Today, a guest post of mine appears on “MarketClub Trader’s Blog” from INO.com:

“Investing Legends Buying Up Stocks”

Legendary investors Jeremy Grantham and Warren Buffett recognize stock investors are in a panic, and are taking advantage of the situation by actively acquiring equities.

Jim Rogers is still convinced commodities are a better investment than stocks and bonds at this point in time. Bloomberg’s Kyung Bok Cho wrote yesterday:

The rout in global markets may continue while bonds will be a “terrible” investment as economic problems may persist until 2010, investor Jim Rogers said.

“Stocks in the West are still expensive on any historic valuation method,” while “bonds are going to be a terrible place to be for the next 10, 20 years,” Rogers, chairman of Singapore-based Rogers Holdings, said at a conference in Seoul today. Equities in the West will be “in a trading range for years to come,” he said.

Despite an environment where more than $28 trillion has been lost in global equity markets and credit losses and write-downs have totaled $690 billion, the former partner of George Soros has made some purchases lately. The Bloomberg reporter wrote:

“I have started going back into the markets; that does not means it’s the bottom,” Rogers said. His purchases since mid-October include commodities and equities in China and Taiwan, as well as “a Korea stock,” he said, without giving details. “We may be hitting ‘a’ bottom,” Rogers said. “I don’t know if it’s ‘the’ bottom.”

Sungnyemun Gate
Seoul, South Korea

And commodities are still the place you want to be, according to the investor who called the beginning of the latest bull run in hard assets back in 1999. From the Bloomberg piece:

Rogers continues to favor commodities as an investment as fundamentals are “unimpaired” amid a global liquidation of assets, he said. “You will see that stocks have gone down more so far than commodities. That will continue as far as I’m concerned.”

An MSCI index of developed- and emerging-market stocks has lost 44 percent so far this year, compared with a 30 percent decline in the Reuters/Jefferies CRB Index of 19 commodities.

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“Global Stock Market Rout May Continue, Rogers Says (Update1)”
Kyung Bok Cho
Bloomberg, November 11, 2008

The Pacific Investment Management Company (PIMCO), which was co-founded by chief investment officer and legendary bond investor Bill Gross, thinks China and Singapore are in good shape to weather the global financial storm. Reuters’ Chikafumi Hodo and Masayuki Kitano wrote this morning:

Asian markets face uncertainty in the global crisis and countries such as China and Singapore with the firepower to fight back will come out on top, the managing director of PIMCO’s Asia-Pacific operations said on Monday.

PIMCO, the world’s biggest bond fund manager, said it prefers countries such as China and Singapore that can pull on various levers — whether they be monetary, policy or fiscal — to counteract a potential global recession.

Countries with lower credit ratings or lacking the flexibility will find it a tougher road, Douglas Hodge, PIMCO’s Tokyo-based chief said in an interview for the Reuters Global Finance Summit.

“We’ve been through a financial hurricane and we are not in the eye of the storm,” he said when asked about the situation in Asia. “We are not in the storm, but we have gotten wet. So it’s still raining.”

Singapore Skyline

According to Hodge, India is not as well-positioned as China or Singapore. From the Reuters piece:

Pacific Investment Management Co, or PIMCO, said it did not favor India, given the country’s large current account and fiscal deficits, as well as its more insular economy.

“The countries that we prefer have the maximum discretion to use policy to help offset the dislocation in the private sector,” said Hodge. “The countries that we don’t like are the ones with the least flexibility.”

The head of PIMCO’s Asia-Pacific operations also added that they were “modestly bullish” on Japanese government bonds. The massive bond fund had $64 billion in assets under management in the Asia-Pacific region as of the end of September, representing about 8 percent of its global total of $790.3 billion, according to the Reuters reporters.

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“PIMCO favors China, Singapore”
Chikafumi Hodo, Masayuki Kitano
Reuters, November 10, 2008

Legendary investor Jeremy Grantham, who has been getting a lot of attention from the financial media lately for predicting this latest economic crisis, recently released his “Quarterly Letter” as Chairman of privately-held global investment firm GMO. When he wrote his newsletter, the S& P 500 Index was at 900. Today, it finished the week at 931. Notable excerpts included the following:

On October 10th we can say that, with the S&P at 900, stocks are cheap in the U.S. and cheaper still overseas. We will therefore be steady buyers at these prices. Not necessarily rapid buyers, in fact probably not, but steady buyers. But we have no illusions. Timing is difficult and is apparently not usually our skill set, although we got desperately and atypically lucky moving rapidly to underweight in emerging equities three months ago. That aside, we play the numbers. And we recognize the real possibilities of severe and typical overruns. We also recognize that the current crisis comes with possibly unique dangers of a global meltdown. We recognize, in short, that we are very probably buying too soon. Caveat emptor…

Rounds I and II – the asset bubbles breaking and the credit crisis – will soon be mostly behind us, but the effect on the real world of economic output lies, unfortunately for all of us, almost entirely ahead. Employing our usual historically loaded armchair technique, we have been writing for several quarters that global economic weakness will be substantially worse and will last substantially longer than the official forecasts. We maintain that view even though official forecasts have dropped considerably. The global economy is likely to show the scars of this crisis for several years. In particular, the illusion of wealth created by over-inflated asset prices has been dramatically reduced and, though most of this effect is behind us, a substantial part of the housing decline in some European countries and the U.S. is still to occur…

This reversal of the illusory wealth effect added to deleveraging will be felt worldwide, but especially in the so-called Anglo-Saxon countries, and will be a permanently depressing feature of the next decade or so compared with the last decade. It is indeed the end of an era.

Grantham, who has advised such clients as outgoing U.S. Vice President Dick Cheney and former U.S. presidential candidate John Kerry, shared his investment outlook in the section entitled “Provisional Recommendations.” He wrote:

At under 1000 on the S&P 500, U.S. stocks are very reasonable buys for brave value managers willing to be early. The same applies to EAFE and emerging equities at October 10th prices, but even more so. History warns, though, that new lows are more likely than not. Fixed income has wide areas of very attractive, aberrant pricing. The dollar and the yen look okay for now, but the pound does not. Don’t worry at all about inflation. We can all save up our worries there for a couple of years from now and then really worry! Commodities may have big rallies, but the fundamentals of the next 18 months should wear them down to new two-year lows. As for us in asset allocation, we have made our choice: hesitant and careful buying at these prices and lower. Good luck with your decisions.

You can access the entire piece from the GMO website here.

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“Reaping the Whirlwind”
Jeremy Grantham
GMO, October 2008

Templeton Asset Management executive chairman and emerging markets veteran Mark Mobius believes that China and Asia might escape the worst of the ongoing global financial crisis. Drazen Jorgic of Citywire (UK) wrote last Friday:

On Tuesday, China slashed its interest rates by 27 basis points to 6.66% – a third such cut in six weeks. And while the reason behind lower rates is widely believed to be fear of slowing global demand, Mobius points out that China has not suffered as much as expected.

‘There’s no question there will be a hit to the export market’, Mobius conceded. ‘We have seen that in a number of countries around the world but the actual exports of China have not come down yet. Some of the demand for Chinese products is ever-lasting because China is the only place that can make these products for these prices,’ he says.

Mobius believes that the Chinese economy will continue to grow at around 6-8%. ‘They’ve diversified their exports to emerging markets around the world and been pumping up domestic demand. So we see a surprisingly low decline in their exports but it remains to be seen how long the slowdown lasts,’ he says.

Mobius thinks that the fate across wider-Asia in the financial crisis will largely depend on Japan and China. However he stresses that China is creating further demand by enacting substantial reforms for the country’s farmers who make up some 750 million of the population. These reforms will give farmers the rights to their land.

‘They are going to generate an incredible increase in wealth in the countryside and that will translate to consumer demand,’ he says.

Chinese outdoor mall

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“Mobius buying stocks as EM approaches bottom”
Drazen Jorgic
Citywire (UK), October 31, 2008

Legendary investor Jim Rogers was in the Netherlands last week and stopped by ABN Amro Netherlands. RTL Z (Netherlands) was at ABN headquarters on Friday and got the chance to interview the CEO of Rogers Holdings. Notable excerpts from the interview included:

Obama or McCain?

Neither. I’ll vote the protest vote because neither one of them has a clue.

Inflation or Deflation (Near Future)?

We’re going to have serious inflation. Because governments around the world are printing money. Whenever you’ve had lots of money printed over the past few hundred years it’s always led to higher prices, it’s always led to inflation. I mean, these are simple things. Right now, everything is going down because there’s forced liquidation of everything. But in the end it’s going to be an inflationary nightmare.

Brazil or India?

Brazil. Brazil has got a lot of natural resources and is a reasonably well-run country. At the moment, India doesn’t have many resources, and even the resources they have, they manage badly. No, I would never want to put my money in a badly-managed country or company.

Mexico or Germany?

Germany… Germany’s a much better place, of those two, I’d rather be in Germany.

Iceland or United States?

I’m shorting the United States’ government bonds… I’m selling short the long-term government bond in the U.S. I’m not doing anything in Iceland.

Dollar or Yen?

Yen… I would not buy the dollar now, I’d buy the Yen.

Gold or Gold Mines?

Thousands, tens of thousands of gold mines have gone bankrupt over the past 150 years. Gold is still gold. I’d rather own the gold than the mines. I mean, if I happen to know the mine, and I knew the guy was a genius, then maybe I would buy the mine stock. But no, definitely buy the gold.

Commodities

Commodities are going to be in a bull market for another decade or two. Whether oil is selling at $45, or $145, it doesn’t really matter to me— today. Ask me in 10 years— it will matter… I don’t have any trouble sleeping, because I know we’re in a long-term bull market.

The segment runs a little over 14 minutes, but is definitely worth viewing.

RTL Interview Link

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Jim Rogers Interview
RTL (Netherlands), October 31, 2008

Earlier today, Jim Rogers talked to Bloomberg’s Nina de Roy in London about the outlook for global markets and his investment strategy for agriculture, gold, currencies and U.S. treasuries.

Investment Strategy

If you want to know what I’m doing now, I’ve been buying the yen, as I’ve talked about on Bloomberg before. I’ve been buying commodities, especially agriculture. I’m selling short the United States long-bond, the long-term government bond. Buying some Swiss francs. A little bit of China. A few Chinese shares, a few Taiwan shares. And I’m watching. It’s an interesting time.

Commodities Outlook

Historically, what comes out of periods like this, and lead the new market, will be the things where the fundamentals are unimpaired. The only things where the fundamentals are unimpaired right now are commodities. I mean, fundamentals for commodities are being improved by all of this… So if you want to make money, you buy the things where the fundamentals are still good and positive, and that’s how you make money…

The world’s certainly in recession, and there is a cyclical slowdown. But the secular supply is being damaged even more. Your not going to be able to get any— farmers cannot get loans to expand. Nobody’s going to give you money to open a zinc mine in the next decade. So when we come out of this cyclical decline, you’re going to have even less supply, and the bull market in commodities is going to resume, and that will be the best place to have money.

Gold

I have gold. If gold goes down, I’ll buy more. If it goes up, I’ll buy more. Gold is in a bull market, which has got years to go. But I expect to make more money in agriculture, Nina, than I do in gold. But I own it. Bought some yesterday, as a matter of fact.

You can view the 12 minute 44 second Bloomberg interview here.

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Jim Rogers Interview
Bloomberg, October 24, 2008

This past Tuesday, Templeton Asset Management executive chairman and emerging markets veteran Mark Mobius made a case in the Financial Times (UK) for investing in emerging and frontier markets. Mobius wrote:

Emerging markets, however, offer a number of important reasons why investors should adopt a positive view for the long-term.

While global growth has slowed, emerging markets are still expected to grow at a much faster rate than developed markets. Predicted growth for emerging markets is an average of 5 per cent in 2009, compared with 1 per cent expected in developed markets. Of course that is not to say that a prolonged slowdown in the US economy will not affect emerging markets, but the impact will be much less than would have been the case 10 years ago.

In the past, the US was the largest importer of goods from Asia and other emerging economies, but trade in emerging market countries is now much more diversified, with many exporting to new markets, decreasing their dependence on the US. Today, Asia exports more to China than to the US. While the US is still the largest and most influential economy, this influence has gradually diminished as other economies continue to grow at much faster rates.

Although the slowdown in the US has hurt Asian exports to some extent, economies in Asia are becoming more domestically driven, and indeed the services sector is gaining importance, especially in China and India. This, combined with government expenditure in areas such as infrastructure as well as private domestic consumption means that emerging economies should be able at least partially to offset the decline in growth resulting from slowing exports with an increased economic independence.

The accumulation of foreign exchange reserves also puts emerging economies in a much stronger position to weather external shocks with reserves, for example, in China, totalling more than $1,900bn.

Most importantly for value investors, the current valuations of emerging markets remain attractive. The benchmark MSCI Emerging Markets index is trading at a price/earnings ratio of 10.7, down from 18.5 a year earlier. They are in fact even cheaper than developed markets such as the US which is trading at a p/e of 16.5. Markets such as Turkey and Russia are down to single-digit p/e’s, making them especially appealing. Of course that is not to say that this is definitely the bottom - that would be impossible to predict. However, taking a long-term view, these valuations are certainly attractive.

Lake Bled, Slovenia

Mobius, who has spent 40 years working in emerging markets all over the world, also talked about investment potential of frontier markets. He wrote:

In addition to emerging markets, frontier markets are looking interesting and could become tomorrow’s emerging markets. We opened an office in Vietnam earlier this year to allow us to study closely the companies there and in the Mekong region.

Additionally, the larger frontier markets such as Slovenia, Romania, Croatia, Kazakhstan and Ukraine are also beginning to look good.

The Middle East is a region of great interest and will be the focus of continued research. In fact, we recently also opened a new office in Dubai to allow us to capture the growing opportunities in that region.

We are impressed by the Middle East’s economic performance and believe that the potential for economic growth and development remains considerable, especially if the current trend toward the implementation of political and economic reforms remains on course.

The markets may continue to be volatile at times, but the underlying fundamentals of emerging markets remain intact. Currently markets around the world are substantially down and we are probably nearing levels of maximum pessimism…

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“Emerging economies have not lost their appeal”
Mark Mobius
Financial Times (UK), October 21, 2008

Jim Rogers appeared on CNBC earlier today and emphasized that the credit crunch the global financial system is experiencing will contribute to the allure of commodities. From the CNBC website:

The fundamentals for commodities were not affected by government policies that are propagating inflation, Jim Rogers, CEO of Rogers Holdings, told CNBC Wednesday.

“I bought more agriculture this week,” Rogers told “Squawk Box Europe.” “What’s happening is that there will be less supply of everything if we ever come out of (the credit crunch). Nobody can get a loan for a zinc mine or, long term, increase crop production.”

If history is any guide, things to buy are things that are doing fine right now like water treatment companies in Asia or agriculture, Rogers added.

Rogers, who recently moved his young family to Singapore to take advantage of Asia’s bright prospects, also predicted that the Federal Reserve will be lowering interest rates. From CNBC:

Rogers also said that interest-rate cuts are coming.

“I know we are going to get aggressive rate cuts everywhere, that’s why I’m long short-term government bonds in the U.S., but shorting long-term government bonds because it’s not going to help, it’s going to add to inflation,” he said.

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“In Times of ‘Zombie Banks,’ Buy Commodities: Jim Rogers”
CNBC, October 22, 2008

Marc Faber, who advised his clients to get out of U.S. stocks one week prior to the October 1987 crash, told CNBC in an interview yesterday that he believes equities, oversold as they are, will bounce and then eventually head lower. From the CNBC website yesterday:

The $700 billion US financial rescue plan might give the market a temporary boost, but eventually stocks will fall again, Marc Faber, the analyst know as “Dr. Doom,” told CNBC.

Faber, editor & publisher of “The Gloom, Boom & Doom Report”, said he doesn’t believe that the recent efforts to ease the global credit crisis will help.

“It will work temporarily in the sense that some confidence is coming back into the market,” Faber said about the bailout plan. “First we’ll get the bounce from an oversold level and I suppose afterwards it will drift because the global economy is decelerating at an unprecedented pace, and the governments in the Western world they try to reignite credit growth, and I think it will fail.”

The Thailand-based investor, who has an office in Hong Kong, believes that the slowing U.S. economy will have a significant impact on the rest of the world. From CNBC:

He sees the same slowdown in Asia.

“The U.S. produces very little,” he said. “Asia is the producer for the United States and it is also the region that has very large capital spending. So when there is a slowdown in the U.S., it’s not good for the U.S., but it’s basically a disaster for Asia. Because of reduced demand in Asia it’s an even greater disaster for the resource producers of the world: the Middle East, Russia, Brazil. The whole world goes into a vicious down cycle economically, and the U.S. is relatively better off.”

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“Dr. Doom: Bailout Won’t Help Markets Much”
CNBC, October 21, 2008