In past “Investment Outlook” pieces that legendary investor Bill Gross wrote on the Pacific Investment Management Co. website, he predicted a “new normal” marked by slower economic growth and asset appreciation, as well as a fall-off in government stimulus, for the U.S. economy. On Friday, the founder and co-chief investment officer of PIMCO suggested this scenario was indeed playing out. From the CNBC website:

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

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

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

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

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

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

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

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

Source:

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

Marc Faber, the head of Marc Faber Limited and author of the Gloom Boom & Doom Report, shared his latest outlook for gold, U.S. stocks, and the U.S. dollar in the latest issue of his publication. The staff at Business Intelligence-Middle East wrote this morning:

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

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

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

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

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

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

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

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

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

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

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

Source:

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

Legendary bond investor Bill Gross talked about the concerns regarding European sovereign debt in a CNBC interview yesterday. From their website:

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

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

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

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

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

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

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

Source:

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

There can be no doubt that Jeremy Grantham knows his asset bubbles.

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

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

Spot on, Mr. Grantham.

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

In London real estate.

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

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

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

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

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

London, England

Source:

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

Yesterday, well-known investment adviser Marc Faber spoke to Bloomberg’s Ryan Chilcote at the Troika Dialog Russia Forum in Moscow, Russia. Faber, who has been quite accurate calling stocks lately, said the following about Russian equities:

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

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

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

There will be appetite at the right type of yields.

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

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

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

Source:

Marc Faber Interview
Bloomberg, February 3, 2010

George Soros was in Hong Kong on Wednesday, and remarked that China had weathered the global financial crisis relatively well. From China’s Xinhua News Agency yesterday:

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

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

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

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

Hong Kong, China

Source:

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

Looks like it’s a Quantum thing. There’s been quite a bit of press already about well-known commodities investor Jim Rogers putting money into South American farmland and agriculture. Not too much about his former partner in the legendary Quantum Fund— until now. From Bloomberg’s Lucia Kassai yesterday:

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

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

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

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

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

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

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

Source:

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