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Dr Marc Faber 2009 Presentation for Agora Financial Investment Symposium Tuesday 21 July 2009 The Fairmont Hotel, Vancouver Canada YES, THERE IS A LIGHT.

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Presentation on theme: "Dr Marc Faber 2009 Presentation for Agora Financial Investment Symposium Tuesday 21 July 2009 The Fairmont Hotel, Vancouver Canada YES, THERE IS A LIGHT."— Presentation transcript:

1 Dr Marc Faber 2009 Presentation for Agora Financial Investment Symposium Tuesday 21 July 2009 The Fairmont Hotel, Vancouver Canada YES, THERE IS A LIGHT AT THE END OF THIS TUNNEL! Marc Faber Limited Suite Two International Finance Centre 8 Finance Street Central Hong Kong Tel:(852) Fax:(852) “Give me control of a nation’s money and I care not who makes the laws" - Amschel Rothschild

2 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 A colossal global economic bust has followed. In 2008, almost all asset prices collapsed. 1

3 HOW ARTIFICIALLY LOW INTEREST RATES CAUSED THE CRISIS! Fed Fund Rate remained at 1% until June Source: Ed Yardeni, 2

4 EASY MONEY EXACERBATES VOLATILITY Source: Ed Yardeni, 3

5 WEST TEXAS INTERMEDIATE CRUDE OIL PRICE 4 Source: Ed Yardeni,

6 U.S. DEBT RATIOS HAVE BEEN PUSHED HIGHER BY REFLATION Source: Bridgewater Associates and The Bank Credit Analyst 5

7 : NO MONETARY TIGHTENING! 6 Source: Ed Yardeni; Bond Yield & GDP

8 EACH CRISIS PRODUCED MORE MONETARY EASING AND HIGHER STOCK PRICES! BUT WILL IT WORK THIS AND NEXT TIME? Source: Ed Yardeni, 7

9 FROM THE ILLUSION OF WEALTH TO TOTAL WEALTH DESTRUCTION, Source: Robert Prechter, 8

10 WORLD STOCK MARKET CAPITALISATION: FROM $63 TRILLION TO $28 TRILLION! Source: Ron Griess, 9

11 GLOBAL COLLAPSE IN HOME PRICES – NEXT SHOE TO DROP: COMMERCIAL REAL ESTATE Source: Ed Yardeni, 10

12 SHADOW SUPPLY: 14.5% OF HOUSING STOCK IS VACANT, TOTALLING 19.0 MILLION UNITS Source: Census Bureau, Zelman & Associates estimates 11

13 CREDIT GROWTH COLLAPSES AS LENDING STANDARDS TIGHTEN Source: Bridgewater Associates, Goldman Sachs 12 Total New Borrowing by Households and Non-Financial Business % PGDP Lending Standards Tighten

14 13 THE U.S. TREASURY’S ATTEMPT TO STIMULATE CREDIT GROWTH IS LIKELY TO FAIL Source: Ed Yardeni;

15 CORPORATE BOND SPREADS HAVE WIDENED 14 Source: Ed Yardeni;

16 Source: Ed yardeni, 15 OVER-LEVERAGED CONSUMER IS RETRENCHING

17 U.S. Current Account Deficit as % of GDP Source: Estudio Broda; Bridgewater Associates 16 EXCESSIVE CONSUMPTION LEADING TO A SOARING U.S. TRADE AND CURRENT ACCOUNT DEFICIT

18 U.S. OVERCONSUMPTION STIMULATED THE CHINESE ECONOMY, LIFTED COMMODITY PRICES, AND ENRICHED RESOURCE PRODUCERS Source: Ed Yardeni; World Crude Oil Outlays,

19 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 Global economy has become more synchronized Risk Premiums remained low for too long! Source: Morgan Stanley 18

20 … A NEW WORLD HAS EMERGED Monthly Motor Vehicles Sold (million units) Source: Jonathan Anderson, UBS 19

21 20 GROWTH IN U.S. TRADE AND CURRENT ACCOUNT DEFICIT LED TO INCREASING INTERNATIONAL RESERVES AND A WEAK U.S. DOLLAR Strong inverse correlation between the growth rate in International Reserves and the U.S. dollar! Source: Ed Yardeni,

22 FROM NOW ON FASTER GROWTH IN EMERGING ECONOMIES Source: Barry Bannister, Stifel Nicolaus & Co; Goldman Sachs 21

23 PER CAPITA GDP (IN 1960 U.S. DOLLARS) Rising wealth inequality between the MDCs and the LDCs over the last 250 years has reversed for good! Source: Paul Bairoch, Victoires et déboires 22

24 CHINESE YUAN, Source: Ed Yardeni;

25 AUSTRALIAN DOLLAR, Source: Ed Yardeni;

26 KOREAN WON / U.S. DOLLAR, Source: Ed Yardeni;

27 26 NO PROPERTY BUBBLE IN CHINA! Source: The Bank Credit Analyst

28 URBANIZATION IN ASIA 27 Source: The Bank Credit Analyst, UNDP

29 FOR WHICH COMMODITIES WILL DEMAND NOT COLLAPSE? Source: Bank Credit Analyst 28

30 OIL CONSUMPTION DURING PHASES OF INDUSTRIALISATION Source: Barry Bannister, Stifel, Nicolaus & Company, Inc 29

31 CRUDE OIL DEMAND IN CHINA AND INDIA AND ANNUAL CHANGE, Source: Ed Yardeni;

32 THE GEOPOLITICS OF OIL Source: Perry-Castaneda Library Map Collection Source: The Bank Credit Analyst Map of Iran Chinese Share of World Oil Demand and Production 31

33 THE GEOPOLITICS OF OIL IN ASIA: THE CONTROL OF SEA LANES 32

34 THE SCO INCLUDES CHINA, RUSSIA, KAZAKHSTAN, KYRGYZSTAN, TAJIKISTAN AND UZBEKISTAN Source: 1999 MAGELLAN Geographix SM, (805) : 33

35 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 34

36 COMMODITY PRICES IN REAL TERMS, Source: Barry Bannister; Nicolaus & Co. 35

37 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 36

38 ZERO HOUR! : Nominal GDP Growth: + $4.2. trillion Total Credit Market Debt: +$21.4 trillion Source: Barry Bannister, Stifel Nicolaus

39 AN EARNINGS BUBBLE? S & P EARNINGS PER SHARE, From , financial sector earnings up 5 times. Non-financial sector earnings up 100%. Source: UBS, The Bank Credit Analyst

40 DECLINING PERSONAL SAVING RATE TURBOCHARGED THE ECONOMY AND CORPORATE PROFITS 39 Source: Bureau of Economic Analysis, Merrill Lynch Personal Saving Rate,

41 THE COMING COLLAPSE IN CAPITAL SPENDING Source: Ed Yardeni; 40

42 Source: DOW JONES INDUSTRIAL AVERAGE MONTHLY – ADJUSTED FOR INFLATION BY THE CPI,

43 42 MARKET CAPITALIZATION AS A PERCENTAGE OF NOMINAL GDP, Source: Ron Griess,

44 U.S. STOCK MARKET 10-YEAR COMPOUND ANNUAL TOTAL RETURN Source: Barry Bannister, Stifel Nicolaus 43

45 S & P 500 TOTAL RETURN INDEX, Source: Ron Griess, chartstore.com 20 year rate of return

46 TOO MUCH SPECULATION Source: Alan Newman, 45

47 LONG-TERM U.S. TREASURY CONSTANT MATURITY, Source: Ron Griess, 46 (Monthly)

48 47 Source: DOW TO GOLD RATIO,

49 ASIA: HIGHER DIVIDEND YIELDS THAN BOND YIELDS Source: Christopher Wood, CLSA 48

50 NIKKEI 225, Source: Ron Griess, (Monthly) NIKKEI

51 HANG SANG INDEX Source: Ron Griess,

52 INVESTMENT THEMES Real Estate in Emerging Avoid real estate in financial sectors Economies: 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 commodities is warranted Tourism:Hotels, casinos, airports, beach resorts. Potential problem is oversupply Financial Services:Banks, insurance companies, brokers, REITs in emerging economies Infrastructure:Bottlenecks everywhere. Potential problem could be cancellation 51

53 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 52

54 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”. 53


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