Speaking just after the government said January saw the loss of another 20,000 jobs even as the unemployment rate fell to 9.7 percent, the Pimco co-CIO said the jobs weakness will make for a difficult transition to prosperity.

“We think that it’s substantially different this time, based upon the fact that instead of levering we’re delevering and instead of deregulating we’re regulating,” Gross said. “Both of those conditions in combination produce a very weak economy, very slow growth and ultimately have effects on asset markets that depend on asset appreciation.”

As the government is clamping down on big banks it also is backing off its liquidity programs such as the buying of mortgages, which will end in March.

The government stimulus also is fading, Gross said, meaning a key engine driving the upward movement of key economic metrics will be taken away.

“The growth has been really based on a check not only by the US government but many sovereign governments,” he said. “The minute that check disappears the private market is standing very lonesome and on its own legs.”

Pimco officials for months have been warning of a “new normal” that will entail a prolonged period of slower growth.

Gross said Friday’s unemployment numbers are another example of an economy that will take a long time to return to normalcy.

“Four percent growth in the first quarter is probably a reasonable expectation,” he said. “But the unemployment is a long-term structural problem.”

Source:

“Recovery Will Be ‘Substantially Different This Time’: Gross”
CNBC, February 5, 2010

It will be more difficult to make money in 2010 as the markets become more volatile, according to Faber.

“I think 2010 will be more of a year when not to lose any money will be very important,” said Faber. “I am a little more cautious in general.”

Regarding commodities, and precious metals specifically, Faber says “the risk is really not to own any precious metals at all.”

Faber remains a bull on gold, and again confirmed it as a place of safety and a haven in ongoing turbulent times.

He acknowledges the possibility of a gold correction, depending on the liquidity in the markets, and says it could drop as low as US$950-US$1,050 an ounce.

That would only be a temporary event and would be the time to load up on more gold if that’s the circumstances.

Faber, who correctly called the bottom of the U.S. stock market last March, talked about equities as well. From the piece:

As far as equities go for 2010, Faber believes they will perform in an up and down manner throughout the year.

In the near term, should stock markets – following a brief rebound in the first few days of February – decline into the second half of February, I would buy some stocks for a rebound. And if stocks now fail to decline and continue to rally right away I would use strength to lighten up positions.

Finally, the Swiss-born investor noted any rally in the U.S. dollar would be short-lived. BI-ME staff wrote:

While the dollar may rebound in the short term because it’s been oversold, a rally won’t last because the US will be forced to print more money to pay its debt, Faber recently said.

Source:

‘The risk is really not to own any precious metals at all,’ says Marc Faber
Business Intelligence-Middle East, February 5, 2010

The growing sovereign debt problems in Europe will continue to keep markets under pressure, Bill Gross, co-CIO and founder of Pimco, told CNBC Thursday.

“The magnitude is not the same as the subprime crisis, but to a certain extent, they’re similar,” Gross said in a live interview.

Global stock and commodities markets fell sharply Thursday, while the US dollar and Treasurys rallied, as escalating fears that Greece, Portugal and Spain would default on their sovereign debt led investors to dump riskier assets.

“Global markets for 12 months have been re-levered on the back of government and central bank credit creation,” Gross said. “Now we’re beginning to question the pricing of all risk assets predicated upon that type of phenomenon.”

Gross talked about the situation in more detail. From the piece:

“Think of this as a balloon that’s been expanded,” explained Gross.

“First of all, we had private credit expansion that imploded and almost exploded with the subprime and Lehman crisis,” he continued. “And now we’ve had public re-expansion to the extent that we’ve expanded in stocks at certain price earnings ratios, and high yield bonds at certain narrow yield spreads. That expansion is over and what we’re seeing today the hedge funds taking some of the leverage off the table.”

Source:

“Sovereign Debt Fears to Keep Markets Under Pressure: Gross”
CNBC, February 4, 2010

Remember when the founder and chief investment strategist of Boston-based Grantham, Mayo, Van Otterloo & Co. (GMO) wrote the following in a letter to shareholders in April 2007?

From Indian antiquities to modern Chinese art, from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it’s bubble time!

Spot on, Mr. Grantham.

Well, these days, the British-born investment adviser has spotted another bubble.

In London real estate.

From the Wall Street Journal’s Brett Arends this morning:

The London real estate bubble, arguably the biggest one of all, still hasn’t popped.

If history is any guide, it surely will. Burst bubbles typically fall a long way, in due course, and there is no reason to believe this one will be any different—despite the usual rationalizations you hear in this town today, and which you heard in, say, Florida in 2005 and Tokyo in 1988…

Jeremy Grantham, chairman of Boston money firm GMO and a British expatriate, argues that the British property bubble may be the biggest since the infamous one in Japan 20 years ago. It’s notable that when that bubble burst, prices fell from 1991 through 2005. They fell again last year. There were many false dawns along the way. Many assumed the crash was over the worst after the rout of the first few years. But the real damage came afterward, as prices kept sliding, year upon year.

People here will tell you that London is unique. Well, yes. But everywhere is unique…

London, England

Source:

“The London Real Estate Bubble Is Back—and It’s Scary”
Brett Arends
Wall Street Journal, February 5, 2010

Well, I think if you look at the performance of the Russian stock market, it correlates quite closely with oil prices and resource prices. So, December 28, 2008, the oil price bottoms out at $32. And in January, the Russian market bottomed-out ahead of the S&P, which bottomed-out at the beginning of March 2009. And then we had this huge run-up in oil prices from $32 to over $80. And a huge run-up in Russian shares.

Chilcote noted there has been a record issue of Russian bonds lately, and some concern there may not be enough appetite for them, to which the Swiss-born investor replied:

Well, I think that’s a concern about all bonds in the world, and especially about government bonds, because the issuance, the calendar, will be very heavy, and will there be appetite or not?

There will be appetite at the right type of yields.

So if you can offer higher yields, then people will buy them as a substitute for equities.

The Bloomberg reporter then asked Faber what kind of yields he would be looking for in Russia? He said:

Well, I don’t know. But when I bought the Russian bonds a year ago they were yielding 12, 15%, corporate bonds, and now obviously the yield spreads have come down dramatically. I don’t think that you’re very well-paid for taking the risk at the present time. But, if the choice is to invest in equities, or in corporate bonds, they have some similar character. In other words, the equity markets don’t collapse, then the bonds can pay the interest, and maybe you’ll have higher yields on bonds than on equities. Because don’t forget, the equity markets last year, as you just pointed out, went up so much, that this year could very well be a year where the market kind of moves sideward, or where, at some point, you have a 20% correction in equity prices.

Source:

Marc Faber Interview
Bloomberg, February 3, 2010

George Soros, the world famous investor and currency speculator, said here on Wednesday that China has been the first country to recover from the financial crisis and emerged as a motor of the global economy, with its isolation from the global financial system aiding a swift economic recovery.

“For China, the financial crisis was an external shock. It hasn’t really shaken the (China’s financial) system itself,” said Soros in a public discussion with a panel of experts and students at Hong Kong University.

Besides, China had resources to stimulate the economy and was relatively better situated to tackle the crisis, he added.

Soros predicted that China, India, Brazil and other developing countries are going to grow faster than the developed world.

Hong Kong, China

Source:

“Soros: China seen as a motor of global economy”
Xinhua News Agency (China), February 3, 2010

Billionaire George Soros’s Adecoagro venture, which invests in agriculture and renewable energy in Latin America, is considering an initial public offering to help fund projects in Brazil that include a $700 million sugar mill.

“We never had difficulties in raising capital from shareholders, but if market conditions are attractive, we could go for an IPO, why not?” Marcelo Vieira, a director for sugar and ethanol at the Buenos Aires-based company, said yesterday in an interview.

“The sugar and ethanol sector in Brazil is thriving so we decided to focus our new investments here.”

Adecoagro, founded in 2002 by investors including Soros to buy Argentine farmland after the peso crashed, plans to more than double sugar-cane crushing in Brazil to 11 million metric tons by 2016, from 4.8 million now, and also build a 6 million- ton cane processor in Mato Grosso do Sul state this year. It also may buy a Brazilian sugar mill, Vieira said in Sao Paulo.

Adecoagro owns or leases about 340,000 hectares (840,000 acres) of farmland in Argentina, Brazil and Uruguay, where it grows coffee, soybeans and other commodities. Adecoagro is the largest rice grower in Argentina and makes dairy products there…

Adecoagro operates two mills, one in Minas Gerais and the other in Mato Grosso do Sul state. It also produces energy from cane waste, known as bagasse.

The company sold 22,000 head of cattle and leased land to Santo Andre, Brazil-based Marfrig Alimentos SA for $6.4 million on Jan. 27. The cash, Vieira said, will be set aside for sugar and ethanol investments in Brazil.

Source:

“Soros-Backed Venture Weighs IPO to Fund Brazil Mill (Update3)”
Lucia Kassai
Bloomberg, February 2, 2010

Warren Buffett’s Berkshire Hathaway Inc. (BRKA, BRKB) owns 21.9% of post-initial-public offering Symetra Financial Corp. (SYA), down from 26.3% before the company’s Jan. 25 IPO, according to a regulatory filing.

In the filing, made on Securities and Exchange Commission form 13-G reserved for passive investors, Berkshire’s General Re. Corp. reported owning 26.9 million Symetra shares.

Headquartered in Bellevue, Washington, Symetra Financial Corporation, along with its subsidiaries, provides life and health insurance products and services in the United States.

Source:

“Buffett Discloses His 21.9% Stake In Post-IPO Symetra”
Joseph Checkler
Wall Street Journal, February 2, 2010

I apologize upfront for this inconvenience.

New material will appear on the blog Wednesday.

In the meantime, have you visited the Investorazzi Cheat Sheet yet? I hope you find it useful.

Thanks,

Christopher E. Hill
Editor

Thanks,

Christopher E. Hill
Editor

“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”

Now, last Investorazzi heard, the legendary hedge fund investor was long gold.

I wrote back on July 18, 2008:

It appears that billionaire investor George Soros believes the price of crude oil will be heading south, while gold goes up. From “The Croesus Chronicles” on the Forbes website yesterday:

Soros finally shorted oil at $137 a barrel and put on a long position in gold; he expects to see gold hold its ground even if oil continues to decline.

Granted, that was some time ago. But even more recent reports suggest the former partner of Jim Rogers was still bullish on the precious metal. Lance Lewis wrote on the Minyanville financial site yesterday:

Additionally, with respect to Soros, it may surprise gold’s sworn enemies that are looking to Soros now for support in their quest to bash gold, but the gold ETF (GLD) is the fourth-largest single position at Soros Fund Management.

No positions in stocks mentioned.

Soros Fund Management also happens to be the 12th largest overall holder of the GLD ETF, too, behind other well-known smart investors.

Now, this SEC filing is obviously as of September 30, 2009, but if Soros was long gold at roughly $1000 (where it was at the end of the third quarter), do you really think he sold it after a mere 20% move to $1200 two months later because he considered that 20% too “bubbly”? I doubt it.

All investments have their day, and right now gold is having its day. Will that always be the case? Of course not, but just as “equities” had their day from 1982 to 2000, gold is now enjoying its ninth year of its secular bull market. Some day it will peak, or more accurately, paper currencies will stop falling against gold as central banks (specifically the Fed) restore credibility to the paper currencies they have trashed through years of reckless money printing (specifically Alan Greenspan). I actually look forward to that day believe it or not.

But for now, the dollar and other fiat currencies continue to collapse against gold. Until central banks begin to act responsibly again, that trend is going to continue. Unfortunately, with the global economy so warped by 20 years of reckless central banking by the Greenspan Fed, social pressures now prevent such responsible banking at the moment. Soros obviously understands this logic as well, based on how he’s positioned.

If the above is true, and Soros still holds a significant position in gold, I can’t help but wonder if he’s hoping to knock down the gold price to acquire more of the yellow metal for himself.

Source:

“What Does George Soros Really Think of Gold?”
Lance Lewis
Minyanville.com, January 28, 2010

James Wilson of the Financial Times (UK) wrote this morning:

Warren Buffett is in line to become the biggest shareholder in Munich Re, after the German reinsurer said the US billionaire investor held options that could take his stake to more than 5 per cent.

Mr Buffett’s interest became apparent this week when he notified regulators that his stake had risen above 3 per cent.

Munich Re revealed yesterday that Mr Buffett also held financial instruments, which can be exercised until March 11, giving him the right to buy a further 1.95 per cent of its shares.

Source:

“Buffett raises Munich Re stake”
James Wilson
Financial Times (UK), January 29, 2010

There is a “serious risk” the global economy could slip back into recession if worldwide government stimulus measures are taken away, George Soros, chairman of Soros Fund Management, told CNBC Wednesday.

“The global economy has been stabilized; the artificial life support has worked. But we are not out of the woods because if we withdraw the stimulus too soon there’s a serious threat of a double dip,” Soros said at the World Economic Forum in Davos.

The tightening of central bank policy runs the risk of stalling the tentative economic recovery, according to Soros.

The former partner of Jim Rogers also talked about Greece’s financial woes. Knight added:

Meanwhile in Europe, Soros said that Greece would manage to avoid defaulting on its debt and put its economic woes behind it.

“I’m pretty confident that Greece will do whatever is necessary to meet the conditions that the (European Central Bank) sets,” Soros said.

“I think that they might lean on Germany, but Germany is not in the mood to be the deep pocket … I think it will be the European Central Bank and the conditions that they set.” he added.

Soros pointed out that when Hungary went through a similar crisis of confidence it managed to turn itself around within six months. Greece will also be able to improve its prospects, he said.

Acropolis, Athens, Greece

While at Davos, the Hungarian-born investor also declared gold to be the “ultimate asset bubble.” Edmund Conway of The Telegraph (UK) wrote this morning:

Mr Soros, arguably the most famous hedge fund manager in history, warned that with interest rates low around the world, policymakers were risking generating new bubbles which could cause crashes in the future. In comments delivered on the fringe of the World Economic Forum, Mr Soros said: “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”

Sources:

“Global Economy at Risk of Another Recession: Soros”
Robin Knight
CNBC, January 27, 2010

“Davos 2010: George Soros warns gold is now the ‘ultimate bubble’”
Edmund Conway
The Telegraph (UK), January 28, 2010

The Standard & Poor’s 500 Index may retreat 20 percent from a 15-month high because stocks are expensive given prospects for economic and profit growth, Marc Faber said.

The benchmark index for U.S. stocks, which closed at 1,150.23 on Jan. 19, may fall to 920, said Faber, 63, who recommended buying stocks in March, before the biggest rally since the Great Depression. The index surged 70 percent from a 12-year low in March before dropping 5.1 percent to 1,092.17 through yesterday. The S&P 500’s price-earnings ratio had jumped to 25, the highest since 2002, data compiled by Bloomberg show.

“The market has become overbought,” Faber, who publishes the Gloom, Boom and Doom report, said in a phone interview from Switzerland. “There isn’t a meaningful improvement in the economy taking place. The economy may disappoint somewhat in the next few months. The statistics that are being published are very questionable. The economy has stabilized, but isn’t really expanding.”

Faber predicted corporate profits would be weak in 2010. Nazareth added:

“With unemployment staying at a relatively high level and with the revenue side being weak, I don’t think that corporate profits will be that great in 2010,” Faber said. “Basically, the profits have been boosted by aggressive cost-cutting. The revenue side of corporations is weak.”

The Swiss-born investor hinted at which sectors might perform poorly. From the piece:

While Faber said he cannot predict which industries will be the laggards, he highlighted weakness among financial and commodity-related companies.

“Financials have already been quite weak,” Faber said. “It’s kind of a warning sign for the market. They may weaken further, especially the banks. Also commodities-related stocks could weaken somewhat as commodity prices ease.”

Despite a significant correction, Dr. Faber thinks the U.S. stock market will rebound in the spring. Nazareth noted:

In his interview this week, Faber said that the S&P 500 may rise as high as 1,250 or 1,300 this year before declining again.

“Usually March, April are seasonally strong months,” he said. “We’ll get a rebound. In general, high-quality and large market capitalization stocks are reasonably priced considering you have zero interest rates.

As these markets go down, the high-quality, large-market-cap stocks will go down less than the smaller-cap stocks.”

Source:

“Faber Says S&P 500 May Drop 20% on Economic, Earnings Prospects”
Rita Nazareth
Bloomberg, January 27, 2010