Gwen Robinson of the website FT Alphaville (UK) talked about the latest client newsletter from legendary investment adviser Marc Faber this past Monday. Robinson wrote:

Investment guru Marc Faber is living up to his “Dr Doom” moniker with a client newsletter this week that seems to be as cheery as the English weather.

“The global economy is decelerating rapidly, corporate profits are declining and the weakness in financial stocks is now spreading through all asset markets,” he notes. Oh happy days.

There’s a small spot of relief though - if Faber is correct in his prognosis that stocks and commodities are near-term oversold while the US dollar is short-term overbought. A temporary reversal is possible but then, he warns, as the credit crisis spreads into the real economy, be prepared for a slump in all asset classes.

Ultimately, just like in the 1970s, we are currently in “a stock and asset picker’s market”. Volatility will stay relatively high and there will be large moves in individual stocks, sectors and asset classes (up and down).

Robinson also spoke of Dr. Faber’s near-term investment outlook. She wrote:

In conclusion, then, what could happen in the next few weeks in Faber’s view is a rebound in the euro, “which is oversold near-term”, and a rebound in equities and selected commodities. However, he cautions, from a longer term viewpoint, stocks remain high and given the decline in corporate profits they are also far from inexpensive.

Furthermore, judging by the course of asset markets and individual stocks, the downside risks remain rather significant.

On commodities, “we have reached a top in the CRB Index”, says Faber, although it is unclear whether this top turns out to be an intermediate top or a longer-term top.

At some point, he says, money-printing by all the world’s governments will lead to higher inflation and commodity prices (this assumption would also be consistent with the Kondratieff Cycle).

However, we should not forget that the current financial crisis and credit growth slowdown is unprecedented in the last 30 years or so and that the through of the Kondratieff down-wave, which lasted in real terms from 1974 to 2001, was incomplete because it was not accompanied by a massive debt-liquidation.

As a result, a deflationary bust originating from debt liquidation should not be ruled out entirely before highly inflationary monetary and fiscal policies around the world bring about very high inflation rates. But that may only happen after 2012 and in the meantime, “all asset markets could continue to suffer badly as credit contracts and liquidity evaporates”.

In this scenario, gold is likely to shine again at some point. As indicated above, asset markets and non-US currencies have become near term oversold and could rebound shortly.

So, he concludes: use rebounds to lighten positions and to increase US dollar positions.

In particular, use any rebound in stocks like IBM, Apple, Amazon.com and Research in Motion as a shorting opportunity (with tight stops). For individuals the purchase of put options may be a less risky alternative.

Source:

“Dr Doom: More gloom, the Kondratieff wave and what comes next”
Gwen Robinson
FT Alphaville (UK), September 8, 2008

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“How To Trade Gold In 90 Seconds”- Free Lesson

Is legendary stock investor Warren Buffett worried about additional bank failures in the United States? According to Reuters’ Sweta Singh this morning:

Billionaire investor Warren Buffett’s Berkshire Hathaway Inc has told one of its units to stop insuring bank deposits above the amount guaranteed by the U.S. federal government, the Wall Street Journal reported.

The subsidiary, Kansas Bankers Surety Co, is notifying about 1,500 banks in more than 30 states that it will no longer offer a program called “bank deposit guaranty bonds.”

The order was made on Monday by Buffett, Berkshire Hathaway’s chief executive, two people briefed on the matter told the Journal.

Source:

“Berkshire tightens insurance for bank deposits: report”
Sweta Singh
Reuters, September 10, 2008

As you’ve probably heard by now, yesterday the U.S. government seized control of U.S. mortgage giants Fannie Mae and Freddie Mac in what could be the biggest government bailout ever in an attempt to stabilize the U.S. housing and financial markets. Legendary investors Warren Buffett and Jim Rogers both spoke to CNBC about the occasion. From the CNBC website this morning:

In stepping in to bail out and recapitalize collapsing home mortgage giants Fannie Mae and Freddie Mac, Treasury Secretary Hank Paulson “did exactly the right thing,” said billionaire investor Warren Buffett.

“I wouldn’t change anything in the plan myself,” Buffett said in an interview on CNBC. He said he expects this step will go a long way in calming the market and resolving the ambiguity surrounding the two companies.

“It’s best deal and the most sensible deal available now,” he said…

“If Bear Stearns was an 8.5 on the financial Richter scale, this was about a 9.9, or something of the sort,” Buffett said. “The government really had no choice but to do something. And then the question is: did they do the most sensible thing, and they did do that.” Buffett said.

On the flip side, Jim Rogers told CNBC this was just another example of American taxpayers being stuck with a huge bill, courtesy of Wall Street and their cohorts in Washington. According to CNBC:

The nationalization of Fannie Mae and Freddie Mac shows that the U.S. is “more communist than China right now” but its brand of socialism is meant only for the rich, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe on Monday.

“America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it’s just bailing out financial institutions,” Rogers said…

“This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I’m not quite sure why I or anybody else should be paying for this,” Rogers told “Squawk Box Europe.”

And just how does the CEO of Rogers Holdings plan to adjust his investments as a result of this bailout? From the CNBC website:

“It’s rarely good to jump in a moving bus and right now you got a lot of buses moving. I might short some more investment banks in the US, depending on how they rally over the next week, but other than that, I’ll just sit and watch,” he said.

Rogers, who is short on U.S. bonds, said these are likely to fall while commodities may rally. The two government-sponsored enterprises don’t have good loans on their books, because “everybody else took the good stuff and dumped the bad stuff onto Fannie and Freddie,” he said.

From 2010, Fannie and Freddie will have to shrink their portfolios by 10 percent a year until they reach $250 billion, to reduce the risk to the taxpayer, according to the Treasury plan. But this may put additional pressure on the housing market, Rogers said.

“That’s going to also ensure that house prices continue to go down. It’s going to be harder and harder to get a mortgage.”

Sources:

“Buffett: Treasury ‘Did Exactly the Right Thing’”
CNBC, September 8, 2008

“US Is ‘More Communist than China’: Jim Rogers”
CNBC, September 8, 2008

Marc Faber, known as “Dr. Doom” by the media, appeared on Bloomberg Television this morning from Bangkok and shared his short-term outlook for stocks and commodities. The editor of The Gloom Boom & Doom Report told Bloomberg viewers:

Global Economy:

For everyone, business is down. And in the U.S., if the statistics were compiled properly, the economy would be in recession also. The same in Europe. I travel extensively around the world. Compared to a year ago, all businesses are down.

Stocks:

I can see that stocks can rally because of psychological reasons. They’ve been oversold.

Crude Oil:

The oil price coming down is precisely a symptom of economic weakness. Not a symptom of strength.

Airlines:

Maybe there is a recovery going. I think one, in investing money, you should not look only at your personal experience. You can buy stocks of companies that are of poor quality. If they’re low enough, they can rebound. It’s like now the financial stocks. They have been hit very hard. Maybe they stabilize around this level and maybe they even rebound by 30 to 40 percent. I don’t think that they’re attractive from a longer-term perspective. I don’t think that stocks are attractive in real terms from a longer-term perspective. But I think that they can rebound somewhat.

U.S. Economy:

We have a tightening of global liquidity, and that tightening comes essentially from a diminishing U.S. trade and current account deficit. And I think that if the oil price continues to go down, as I think it’s very likely in the near-term for the next three to six months, as well as other commodities, then the trade and current account deficit of the U.S. could decline more than is perceived. And that would strengthen the dollar further, and in my opinion, if there is a contraction in consumption in the U.S., it is not a disaster for the U.S. because they don’t produce much anymore, but it would be very bad for the producing countries, the manufacturing centers of the world, that are mostly emerging economies.

Commodities:

The second half of 2008 of this year would not be favorable for commodity prices… As far as I’m concerned, we peaked out in commodity prices, and later on we will have to see whether it’s a longer-term peak or a short-term peak. But we don’t know yet.

You can view 9 minute 14 second Faber segment here.

Source:

Marc Faber Interview
Bloomberg, September 2, 2008

Bloomberg interviewed emerging markets veteran Mark Mobius, who shared his belief that Vietnamese stocks have tremendous investment potential. Bloomberg’s Van Nguyen wrote this morning:

Vietnam’s stock market offers investment opportunities after a 45 percent slump this year, said Mark Mobius, executive chairman of Templeton Asset Management Ltd.

“Vietnam’s stock market now is down, so there are more opportunities,” Mobius said in an interview in Ho Chi Minh City, where Templeton opened its Vietnam representative office today. “The market will go up and will be much more valuable in about three years.”

Mobius, who oversees about $40 billion in emerging-market equities, is increasing Templeton’s investments in Vietnam after it bought a 49 percent stake in the fund management unit of Joint-Stock Commercial Bank for Foreign Trade of Vietnam, known as Vietcombank Fund Management, earlier this year.

Ho Chi Minh City (Saigon), Vietnam

Nguyen noted the sectors Templeton’s Mobius is targeting. From the Bloomberg piece:

In Vietnam, Templeton will invest in retail banking, manufacturing and agriculture companies on Ho Chi Minh City’s stock exchange, Mobuis said. He expects the country’s economy to expand about 6 percent this year.

Source:

“Vietnam’s Stock Market Attractive for Investors, Mobius Says”
Van Nguyen
Bloomberg, August 22, 2008

Legendary emerging markets investor Mark Mobius, who oversees about $40 billion in emerging-market equities as executive chairman of Templeton Asset Management Ltd. in Singapore, spoke to Bloomberg yesterday from Ho Chi Minh City. From the interview:

BLOOMBERG: Why the slide in emerging markets? Is it overdone?
MOBIUS: I think it is. The market has come down a lot. In fact, in China, in the Asia market, it’s come down far more than that. So, we’ve seen a very, very big correction in many places around the world in emerging markets. And it seems to be overdone, but not necessarily over, because, you know, the sentiment is bad globally so that there’s a tendency for people to sell out, and stay out, until they see an about-face in the market.

Some notable excerpts from the interview included:

Commodities

I think that the demand for these commodities is going to continue at a pretty high level. Of course, much higher than there has been in the past, simply because of the demands from China, India, and these other countries that are growing at the paces I just mentioned. So I think it’s more of a correction, rather than a significant secular downturn in these markets and the commodity markets.

U.S. Dollar

BLOOMBERG: Would you not be particularly bullish on the dollar as well?
MOBIUS: No, I wouldn’t, given the propensity of the U.S. government to spend the way they’re spending and to have new ventures against Russia in Eastern Europe, and so forth and so on. I think, unless these policies change in a new administration, I don’t see how the U.S. dollar can keep at a strong level.

Russia

We’ve been, and have been increasingly comfortable, with our investments in Russia. We’ve made an awful lot of money in Russia, both on the private equity side as well as the public side. And, things are getting better in Russia. I think the situation that we’re seeing with Georgia is an anomaly… I think that this will blow over and Russia will continue to be a very important place for us to be putting our money.

Brazil

Brazil, of course, is at the top of the list in terms of weighting in our funds at this time… But generally speaking, the banks are doing very well, very profitable. Petrobras, Vale do Rio Doce, extremely profitable companies.

India

The Indian market, finally for us value investors, has become more interesting, because of the downturn you just mentioned. So some of these companies are beginning to look quite attractive— some of the pharma companies, some of the software companies, and even some of the commodity companies, because you know India, has iron ore and produces a lot of steel. So, we’re looking at that more carefully, and we think they are good opportunities at this stage of the game. We were quite underweight in India for a long time because of the valuations.

Vietnam

The economy is thriving, and things are moving ahead… and we’re pretty optimistic about the longer-term future of the country.

You can listen to the 14 minute 26 second interview here.

Source:

Mark Mobius Interview
Bloomberg, August 20, 2008

Emerging markets veteran Mark Mobius doesn’t think the recent selloff in commodities is the end of a boom which started back in 1999. Pratima Desai for Reuters UK wrote last week:

“When you have a long-term uptrend, excesses build up along the way. We are witnessing a correction,” said Mark Mobius, executive chairman at Templeton Asset Management.

“Demand for commodities will remain at a high level in countries like China and India. If we see a serious worldwide recession, then we will see the end of the commodities boom.”

In fact, Dr. Mobius believes commodities may just be the global economy’s “saving grace.” Reuters Kevin Plumberg said on August 15:

Mark Mobius, executive chairman of Templeton Asset Management Ltd, said he believes consumer demand in emerging markets will ultimately be one of the factors keeping the global economy out of recession. Mobius is a value investor who has long touted the inherent strength of emerging markets.

“What we like are the consumer plays. As much as possible we are trying to get exposure to consumer-oriented sectors, whether that is consumer banking or retail,” he said in a phone interview from Turkey.

In addition to China, Mobius, who oversees some $40 billion in assets, likes the technology sectors in Taiwan, India and Korea. His firm has also cut down on its exposure to the commodities sector while increasing holdings in consumer-oriented sectors in South Africa and Turkey, where he said interest rate rises have brought share prices down to attractive levels.

Levent Financial District
Istanbul, Turkey

Sources:

“Commodity rout a blip”
Pratima Desai
Reuters (UK), August 15, 2008

“RPT-ANALYSIS China and co stand between world and ‘recession’”
Kevin Plumberg
Reuters, August 15, 2008

MarketWatch’s Sam Mamundi wrote this morning:

The investment vehicle of legendary investor Warren Buffett increased its stake in transport outfit Union Pacific Corp. by almost double in the second quarter.

Berkshire Hathaway also added stakes in Bank of America Corp. (BAC), Lowe’s Cos. (LOW), and NRG Energy Inc. (NRG), according to filings released this morning.

Berkshire Hathaway (BRK.A) grew its Union Pacific (UNP ) stake from 4.453 million shares at the end of the first quarter to 8.906 million at the end of the second quarter. Union Pacific stock is up 23.6% this year…

Berkshire addition of NRG Energy Inc (NRG ) totaled 3.24 million shares in the second quarter, worth $139 million. While NRG’s stock is down 18.7% this year, the energy sector is considered a good investment by money managers right now.

The two sell-offs in Berkshire’s portfolio in the recent quarter were both related to acquisition deals. Trane Inc. was sold off in an acquisition by Ingersoll-Rand Company Ltd (IR). Similarly, Berkshire eased its stake in Anheuser Busch Cos. from more than 35 million shares to less than 14 million shares in the wake of Anheuser’s merger with InBev which had yet to be consummated as of the second quarter.

MarketWatch’s Greg Morcroft also reported this morning:

Shares of Lehman Bros. Holdings Inc. rose more than 6% at one point Friday as news that famed investor George Soros’ hedge fund boosted its stake in the company brought out buyers.

An analyst report from David Trone at Fox-Pitt Kelton also lent support to the shares. He said that Lehman’s upcoming losses should be smaller than the second quarter’s as hedges in place at the firm appear to be working.

Soros Fund Management has raised its stake in Lehman Brothers (LEH) to 9.47 million common shares at the end of June 30, up from 10,000 shares at the end of March 31.

The fair market value of the stake is estimated at $187.7 million, according to a regulatory filing by the fund Thursday.

Reuters’ Karen Wutkowski noted yesterday:

Billionaire investor Eddie Lampert cut his stake in Home Depot Inc (HD.N) by 13 percent to 19.7 million shares as of June 30, according to a disclosure document for his fund RBS Partners.

The fund also increased its stake in AutoZone Inc (AZO.N) to 22.9 million shares from 22 million shares the prior quarter, according to a filing with the U.S. Securities and Exchange Commission. It cut its stake in KB Home (KBH.N) to 358,000 shares from 605,000 shares.

Sources:

“Buffett’s Berkshire doubles Union Pacific stake”
Sam Mamudi
MarketWatch, August 15, 2008

“Soros buy puts shine on Lehman shares”
Greg Morcroft
MarketWatch, August 15, 2008

“Lampert cuts Home Depot stake, ups AutoZone holdings”
Karey Wutkowski
Reuters, August 14, 2008

Emerging markets veteran Mark Mobius said in a Bloomberg Television interview yesterday that the Federal Reserve should lower the federal funds rate to jump-start the U.S. economy. Bloomberg’s Matthew Miller and Michael Patterson wrote yesterday:

The Federal Reserve should cut its benchmark interest rate to 1 percent to boost the economy as falling oil prices reduce the threat of inflation, investor Mark Mobius said.

“With oil prices beginning to soften, there may be a chance for them to give a boost to the economy by lowering rates again,” Mobius, 71, who oversees about $40 billion in emerging-market stocks as executive chairman at Templeton Asset Management Ltd. in Singapore, said in an interview on Bloomberg Television. “That’s still in the cards, but no one really knows.”

Cape Town, South Africa

The man who is known as “The Pied Piper of Emerging Markets” also shared his thoughts about where to invest. Miller and Patterson wrote:

Mobius also said valuations for equities in Turkey and South Africa are “very attractive,” and added that he’s “very bullish” on shares of Brazilian banks…

“More and more people are beginning to see that these markets are very cheap,” Mobius said. “The companies are well managed and well run.”

Mobius was especially excited about the prospects for Brazil. He told Bloomberg:

The economy is very vibrant there, and the banks are very well run.

Source:

“Mobius Says Fed Should Cut Rates to 1% to Spur Growth (Update3)”
Matthew Miller, Michael Patterson
Bloomberg, August 5, 2008

Last week, Greg Brown of the Internet news site NewsMax.com interviewed legendary investor Jim Rogers. During the conversation, which appeared on the NewsMax site on Friday, Brown pointed out that Rogers “correctly called the horrendous decline in financial stocks, including the Fannie and Freddie mess.” The CEO of Rogers Holdings talked about this issue, and more, saying:

Well, we’ve had a wave of failures, yes. And we’re going to have more, I assure you, they’re going to be more coming over the next few years…

Washington is making mistake after mistake after mistake…

We’re going to have one of the worst decades we’ve had in a long time.

Investment Strategy

I think the stock market is going to be a bad place to be for some time…

These days, I’m more or less watching. I have bought some airline stocks recently. I have bought some agricultural products recently. I have bought some Swiss francs, and some Japanese yen recently. Some Chinese renminbi recently. That’s about all I’ve done to buy in the last few, in the recent past.

U.S. Dollar

The United States dollar is now a terribly flawed currency…

They’re on official record of saying they’re going to debase the U.S. dollar. That’s never been good for any country in history. But our central bank is doing their best to drive the value down.

Inflation & Interest Rates

In my view, there’s more inflation coming. They are debasing the dollar, and that’s going to make the long-term interest rates, and medium-term interest rates, go higher. The central bank might be able to control short-term interest rates for a while, but in my view, all interest rates will be going higher over the next few years, because of inflation, and debasing the currency, and several reasons.

Economic Outlook

Well, these are perilous times, in the economy, in the world economy, quite largely because of mistakes that we’ve made in the United States, unfortunately. Ten years ago we had the Asian crisis which affected the world markets. This time, I’m afraid, it’s going to be the American crisis, which is affecting world markets. So be very, very careful about anything you buy anywhere. Certainly in the U.S. including the currency. I think everybody should learn about international diversification, because, I’m afraid, things are going to be better outside of America than inside America. I don’t particularly like saying that, but one has to accept facts, and face facts, if one’s going to survive.

You can listen to the 7 minute 28 second video here.

Source:

“Jim Rogers Interview: Washington is Making ‘Mistake After Mistake.’”
NewsMax.com, July 18, 2008