50 Charts From Marc Faber

www.gloomboomdoom.com

Dr Marc Faber 2012

Presentation for the London Bullion Market Association

11.00am, Monday, November 12, 2012

At the Grand Hyatt Hotel

HONG KONG

Marc Faber Limited

Suite 801, The Workstation, 43 Lyndhurst Terrace

Central, Hong Kong

Tel: (852) 2801-5411

Fax: (852) 2845-9192

Email: [email protected]

Deflationary Bust or Government Profligacy and Money Printing

“Our analysis leads us to believe that recovery is sound only if it does come

of itself. For any revival which is merely due to artificial stimulus leaves part

of the work of the depressions undone and adds, to an undigested remnant of

maladjustments, new maladjustments of its own.”

Joseph Schumpeter

“There are two ways to conquer and enslave a nation. One is by the sword.

The other is by debt.”

John Adams

“The more I studied economic science, the smaller appeared the knowledge which I had of it in

proportion to the knowledge I needed; and now, at the end of nearly half a century of almost

exclusive study of it, I am conscious of more ignorance of it than I was at the beginning of the

study.”

Alfred Marshall

Addressing long-term structural problems with “short-run fixes” (Krugman) and superimposing

“new bubbles” (Krugman, McCulley) upon busted ones is the shortest road to economic

catastrophe

Problems associated with expansionary monetary policies

Problems associated with expansionary fiscal policies

Causes and consequences of the ongoing shift in the balance of economic and political power

from the most developed countries to emerging economies

Rising social and political tensions in the Middle East and Central Asia, and territorial disputes

in the South China Sea

Investment strategy in a rapidly changing and highly volatile economic, political and financial

environment


TOPICS FOR DISCUSSION 1

FED FUND RATE & CRISES, 1960 - 2012


Source: Ed Yardeni, www.yardeni.com

2

"If it were possible to take interest rates into negative territory I would be voting

for that.”

Janet Yellen

FOR HOW LONG WILL REAL INTEREST RATES

STAY NEGATIVE?


3

Source: Ron Griess, www.thechartstore.com

LONG TERM US INTEREST RATES, 1790 - 2012


Source: N/A

4

Since 1790, the average interest rate on US Long-Term Treasuries has been 5%!

TOTAL CREDIT MARKET DEBT AS PERCENTAGE OF

US GDP, 1921 – 2010

5


Source: Ned Davis Research

“There are two ways to conquer and enslave a nation. One is by the sword. The

other is by debt.” John Adams

IS A DEFLATIONARY COLLAPSE POSSIBLE?

Source: The Bank Credit Analyst, Barry Bannister, Stifel Nicolaus


6

“The overall level of debt makes no difference … one person’s liability is another

person’s asset.” Paul Krugman

PRIVATE SECTOR CREDIT GROWTH EXPANDING

AGAIN


7

Source: Ed Yardeni, www.yardeni.com

“The grand fight between central bank debt monetization and the natural order of

economic cleansing is about to enter a deeper, darker circle of hell.”

Bill King, The King Report (July 2012)

US GOVERNMENT DEBT WILL CONTINUE

TO EXPAND


8

Source: www.whitehouse.gov

“Great nations are never impoverished by private, though they sometimes are

by public prodigality and misconduct.” Adam Smith

OFFICIAL US FISCAL DEFICIT AND CALCULATED

ACCORDING TO STANDARD ACCOUNTING RULES

(IN $ TRILLIONS)


9

Source: USA TODAY Research, Congressional Budget Office

10

THE UNLIKELY FISCAL CLIFF: SIZE OF FEDERAL TAX

INCREASES, 1968 – 2012

Source: Strategas Research Partners, www.chartoftheday.com



11

FEDERAL SPENDING AND INCOME AS A PERCENTAGE

OF GDP

Source: www.usgovernmentspending.com, www.theliscioreport.com

“We all know what to do, we just don't know how to get re-elected after we have done it.”

Jean- Claude Junker (Prime Minister Luxembourg)

Source: Dan Mitchell, International Liberty


12

FEDERAL SPENDING AS SHARE OF GDP:

CANADA AND US, 1965 - 2012

PERCENTAGE OF US POPULATION LIVING IN A

HOUSEHOLD RECEIVING

SOME GOVERNMENT BENEFIT, 1983 - 2012

13


Source: US Census Bureau, The Wall Street Journal

14


GOVERNMENT SPENDING AS A PERCENTAGE OF GDP,

1870 - 1913

Source: The Cato Institute

“Little else is requisite to carry a state to the highest degree of opulence from the lowest

barbarism, but peace, easy taxes and a tolerable administration of justice.”

Adam Smith

GROWING WEALTH INEQUITY: THE GAP BETWEEN

YOUNGER AND OLDER AMERICANS

(MEDIAN NET WORTH IN 1984 AND IN 2009)

15


Source: CNN Money, Pew Research Center, www.mybudget360.com

MEDIAN HOUSEHOLD NET WORTH BY AGE GROUP,

1989 – 2010

16


Source: Board of Governors of Federal Reserve System, 2010, Economic Policy Institute

“If all prices and incomes rose equally, no harm would be done to anyone. But the rise is not

equal. Many lose and some gain.” Irving Fisher


17

NET US DOMESTIC CAPITAL SPENDING,

1947 - 2012

Source: Ed Yardeni; www.yardeni.com

US TRADE BALANCE, 1950 - 2012


18


INCREMENTAL DEMAND FROM CHINA AND EXPANSIONARY

MONETARY POLICIES DROVE COMMODITY PRICES HIGHER


19

Source: Barry Bannister, Stifel Nicolaus

THE INDUSTRIALIZED COUNTRIES’ RELATIVE

ECONOMIC DECLINE

20



CHINA’S EXPORT DESTINATIONS


21

Source: The Bank Credit Analyst

SOUTH KOREA’S EXPORT DESTINATIONS


22


CHINA’S SHARE OF GLOBAL COMMODITY TRADE (NET

IMPORT AS PERCENTAGE OF WORLD IMPORT), 1992 - 2012


23

Source: IMF, Maybank Kim Eng

CHINA’S CURRENT SHARE OF

WORLD COMMODITY CONSUMPTION


24

Source: Barclays Capital, www.agorafinancial.com

25

AT SOME POINT COMMODITIES CONSUMPTION GROWTH

LEVELS OFF OR….



26

..…OR DECLINES AS IN THE MOST

ADVANCED ECONOMIES



A CREDIT BUBBLE IN CHINA!


27

Source: Bridgewater Associates

RATIO OF HOME PRICES TO ANNUAL INCOME IN

SELECTED CITIES, 2011


28

Source: IMF, Global Stability Report, Albert Edwards, Societe General

CHINA’S OIL CONSUMPTION, 1987 - 2012

29



CHINA’S “STRING OF PEARLS” TO PROTECT THE

SHIPPING LANES


30

Sources: International Maritime Bureau

“The first panacea for a mismanaged nation is inflation of the currency; the

second is war. Both bring a temporary prosperity; both bring permanent ruin.”

Ernest Hemingway

TENSIONS AROUND THE SOUTH CHINA SEA 31


Source: www.middlebury.edu

INVESTMENT STRATEGY: THE CHALLENGE 32


“The chief danger in life is that you may take too many precautions.” Alfred Adler

“The attraction which inflation policies have for so many people grows, in part at least, out of

what may be called the money illusions.” Irving Fisher

Negative real interest rates bring about higher economic and financial volatility

Different asset classes inflate and deflate at different times with different intensity

Two Strategies • Aggressively shifting from one asset class to another or

• Achieving safety through diversification

Equities

Cash and Bonds

Real Estate

Gold

Paradoxically, monetary inflation creates great opportunities to invest in distressed

assets

AVERAGE HOLDING PERIODS OF US EQUITIES,

1926 – 2011

33


Source: Alan Newman, www.cross-currents.net

HIGH VOLATILITY LIKELY TO CHARACTERIZE

ALL INVESTMENT MARKETS

Source: John Roque, WJB Capital Group ([email protected])

34


CENTRAL BANKS’ BALANCE SHEETS, 2003 – 2012

35

Source: John Lohman, Bloomberg, Bank of Japan


"If all else fails, immortality can always be assured by spectacular error.“

John Kenneth Galbraith

HOW DO WE VALUE ASSETS WHEN REAL INTEREST

RATES ARE NEGATIVE?

36



WILL US CORPORATE PROFITS DISAPPOINT?

(AFTER-TAX PROFITS OF US CORPORATIONS AS A

PERCENTAGE OF BUSINESS GDP, 1950 – 2011)

37


Source: Gerard Minack, Morgan Stanley

“It has long been recognized, by the business world and by economists alike, that a

period of rising prices acts as a stimulus to enterprise and is beneficial to business

men.” John Maynard Keynes

PERCENTAGE OF US STOCKS WITH A DIVIDEND

YIELD HIGHER THAN TEN-YEAR TREASURY

NOTE YIELD, 2006 – 2012

Source: Wolfe Trahan & Co

38


SELECTED “PRICE BUBBLES”

39



SELECTED EQUITIES IN GREECE, PORTUGAL, SPAIN,

ITALY, AND FRANCE ARE INEXPENSIVE

40


Source: Thompson Reuters Datastream

“We are continually faced with a series of great opportunities brilliantly

disguised as insoluble problems.” John W. Gardner

WHAT IF THE EURO FALLS APART?


41


MEXICAN PESO, 1969 - 2009 (Monthly Spot – Pesos per USD)

MOVEMENT OF MEXICAN STOCKS IN PESO

AND USD, 1979 - 1988


42

Source: Acciones Y Valores De Mexico, SA;

Marc Faber, The Great Money Illusion (Hong Kong, 1988)

S&P 500 TRAILING 10-YEAR COMPOUND ANNUAL

TOTAL RETURN, 1825 - 2011



43

PREFERENCE FOR ASIAN EQUITIES


Source: Nicholas Smithie, UBS

44

“Inflation is like sin; every government denounces it and every government

practices it.” Frederick Leigh-Ross

ONE CONCERN: EMERGING MARKET CURRENCIES 45


Source: The Bank Credit Analyst, J.P. Morgan Chase & Co

Source: McKinsey & Company

46


THE WORLD’S FINANCIAL WEALTH 2009

Source: Alan Newman, www.cross-currents.net

47


IN GOLD I STILL TRUST


48

HOW TO REPAIR THE GLOBAL ECONOMY?

LESS GOVERNMENT SPENDING!

“The growth in government economic activity has a positive effect on productivity growth when government expenditures are less

than 17 percent of GNP, but when government expenditures are greater than 17 percent of GNP this effect is negative. Maximum

long-run productivity growth thus occurs when government expenditures are about half of their 1986 percentage.”

Edgar Peden, “Productivity in the United States and its Relationship to Government Activity: An Analysis of 57 years, 1929–1986”

(Public Choice, vol. 69, 1991)

There is no means of avoiding a final collapse

of a boom brought about by credit expansion.

The alternative is only whether the crisis

should come sooner as a result of a voluntary

abandonment of further credit expansion, or

later as a final and total catastrophe of the

currency system involved.

Ludwig von Mises


49

50 Charts From Marc Faber

Documents

bank credit

south china

interest rates

federal spending

credit expansion

government

government

alan newman