Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said he has some short-term concerns about commodity prices including gold. He is also reluctant to invest in bonds.

In the latest issue of the Gloom Boom & Doom, Faber writes: “Since we had in 2008 the third best annual return (41%) in the last 35 years and since each time high returns were followed by negative returns I would be, regardless of the economic outlook, very reluctant to invest in long term government and also in corporate bonds.”

Faber says he is more negative about US bonds under a further deterioration of the economy than under a recovery, adding that ‘inevitable’ further economic weakness ‘will lead to further fiscal stimulus packages and necessitate further money printing’.

He believes the latest GPP growth figures are a result of massive government interventions into the free market which inevitably resulted in extremely volatile economic and financial conditions.

As a result assets are over-stretched: equities are too high, the euro is over-bought the dollar is oversold.

Even gold may be due for a short term correction, he says.

“I should also mention some concerns (for now of short-term nature) I have about commodity prices including gold. A large number of commodities including oil, the CRB Index, and gold broke out on the upside in early October,” Faber said.

“I would regard a failure to hold above the ‘upside breakout points’ in the period directly ahead with great caution. In the case of gold a decline below US$1,000 would likely lead to further more meaningful weakness, possibly down to between US$800 and US$900,” Faber added.

Big correction coming?

Source:

“Marc Faber has short term concerns about commodities, says gold may drop to US$800”
BI-ME Staff
Business Intelligence-Middle East (UAE), November 6, 2009

Q: What is your call on emerging market equities now? Do you think it is conceivable that markets like India and other Asian markets actually go on to hit new lifetime highs sometime in 2010 or you would be more restrained in your optimism?

A: I am more on the optimistic side. I think you are going to see new highs as we go forward. I am not saying that is going to be next month, quarter or year, but as we go forward in this bullish environment, we will see new highs and the earning projections will be revised upwards. This will justify higher and higher prices. So I am quite optimistic in that regard which is why I think it is important for people to be invested and not to hold too much cash at this stage of the game.

If we look at the valuations, you will see we are more or less in the middle of the range in EMs. The low point was a price to book value about one time. The high point was about three times and now we are at two. That is at current valuations. As things get revised, the current valuation will come down and then there will be more upside to go through that three times book price level.

There will be a point when euphoria overcomes any doubts and we will be entering a bubble environment. During this time, we will have to be very cautious.

Source:

“Recent correction ‘usual’, still in bull mkt: Mark Mobius”
Moneycontrol.com (India), November 6, 2009

“We have not lived through the latest crisis yet. The economic, social and geopolitical watch will be reset permanently after this crisis,” said Faber…

Noting that central bank experts have become “imprisoned” by inflated asset markets, Faber said: “When necessary, we should look at whether tight monetary policies are still applicable. A short-term boom stemming from expansionary fiscal and monetary policies is also a possibility. But how long it can be sustained? This poses a question. The current crisis has failed to clear the system. Policies introduced as a measure to combat the turmoil have the same content as the ones implemented after 2001…

The editor of The Gloom Boom & Doom Report hammered away at this point. From the piece:

“Nothing has been solved. The Fed wants to have more credit growth and again more leverage. That’s why I believe the final crisis will only occur when everything breaks down,” he said.

Gold American Eagles from GovMint.com

The Swiss-born investment adviser predicted “faster growth in emerging economies,” along with higher gasoline and oil consumption in these countries, and said Turkey, along with the Middle East, will have an important choice to make. From the article:

Responding to a question on Turkey’s future, Faber said Europe and the United States will become less important. “Especially the countries in the Middle East will have to make a choice: Are they more Europe-and American-centric or are they Middle Eastern- and Asian-centric? My advice will be to become more Middle Eastern-centric and Asian-centric and less Western-centric. Geopolitically, Turkey will likely be less supportive of U.S. policies in the future.”

Istanbul Business District, Turkey

Source:

“Investment guru urges Eastern-centric approach”
Hürriyet Daily News (Turkey), November 4, 2009

T. Boone Pickens, who has spent the past year-and-a-half telling Americans the answer to their energy woes is natural gas, said Thursday the U.S. natural gas supply will likely dry up in about 30 years.

At that point, Americans will have to find some other technology to fuel vehicles, Pickens said during a speech on Thursday at the University of Texas at Dallas.

“Natural gas is just a bridge,” he said.

“Twenty-five, 30 years is what we’re going to get out of it. Then you’ll have to get over to either fuel cells or battery. You’ll have to be on to some other transportation fuel by then,” he said.

Source:

“Pickens: Natural gas plan is good for about 25, 30 years”
Elizabeth Souder
Dallas Morning News (Texas Energy And Environment Blog), November 5, 2009

Jim Rogers, the investor who predicted the start of the commodities rally in 1999, said that Nouriel Roubini is wrong about the threat of bubbles in gold and emerging-market stocks.

Many commodities are still down from record highs and equity markets aren’t on the brink of collapse, Rogers, chairman of Singapore-based Rogers Holdings, said in an interview on Bloomberg Television today. The price of gold will double to at least $2,000 an ounce in the next decade, he said.

Roubini, the New York University professor who warned in 2006 about the coming financial crisis, said on Oct. 27 that investors are borrowing dollars to buy assets and creating “huge” asset bubbles. Rogers said that he’s not buying stocks now, though he may buy more gold.

“What bubble?” Rogers said, when asked if he agreed with Roubini’s view. “It’s clear Mr. Roubini hasn’t done his homework, yet again.”

The former partner of George Soros argued his point about there not being any bubbles. From the piece:

Rogers countered Roubini’s arguments by saying that Chinese stocks and sugar, silver, coffee and cotton have all dropped from their historical highs by at least 50 percent.

When asked if gains made this year pointed to a bubble, he said: “It’s not a bubble if something is up 100 percent this year, but down 70 percent from its high. That’s not a bubble, that’s a good year. That’s a great year. Maybe it’s too high for this year, but that’s not a bubble.”

On the topic of gold, which reached a record $1,095.40 an ounce in London today, and a 24 percent gain for the year, Rogers said:

I suspect it’s going to go over $2000 some time in the bull market, but depending on what happens in the world it could go much, much higher. The old high, back in 1980 adjusted for inflation, would be over $2000 now, just to get back to the old high. So we’ll certainly get there some time in the next decade.

On emerging markets, he said:

I don’t know any emerging market stock markets that are so high I’d call them a bubble. They’re certainly all up a lot, maybe they’re too high, but being too high is not a bubble for anyone who knows financial markets.”

Rogers said the only bubble he sees right now in the West is U.S. bonds.

And just like Thailand-based adviser Marc Faber, he’s forecasting a rally in the dollar. From the piece:

“Right now, everybody including me is pessimistic on the U.S. dollar,” Rogers said. “That usually leads to a rally, whatever the asset is, and I would just suspect it’s going to happen again this time.”

“How long will it last? I don’t know,” he said. “It depends on how the world evolves. Somewhere along the line, I expect I’ll have to sell the rest of my dollars.”

Source:

“Rogers Says Roubini Is Wrong on Bubbles as Gold, Stocks Rally”
Mark Barton, Brian Swint
Bloomberg, November 4, 2009

The U.S. dollar may appreciate 10 percent against the euro in one to three months, said Marc Faber, the publisher of the Gloom, Boom & Doom report.

“Maybe the dollar has made a turn, it can easily rebound by 10 percent,” Faber said in an interview in Istanbul. “It may have started already since the asset markets started to go down 10 days ago.”

The dollar advanced to the strongest level versus the euro in a month today on speculation Federal Reserve policy makers are discussing the outlook for record-low borrowing costs at its two-day meeting. The U.S. currency appreciated 0.5 percent to $1.4706 per euro at 3:18 p.m. in New York.

The U.S. currency has dropped 12 percent in the past year against a basket of six major currencies as the Fed, led by Chairman Ben S. Bernanke, cut rates to near zero in an effort to lift the U.S. economy out of its worst recession since the 1930s…

“I don’t think that the dollar will be a strong currency, but you can have periods like in 2008 that the liquidity tightens,” Faber said. “If you have the private sector withdrawing credit and the government throwing credit at the system you can get a lot of volatility.”

The Swiss-born investor added:

“As of today, I will be long in dollars.”

“Dr. Doom,” as he is called by members of the financial media, also talked about a correction in stocks. Sezer wrote:

Faber said he would be careful to buy equities now as “we are in a correction period.”

With the Thailand-based investor warning:

It could be a more serious correction then it’s perceived generally.

NEW VIDEO: Has the S&P broken final support?

Source:

“Dollar May Gain 10% Against Euro, Faber Says (Update2)”
Seda Sezer
Bloomberg, November 3, 2009

Jim Rogers, the international investor and chairman of Rogers Holdings, has warned of a currency crisis within the next couple of years.

“I do expect [a] currency crisis or semi-crisis in the next year or two because there are so many imbalances in the world,” Mr Rogers told the Financial Times in an interview.

“That may sound radical but it’s always worked that way – whenever there have been lots of problems, there have been problems in the currency markets.”

However, he did not know which currency would be the focus of such a crisis.

“Normally what happens is you have small countries you don’t think about, something goes wrong and it starts snowballing and people say: ‘how did that happen?’,” said Mr Rogers. “That’s going [to happen] again before too much longer.”

Mr Rogers said that the problems of the financial crisis have only been “papered over” and not solved. Some governments that have taken on too much debt may have problems meeting their obligations and may have to print more money in response, which would lead to more inflation, currency turmoil and commodity appreciation, he said.

The well-known Asia bull also talked about investing in China and Japan. Whipp added:

Mr Rogers said that the strong rally in Chinese shares this year meant that he was not buying at the moment but he still has not sold a single Chinese share since he started investing in the late 1990s.

At a seminar organised by ETF Securities last week, Mr Rogers also said that he does not buy A-shares, or renminbi-denominated shares traded on mainland China that some qualified overseas investors can buy and sell. This is because they are more expensive than other types of accessible Chinese shares, such as H-shares, traded in Hong Kong.

Regarding Japan, Mr Rogers told the seminar that he was holding some yen and expected the Japanese currency to appreciate in part because it is a creditor nation, because of the diminishing use of it as a carry-trade currency given the other options available, and because of government incentives for repatriation.

Source:

“Currency crisis on way, says investor”
Lindsay Whipp
Financial Times (UK), November 2, 2009

Warren Buffett’s Berkshire Hathaway Inc will pay $26 billion to buy out railroad Burlington Northern Santa Fe Corp in what the billionaire investor called a bet on the U.S. economy.

The deal, Buffett’s biggest-ever acquisition, is priced at a premium of 31.5 percent over BNSF’s closing stock price on Monday and values the railroad at $34 billion.

“It’s an all-in wager on the economic future of the United States,” Buffett said in a statement, adding that railroads are key to the U.S. economy and will benefit as recovery takes hold. “I love these bets.”

Berkshire Hathaway will pay $100 per share in cash and stock for the 77.4 percent of BNSF shares it does not already own. Berkshire will also assume $10 billion of BNSF debt. The deal is expected to close in the first quarter of 2010.

Source:

“Buffett buying Burlington Northern in $34 billion deal”
Nick Zieminski
Reuters, November 3, 2009

Billionaire investor George Soros said on Friday that the global economy’s recovery from its worst crisis in 70 years might “run out of steam” and another recession could follow next year or in 2011.

“The longer the turnaround lasts the more people will come to believe in it, but in my judgment, the prevailing mood is far removed from reality,” Soros said at a lecture organised by the Central European University…

“The American consumer will no longer be able to serve as the motor for the world economy,” Soros said.

“I regret to tell you that the recovery is liable to run out of steam and may even be followed by a ‘double dip’, although I am not sure whether it will occur in 2010 or 2011.”

The Hungarian-born investor pointed out that the financial turmoil marked a changing of the guard for global economic leadership. Simon added:

He said the financial crisis had highlighted a “tectonic” economic shift from the US to China, whose economy grew 8,9% in the third quarter from a year earlier.

Source:

“Soros warns of a recession next year”
Zoltan Simon
BusinessDay (South Africa), November 2, 2009

“The tragedy of this whole crisis is that nothing has been solved,” said Marc Faber, the globe-trotting investment advisor. “The ultimate crisis is still to come,” he added, urging investors to own physical gold. Faber is also bullish on gold-mining and exploration companies like (NG) and Sprott Resource (SCPZF).

Source:

“Barron’s Confab”
Robin Goldwyn Blumenthal
Barron’s, November 2, 2009

The Oracle of Omaha retains his preeminence as a market visionary, outshining a new wave of financial strategists and the best-known central bankers.

Billionaire investor Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., is regarded as the best assessor of financial markets by a plurality of almost one-fourth of respondents to the quarterly poll of investors, traders and analysts who subscribe to the Bloomberg terminal.

The closest runner-up, Bill Gross, the founder and co-chief investment officer of Pacific Investment Management Co., is chosen by 16 percent. Billionaire investor George Soros gets 10 percent, followed by Nouriel Roubini, the New York University professor who in 2006 predicted the financial crisis, and Marc Faber, publisher of the Gloom, Boom & Doom Report.

4 out of 5 on the Investorazzi stalking list. Not bad.

It’s finally here! Sign up for INO.com’s FREE E-Mail Trading Course

Source:

“Buffett Beats Gross in Global Poll as Investor With Most Wisdom”
Mike Dorning
Bloomberg, October 29, 2009

This morning, Keith Timimi talked about investing in frontier markets on the financial website EconomyWatch.com. His discussion naturally included the veteran emerging markets investor. Mobius, who oversees about $25 billion as Templeton Asset Management Ltd.’s Singapore-based executive chairman, considers five countries in particular to be excellent frontier market prospects. Timimi wrote:

Mark tips the best Frontier Markets as being:

• Kazakhstan
• Romania
• Vietnam
• Nigeria
• Kenya

Within the Templeton Frontier Markets fund, not only are these countries starting to carry significant weight, but the financial sector accounts for about a quarter of the entire holding…

Bucharest, Romania

Source:

“Frontier Markets: Fund Tips Five Best New Emerging Markets”
Keith Timimi
EconomyWatch.com, October 30, 2009

Do you feel the opportunities are better here than anywhere else in the world?

Yes, in our business. I think generically you look at China and Brazil and India and say: “If I made Kleenex I would be in those markets,” right? But in our businesses, the volatility is always the engine that drives outside returns. You come back to America, which is still the most transparent society in the world, it has the best information, it has the best legal system, it has the most predictable and aspiring population, and at the moment total confusion. The flux of debt of this $7,000bn of deleveraging that’s still going on will produce tremendous opportunities because we will recover from this.

And on the other side of this, the value creation, once we get to growth, will be phenomenal. So if you can control on a conservative basis assets today at percentages of original value, and a capital structure that will allow you to hold them over time, I think – debt is the new equity and America is the new emerging market. There’s no reason to go outside of the 212 area code.

Long or short?

Macao real estate? Long
Gaming industry in general? Long
Gold? It’s hard to bet against gold. I would say short
Dollar? Short
Renminbi? Long
Florida real estate? Short
Sheila Bair? Very long – one of the best ever
Ben Bernanke? Long
Dubai real estate? Practically short
Arnold Schwarzenegger? He’s a fantastic guy. I’m long Arnold, no matter what happens

Macau casinos

Source:

“View from the Top: Tom Barrack, founder of Colony Capital”
Henny Sender
Financial Times (UK), October 29, 2009

Legendary bond investor Bill Gross just released his latest investment outlook on the PIMCO website. According to Gross, investors should expect Fed funds policy rates to stay low, and 4-5% returns, for an extended period of time. Here are some notable excerpts from the piece:

Let me start out by summarizing a long-standing PIMCO thesis: The U.S. and most other G-7 economies have been significantly and artificially influenced by asset price appreciation for decades. Stock and home prices went up – then consumers liquefied and spent the capital gains either by borrowing against them or selling outright. Growth, in other words, was influenced on the upside by leverage, securitization, and the belief that wealth creation was a function of asset appreciation as opposed to the production of goods and services. American and other similarly addicted global citizens long ago learned to focus on markets as opposed to the economic foundation behind them. How many TV shots have you seen of people on the Times Square Jumbotron applauding the announcement of the latest GDP growth numbers or job creation? None, of course, but we see daily opening and closing market crescendos of jubilant capitalists on the NYSE and NASDAQ cheering the movement of markets – either up or down. My point: Asset prices are embedded not only in our psyche, but the actual growth rate of our economy. If they don’t go up – economies don’t do well, and when they go down, the economy can be horrid.

To some this might seem like a chicken and egg conundrum because they naturally move together. For the most part they do – and should…

What has happened is that our “paper asset” economy has driven not only stock prices, but all asset prices higher than the economic growth required to justify them.

PIMCO’s founder and co-chief investment officer added that policymakers in Washington are already aware of this relationship. Gross wrote:

This is where it gets tricky, however, because policymakers, (The Fed, the Treasury, the FDIC) recognize the predicament, maybe not with the same model or in the same magnitude, but they recognize that asset prices must be supported in order to generate positive future nominal GDP growth somewhere close to historical norms…

At the center of U.S. policy support, however, rests the “extraordinarily low” or 0% policy rate. How long the Fed remains there is dependent on the pace of the recovery of nominal GDP as well as the mix of that nominal rate between real growth and inflation. My sense is that nominal GDP must show realistic signs of stabilizing near 4% before the Fed would be willing to risk raising rates. The current embedded cost of U.S. debt markets is close to 6% and nominal GDP must grow within reach of that level if policymakers are to avoid continuing debt deflation in corporate and household balance sheets. While the U.S. economy will likely approach 4% nominal growth in 2009’s second half, the ability to sustain those levels once inventory rebalancing and fiscal pump-priming effects wear off is debatable. The Fed will likely require 12–18 months of 4%+ nominal growth before abandoning the 0% benchmark.

Gross concludes:

This somewhat detailed analysis on Fed funds policy rates should return us to my beginning thesis as to why they need to stay low: Asset appreciation in U.S. and other G-7 economies has been artificially elevated for years. In order to prevent prices sinking even lower than recent downtrends averaging 30% for stocks, homes, commercial real estate, and certain high yield bonds, central banks must keep policy rates historically low for an extended period of time. If policy rates are artificially low then bond investors should recognize that artificial buyers of notes and bonds (quantitative easing programs and Chinese currency fixing) have compressed almost all interest rates. But while this may support asset prices – including Treasury paper across the front end and belly of the curve, at the same time it provides little reward in terms of future income. Investors, of course, notice this inevitable conclusion by referencing Treasury Bills at .15%, two-year Notes at less than 1%, and 10-year maturities at a paltry 3.40%. Absent deflationary momentum, this is all a Treasury investor can expect. What you see in the bond market is often what you get. Broadening the concept to the U.S. bond market as a whole (mortgages + investment grade corporates), the total bond market yields only 3.5%. To get more than that, high yield, distressed mortgages, and stocks beckon the investor increasingly beguiled by hopes of a V-shaped recovery and “old normal” market standards. Not likely, and the risks outweigh the rewards at this point. Investors must recognize that if assets appreciate with nominal GDP, a 4–5% return is about all they can expect even with abnormally low policy rates. Rage, rage, against this conclusion if you wish, but the six-month rally in risk assets – while still continuously supported by Fed and Treasury policymakers – is likely at its pinnacle.

You can read the entire investment outlook here.

Source:

“Midnight Candles”
Bill Gross
PIMCO, October 2009