out any major flaw in his thinking that leads our readers to the wrong conclusion. The mistaken belief is endemic that China "consumes" rather than "takes in, processes, and ships out" commodities. China's consumption is not primarily driven by domestic demand but by export demand. The reason that is important is that Factory China in the global recession can react to a reduction of demand for Factory China's output by increasing domestic demand, such as by lowering the prices of domestic goods.

China has increased domestic demand for steel by raising export duties.

CISA denies adjustment of export duty from June 1
2008-05-30 (Chinamining.org)

An official in charge of the China Iron and Steel Association (CISA) Thursday denied in public the news that the export duty of rolled steel will be adjusted from June 1.

The rumor disturbed both normal production and business orders and normal import and export order and it is harmful for the disaster relief and stable economic operation, the official stressed.

The state's macro control policy on restricting the excessive export of rolled steel has produced remarkable result, said the official, adding that China's export of rolled steel and steel billet continued to drop by a big margin between January and April of this year.

Customs statistics show that China exported 16.15 million tons of rolled steel, posting a reduction of 5.127 million tons or 24.1 percent year on year; 100,000 tons of steel billets, decreasing 2.554 million tons or 96.2 percent year on year. The export of rolled steel and steel billet amounted to 16.25 million tons, dropping 7.681 million tons or 32.1 percent year on year.

In the same period, China imported 5.67 million tons of rolled steel, 229,000 tons or 3.89 percent less than a year ago; 65,700 tons of steel billets, 37,200 tons or 36.15 percent less than a year ago. The import of rolled steel and steel billets added up to 5.7357 million tons, down 266,400 tons or 4.4 percent year on year.

The net exports of rolled steel and steel billets were converted into crude steel of 11.1844 million tons, which was 7.7275 million tons or 40.86 percent less than a year ago.

The duties are high, in the range of 20% to 40%. Why high export tariffs?

Objectives of tariffs

Tariffs may be levied either to raise revenue or to protect domestic industries, but a tariff designed primarily to raise revenue also may exercise a strong protective influence, while a tariff levied primarily for protection may yield revenue. Gottfried von Haberler in The Theory of International Trade (1937) suggested that the best way to distinguish between revenue duties and protective duties (disregarding the motives of the legislators) is to compare their effects on domestic versus foreign producers. (See protectionism.)

If domestically produced goods bear the same taxation as similar imported goods, or if the foreign goods subject to duty are not produced domestically, and if there are no domestically produced substitutes toward which demand is diverted because of the tariff, then the duty is not protective. A purely protective duty tends to shift production away from the export industries and into the protected domestic industries or other industries producing substitutes for which demand is increased. On the other hand, a purely revenue duty will not cause resources to be invested in industries producing the taxed goods or close substitutes for such goods, but it will divert resources toward the production of those goods and services upon which the additional government receipts are spent.

From the standpoint of revenue alone, a country can levy an equivalent tax on domestic production (to avoid protecting it) or select a relatively small number of imported articles of general consumption and subject them to low duties so that there will be no tendency to shift resources into industries producing such taxed goods (or substitutes for them). If, on the other hand, a country wishes to protect its home industries, its list of protected commodities will be long and the tariff rates high. Political goals often motivate the imposition or removal of tariffs. Tariffs may be further classified into three groups—transit duties, export duties, and import duties.

What is the purpose of China's export duties?

China's Export Duties on Clothing Starting on 1 January 2005
According to the Ministry of Commerce (MOFCOM), China will impose export duties on 148 clothing items on 1 January 2005. These items fall into six broad categories, including outerwear, dresses, trousers, blouses, pyjamas and underwear. The duties will range from 20 fen to 50 fen (RMB) per item/kg.

MOFCOM stated earlier that the export duties are established to encourage the production of higher value-added clothing items, improve the long-term competitiveness of China's clothing and textile industry and promote a stable trading environment after quota elimination in 2005.

Exports of items covered by the new duties amounted to US$34 billion in 2003, accounting for 75% of mainland's clothing exports. Hong Kong's re-exports of these items of mainland origin amounted to almost US$9 billion, or 63% of Hong Kong's re-exports of clothing of mainland origin.

[phirang]

Re: Marc Faber Interview on Bloomberg July 23, 2008

Apropos Faber's short, I'm now long US Steel (X), and will remain so through earnings.

Tuesday morning will be the reckoning.