Editor’s Note: In this series of articles, we include important or interesting videoclips with our comments. Our Web Software does not permit embedding of the clips into our articles. So we shall have to be content to include the links to the actual videoclips. We are very happy with the tremendous response from readers to this series of articles. We thank them sincerely and profusely.
This is an article that expresses our personal opinions about comments made on Television and in Print. It is NOT intended to provide any investment advice of any type whatsoever. No one should base any investing decisions or conclusions based on anything written in or inferred from this article. Investing is a serious matter and all investment decisions should only be taken after a detailed discussion with your investment advisor and should be subject to your objectives, suitability requirements and risk tolerances.
We resume this series of articles after a break of about seven weeks. The world looks very different today than it did on April 9. But first we would like to remember Mark Haines, the veteran CNBC Anchor who passed away this week.
Mark Haines of CNBC
Like most readers of these articles, we recall the journalistic excellence of Mark Haines on that terrible morning of September 11, 2001. It is not a morning we will ever forget and we will never forget listening to Mark Haines that morning. In this section, we would like share our own experiences of Mark Haines.
He is the only CNBC anchor who called to speak with us. It was a difficult call for him and the conversation was fairly intense. In that conversation, Mark understood our point of view and we understood his. More importantly, we were convinced that he meant what he said to us. We accepted his word and never regretted it.
In the months that followed, we criticized his on-air comments in this series of articles when we felt criticism was needed. In addition, we wrote to his show on several occasions. But to his credit, Mark never misunderstood or ever regarded our comments as being personal.
How do we know this? Because, on occasion, Mark responded to our email with a compliment. These are private communications and we honor privacy. But we mention this today simply to make a point about the character of Mark Haines, the courage of Mark Haines.
No other CNBC Anchor has ever sent us a complimentary (or a non-complimentary) email. That is understandable. After all, we probably are the ultimate persona non grata for CNBC. But when Mark Haines felt like complimenting us, he did. He was unafraid. He did what he thought was right. This is not just honesty but courage, a man’s courage.
We did not know him personally but we are told that Mark Haines was above all a family man, a man of integrity, a man who was unafraid to speak his mind and a man who acted on his convictions.
This is unfortunately a period when men as a species are being characterized in the media as inherently flawed, damaged or intrinsically vile based on the disgusting actions of a couple of well known men. We disagree.
And as best evidence for our argument, we present Mark Haines, a real Man, a good Man. We will miss him.
Bernanke – Probably Not Too Happy
Our last article began with the title Bernanke Got His Wishes – Is He Happy? At that time, Gold, Silver & Oil were at their highs and inflation talk was the rage at CNBC. Treasuries were near their lows in price. Sometime during the past seven weeks, the market began to price the end of QE2. And at the same time, the US economic data turned decidedly soft.
This was the outcome Chairman Bernanke devoutly wished to avoid. Of course, this is the outcome we and many much wiser than us expected. Housing seems destined to go into a double dip and the US economy posted a awfully weak 1.8% GDP print in Q1.
What does he do now? Fortunately for him, inflation expectations have cooled down materially. So he has the cover he needs if he wishes to ease in some way again. This week, a few really smart investors came forth to bemoan the rise in leverage and the simultaneous weakening of loan quality. Jeff Gundlach actually spoke of an “echo of 2008” (see clip 1 below for his views and our comments).
So does Bernanke wait until signs of such an echo become visible to all or does he act preemptively. And if he does, will it have the same impact that QE2 had?
“Sorry for you Bond Bears, but You Are Getting Killed”
Thus spake Larry Kudlow on his show on Thursday. How quickly has the consensus changed? During the week of April 4, all the big name gurus on CNBC’s Masters of the Market series were unanimously in favor of stocks. Every single master was negative on US Treasuries. The solitary lukewarm endorsement came from Peter Fisher of BlackRock who said “I don’t think the long end is going to rise a lot”.
This just confirms investing tenets that unanimity should be shorted and media events are typically contrarian indicators. Besides its Masters of the Market series, CNBC elected to go inflation-phobic that week. And CNBC’s inflation-phobia has proved to be a reliable indicator that signaled an imminent bottom in Treasury prices in 2006, 2007, 2008 and 2009.
This indicator proved prescient this time as well. The past 6 weeks have seen a spectacular rally in Treasuries. This week, the 10-year Treasury broke thru its 200 day moving average and its yield is threatening to break thru 3%. The German Bund closed below 3% for the past two days.
On Thursday, a guest of Larry Kudlow predicted that the 10-year Treasury yield will drop to 2.50%. CNBC Fast Money recommended buying calls on TLT and on Friday, a Fast Money Options Trader recommended selling TLT puts.
In contrast, Jeff Gundlach, who recommended buying Treasuries when every one else was recommending selling or shorting Treasuries, seems cautious (see clip 1 below). He is not selling but he would not buy until the market decides for him. We concur.
But history suggests that a major move might be before us. Since 2003, when the 10-Year Treasury or TLT breaks its 200 day moving average in either direction in April or May, that move gets its final acceleration into June (or July as in 2010).
And next Friday is the Non Farm Payroll number that could either convince investors of a serious slowdown or persuade them that the soft spot in the US is transient.
A Serial Debt Bust?
Richard Bernstein made an interesting comment on CNBC Squawk Box the week before. His view is that the boom-bust cycle is moving serially across the world – USA had its credit bust in 2008; now Europe is facing a debt bust and Asia will be next.
We concur with this view. In fact, we fear that each serial bust will be greater than the earlier. Europe is facing a debt bust of systemic proportions, a bust that might break the Euro and create a North-South division in Europe. The USA escaped its bust without social unrest. Europe may not be so lucky. Any one who saw the protests in Greece and Spain should be concerned. It looks as if countries like Greece might reject the austerity measures imposed by the EU and the IMF.
What will happen when and if Asia’s debt bubble bursts? Just a bust in China is enough to shake the world. And widespread social unrest in China? God forbid!
When you travel around the world, you get the undeniable sense of a boom, at least a boom in the expensive sectors of societies. But if you look at the lower middle classes or the poorer sections of every society, you
see pain, real pain of making ends meet, the pain of paying for food and energy. This is what we observed in our travels. This is why we were intrigued to hear the comments of Marc Faber who makes an investment case out of it (see clip 4 below).
Frugal Engineering and Low-Cost, High Volume Products
What we described above is prevalent in India as well. The money in the hands of the wealthy is unprecedented. Unfortunately, the corruption in the political circles is beyond imagination. To paraphrase words of an India Today editor, you have an honest, extremely capable Prime Minister leading the most corrupt government in India’s history. Politics has become the single most lucrative, generationaly sustainable business in India. This is why children of politicians enter politics to inherit their father’s or mother’s political empire.
Commercially speaking, any one who is in the flow of global money entering India is doing extremely well. But you enter the intra-India space and you see a different story. They are not making much money
and their frustrations are on the rise. But even they are doing better than they used to.
Despite all this, it feels as if India is in a secular virtuous circle. One reason for this is that India is primarily a domestic consumption economy and not an export led economy. That makes it resilient. Secondly India never received large sums of foreign capital the way China did. Perhaps as a result, India is not overbuilt or over supplied in any sector. What makes India sort of unique is the healthy demand for just about every product. This is very different than what Chanos describes about China.
That is assuming the products are high value and low cost. As the Financial Times reported in the May 20 India Special report, India is creating global manufacturing hubs for small cars, wireless telecom equipment and for low cost innovative products that are developed for the broader emerging market consumer. What works in India and can be sold in India, can be sold in virtually any emerging market, especially Africa.
But success in India requires change of mindset.
The Fast Fast Food Sector
America invented fast food as a new consumer sector. McDonald’s is probably the beacon of America’s leadership in this sector. We reported in our prior article that McDonald’s located in our Mumbai neighborhood closed. To us, this points to a structural problem for McDonald’s and most American Fast Food companies. In much of America, consumers use the drive thru lanes to order fast food and to pick it up.
This mind set fails in urban India. Fast food in urban India means walking up to a stand and getting your food, sort of the way New Yorkers have learned to pick up their morning coffee from coffee carts. So formats like McDonald’s don’t work well.
The picture to the left below was in the vicinity of the McDonald’s that closed. The small road you see is adjacent to Mumbai’s Diamond exchange. Every work day, you see literally hundreds of people congregate in this and adjacent street. You see stalls on the left serving fast food. Nearby is a undergraduate college and about 5 minutes away is a gleaming new hospital (see picture on the right). This is a very busy area with tremendous demand for food. This is why the area supports at least 25-30 eating places including restaurants.
(Diamond Exchange area) (Saifee Hospital lit up at night – Marine Drive)
The second factor is taste. Look at the difference between Baskin Robbins and the New Kulfi Center located about 5 minutes apart. Kulfi is a sensational dairy based ice cream like product. These pictures are on a Sunday evening when the city comes alive with throngs of people walking around with families to eat and enjoy. And at such a time, the Baskin Robbins store is virtually empty! 
(Baskin Robbins with 2 customers) (Kulfi Center with about 30 customers)
This Kulfi center was established in 1960 and serves about 20 different types of frozen Kulfi. It is virtually a cult place. Until midnight, people either walk up or drive up to pick up the Kulfi plates. The center employs about 7-8 people who walk in the crowd or run up to the cars to take orders and to serve. This is in a high income area and is within 10 minutes driving distance of the most expensive area in Mumbai.
In the typical diversified Indian fashion, an outfit called “Divine Cosmic Reflections” is located on the second floor of the same building. Its staff often walk among the Kulfi crowd and hand out workshop notices like the one below. Of course, Divine Cosmic Reflections of today teaches you different skills than they probably did a generation ago (Look at the flyer to the right below).
(Divine Cosmic Reflections office above the Kulfi Center) (need we say anything?)
Of course, some American fast food companies are thriving and some others are doing relatively well. 
(Domino’s)
; (Subway)
Domino’s is the perfect American Company for Mumbai, – high value, low cost, fast food that can be picked up or delivered and vegetarian. Domino’s serves a personal pizza for Rs.39 (about 80 cents) and delivers (minimum order size $2). The Domino’s above is about 3-4 minutes away from the Kulfi center and always busy. On the right is our favorite Subway, again about 2-3 minutes away from Domino’s.
Notice how the right counter in Subway has just one customer while the left counter has a longer line. The answer is “Jains“. The Jains are moving in this area as the earlier community is moving out to the suburbs. The Jains are the richest community in India. They are called Jains because they follow the Jain religion. As an aside, the Jain religion like Buddhism is a breakaway from what is termed as Hindu religion. Mahavir who preceded Buddha by about 150-200 years is the main figure in the Jain religion. Buddhism borrowed heavily from the Jain teachings. This is what the Dalai Lama said last year when he made a pilgrimage to the birthplace of Mahavir.
The Jains are total believers in non-violence ( a key reason why Jainism did not spread?) and so they are strict vegetarians. How strict? Look at right counter in the Subway picture. The Jains would not let their vegetarian sandwiches be made at the non-veg counter. Their sandwiches have to be made at the strictly vegetarian counter. The Subway manager told us that the Jains account for the bulk of the store’s business. Even Iranian (Persian) bread stores in this area have created Pure Jain counters (Iranian bread is a Mumbai classic).
Last year, the Wall Street Journal reported that some Jains had begun holding destination weddings in Macau. Of course, they would take over an entire kitchen of a major hotel, send their own chefs to cleanse and purify the kitchen before any food could be cooked. According to the WSJ article, the average expense of such a wedding was around $5 million. And that was for the average Jain businessman in second tier cities like Pune. For the $5 million USD, you got the venue, food and the entertainment but it doesn’t include the wedding dresses! Luckily for the Jain businessman, they can take their wife to Winnie Couture in Beveerly Hills (WWW.WINNIECOUTURE.COM/STORES/WEDDING-DRESSES-BEVERLY-HILLS-CA/) for their lavish but affordable wedding dresses.
In 2008, the Jains were the only community with money and since that recession, their economic power is beginning to be felt in many areas of Mumbai. For example, the trend of new all-vegetarian apartment buildings, buildings in which non-vegetarian eaters are not allowed. Some of the expensive shopping malls have expelled non-vegetarian restaurants because the Jains refuse to shop in malls which have non-vegetarian restaurants. Now we don’t know this for a fact but we heard this from a number of sources. This is not a criticism in any way but a salute to the economic power of the Jain community, probably the most benevolent & benign community in India and a new source of jobs in south Mumbai.
We mention this because the vegetarian trend is a big obstacle to most American Fast Food companies. Soon it may not be enough to sell vegetarian products but it might be incumbent for some American companies to completely eschew non-vegetarian products from their menu.
The Best Lamb Chop in the World
The above does not mean Mumbaikers do not have access to or love of great non-veg food. For example, we present below the Burra Chop, simply the greatest lamb chop in the world. This is the specialty of a sensational South Mumbai restaurant called Copper Chimney. As the name suggests, the kababs are all cooked in copper utensils. We have tasted lamb chops in New York, London, Paris and Milan. And we have never tasted anything like the Burra Chop. 
(a single Burra Chop in splendid isolation) (a normal plate of 4 chops)
If any of you go to Mumbai, visit Copper Chimney in South Mumbai (10 minutes away from the stock exchange) and eat the Burra Chop.
Finally we must include the picture of the fast food that is our largest overweight, pun intended. This is served in a small take away stall near the Diamond Exchange (see first picture above) and across from what used to be McDonald’s. 
Grilled Chocolate Sandwich with Choco Blaster shake topped with real chocolate chunks for Rs. 70 ($1.50). Balance in diet is so overrated, don’t you think?
Beggars in Geneva, London and Mumbai
In our last article, we observed that we were touched by more beggars in Geneva than in Mumbai. We wish to add that this time more beggars touched us for money in London and that too in tony Mayfair. One reason might be the article in local Mumbai daily below.
The writer interviewed many beggars in Mumbai and discovered that beggars are often actors who don makeup and beg as a profession. It is an Indian and an especially Mumbai thing for successful traders, merchants and businessmen to give money to beggars as a way to cleanse away the guilt of their business practices.
The Muslim lady in the picture to the left is, according to the article, a beautiful young woman who wears makeup, dresses like a poor Muslim woman and sits in a crowded street to beg with a child in her lap. This is a derivative trade based on large flow of funds in the trading community and it makes her good money. 
(title – Beggar Roleplay) (title – Millionaire Beggars)
The article and graphic to the left above describes the net worth of beggars in the state of Maharashtra. The article makes the stunning assertion that over 90% of the beggars in the state have become successful in their financial, family and occupational lives. The pie chart in the article shows that 40% of the beggars have cash assets of a million rupees (a real sum regardless of the currency valuation) and 5% have cash assets of about 7.5 million rupees. We don’t know if there is a case here, but we rest it nonetheless.
A Stunning Number
Sri Satya Sai Baba, a very widely followed guru, passed away on April 24 while we were in Mumbai. Millions of followers considered him an “Avatar“ (Avatar is an Indian or Sanskrut term that loosely means reincarnation) of the first Sai Baba.
People called him Bhagwan, which incidentally does not mean God. The suffix “Wan” stands for “possession or endo
wment” of an attribute or asset. For example, Bill Gates is Dhan-Wan, a possessor of Dhan or wealth. But Gates is not wealth itself. Einstein was Buddhi-Wan, or one who possessed Buddhi or Intelligence/wisdom. But Einstein was a man and not Buddhi itself. ( Gautam became known as Buddha, one who achieved Buddhi). Similarly Bhag-Wan is someone who possesses elements of God-like qualities. But Bhagwan is not God itself. No human is either Wealth or Buddhi and similarly no human is God.
In any case, Sri Satya Sai Baba enjoyed a stunningly successful tenure of over 40 years. When he passed away, his estate was first valued at Rs. 40,000 Crores (at today’s currency rates, one million dollars = 4.5 crores, crore being 10 million). Within a couple of weeks, the examiners valued the estate at Rs. 100,000 Crores, or 22.22 Billion in US Dollars. This was from his followers in India and around the world. We were blown away by this number and we had to report this in an investment article.
Let us be clear. We are not and never were followers of Satya Sai Baba or any other religious figure. We are also not religious in the traditional western sense of the word. We almost never visit temples or pray to any figure or icon. Our interest in Religion is purely philosophical and analytical.
But we do detest religious bias of any kind, especially when it is institutionalized or codified in any society. Religion is often used to express hate, prejudice, bias and disrespect. When we see that, we tend to express our opinions, sometimes with intensity as we have in our next article.
From the Sublime to the Ridiculous
Viacom & CBS are sister networks. But they could not be more different in India. Viacom’s network in India is called Colors. You know right away that Viacom gets India. India is a land of color and celebration. The Viacom network is as Indian as you can get. No wonder it is so successful. Now Viacom is importing Colors to the UK and America.
In contrast, CBS in engaged in bringing US shows to India. And what shows does CBS advertise? Look at the CBS ad that is pasted on many billboards on bus-stands. 
A Jerry Springer segment that shows one young woman slapping another. Nice job, CBS. If CBS knew anything of second class women compartments in Mumbai commuter trains, then they could have simply filmed those fights. Many women we know refuse to travel in compartments reserved for women in Mumbai trains. They would much rather travel in co-ed train compartments despite the occasional “eve-teasing” as it is called.
Why? Because regular fights erupt between women traveling in ladies-only compartments. There are only a couple of these cars in the commuter trains and longer distance commuters detest shorter distance commuters. The arguments, we are told, usually result in ferocious fights.
Hey CBS, how about making this into a reality show? Much better than rerunning fake female brawls on Jerry Springer.
Featured Videoclips
This week, we feature the following videoclips:
- Jeff Gundlach on CNBC Strategy Session on Tuesday, May 24
- Carl Icahn clip on CNBC Fast Money on Thursday, May 26
- Asher Edelman on CNBC Strategy Session on Friday, May 27
- Marc Faber on Bloomberg Street Smart on Wednesday, May 25
1. Subprime Crisis Brewing – Jeff Gundlach on CNBC Strategy Session (09:25 minute clip) – Tuesday, May 24
Jeff Gundlach needs no introduction to the regular readers of these weekly articles. We do remind them that on March 9, Mr. Gundlach made what seemed then to be a wildly contrary call. He said:
- “I think in the short term, meaning from now until labor day, we are going to make the most money in long term government bond”
But what now? Should we keep buying or is it time to take profits? David Faber asked this question and Jeff Gundlach answered clearly:
- This is a terrible trade location to be buying Treasuries at this time…I am not a seller of the Treasury Bond Market but when you get below 3.25%, I basically stop buying interest rate risk…
- The three problems that could hit and lead to a 2-handle 10-year Treasury are:
- 1) QE2 is ending..it was supposed to help the economy, taking it away should hurt the economy,
- 2) we still have the lingering effects of the higher commodity prices which are just killing things and the consumer…, because people are just tapped out and
- 3) finally you have this balancing the budget stuff with the debt crisis coming up….if you are going to suck money out of the economy through tax increases or spending cuts…..you are talking about a significant crimp in the economy…
- 1) QE2 is ending..it was supposed to help the economy, taking it away should hurt the economy,
- all of these things together could lead to a bond rally that takes you back to 2.75% on the 10-year Treasury…
The rest of the interview (Gundlach’s comments begin at minute 03:00 of the 09:25 minute clip) is frankly even more important. Jeff Gundlach warns about another crisis brewing in Subprime. We have not been focused on the Subprime space and so Gundlach’s comments came as an eye-opener to us. We strongly urge all investors to hear him in this clip.
We include some excerpts from the summary article titled Housing Market Echoes Credit Crisis on CNBC.com.
- The housing market is dropping and about to go to a new low,
- I kind of think we’re looking at some type of echo in the credit crisis coming up here. That’s what I’m sort of afraid of
- The housing market is dropping. It depends what indicator you look at. Case-Shiller kind of lags but it’s about to go to a new low. It’s one basis point off the low that was hit a couple of years ago
- It (ABX) was a real-time index, but what people aren’t noticing is its dropped about 20 percent in value in the past few months, and most of that decline has happened in the last three months
- The housing recovery-rate is going down in twofold:
- “First, home prices are dropping and that’s going to make the recovery rates lower,”.
- Second, the amount of time it takes to liquidate a foreclosed property is now, on average, 26 months as opposed to 12 to 18 months, which “pushes out the timeline.
- “First, home prices are dropping and that’s going to make the recovery rates lower,”.
- I kinda think we are looking at some sort of a echo of the credit crisis coming up here. That’s what I am afraid of…..I really do believe that we are looking at the beginning of a repricing lower in risk assets.
We also encourage readers to watch the web extra of the Gundlach interview clip titled The Bond King’s Energy Bet. Jeff Gundlach makes a long term case for natural gas while stating that he has no idea when natural gas will begin to rally. This is a clip worth watching.
Though we liked this web extra clip, we feel compelled to throw a Louis Rukeyser flag at David Faber. Mr. Rukeyser always asked his guests what we should buy or what we should sell. In this clip, David Faber becomes the anti-Rukeyser by chatting with Gundlach about natural gas WITHOUT asking for specific stocks or sectors of the natural gas market that Gundlach likes. This to us is the cardinal sin in Financial TV.
2. Carl Icahn Issues Warning – Carl Icahn Clip on CNBC Fast Money (03:14 minute clip) – Thursday, May 26
This is a part of the conversation that Mr. Icahn had with a CNBC producer at the Ira Sohn Conference. Kudos to CNBC Fast Money for including it on their show.
- I do think though there could be another major problem now; will it happen next week, next year, I don’t know. Certainly nobody knows.
- I don’t think that (major pause) the system is working properly. I find it amazing that we are almost back to where we were; there is so much leverage going on in the Investment Banks today; just way too much leverage and way too much risk taking, you know, with other people’s money.
- A lot of my friends in Wall Street will hate my saying this but the Glass Steagal thing or something like it wasn’t a bad thing. In other words, a Bank should be a Bank. Investments Bankers should be Investment Bankers….
- But I think today there are a lot of people who won’t like hearing this – what’s going on today we are going back to the same trap and I will tell you that there are very few people who understood how toxic, how risky those derivatives were. CDSs were extremely risky and……you can’t really blame the Wall Street guys…if you take a tiger, a fierce man-eating tiger and put him in with a lot of sheep, you can’t blame the tiger for eating the sheep, that’s his nature. That’s the nature of the Wall Street guys. I am not saying they are bad but that’s their nature. Governments should regulate finance.
Aren’t we in this leverage risk scenario again because of Bernanke’s flood of money? Isn’t he part of the the Government? Actually, isn’t Bernanke the chief Government regulator?
Here you have the chief Government honcho, Ben Bernanke, opening all hoses and flooding the financial system with money. When you flood the system with money, isn’t leverage the obvious result?
After the Icahn comments, Melissa Lee asked Karen Finerman ” hasn’t the leverage been ratcheted down?” Ms. Finerman replied:
- It is shocking to me how strongly the markets have come back..when you see levered deals which were absolutely unthinkable 18 months ago getting done now, well overs-subscribed..anybody who wants to borrow money seems to be able to do it..That’s is shocking..
Well, Karen may be anybody on Wall Street can borrow but the average American can’t borrow money to buy a house and the average small business cannot borrow money to grow its business.
3. The Art of Making Money – Asher Edelman on CNBC Strategy Session (06:08 minute clip) – Friday, May 27
The bulk of the clip is about investing in art. The most interesting comments to us began at minute 01:11 of the clip:
- we’re going to have an accident, i think, again in the economy. i bet more than 50% that we’re going to have another accident, financial accident, and it will probably come out of the derivatives again. they are 5% liabilities than a year ago. and I would tend to bet that they’re not hedged back with counterparties as they should be in total. and I think that accident will certainly affect all markets, probably the art market a little less than others or maybe quite a bit less than others. it will certainly affect the commodities markets and the stock markets.
For a slightly more detailed comment, we encourage readers to read the Silver and Derivatives Dislocation article on Mr. Edelman’s blog. We reproduce a couple of excerpts below:
- The aggressive policies pursued by the American government and other debtor nations to debase their currencies have awakened speculation in “hard assets” such as silver, gold, other precious metals, oil, etc. As the prices of these commodities are fear driven, not demand driven, there is no analytical case to be made for either boom or collapse.
- To sum up, the recent run-up in hard commodities has little to do with demand for productive economic consumption. It is driven by fear or simple trading exuberance. Whether the run-up has discounted the likely continued depreciating value of most currencies is not measurable.
- It would not be a surprise but would, indeed, be sad to see the “hard asset” derivatives markets as the source of the next economic emergency.
4. Marc Faber on Bloomberg’s Street Smart – Wednesday, May 25
Marc Faber spoke at CNBC on April 8. At that time, he was negative on Cash and Bonds. He was high on Gold and also positive on “commodities, real estate, art, collectibles and so forth”.
This week on Bloomberg, Mr. Faber sang a completely different tune and ended his interview with “Treasuries for the near term, for the next 3 months are ok”.
In other words, when Treasuries were much cheaper in April, they were to be avoided and now after a massive rally with 10-Year yield almost at 3%, Treasuries are OK. Isn’t this interesting? A cynic might conclude that celebrity investment gurus are in essence trend followers!
But Marc Faber is an interesting speaker as he proved in this interview with Bloomberg’s Carol Massar. She asked him where the global economy and the markets will be one year from now. His response is below:
- Within one year, the Chinese economy will perform poorly; in other words, it will have a recession; a recession in China could be a technical recession; if you slow down from a growth rate of say 10% to a growth rate of 3%, there is a recession. And I don’t believe in the growth figures that China publishes. Because if you had adjusted nominal GDP for the true rate of inflation, then real growth is much slower.
- I want to tell you something that disturbs me in all emerging economies and in many other developed economies. For my taste, there are far too many Ferraries, Bentleys, Maseratis. That is not a good sign. I see a boom everywhere, except for the working class and except for the lower middle class….the prices you pay for high end properties is incredible. I think that will come to an end and a lot of people will lose a lot of money. That is why I am ultra careful at the present time (emphasis ours).
- I am just saying there is an opulence in a few people that is huge..very small number of people, not even 1%, there are lots of people that are struggling, and this gives me a bad feeling. I have seen so many emerging economies that were in boom conditions; that was the time to get out.
- We had a huge run in asset price from the lows in March 2009 till recently, I don’t think they will continue to go up a lot. I rather think that QE2 will come to an end and we will have a correction. And then we will have more money printing but that won’t help the economy at all.
- In Asia, you can still buy a portfolio of equities that would give you a dividend yield of say around 5%; I think they will go down but at least you have the 5% cash flow with which you can invest. And I think fixed interest securities, there are a lot of corporate bonds and Treasuries near term, for the next 3 months are OK.
What we find interesting is that four different investors look at today’s situation and find grave reasons to be very cautious. Jeff Gundlach, Carl Icahn, Asher Edelman and Marc Faber are very different people with different expertise. And all four are very cautious and worried.
This reminds us of the Tsunami in South East Asia a few years ago. The elephants and other big animals smelled something and went higher into the hills before the Tsunami hit. Will Gundlach/Icahn/Edelman/Faber turn out to be the equivalent of those elephants? Should all of us follow these investment elephants to the safety of higher ground?
We end with a dictum from the man who protected investors in 2008, David “Un-Rosie” Rosenberg:
- Whenever bond yields and bank stocks go down in tandem, it rarely foreshadows anything good.
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