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06 November 2008
Marc Faber Sees Bankruptcy for the US


MINA
Swiss Finance Guru sees bankruptcy for the U.S
Thursday, 06 November 2008


Swiss financial guru Marc Faber tells swissinfo he sees hard times ahead for the world's stock exchanges and even state bankruptcy for the United States.

He also believes that stock exchanges will stay at low levels for a long time.

Faber, otherwise known as Dr Doom for his contrarian views on the economy, has lived in Asia for the past 35 years.

He is a jack-of-all-trades: investment adviser, financier, best-selling author and the compiler of a monthly economic publication called The Gloom Boom and Doom Report.

Faber sits on various boards of directors and investment committees.

swissinfo: You prophesied the stock market crash of 1987 and the Asia crisis and became a celebrity as a result. Did you see this crisis coming too?

Marc Faber: It was quite clear we had a credit bubble. I had been warning about that for years and not only in the mortgage sector. But what surprised even me was that [US insurer] AIG would almost disappear and that UBS shares would fall under $17.20.

swissinfo: How did it come to such a situation?

M.F.: A credit bubble has been growing for 25 years. We've seen, in particular over the past seven years, an unbelievable credit growth, which fuelled economic development. Then there were structural changes in the economy, for example the sinking saving ratios that have had an effect on consumption and growth rates.

The situation worsened in 2001 in the United States when the central bank lowered the interest rate from 6.5 per cent to an unheard of one per cent in 2003. This ultra-expansive monetary policy led to a credit growth that was five times higher than growth of the economy. A bubble growth and later the crash were the logical consequences.

swissinfo: Have we reached rock bottom?

M.F.: I think we're near it. But I also think we'll stick at this low point for a long time. Anyone who thinks that everything will soon be rosy again is naive. It's quite possible that worldwide stock exchanges will experience a similar development to that witnessed in Japan over the past two decades [the Nikkei index has fallen from 39,000 points to under 8,000].

Japan also shows that the large amount of money injected to stimulate the markets didn't have the desired effect – but it did produce huge holes in the state coffers.

swissinfo: You are known for swimming against the tide of conventional wisdom. But you are right in line with the prevailing pessimism.

M.F.: Not quite. I'm even more pessimistic than most (laughs). Look at it like this, between 1980 and 2007 people saved from their capital gains and not their income, as their income was spent. That was fine while property and shares increased in value every year. Today these people are highly indebted and are only beginning to save more by putting the brake on their consumption.

That's how every economy goes to the dogs – with or without injection of capital by governments. With the best of wills, I do not see a single catalyst that could lead to a new bull market in the world. At the moment, everything has gone down the drain.

swissinfo: How does the present crisis differ from previous ones?

M.F.: In the past few years everything went up – shares, commodities, consumer goods, real estate values, art and even bonds. Such a combination is extremely unusual. We saw the biggest investment bubble in the history of humanity. The current situation is possibly worse than the global economic crisis of 1929. And that is thanks to Alan Greenspan and Ben Bernanke [the former and current US Federal Reserve Board chairmen]. These two gentlemen must account for massive errors.

swissinfo: Governments are offering guarantees and are pumping thousands of billions into the markets. Is that a mistake?

M.F.: Yes. The losses are there and someone has to bear them. There are two possibilities. Banks go under and the stakeholders are left with nothing, as is the case with Lehman Brothers, or governments pump money into the financial system so that the incompetent financial clowns in Bahnhofstrasse [Zurich's financial centre] and Wall Street can continue to eat in fancy restaurants.

I am clearly in favour of the first because the consequences of these state interventions are massive budget deficits. To finance these, governments have to acquire money. For that they have to borrow money, which makes state debt and interest payments soar. US economists have come to the conclusion from the trends that there will be a US state bankruptcy. (That's not a very widely held view Herr Faber, and we're feeling a little isolated in that view - for now - Jesse)

swissinfo: Do you share that view?

M.F.: One hundred per cent. The US government will in future have new debts of at least $1,000 billion (SFr1,165 billion). That's on top of the current state debt of $10,000 billion. And that doesn't take into account state programmes to stimulate the economy. The government will have no other choice than to print money, which in the long term will lead to inflation.

swissinfo: How do you see the near future?

M.F.: More positively. The markets are totally undervalued so I reckon on a short-term recovery of easily 20 to 30 per cent. (LOL. Stocks are absolutely not undervalued, but a technical bounce of 20% is very possible. There was a 60% bounce after the Great Crash of 1929, before the markets turned lower again, eventually giving up 89% of their peak values into the market bottom of 1933. Bear markets often get 20-30% short covering rallies before starting a next leg down. This is what makes them so difficult to trade. You cannot hold anything, which is how most investors have been conditioned by the preceding bull market. The use of leverage is deadly for core positions. - Jesse)

swissinfo: When?

M.F.: In the next two to three weeks. (After we make a bottom. Use that rally to discard any remaining dollar financial holdings and get liquid, buy gold and silver. - Jesse)

swissinfo: That's not exactly very much in view of the massive losses.

M.F.: No. If you drop a tennis ball with only a little air in it, it doesn't bounce very high!

swissinfo: Are you calling into question the concept of making money from shares?

M.F.: No. The idea is still valid but you have to be realistic. Adjusted for inflation and with a long-term perspective you could earn on average three per cent with US shares. The long-term promises of eight per cent made by bankers and pseudo investment advisers to lure their customers are absolute rubbish. (Can't fault that logic - Jesse)

swissinfo: It looked for a long time as though Switzerland would get away with just a black eye. What is your view? (What the Swiss government and central bank have done to their economy and finances is a disgrace. We hold no Swiss francs any longer. The Swiss people have been treated badly. - Jesse)

M.F.: The export industry will be extremely hard hit. People in Switzerland will have to accustom themselves to bankruptcies, particularly in the machine industry (They will devalue the franc inevitably. The savings of the people will be destroyed. The Swiss bank has sold off its gold. The large banks are functionally insolvent. Shameful - Jesse)

Interesting stuff. I am now hearing that instead of completely crashing the dollar, the plan is to create an index of a basket of currencies to use as a benchmark for a world reserve. How that will actually work, I am not sure. But, it's better than the alternative, IMHO. Essentially the USD will just be marginalized in comparison to other currencies.

I think we will get a much clearer picture of what is ahead next week. November 15th to be exact. The Bretton Woods II meetings will be taking place. Keep your eyes on this meeting. Seriously, this meeting is likely to redefine our world like nothing else in our generation.

BTW, Zippy, I did the whole 20 part video series. Excellent. Excellent find. I consider myself pretty well schooled in this area and I learned some interesting things.

dapanz1

Foos, I heard about this about a week ago. Basically, the gold traders were doing exactly what hedge funds were doing with bank stocks. Naked shorting. I hope the traders do demand delivery in December. Talk about a market that will unravel in a hurry.

dapanz1

If the comex implodes, Gold should DOUBLE overnight!

Old Article But very Timely

http://www.rense.com/general69/vc.htm

Foos,

So tell us, do you think gold is a good investment?

All seriousness aside, I have been a big bear on the US dollar for quite a few years. If there is a big run up on gold perhaps I'll be able to bail out Chrysler myself. I always wanted to drive a Viper.

_________________
"The only normal people are those you don't know very well." Joe Ancis

My opinion is YES, it is a good investment. But, as I said earlier in the thread, I would want it in bullion. Again, my opinion, is that the gold market has been artificially suppressed by the same cheating, lying MFers that do the same thing to the stock market.

I would also consider holding the gold offshore. I have heard of some websites that are reputable and will hold it in YOUR name and hold it offshore. For those who know the history of gold, our government made it illegal to own gold during the Roosevelt admin. It all had to be turned in to the banks, who in turn gave it over to the US Govt. They then issued "receipts" for this gold which you could eventually turn in for an equal amount in gold or silver. Thus the "Gold Certificate" bills and the "Silver Certificate" bills. Now your money is redeemable for.......nothing. Nothing but a promise that the ponzi scheme will continue for another day. I know you didn't ask me but I'm giving my 2 cents. Like it or not.

dapanz1

Well dapanz1 I am happy to see someone else liked the hard work that Chris put in on his 20 chapter course. I thought it was EXCELLENT also. Looks like things are in a world of big hurt too me.

I keep having these reoccurring dreams of all us old mongering farts playing Monopoly in HDR with $100 bills that use to buy a hot young Latina. Now it is just play money as the Chicas start carring pliers & want our Gold teeth, watches, rings...etc.


So what is it going to be the END OF THE WORLD... a Depression....Recession....or a never ending sausage fest at HDR ??

_________________
"Run silent, run deep"
Spunk glazed Chicas are the building blocks of the universe!

I don't really fear a sausage fest. A horrible economic meltdown will decimate tourism of all kinds, including mongering, and increase the number of girls who prefer to offer their bodies for a living as opposed to cutting sugar cane for starvation wages. What is the opposite of a sausage fest... a panocharama?

_________________
"The only normal people are those you don't know very well." Joe Ancis

I have been back in Las Vegas and So Cal for a couple of weeks. Not long ago we talked about the DR girls starting a cien and quickly going going down to a more reasonable price. What are they asking now? Has much changed in the past few weeks?

BB-57 - What about MPs, are they holding firm on the prices? Any changes in the number and quality of chicas?

The biggest price changes I have noticed here in So Cal is that some of the strip places are offering 2 for 1 specials on lap dances and one place has a 3 for $20 lap dance specials. One dive is offering large mugs of draft Bud for $3.

Gas prices are really down from last summer.

This Thread had gone a bit stale so I figured I'd fire it up with the following link. The banks are going to get further bailouts--that's clear--and some kind of nationalization is going to happen--that's also clear. What's in doubt is how much, when and what do the taxpayers get out of it. Here's a better plan so it's not just the Big Dogs who benefit:
www.nytimes.com/2009/01/26/business/26views.html

Let the Posts commence!

...And not being a smarty-pants or anything, I've included this:
www.dictionary.com/browse/obfuscation love that 1st definition!

_________________
"A man accustomed to hear only the echo of his own sentiments, soon bars all the common avenues of delight, and has no part in the general gratification of mankind"--Dr. Johnson
"Amen, brother"-ED

From Bloomberg

Treasury Real Yields at 16-Month High as Deflation Bets Die
By Dakin Campbell

Feb. 2 (Bloomberg) — For the first time since 2007, Treasury investors are betting that inflation will accelerate.

The yield on 10-year notes exceeds the consumer price index by 2.74 percentage points, the most since December 2006. The gap between two- and 10-year rates widened at the fastest pace in a year last month as traders demanded more compensation for longer-term debt. Treasury Inflation Protected Securities that signaled falling prices as recently as Nov. 20 show they will increase in the U.S. this year.

Deflation was the growing concern for investors in 2008 as government bond yields fell to historic lows in December, the Reuters/Jefferies CRB Index of commodities tumbled 53 percent since July and home prices plunged 18 percent amid a deepening recession. Now, the bond market is saying Federal Reserve interest rates at zero percent, President Barack Obama’s $819 billion planned stimulus package and $8.5 trillion of U.S. initiatives to revive credit markets will reignite inflation.

“When the Fed gets finished here they will have an inflation nightmare on their hands,” said Mark MacQueen, who helps oversee $7 billion as co-founder of Sage Advisor Services Ltd. in Austin, Texas. “There is a lot of downside in conservative government bonds.”

MacQueen is selling 30-year Treasuries, which are more sensitive to inflation expectations than shorter-maturity debt.

From: http://www.investorsdailyedge.com/article.aspx?id=1840


Peak Oil...What about Peak Gold?
Posted by Jon Herring on 1/23/2009

Jon Herring

Over the years, I'm sure you have heard a lot about "peak oil" - a condition whereby the remaining reserves of oil become harder to find, harder to extract and of lower quality. This results in declining production, even in the face of rising demand.

But you probably haven't heard much about "peak gold", where a very similar scenario is playing out.

In a free market, increasing demand and rising prices provide a significant incentive for producers to increase the supply of an item. And that's usually how it works. But that's not what is happening in the gold market.

Demand is certainly increasing. According to the United States Geological Survey, the demand for gold reached 1,133 tonnes in 2008, an 18% increase from the previous year. In dollar terms, this represented a 51% increase to an all-time record $31.8 billion.

2008 was also the year when the price of gold hit an all-time high over $1,000 an ounce. In fact, the price of gold has risen every single year since 2001.

These forces should have resulted in the production of gold rising as well, with producers scrambling to capitalize on the favorable conditions. However, despite record demand and record prices, worldwide gold production has been falling since 2001.

* South African gold production peaked in the 1970s
* Brazilian production peaked in 1982
* Canadian production peaked in 1991
* Australian production peaked in 1997
* U.S. production peaked in 1998

Combined, these countries currently represent 40% of the world's gold production.

This does not suggest that we are "running out of gold", just as we are not running out of oil. However, it does suggest three things:

1. The world's mines are depleting their reserves, particularly their high grade ore
2. The remaining supplies of gold are becoming harder to find
3. On average, new gold discoveries are becoming smaller and of lower quality

According to the Metals Economic Group, despite an estimated $18 billion in exploration expenditure over the past five years, the quality and number of new gold deposits dropped.

As with oil, most of the biggest gold discoveries have already been made. This is quite clear in the graph below, from mining company BHP Billiton. Pay attention to the red bars. These represent "world class discoveries" - a gold deposit of more than five million ounces.

This chart shows that there were only four world-class discoveries in the 1990s, with none since 1993. This chart stops in 2001. There has been one world-class discovery made since then, a discovery made by Aurelian Resources in 2006. In other words, there has only been one world-class gold discovery made in the last 15 years.

Now, compare that to the production numbers. In recent years, the world's top five gold producing companies have each produced between 3.5 and 7 million ounces per year. In other words, just to replace their reserves, the top five companies would each have to find one world-class discovery… every year. In total, we have found only a few of these since 1990.

Gold producers could make up for these numbers by adding numerous smaller discoveries, but as you see in the chart above, those are declining as well. It is no surprise therefore that gold production is falling, and has been for almost a decade.

And even if a big discovery is made, it can take anywhere from three to as many as 10 years to build and permit a mine before production can begin.

The bottom line is that the demand for gold is highly elastic and can increase dramatically, even from today's record levels. At the same time, however, the supply of new gold is highly inelastic. It is heavily constrained, and even with an all-out effort can only be increased very slowly - if at all.

The fundamentals for gold have never been stronger. Countries around the world are debasing their currencies at a rate that is historically unprecedented. Demand for gold should only continue to increase as more and more people shift from paper currencies and financial assets to hard assets and tangible forms of wealth.

So where are the new supplies of gold going to come from?

Mining is a depleting business. If a company does not replace the reserves it sells each year, that company will someday cease to exist. The major producers are voraciously hungry for new gold reserves. But they can't go out and find them by themselves. The best exploration geologists no longer work for the big companies. They work for and own the smaller, more nimble outfits - the junior resource companies. In fact, of all new discoveries, 75 percent are made by the juniors.

Got Gold?

http://afs-seminars.com/blog/

Jesus Christ was born 733,316 days ago as of this morning.

If you had spent a MILLION dollars a day, every single day since Jesus made his first appearance in the manger 2009 years ago, you would have spent $733,316,000,000 in total.

Last week the U.S. Congress voted in favor of an $819,000,000,000 spending package that we are told is going to stimulate the economy.

So if you keep spending a million dollars a day for the next 234 years you will finally reach the level of spending the U.S. government is about to embark upon.

Perhaps Christ might make another appearance sooner than that

I only wonder why more people (read taxpayers) aren’t particularly concerned about this.