The Great Unwinding of Economic and Financial Excesses · 2020-05-01 · THE GLOOM, BOOM & DOOM REPORT ISSN 1017-1371 A PUBLICATION OF MARC FABER LIMITED JUNE 1, 2008 The Great Unwinding

THE GLOOM, BOOM & DOOM REPORTISSN 1017-1371 A PUBLICATION OF MARC FABER LIMITED JUNE 1, 2008

The Great Unwinding of Economic andFinancial Excesses

“Most of the greatest evilsthat man has inflicted uponman have come throughpeople feeling quite certainabout something which, infact, was false.”

Bertrand Russell

INTRODUCTION

Although I don’t always agree withthe views of columnist ThomasFriedman, I couldn’t agree more withhis criticism of US energy policies. Ina recent article entitled “The energyto be serious”, he takes HillaryClinton and John McCain to task fortheir suggestion that the federalexcise tax on gasoline be suspendedthis summer (International HeraldTribune, May 3, 2008). According toFriedman,

It is great to see that weAmericans finally have somenational unity on energy policy.Unfortunately, the unifying ideais so ridiculous, so unworthy ofthe people aspiring to lead theUnited States, it takes your breathaway.

Hillary Clinton has decided toline up with John McCain inpushing to suspend the federalexcise tax on gasoline, 18.4 cents agallon, for this summer’s travelseason. This is not an energypolicy. This is money laundering:We Americans borrow money fromChina and ship it to Saudi Arabiaand take a little cut for ourselves asit goes through our gas tanks.What a way to build a country.

When the summer is over, wewill have increased our debt toChina, increased our transfer ofwealth to Saudi Arabia andincreased our contribution toglobal warming for our kids toinherit.

No, no, no, we’ll just get themoney by taxing Big Oil, saysClinton. Even if we could do that,what a terrible way to spendprecious tax dollars — burning itup on the way to the beach ratherthan on innovation.

The McCain–Clinton gasholiday proposal is a perfectexample of what energy expertPeter Schwartz of Global BusinessNetwork describes as the trueAmerican energy policy today:“Maximize demand, minimizesupply and buy the rest frompeople who hate us the most.” …Few people know it, but foralmost a year now, Congress hasbeen bickering over whether andhow to renew the investment taxcredit to stimulate investment insolar energy and the productiontax credit to encourageinvestment in wind energy. Thebickering has been so poisonousthat when Congress passed the2007 energy bill last December, itfailed to extend any stimulus forwind and solar energy production.Oil and gas kept their credits, butthose for wind and solar havebeen left to expire thisDecember… These credits arecritical because they ensure that ifoil prices slip back down again —which often happens —investments in wind and solarwould still be profitable. That’show you launch a new energytechnology and help it achieve

scale, so it can compete withoutsubsidies… It is so alarming, saysRhone Resch, the president of theSolar Energy IndustriesAssociation, that the U.S. hasreached a point “where thepriorities of Congress couldbecome so distorted by politics”that it would turn its back on thenext great global industry —clean power — “but that’s exactlywhat is happening.”… While allthe presidential candidates wererailing about lost manufacturingjobs in Ohio, no one noticed thatAmerica’s premier solar company,First Solar, from Toledo, Ohio,was opening its newest factory inthe former East Germany — 540high-paying engineering jobs —because Germany has created abooming solar market andAmerica has not. [Germany andJapan have, respectively, 20- and12-year solar incentive programsin place — ed. note.] In 1997, saidResch, America was the leader insolar energy technology, with40% of global solar production.“Last year we were less than 8%and even most of that wasmanufacturing for overseasmarkets.”

The McCain–Clintonproposal is a reminder to me thatthe biggest energy crisis we havein our country today is the energyto be serious — the energy to dobig things in a sustained, focusedand intelligent way. We are in themidst of a national politicalbrownout.

At about the same time, JohnGapper, writing for the FinancialTimes, lamented the poor state of USinfrastructure in an article entitled

2 The Gloom, Boom & Doom Report June 2008

“On the pot-holed highway to hell”:

If anyone doubts the problems ofUS infrastructure, I suggest he orshe take a flight to John F.Kennedy airport (braving thelanding delay), ride a taxi on thepot-holed and congestedBrooklyn–Queens Expressway andtry to make a mobile phone call enroute. That should settle it,particularly for those who haveexperienced smooth flights, trainrides and road travel, and speedycommunications networks in, say,Beijing, Paris, or Abu Dhabirecently. The gulf in public andprivate infrastructure is, to put itmildly, alarming for UScompetitiveness… Faced with theemptying of the Highway TrustFund, established in 1956 as theUS entered a period of growth andprosperity, Mrs Clinton suggestedcutting its source of funds (whichshe claimed could be made up by atax on oil companies)… At times Iwonder whether the world’s biggesteconomy has the will to solve itschallenges or will end upwandering self indulgently into theminor economic leagues. I expectit will get serious when the crisis istoo blatant to ignore, but it has notdone so yet.

Perhaps this is a bit unfair.Some leaders have recognized theproblem for economicdevelopment, as well as for safety.They include ArnoldSchwarzenegger and Ed Rendell,governors of California andPennsylvania, and Mayor MichaelBloomberg of New York. The triohave allied to press for the statesand Washington to act.

Gapper then quoted Ed Rendell,incidentally one of Mrs. Clinton’sbiggest supporters, who supported herinitiative to suspend the “gas tax”and increase taxes on oil companies(a really bad idea, since higher oilcompany taxes will curtailexploration). “Dams are in a horriblecondition … we have no real railtransport, unlike most nations in theworld… Summer delays make flyingin America a disaster,” Rendell said.

According to Gapper,

…there are lots of ways in whichinfrastructure inadequacy mattersto the US but I would focus ontwo.

First it imposes a drag oneconomic growth. The privateinfrastructure is poor enough —broadband speed lags behindother countries and mobilecoverage is spotty. But much ofthe public infrastructure is unfit, afact that was becoming clear evenbefore Hurricane Katrina floodedNew Orleans and a Minneapolisbridge collapsed during rush hourlast year.

Second, it presents an awfulimage of the US to investors andother visitors. The state oftransport and communicationinfrastructure is a symbol of anation’s economic developmentand the US is starting to look likea third world country. In fact,scratch that. Many developingcountries look and feel better.

Of course they are in adifferent phase of development.The US invested 10% of itsfederal non-military budget ininfrastructure in the 1950s and1960s as it built the interstatehighway system — at the time,the envy of the world. While theUS investment has fallen to lessthan 1% of gross domesticproduct, China has beenmatching its double-digit postwarrecord… Americans may not likethe sound of that, but they cannotexpect the US to maintain theeconomic dynamism of the late20th century in the 21st unlessthey buckle down. Sooner orlater, wishful thinking is going tocrash into financial reality.

In a column for the New YorkTimes, Thomas Friedman noted thatAmericans really “want to do nation-building” — not in Iraq andAfghanistan, but in America.According to Friedman,

We are not as powerful as we usedto be because over the past threedecades, the Asian values of our

parents’ generation — work hard,study, save, invest, live withinyour means — have given way tosubprime values: “You can havethe American dream — a house— with no money down and nopayments for two years.” … A fewweeks ago, my wife and I flewfrom New York’s Kennedy Airportto Singapore. In J.F.K.’s waitinglounge we could barely find aplace to sit. Eighteen hours later,we landed at Singapore’sultramodern airport, with freeInternet portals and children’splay zones throughout. We felt, aswe have before, like we had justflown from the Flintstones to theJetsons. If all Americans couldcompare Berlin’s luxurious centraltrain station today with the grimy,decrepit Penn Station in NewYork City, they would swear wewere the ones who lost WorldWar II.

How could this be? We are agreat power. How could we beborrowing money from Singapore?Maybe it’s because Singapore isinvesting billions of dollars, fromits own savings, into infrastructureand scientific research to attractthe world’s best talent —including Americans…

And us? Harvard’s president,Drew Faust, just told a Senatehearing that cutbacks ingovernment research funds wereresulting in “downsized labs,layoffs of post docs, slippingmorale and more conservativescience that shies away from thebig research questions.” Today,she added, “China, India,Singapore … have adoptedbiomedical research and thebuilding of biotechnology clustersas national goals. Suddenly, thosewho train in America havesignificant options elsewhere.”

I have quoted Friedman andGapper extensively for severalreasons. I have been accused of beinganti-American, and therefore Iwanted to show our readers that thereis an increasing body of Americanswho are very concerned about theircountry’s misguided fiscal and

June 2008 The Gloom, Boom & Doom Report 3

US

Canada

Japan

France

UK

Germany

0 1 2 3 4 5 6

$5.16

$5.02

$4.83

$2.29

$1.19

$0.40

monetary policies, which aredesigned to boost consumption notonly of oil, but of everything else aswell, at the expense of capitalinvestments, and research anddevelopment spending, which arebadly needed if the US wants toregain its competitiveness. As MarkGongloff noted in a column for theWall Street Journal,

…what the U.S. really needs, if itseeks a real fix to its energy-consumption problem, is lessdemand, not more. Mr. Marketsays there’s a simple way to dothat. Jack up the gas tax. Don’tlower it. Economists call it a“Pigovian Tax”, in honor of theEnglish economist Arthur Pigou,who early in the 20th centuryexamined economic activity thathurts innocent bystanders. To stopbehavior that’s not in the publicgood, you tax it more, not less.

Of course, a higher tax wouldhurt working-class Americanswho rely on their cars, thoughother taxes, like the federalpayroll taxes or state sales taxeson food, could be lowered to offsetit.

Gongloff then explained thatHarvard economist Gregory Mankiw,President Bush’s former chiefeconomic adviser, has proposedincreasing the “gas tax” by ten cents ayear for ten years in order to give theeconomy time to adjust. Accordingto Professor Mankiw, who belongs tothe Pigou Club, a pro-“gas tax” group,higher gasoline taxes “should lowerworld oil prices”, as higher priceswould curtail demand considerably.

Despite my usual seriousreservations about increasing taxes inorder to curb demand, I wouldsupport higher gasoline taxes in theUS (or tax incentives for energy-saving engines and heavy penaltiesfor gas-guzzling vehicles) because itsimplementation would be simple andthe revenues obtained from highergas taxes could be used to improvethe entire transportationinfrastructure. In particular, a betterpublic transportation system wouldimprove the energy efficiency of the

country and lessen its addiction toimported oil. It should also be notedthat the US has one of the lowestgasoline taxes in the world (seeFigure 1).

In addition, opinion leaders areincreasingly sceptical about the liesdished out by the government.Thomas Friedman opines thatAmericans “need a president who istough enough to tell the truth to theAmerican people. Any one of thecandidates can answer the Red Phoneat 3 a.m. in the White Housebedroom. I’m voting for the one whocan talk straight to the Americanpeople on national TV — at 8 p.m.— from the White House EastRoom.” And Gongloff concludesthat, although higher gas taxes wouldhave all sorts of desirable effects,unfortunately, increasing them“doesn’t win elections. And the onlymarket that matters now is the onefor votes.”

At the same time, investors andstrategists are becoming more andmore sceptical about the economicstatistics published by the variousagencies. The employment, inflation,and GDP growth figures are highlysuspect. According to MartinFeldstein, a former chief economicadviser to President Reagan and nowa Harvard economist, “misleadinggrowth statistics give false comfort”because “monthly data since Januaryindicate that economic activity andGDP have been declining since thestart of the year” (Financial Times,May 7, 2008). Feldstein opines that

…although the tax rebates nowunderway may provide sometemporary help, the combinationof falling real incomes, declininghousehold wealth and a dramaticdrop in consumer confidencesuggests further falls in consumerspending and GDP. But the mostserious risk is that the rapid fall inhouse prices — down 12% in thepast year and falling at a 25% ratein the past three months — willraise the number of negativeequity mortgages, leading towidespread defaults andforeclosures. Because USmortgages are “no-recourse” loans(lenders have no recourse to thehouse’s owner beyond the value ofthe house) individuals withnegative equity have an incentiveto default. There are now anestimated 8 million negative-equity mortgages — more than15% of all outstanding mortgages.Defaults are rising andforeclosures are now at twice therate of a year ago. A downwardspiral in house prices would causea fall in household wealth and inthe capital of financialinstitutions, potentially resultingin a deeper and longer recessionthan any seen in the past severaldecades.

According to Feldstein, thegovernment should intervene to“prevent positive-equity mortgagesfrom becoming negative-equitymortgages”. In other words, Feldstein

Figure 1 Average Gasoline Taxes per Gallon, March 2008

Sources: International Energy Agency and The Wall Street Journal


proposes that the government shouldsupport the real estate market “byproviding low-interest loans with fullrecourse that would allow anyhomeowner to pay down a significantfraction of his mortgage.Homeowners would be in effectgiving up the potential to default ontheir mortgage loans in exchange forlower interest costs.”

There are, however, someproblems with Feldstein’s proposal.For one, it is likely that the majorityof homeowners who are burdenedwith the estimated 8 millionnegative-equity mortgages (I haveseen figures which suggest that thereare 15 million negative-equitymortgages outstanding) also havenegative-equity car loans and largecredit card debts — in short, theyhave no equity to start with. So, inthese cases, “full recourse” loanswouldn’t serve their purpose andwould instead amount to a market-distorting direct government subsidyof imprudent borrowers at theexpense of taxpayers. Second, Iwonder how Mr. Feldstein wouldpropose supporting the market forunsold condos. In buildings with fiveto nine units — like a large numberof garden apartment buildings — thecondominium vacancy rate is at anunprecedented 15.2%. That is upfrom 12.2% at the end of 2007;whereas prior to 2006, it neverexceeded 10%. (For rental units, thevacancy rate is even higher.According to Floyd Norris, chieffinancial correspondent with theNew York Times, 25.2% — one infour — of the housing units builtsince 2000 are vacant.)

Finally, I very much side withMrs. Moneypenny who, in a wittyFinancial Times column dated May 3,2008, argued that the UKgovernment should not intervene inthe housing market, because fallinghome prices “might be painful forsome but what about the benefit formany others? What nurses andteachers and first-time buyers need isfor prices to come down.” Accordingto Mrs. Moneypenny, it is not anacceptable excuse from investors thatthey had not read the disclaimers. “Isuspect that borrowers of 110%

mortgages are in many cases youngand naïve and, in their enthusiasm tobuy property, had not read thedisclaimers. That’s not an acceptableexcuse either. Husbands should carrydisclaimers. Your marriage may be atrisk if you insist on rationing golf, orsome such incomprehensible activity.”

Mrs. Moneypenny then explainedthat a friend of hers wanted to leaveher husband because she found himirritating and because he hardly everhad sex with her. However, “ifirritation with one’s husband and alack of sex were reason enough towalk out, the divorce rate would gothrough the roof,” she wrote. Shetold her friend to “hang in there”,because if she went back to the openmarket and found another husband,how would she know that he wouldbe less irritating and would want tohave more sex? “[M]arriage isfrequently embarked upon when youare young and naïve and don’t weighthe risks,” she wrote. “But there is noregulator or government that willsave you from the pain if it goeswrong. And neither should there be.Any more than for people who takeout 110% mortgages.”

Well put! Governments and theiragencies around the world — not justin the US — have created assetbubbles by keeping interest rates

artificially low and through laxregulatory oversight, which hasencouraged the purchase of all sortsof assets with high leverage. Thesegovernments should not nowcompound their earlier mistakes bysupporting asset markets with evenlower interest rates and fiscalmeasures in order to prevent themarket mechanism from clearingproperly at the lower prices. After all,and as Mrs. Moneypenny suggests,there is usually no — or little —mention in the discussions of marketsthat “inflated asset markets” aremaking it expensive and difficult forfirst-time buyers to acquire assetswithout high leverage. In this respect,I should like to point out thatthroughout the 1970s and even mostof the 1980s, less than 30 hours ofwork (total private hourly earnings ofproduction workers) were required tobuy one S&P 500. Now, however,despite some decline in this numberfrom its peak in 2000, it requires 78hours of work to buy one S&P 500(see Figure 2). I suppose that, overtime, the S&P 500 and other assetmarkets will adjust to the downsideand again become more affordable, orthat hourly earnings will increasesignificantly (inflation).

I would also like to make thepoint that if the government and its

Figure 2 Number of Hourly Earnings to Purchase One S&P 500,1969–2008

Source: Ron Griess, www.thechartstore.com


agencies support the equity andresidential property markets, a casecould be made for it also to support,in future, the prices of commodities,commercial properties, and art andcollectibles. In fact, I am concernedthat investors haven’t paid sufficientattention to the problems that couldarise should these markets declinemeaningfully.

ARE DECLININGCOMMERCIAL PROPERTYPRICES THE NEXT SHOE TODROP?

It has been my view that, whereas theFed increased the Fed fund ratebetween June 2004 and August 2006from 1% to 5.25%, no tightening ofmonetary conditions occurredbecause lending standards were easedand leverage increased in all assetmarkets. Conversely, although theFed has cut the Fed fund rateaggressively since September 2007,from 5.25% to 2%, the impact of theinterest rate cuts was limited becausethey were accompanied by tighterlending standards. In other words,whereas the Fed has been easing, theprivate sector has been tighteningconsiderably. About a third of the 56banks surveyed by the Fed in Aprilreported tighter credit standards forcredit card loans, up from just 10% inJanuary. (Some 44% of the banks, upfrom 30% in January, tightenedcredit standards for other consumerloans.) More than 60% of the bankstightened standards on primemortgages, up from a little over 50%in January and only 15% a year ago.But it would seem that lendingstandards were particularly tightenedfor commercial real estate loans,where 80% of the surveyed banksreported tightened standards (thehighest since the Fed introduced thesurvey in 1990). Tighter lendingstandards could, as Richard Berner ofMorgan Stanley suggests, claim therecession’s next victim —commercial construction and, in myopinion, declining commercialproperty prices. Berner notes that,although non-residentialconstruction starts tumbled inJanuary by 13% from a year ago,

according to Reed ConstructionData, the downturn in traditionalcommercial construction should bemild because “the overall growth insupply for much of this expansion hasbeen modest by historical standards[see Figure 3]. The ‘capital discipline’theme that governed corporatespending in this expansion partlyextended to construction as well. Forexample, commercial constructionexcluding healthcare facilities rose byonly 3.9% annualized over the pastfive years.”

Still, Berner admits that“discipline seems to have faded overthe past year, when constructionaccelerated in virtually all categories,and with the slowdown in businessactivity, vacancy rates have begun torise. There are clear pockets of excessin financial services office buildingsand in retailing and lodging. Aslowdown in office employment andshakeout in retail and wholesaleactivity may pressure rents just aslenders and investors tighten creditavailability and raise its price.However, mining, power, andhealthcare construction may buckthe trend.”

Now, it may very well turn outthat, as Berner writes, the downturnin commercial construction will bemild. What is far less certain is that

the decline in commercial propertyprices will be mild. If capital values inthe UK are any guide for the outlookof the US commercial propertymarket, conditions are far frompromising (see Figure 4). Accordingto the latest figures from theInvestment Property Databank(IPD), capital values in the UK’scommercial property market fell by4.6% in the first quarter, taking thetotal return on property investmentsto minus 3.3% and the annualisedtotal return for the 12 months to theend of March 2008 to minus 9.7%;according to the IPD, this was theworst annual performance since 2001,when the index was first compiled.Also, according to Strutt & Parker,one of the UK’s largest propertyconsultants, prime UK commercialproperty prices in the Southeast haveslumped by around 25% in the pasttwo quarters, with yields hardeningfrom 4.5% to 6%, an unprecedentedshift in property values. (In the firstquarter of 2008, Strutt & Parker sawits own revenues more than halve,which is far better than the collapsein the turnover of the UKcommercial property market to just25% of what it was in the first quarterof 2007.) Also, the Britishcommercial property developerHammerson warned recently that job

Figure 3 Non-residential Construction, 20-quarter AnnualisedPercent Change, 1951–2008

Source: Richard Berner, Morgan Stanley


losses in the City were having animpact on the demand for offices inthe financial district. (According toHammerson, the office investmentmarket in France has also shownsome signs of softening.) Theworsening conditions in the Britishcommercial property market arecertainly mirrored in the decline ofHammerson’s share price (seeFigure 5). I might add that Britishresidential home prices have alsobegun to decline, with homebuildershaving performed about as badly astheir American counterparts (seeFigure 6).

I think that if UK commercialproperty prices could decline as muchas they have done, the same is likelyto occur in the US. As RichardBerner explains, “real outlays foroffice construction rose at an 18.6%annual rate over the past two years.In the fourth quarter alone, morethan 19 million square feet of newoffice space came on the marketaccording to Reis, Inc., the mostsince the fourth quarter of 2000. In2008 Reis expects about 75 millionsquare feet of new office space tocome online in the 79 markets ittracks, up from 53 million square feetfinished in 2007. Real construction

Figure 4 UK Property Prices, 1988–2008

Source: Dominic White, ABN-AMRO

Figure 5 Hammerson plc, 2003–2008

Source: Bloomberg

spending for multi-merchandiseshopping and lodging increased10.3% and 57.7%, respectively, overthe past 8 quarters.”

We can clearly see here thatsupplies are increasing at the verytime the demand for office space islikely to decline — possibly quiteconsiderably. According to Berner,the national office vacancy rate hadalready edged up to 12.6% in thefourth quarter of 2007 — the firstincrease in four years. He notes dryly

that “vacancy rates don’t yet reflectsublease space coming available asmortgage lenders go out of business.They will soon.” Perhaps he shouldhave added that other financialinstitutions could also go out ofbusiness or merge, or at the very leastsignificantly curtail their activities,which would certainly reduce theiroffice space requirements. In NewYork, where the financial sectoroccupies 35.6% of the approximately391 million square feet (36 million


Figure 6 Barratt Developments plc, 2003–2008

Source: Bloomberg

square metres) of office space, bothcommercial and residential propertyprices could be rather vulnerable to asignificant and long-lasting downturnin the financial sector. (The samecould also be said of properties inother Western financial centres, butprobably less so in Asia.) As a result,I regard the shares of propertycompanies and REITs such asBrookfield Properties (BPO), BostonProperties (BXP), and VornadoRealty Trust (VNO) (see Figure 7) asbeing vulnerable to renewed priceweakness.

The other sectors of thecommercial property market thatcould weaken significantly are retailand lodging. The InternationalCouncil of Shopping Centersrecently increased its forecast of USstore closures for 2008 to nearly 6,500,up from 5,800, which would be thehighest number of such closures since2001. Over the last six months,chains such as Starbucks, PacificSunwear, and Ann Taylor haveannounced the closure of a total of1,000 stores, while Home Depotannounced that it would abandon theopening of 50 stores this year andwould close 15 poorly performing

Figure 7 Vornado Realty Trust (VNO), 1996–2008

Source: www.decisionpoint.com

locations. Since consumer spendinghas risen over the last seven yearsfrom 66% to over 70% of GDP, andsince the US seems to be badlyoversupplied with retail stores (andrestaurants), a more pronounced

decline in the value of shoppingcentres should be expected onceconsumption moderates — eitherbecause the consumer is tapped out(unable to increase his borrowingsagainst his house) or perhaps as a


Figure 9 Wynn Resorts Ltd (WYNN), 2003–2008


result of the saving rate increasing.That all is not well in the vast land ofshopping centres is evident from thestock performance of the highlyleveraged Australian shopping centreowner Centro Properties Group,which owns 680 shopping centres inthe US and 130 in Australia (seeFigure 8).

Above we heard from RichardBerner that real construction forlodging has increased by 57.7% overthe past eight quarters. Again, thissignificant increase in the lodgingindustry comes at a time of slowingdemand. In Las Vegas, several gamingcompanies reported that their first-quarter revenues had declined, whilein the first two months of this yearhotel and motel occupancy droppedto 87%, from 88% a year ago. Andaccording to the Las VegasConvention and Visitors Authority,gaming revenues in the Las Vegasarea, including the Strip, have fallen4.2% so far this year, while thenumber of conventions held hasdropped 10.4%. (Las Vegas gamblingrevenues have declined only oncebefore since 1970, and that wasfollowing 9/11 when they declined by1% between 2001 and 2002.)

Figure 8 Centro Properties, 2003–2008

Source: Bloomberg

Interestingly, upscale markets are alsofeeling the pinch: revenues at theWynn Las Vegas dropped in the firstquarter of 2008 to US$125 millionfrom US$173 million a year ago (seeFigure 9), and the occupancy rate at

The Venetian fell from 99% in thefirst quarter of 2007 to 91% in thefirst quarter of 2008. Worst of all,since Las Vegas casinos make 70cents of every $1 of revenues in roomcharges, the average room rate was


down in February by 5.1% from ayear earlier. Revenues at AtlanticCity’s casinos fell in 2007 for the firsttime since Resorts Internationalopened its first casino there in 1978.(Privately owned TropicanaEntertainment, which operatescasinos in Las Vegas and AtlanticCity, has just filed for bankruptcyprotection.)

What is also noteworthy regardingthe lodging industry is that, althoughPhoenix, Arizona hosted the SuperBowl in February of this year, datafrom Smith Travel Research showthat hotels in Phoenix experiencedan 8.6% decline in occupancy in thefirst quarter compared with a yearago. (The average daily room rate wasup 17.8% during the Super Bowlmonth of February, but rates fell backin March and were up just 1.3%compared with March 2007.) I wouldexpect lodging companies such asStarwood soon to show disappointingearnings, especially given itsengagement in the operation ofvacation ownership resorts and themarketing and selling of vacationownership interests in their resorts(see Figure 10). Moreover, it is verylikely that construction ofamusement and recreation venues,and lodging facilities, will slowconsiderably in the very near future(see Figures 11 and 12).

While the US commercial realestate market may not be as glutted asthe residential market, the sharpdecline in home prices is likely to

Figure 10 Starwood Hotels & Resorts Worldwide Inc. (HOT),2002–2008


Figure 11 Non-residential Construction:Amusement & Recreation (yearlypercent change), 1998–2008

Source: Ed Yardeni, www.yardeni.com

Figure 12 Non-residential Construction:Lodging (yearly percent change),1998–2008


negatively affect the commercial realestate market through a combinationof tighter lending standards anddeclining consumption (poor retailsales) — at least in real terms. Ishould also like to mention that,whereas in the past residential andcommercial real estate booms wereusually concentrated in one region ora specific market (Texas in the early1980s; Japan, Taiwan, and Californiain the late 1980s), at present thereseems to be a construction boom in

both commercial and residential realestate on an unprecedented globalscale. And while I would expect somemarkets to be more resilient thanothers (for example, Asia, Russia, andfrontier markets), the size of thecurrent global boom would suggestthat a meaningful slowdown inconstruction activity is likely to bejust around the corner and that pricescould come down practicallyeverywhere, albeit with differentintensities.


INVESTMENT OBSERVATIONS

Over the last few weeks there hasbeen a significant change in theinvestment environment, whichcould have important consequencesfor the near future. Suddenly, the USdollar has strengthened not onlyagainst the Euro and the Swiss Francbut also against some previouslystrong Asian currencies. In particular,the US dollar has been strong againstthe Korean Won (see Figure 13). As Ihave explained on numerousoccasions, the US trade deficit iscontracting largely because of weakdomestic consumption (seeFigure 14). As a result, the UScurrent account deficit is alsodiminishing. Since the US currentaccount deficit was the principalsource of global excess liquidity, arelative tightening of global liquidityis now under way and is reflected byForeign Official Dollar Reserves nolonger expanding at an acceleratingrate, as was the case between 1998and 2005 (see Figure 15). Inprinciple, when the US currentaccount deficit no longer expands atan accelerating rate, US dollarstability or US dollar strength should

be expected, while at the same timeglobal economic growth should slowdown and commodity prices shoulddecline.

The BIG QUESTION, of course,is how the US trade and currentaccount deficits will perform infuture. Will they contract because ofa weak US economy and sharplyrising import prices, which wouldcurtail the demand for importedconsumer goods and oil? Or will theybegin to expand again because of theFed’s easy monetary policies and afurther sharp increase in the price ofoil? In the first case, investors shouldown the US dollar and, on a relativebasis, US dollar assets; whereas in thesecond case, investors should use thecurrent rebound in the US dollar as aselling opportunity and move fundsinto emerging markets andcommodities.

I have to admit that I don’t have avery strong conviction about eitherscenario, although I am leaning(based on recent economic statisticsand recent market action) towardsthe view that the US dollar willstrengthen further — at least in theintermediate term — because Iexpect that the trade and current

account deficits will continue toimprove. I should also like to explainwhy I don’t have a particularly strongconviction. Rising oil prices curtailthe demand for discretionaryexpenditures. So, whereas rising oilprices are by themselves bad for theUS trade deficit, they are notnecessarily as bad as one mightexpect on first sight, because thehigher oil prices go, the less moneythe consumer has for discretionarypurchases. Similarly, a meaningfuldecline in oil prices would lead tomore discretionary expenditures and,most likely, again increase the non-oil trade deficit. Economics can bevery tricky, and forecasting based oneconomic trends very treacherous.Equally tricky is attempting toforecast the market’s reaction to thetwo different scenarios outlinedabove. Would a sharp decline in oilprices be supportive of the US dollar,or would a strong dollar knock off oilprices and lead to additional USdollar strength? Or could aneconomic slump in the US lead toUS dollar weakness, despitecontracting trade and current accountdeficits? As I indicated above, I amleaning towards the view that the

Figure 13 Korean Won versus US Dollar, 2003–2008

Source: Bloomberg


Figure 14 Real US Merchandise Trade Balance (billions of 2000dollars, saar), 1995–2008


heavily on the firms’ assumptionsabout things such as interest ratesbecause they are far less liquidthan Level One assets; accordingto regulatory filings by the fivelargest U.S. brokers and largestmoney center banks, there aremore than $4 trillion in LevelTwo assets on their balancesheets.

Finally, Level Three assets arethe least liquid of the firms’trading assets and therefore arevalued using what are called“unobservable inputs”.

Level Three assets include realestate, mortgage-backed securities,private equity investments andpossibly even “undertakings ofgreat advantage, but nobody toknow what they are” (cf. SouthSea Bubble).

The three magic words thatmake an asset a Level Three assetare “no observable inputs”. Whatthis means is that not only arethey hard to price, but nearlyimpossible to sell. Recently there’sbeen such deterioration in alltypes of mortgages that more andmore assets are finding their wayinto this category. Also, this is thefirst time insurance companieshave made the list. I think the listwill continue to grow.

Ten companies now have moreLevel Three assets than capital. Inorder, they are (as a % of totalshareholder equity):

1) Bear Stearns (BSC): 313.97%2) Morgan Stanley (MS): 234.88%3) Merrill Lynch (MER): 225.4%4) Goldman Sachs (GS): 191.56%5) Lehman (LEH): 171.18%6) Fannie Mae (FNM): 161.48%7) Northwest Air (NWA): 142.02%8) Citigroup (C): 125.06%9) Prudential (PRU): 119.36%10) Hartford (HIG): 108.52%

So now we have insurancecompanies joining the party. Yes,the contagion is spreading and no,it’s not over. Not even close.

As Sedacca points out, anotherissue is “the speed at which LevelTwo assets are growing”.

Figure 15 Foreign Official US Dollar Reserves and the US Dollar(yearly percent change), 1982–2008


US dollar may have some upsidepotential from the current level andthat economic growth will disappointand lead to lower commodity prices(including gold) in the near term.The principal reason for this view ismy belief that the financial crisis hasbeen postponed, but certainly notsolved. I am grateful to my friendBennet Sedacca, president ofAtlantic Advisors LLC([email protected]), for

shedding some light on financial firms’quality of assets, as follows:

…new accounting rules allow fortrading assets to be divided intothree levels. Level One assets arethe most liquid assets andtherefore the easiest to price.They make up less than a quarterof most firms’ assets.

Level Two assets make up themajority of firms’ assets but rely


Level Two assets, according toBloomberg are “assets that havequoted market prices for similarinstruments in active markets,quoted prices for identical orsimilar instruments in marketsthat are not active, and modelderived valuations in which allsignificant inputs and significantvalue drivers in active markets.”This is otherwise known as “markto model”. And without furtherado, below I will rank companiesby their absolute level of LevelTwo assets and by ratio to totalshareholder equity [see Tables 1and 2]. Now I realize that I maysound like a “scaredy cat”, buthey, in this business, discretion isthe better part of value. Asabsolute return investors, I haveto pay attention to something Ithink could be a problem; even ifit never develops, all I have lost isopportunity, not capital.

I have to say that these statisticson leverage and the quality of assetsheld by the financial sector arefrightening! I’m sure that all thesefirms’ employees are hyper-smart, butfor my part I wouldn’t want to run abusiness on such a leverage, and Icertainly wouldn’t sleep well at night.Still, no matter how negative I maybe regarding the financial sector’slong-term outlook, I am also awarethat nothing goes down in a straightline and that intermediate strongrallies (frequently of 40%) dointerrupt long-term downtrends.Financial stocks became grossly over-sold in March and their lows shouldhold — at least for a while — asinvestors continue to slumber inconfidence and complacency (seeFigures 16 and 17).

I indicated above that I amleaning towards the view that the USdollar may have some upsidepotential from its current level, andthat economic growth will disappointand lead to lower commodity pricesin the near term. The CRB Index hasbeen forming an ascending wedgeand, whereas temporary furtherstrength is a possibility because of thepotential for additional gains in oilprices, more often than not rising

Table 1Level Two Assets Ranked byDollar Amount

1. Citigroup $1.15 trillion

2. J.P. Morgan $1.09 trillion

3. Merrill Lynch $1.02 trillion

4. Bank of America $781 billion

5. Goldman Sachs $620 billion

6. Bear Stearns $332 billion

7. Fannie Mae $321 billion

8. Morgan Stanley $304 billion

9. Prudential $276 billion

10. Lehman $200 billion

Source: Bennet Sedacca, AtlanticAdvisors, LLC

Table 2Level Two Assets Ranked byRatio to Total Shareholder Equity

1. Merrill Lynch 28x

2. Bear Stearns 28x

3. Goldman Sachs 12x

4. Prudential 12x

5. Amerprise Financial 9x

6. Citigroup 9x

7. American Electric Power 9x

8. Genworth Financial 9x

9. Hartford Insurance 9x

10. Lehman Brothers 9x

11. Suntrust 8.7x

12. J.P. Morgan 8.7x

13. Anadarko Petroleum 8.7x

14. Travelers 8.5x

15. Lowes Corp. 8.5x

Source: Bennet Sedacca, AtlanticAdvisors, LLC

wedges are followed by sharp pricereversals (see Figure 18).

The question is, of course, whichassets would gain the most ifcommodity prices — in particular, oil

prices — declined. The only reason Ican think of for commodity prices,including oil, declining sharplywould be widespread economicweakness, not just in the US but

Figure 16 Citigroup, Inc. (C), 2006–2008



negative for the currencies ofcountries that have benefited fromrising commodity prices (Australia,Canada, New Zealand, etc). As aresult, I still maintain the view that,for the next few months, US andJapanese equities could outperformthe emerging stock markets andassets in commodity-rich countries.Moreover, it is likely that weaknessin oil prices, which would be broughtabout by lower demand (economicweakness), would also hurt the entirematerial and metal sector. Stockssuch as US Steel (X) and Cleveland-Cliffs (CLF) seem to be in a blow-offphase. At the same time, lower oilprices could lift the prices of airlineshares such as Singapore Airlines(SIA SP), AMR (AMR), Lufthansa(LHA GR), and Thai International(THAI TB). I should add thatinvestors’ reaction to declining oilprices will be to buy equities and toassume that inflation will moderate. Iam less certain that lower oil pricesarising from economic weakness willbe very positive for equities and willreduce inflationary pressures. Yet, asjust explained, declining oil priceswill be perceived as positive by theinvestment community. But giventhe already moderately overboughtcondition of the S&P 500,meaningful additional gains shouldnot be expected and selling towards1450 for the S&P 500 is stillrecommended.

I have maintained a relativelypositive stance towards Japaneseequities in recent months (see alsothe report by Jesper Koll of TantallonResearch in the February 2008 GBDreport — [email protected]). As canbe seen from Figure 19, following aperiod of significantunderperformance (between 2005and late 2007), Japanese shares havenow begun to outperform theShanghai Stock Exchange Index.Moreover, it would also appear thatthe underperformance of the NikkeiAverage versus the S&P 500 hascome to an end (see Figure 20). Iwould therefore consider committingfunds to Japanese equities to betimely — at least on a relative basis.

In this report I have taken anegative view of the UK and US

Figure 17 UBS AG (UBS), 2007–2008


Figure 18 Reuters/Jefferies CRB Index ($CRB), 2007–2008


also where the demand is strongest— in the emerging economies. Sincegrowth expectations are high for theemerging economies, I would thinkthat any disappointment concerning

their growth rate would have arelatively negative impact on theirstock and currency markets. I shouldalso add that a significant slowdownin global economic growth would be


commercial property markets. Isuppose that in Asia a period ofconsolidation, or more likely amodest decline (10–20%), for bothresidential and commercial propertyprices is also ahead of us. Still, Imaintain a moderately positiveopinion about Singapore REITs, asoutlined in the April 2008 GBDreport where I recommended K-REIT(KREIT SP), Suntec REIT (SUNSP), CapitaCommercial Trust (CCTSP), Macquarie MEAG Prime REIT(MMP SP), Ascendas REIT (AREITSP), Cambridge Industrial Trust(CREIT SP), and Mapletree LogisticTrust (MLT SP).

CLSA has just completed a 400+-page report on Asian propertymarkets and their analysts also have afavourable view of AREIT, CREIT,and CCT. They also recommend, inSingapore, Ascott REIT (ART SP),UOL (UOL SP), and Capitaland(CAPL SP).

There is one more piece in theinvestment puzzle that needs to beaddressed. What would happen tobond yields if the CRB Index rolledover and declined? Since commodityprices would decline because of aweak global economy, the obviousanswer would be that bond yieldswould decline. However, this is farfrom certain, because economicweakness would presumably inducecentral banks around the world tomassively ease their monetarypolicies. The bond market, however,may not like it and sell off. Inaddition, the bond market mayassume that lower commodity priceswill stimulate discretionary spendingand lead to renewed economicvigour. I may add that yields onlonger-dated US bonds appear tohave bottomed out despite the Fed’saggressive easing of monetarypolicies (see Figure 21). The bondmarket may no longer be buying thebogus inflation indicators publishedby the Bureau of Labor Statistics andmay also be feeling the relativetightening of global liquidity that Imentioned above. Needless to say,higher bond yields should besupportive of the US dollar.

Kenny Schachter, who follows theart market closely, has kindly agreed

Figure 19 Tokyo Nikkei Average/Shanghai Stock ExchangeComposite Index ($NIKK:$SSEC), 2000–2008


Figure 20 Tokyo Nikkei Average/S&P 500 Large Cap Index($NIKK:$SPX), 2000–2008



to update our readers on the results ofsome recent auctions. His reportfollows.

Thereafter, I am enclosing a lettersent me by my friends at Child’sDream about their efforts to provideemergency assistance to the victimsof the recent cyclone in Myanmar. Itis a saddening human tragedy forwhich a totally incompetent andvicious government is largelyresponsible.

Figure 21 Ten-year Treasury Note Yield ($TNX), 2005–2008



Greed is BadKenny Schachter, E-mail: [email protected]

Inflation for basic food items is saidto be up nearly 20% in the UK, andgas and oil have achieved price levelsnever before imagined, with newhighs sure to follow. Jobs in thefinancial sector are evaporating,property is largely un-saleable invarious parts of the US, and thedollar is worth less than paper towels.Yet the art market inexplicablymarches along like a crackheadversion of the Eveready EnergizerBunny. It seems the entire bankingsector has ground to a halt, but asmall group of people still deemed it asteal to spend US$50 million on aRothko (more on this), US$41million on a Monet, US$40 millionon a Leger, US$35 million on a Freud(more on this, too), US$30 millionon a Munch, and — beyond all levelsof comprehension — a Bacontriptych from only the 1970s for agrand total of US$86,000,000 (thathad to be depicted with all theresplendent zeros). I have been in theart world for 20 years, but cansomeone please explain that to me?A bird eating the neck of a torso,distorted faces, and an abortionfloating nearby — maybe he justcouldn’t paint faces. I like to beshocked as much as the next person,but regardless; what is the concept ofa painting worth the GDP of a smallcountry? The May 2008 spring salesin New York resulted in Christieshaving their second-highest-grossingsale of contemporary art andSotheby’s their most successful ever.

Putting aside the unfathomablenumbers paid for what is merepigment and bonding agent on fabric,or objects of loosely formed clumps ofbronze, there is the New HooverConvertibles, New Shelton Wet/Drys5-Gallon, Double Decker, 1981–86, asculpture from the US artist JeffKoons, born in 1955, made up of twoHoover Convertible vacuumcleaners, two Shelton Wet/Dryvacuum cleaners, acrylic, andfluorescent lighting. The pricefetched for this masterwork:US$11,801,000. I have to say I even

like it. It plays off Duchamp’snominating a lowly urinal as a workof art and takes it a few steps further,isolating and singling out an everydayhousehold cleaning agent thatinhales as it goes along and consumesthe skin, hair, and dust particles thatsurround us. And which literally areus. And imagine how such a windfallwould make James Dyson feel, theself-proclaimed Leonardo of thevacuum cleaner. Yes, Jeff Koons isamong today’s market darlings, andhe’s so accommodating he evenspeaks to collectors at auction housemeals prior to the sales on thesignificance of his works (and thereare many at any given sale), cheerilygreasing them up.

Clearly, there is a New WorldOrder where the art market serves asa barometer of societal wealth, andattitudes towards spending it, akin tothe Dow, S&P, Nasdaq, the price ofgold, and the cost of a barrel of oil.And the auctions are like shoving athermometer in the collective ass ofsociety to take the temperature of theworld’s disposable income. But youare only as good as your last sale, andcontemporary auctions are occurringmore and more often like a spreadingrash. Besides, it is usually a red flagwhen there is talk of a new paradigmin the market — like the .com’s,which were going to rise forever,change the way we live, and foreveralter the business cycle, before itwent down 80%. However, never inhistory has a market been moretalked down in the press and mediaby armchair prognosticators, fornearly a year already, with articleafter article and news segments onevery channel forecasting thedramatic end to ten years of boomingprices. And here we are now.

What the May 2008 sales —which altogether totalled over abillion dollars — illustrated, asidefrom very lenient worldwidemonetary policies, is that art really isembraced and highly valued by theglobal economy (and maybe that toomuch money has entered

circulation!). Jeff Koons shouldrename his series of animal-shapedmirrors from Easyfun to Easymoney,though I hope the art economydoesn’t resemble a hall of mirrors.Trading art these days is like thesecurities industry going full blastwith no SEC; and art is seen as aderivative investment on taste andliquidity. On the downside, there isfront running — that is, buying arton information gleaned frommuseums, institutions, and collectorsprior to public announcements, andwho-knows-what still going onbehind the scenes at auction houseswhere the only visible face of biddersthese days are dealers in the peanutgalleries and banks of phone-wieldingdrones manning the sales on behalf ofunspoken clients. As for the artindustry, there is probably notanother multi-billion-dollar,unregulated, inefficient market that isas lacking in transparency.Nevertheless, the public is moredrawn to the fray than ever. Thoughthe Americans still largely dominateauction activity, there is greaterinternational involvement than atany other time in history; witness themajor recent Qatari acquisitions ofHirst and Rothko for the first time.In certain instances, the Russians areeven changing tastes from recentWestern trends away from modernand Impressionist art. The art marketis wearing gravity boots these days,still hanging against all expectationsand managing to soar in the process,while the rest of the world is mired inthe doldrums.

One marked move down, at leastin terms of volume, was the welcomelack of recent Chinese contemporaryart on offer in the major sales;perhaps this was a backlash to theinundating of mediocre works on themarket. Cynically, much of thismaterial seems tailormade to appealto perceived Western market tastes.Some auction highlights are asfollows. Japanese artist TakashiMurakami, star of art institutions andcollectors alike, recently exhibited at


the LA County Museum and theBrooklyn Museum, where he installeda functioning Louis Vuitton boutiquein both venues, for whom he hasdesigned bags and other products.The seamless wedding of art andcommerce could not be moreharmonious (in the mind of AndyWarhol, anyway). At Sotheby’sevening sale, the artist himselfwatched from the skybox and roared“Banzai!” when his work, MyLonesome Cowboy, fibreglass andpaint, sold for over US$15 million. Awork like this needs only adescription rather than analysis, as itspeaks for itself in no uncertainterms: it is a lifesize teen figure with ashock of cartoon-ish spiky blond hairand a penis as erect as one can be;the figure is wanking in one handand twirling a fibreglass lassocomprised of the mother lode of hisown cum in the other. Who canargue against the masturbatory natureof much of contemporary artnowadays?

Yves Klein, who is revered forcreating Klein blue, a vivid royalshade of congealed deep-bluepigment, had sales resultsmonumentally over estimate butreflected more the climbing value ofgold than the health of his signatureworks of art. A monochromatic goldpainting estimated at US$6–8million sold for US$23.5 million,while a more familiar blue paintingestimated at US$5–7 million sold fora mere US$17.4 million. A new goldstandard was established for theartist. Lucien Freud, now the mostexpensive living artist in the world,sold a painting of an obese benefitsclerk with blubbery flesh cascadingdown the couch (is she the onlyone?) and was lambasted in the redtop press for being an anti-humanistmisogynist whose formulaic work iscalculated to shock. Though partlytrue, for US$35 million I’d want toget as much skin in my picture asformally possible. On the subject ofgreed as in the title of this piece, aRothko failed to sell at US$33million with a US$35 million lowestimate, and a work by graffiti artistBanksy with an estimate ofUS$600,000 passed at US$550,000. I

hereby profusely apologise to MarkRothko for unduly making him spinin his grave by mentioning his namein the same breath as Banksy, but thefact that these two highly bid worksfailed to find buyers is a terriblereflection on the avarice that couldultimately be the downfall of theentire art market. If you decide to sella work of art at auction, don’t be sodelusional as to turn your back onUS$33 million for what is a merepainting on canvas; and what is evenmore inexcusable is to be a“collector” who turns down morethan half a million dollars for a pieceof crap by Banksy for which theymust have paid a fraction of that justa few months before. Not that I haveanything per se against crap; myentire collection could be said toresemble trash.

Damien Hirst had lacklustre butsolid sales, including what must behis 2,000th coloured spot painting oncanvas from 2006 that sold for nearlyUS$2 million. Won’t someonesometime soon differentiate betweenthe significance of an early spot workand that of one so far down the(production) line? I highlyacknowledge the aesthetic, graphic,pulling power of these iconic works,which speak of our overreliance onpharmaceuticals, but will enoughever be enough — or will demandcontinue to dictate supply? Artiststoday have more employees thanideas, and certainly larger staffs thanthe world’s leading galleries (many ofwhich are now multinationals); infact, they have more employees thansome of the burgeoning cottageindustries they have grown toresemble.

A month ago, Phillips’ first forayinto “design art” sales in Londontranspired at its Howick Placeshowrooms. The sale came with a£1.4–2 million estimate and made£2,282,513, comfortably over its highestimate; no easy feat. The mid-century and contemporary designofferings included major works byFrench designers Jean Prouve,Charlotte Perriant and Le Corbusier,and “important” contemporary worksby Marc Newson, Ron Arad, and theupstart Martino Gamper. The word

“important” is a much-overusedbuzzword in the art world, alluding tohistorical significance but ratherreferencing present market value andstatus. Accompanying the sale was apanel entitled: “Rethinking Design”,said by Phillips to be the first in aseries of “think tanks” to coincidewith opening previews, a servicekindly provided by the auction houseand outside furniture dealers. “Thinktank” is an odd term to use to definea group of industry insiders espousinginvestment in a series of objectspresently on offer; I’m fairly certainthere was not much in the way of anobjective, open, accountable processof analysis at the drinks partyaccompanying the discussion prior tothe onset of the sale.

Of the 246 lots on offer, roughly40 could be said to be of thecontemporary variety of design; muchof the remainder, more conservativefare, comprised what seemed like lotafter lot of candy dishes and teapots.At times the works on offer in designsales resemble the contents of a bootsale (or flea market, for US readers).Surely the time has come to bifurcatethe mid-century and contemporarymaterial into distinct sales, ratherthan continue to tax our collectiveshort-term attention spans. LetDesign Art live on its own; for betteror worse, that is the term that bestencapsulates the notion of thisburgeoning new sector of thefurniture market, a hybrid from theworlds of art, design, and architectureresulting in new forms of utilitarianobjects — if you can call certainpieces of contemporary design usable.Simon de Pury of Phillips is theBuster Keaton of auctioneers; he isnot so much a physical comedian, butuses his voice physically like amusical instrument, and coaxes bidswith ad hoc, boisterous humour. Anddrum up bids he did; but he hadbetter be good, as the design outingsare just about every month these daysand on the heels of the contemporarysales.

In the sale, a couch resemblingcrushed tin foil, by architect anddesigner Ron Arad, sold for overUS$180,000; and a carbon fibre tableresembling a sleek sports car, by


market-leading industrial designerMarc Newson, sold for nearlyUS$240,000. (He has previously solda chair for US$2 million.) The designmarket is an accessible niche ofcollectibles that is open ended, not ascutthroat or political as art, and stillhas a tremendous amount of room forgrowth. Aside from most art fairs’ andgallery owners’ trepidation at

incorporating art with design, soonmost art institutions will comearound — as the auction housesalready have — and embrace thisnew material in the same wayphotography was ultimately acceptedinto the canon of contemporary art.Finally, Gagosian Gallery, the world’slargest, has stepped up to representMarc Newson, and Timothy Taylor

Gallery in London is now exhibitingRon Arad. Why are the galleries soretrograde and always so late torespond and react proactively to newcurrents in the marketplace?

As a postscript, I must admit tohypocritically partaking in all of themanipulative commercialmachinations as described above.


Child’s DreamMarc Jenni ([email protected]) and Daniel M. Siegfried ([email protected])Tel. +66 (0)53 214 718; Website: www.ChildsDream.org; E-mail: [email protected]

Dear Marc,

Over the last few days we all have been seeing the horrific images from the Irrawaddy and Rangoon

division areas in Burma. On May 3rd, cyclone Nargis hit Rangoon, Irrawaddy and Pegu divisions.

Aid agencies estimate that 100,000 people have died and warn that this figure could rise to 1.5

million without provision of clean water and sanitation.

While the UN and international NGOs await visas for Burma in Bangkok and the few emergency

relief supplies are blindly handed over to the military regime, some of our partner organizations

from the Thai–Burma border have put together an Emergency Assistance Team. This team is

currently on the ground in Rangoon and the Irrawaddy Delta and is working with networks of

community based organizations and concerned individuals. The team is split into 8 groups with 5

members each. They are distributing water purification tablets, procuring rice and other food,

building shelters and repairing houses, assisting with cremations, and providing basic medical

treatments, including oral rehydration supplementation. These groups are communicating via

satellite phones with team leaders based in Mae Sot, Thailand for funding and logistics.

As during the tsunami catastrophe, Child’s Dream is very critical and cautious about how

emergency relief efforts are organized and implemented. Also during this crisis we have been

observing various attempts to bring help to those who really need it. We heard of the above

initiative through our existing networks of community based organizations and feel that this is the

most effective and efficient way of providing emergency relief assistance. We were informed that

THB10 million (USD325,000) can responsibly be distributed over the next three weeks. Our

partner organizations have already raised USD100,000 but are still lacking the remaining budget

that is required.

Therefore, our two organizations, Child’s Dream and diversethics Foundation, have committed to

support the Emergency Assistance Team with USD200,000. Both our organizations today have the

financial strength to absorb this additional commitment, and the money is needed urgently now.

At the same time we are approaching donors to specifically raise money to cover the USD200,000

we spent for this urgent purpose. Further funding might be required, and should that be the case,

we will inform you accordingly.

We are convinced that this grassroots-level approach will save many lives and bring much-needed

relief to the communities.

Best regards,

Child’s Dream / diversethics Foundation

Marc T. Jenni • Daniel M. Siegfried

Subscriptions and enquiriesMARC FABER LTDUnit 3311–3313, 33/F Two International Finance Centre, 8 Finance Street, Central, Hong KongTel: (852) 2801 5410 / 2801 5411; Fax: (852) 2845 9192;E-mail: [email protected]; Website: www.gloomboomdoom.com

Design/Layout/ProductionPOLLY YU PRODUCTION LTDTel: (852) 2526 0206; Fax: (852) 2526 0378; E-mail: [email protected]

Author & PublisherDR MARC FABER

Research Editor & SubscriptionLUCIE WANG

CopyeditorROBYN FLEMMINGE-mail: [email protected]

THE GLOOM, BOOM & DOOM REPORT© Marc Faber, 2008

DISCLAIMER: The information, tools and material presented herein are provided for informational purposes only and are not to be used orconsidered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for securities, investment products or otherfinancial instruments, nor to constitute any advice or recommendation with respect to such securities, investment products or other financialinstruments. This research report is prepared for general circulation. It does not have regard to the specific investment objectives, financialsituation and the particular needs of any specific person who may receive this report. You should independently evaluate particular investmentsand consult an independent financial adviser before making any investments or entering into any transaction in relation to any securitiesmentioned in this report.

The Great Unwinding of Economic and Financial Excesses · 2020-05-01 · THE GLOOM, BOOM & DOOM REPORT ISSN 1017-1371 A PUBLICATION OF MARC FABER LIMITED JUNE 1, 2008 The Great Unwinding

Documents