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Re: Bearish Information Re. Panel discussion with Faber, Moebius, et. al.
http://www.marketoracle.co.uk/Article1386.html dated 6/27/07
To me, some interesting exerpts.
Interviewer: Is it equity or bond markets that are most at risk of a severe and lasting correction?
Interviewer: What would be the likely magnitude of a correction in terms of percentage fall?
Faber and Moebius are to my understanding well regarded investors. I don't know anything about Thomson and Wood.
http://www.marketoracle.co.uk/Article1386.html dated 6/27/07
To me, some interesting exerpts.
Marc Faber: We had a more than 20-year bull market in bonds - Sept 21, 1981, to June 2003 when the 10-year (US) Treasury bond yield fell to 3.3 per cent and the JGB (Japanese government bond) yield fell to less than 0.5 per cent. We are now at the onset of a major bear market in bonds worldwide that should bring interest rates above the level in 1981 when US Treasuries were yielding over 15 per cent. But this process will take at least 10 years. In this environment stocks will not do well in real terms but will rise in nominal terms. How high will depend on (US Federal Reserve chairman Ben) Bernanke's money printing presses.
Christopher Wood: The 10-year US Treasury bond yield has broken above the long-term trend line, in place since the beginning of the great bond bull market back in 1981. The recent equity rally has occurred in the context of rising government bond yields, just as the sell-off in February/March occurred in the context of falling bond yields.
All this suggests that the Fed model, where hundreds of billions of dollars of portfolio capital is allocated globally on the relationship between bond yields and earnings yields, has broken down.
All this suggests that the Fed model, where hundreds of billions of dollars of portfolio capital is allocated globally on the relationship between bond yields and earnings yields, has broken down.
Marc Faber: Excess liquidity has been driven by the US current account deficit growing from 2 per cent of GDP in 1998 to close to 8 per cent now. Growth of the current account deficit has slowed down as the US consumer is struggling. If US inflation were properly measured, we would already be in a phase of stagflation in the US . (The rate of new money flowing into the global system) has slowed down considerably and so not every asset bubble can continue to expand. The global bond market was the first casualty.
The reason that other asset markets have continued to soar is, however, increased leverage and a flight from cash into assets as people rightly begin to realise that paper money's purchasing power is collapsing. Therefore, any catalyst, no matter how small, could one day reverse investors' expectations and lead to a process of de-leveraging and a collapse in asset prices.
The reason that other asset markets have continued to soar is, however, increased leverage and a flight from cash into assets as people rightly begin to realise that paper money's purchasing power is collapsing. Therefore, any catalyst, no matter how small, could one day reverse investors' expectations and lead to a process of de-leveraging and a collapse in asset prices.
Marc Faber: Emerging stock markets are now vulnerable because they are the most extended. They were the prime beneficiaries of the excess liquidity.
Mark Moebius: Those markets that have risen the most will probably suffer the greatest percentage falls, so emerging markets, since they have risen more than developed markets, should have greater declines.
Mark Moebius: A severe market correction could range between 20 per cent and 70 per cent.
William Thomson: That is impossible to say. It depends on the reason for the reaction and will vary from market to market. Ten per cent is hardly a correction; 25 per cent does not seem unreasonable; 50 per cent seems far too great unless we have a true crash, especially as we had one like that in 2001-3.
Christopher Wood: If credit spreads blow, a bear market would ensue which would mean 50 per cent-plus corrections. Otherwise, corrections are likely to be limited to 10-15 per cent.
Marc Faber: Once the shares of Goldman Sachs are down by 20 per cent from their peak the phones at the Fed and at (US Treasury Secretary) Hank Paulson's office will ring asking them to cut interest rates to support the asset markets. So, who knows? But in real terms (in gold terms) US financial assets will be 'toast' for a long time.
William Thomson: That is impossible to say. It depends on the reason for the reaction and will vary from market to market. Ten per cent is hardly a correction; 25 per cent does not seem unreasonable; 50 per cent seems far too great unless we have a true crash, especially as we had one like that in 2001-3.
Christopher Wood: If credit spreads blow, a bear market would ensue which would mean 50 per cent-plus corrections. Otherwise, corrections are likely to be limited to 10-15 per cent.
Marc Faber: Once the shares of Goldman Sachs are down by 20 per cent from their peak the phones at the Fed and at (US Treasury Secretary) Hank Paulson's office will ring asking them to cut interest rates to support the asset markets. So, who knows? But in real terms (in gold terms) US financial assets will be 'toast' for a long time.
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