Dr. Marc Faber: How not to lose money?

I have the greatest respect for Dr. Marc Faber and his insights have so far been spot on. In a recent interview, he said "I am ultra-bearish about everything geopolitically. In an environment of money printing, we have to ask ourselves, how do we protect our wealth? ... Where do we allocate the money?"

In summary:

1. Treasuries:

"U.S. government bonds are junk bonds," Faber said. "As long as they can print, they can pay the interest. But another way to default is to pay the interest and principal in depreciating currency." (AK71: Yup, countries inflating their way out of hard times has been done before.)

2.  Cash:

Specifically, the problem in Faber's view is the loss of purchasing power as inflation whittles away the value of money. (AK71: I believe he is referring more to the US$ and also the Euro. The S$ has been strengthening and we are still seeing inflationary pressures but it would be much worse for the US$ and the Euro.)

3. Stocks:

If you print money, stocks will not collapse. (AK71: I am sticking to my plan like glue! Remember my plan?)

4. Emerging markets:

Faber's own stock portfolio is centered on dividend-paying Asian shares, particularly in Malaysia, Singapore, Thailand and Hong Kong. These include a variety of real estate investment trusts and utilities. (AK71: Honestly, I knew that he was a fellow investor in Hyflux Water Trust but I did not know that he is also into REITs! I like this. Stick to the plan!)

5. Gold:

Faber is convinced that the price of gold will continue rising and that any pullback is a buying opportunity. And as a currency, Faber said gold should be held in its physical form and not in shares of gold miners or even exchange-traded funds. (AK71: I have recently replied to a reader that I feel that I am underinvested in gold and silver. However, being in Singapore and having S$ denominated assets, I feel much safer.)

Read complete article here.

Related post:
1. Sleep well at night with a plan.
2. Hedging and precious metals.
3. Hyflux Water Trust: Privatisation.
4. Staying positive on S-REITs.

Earth shattering news: Yoga, CIT's rights issue, Japan's earthquake and Saizen REIT.

This is a momentous day. I went for my first Hot Yoga class! Yes, were you expecting me to talk about the correction in the USA or the earthquake in Japan? Well, jokes aside, I have not stretched myself in so many different directions and curled myself up in so many positions in ages, if at all! It was all done in a room set at a temperature of 38 degrees centigrade. I lost almost a kilo after the session. Had a dinner of salad, fish and rice after the session just to continue feeling good about myself doing something healthy for a change!

Anyway, when I came home, I saw 15 comments in my blog awaiting moderation and, of course, response. Wow! That's a record but one that is not taken note of by any analytical tools. I guess people must really be spooked today by all the happenings in the market, including Cambridge Industrial Trust's (CIT) rights issue.

OK, if you can't tell by now, this is going to be a mish mash of a blog post. I am going to talk about all the stuff that's on my mind and maybe more. I am still feeling very warm from yoga, despite having showered twice, once at the yoga studio and once at home (after replying to all the comments in my blog). Full from a very healthy dinner, I am feeling very drowsy at this moment.

Now, first off, CIT. I got in at 51c this morning and I blogged about it here. The sell down after lunch was rather unexpected. Well, so was the earthquake in Japan. These things happen. As long as we got in at a fair price, there should be no regrets.

What are my plans now? Buy more if its price weakens further? Looking at the daily chart, CIT is trading below the 200dMA. So, I look at the weekly chart for hints of the next support. The rising 100wMA is at 46.5c now and should provide relatively strong support. 46.5c? That is some way to fall from here! Yes, it is but remember that TA shows us where the supports are and not necessarily that they would be tested. If it should be tested while the counter is still CR, I would buy more.

Buying 16 lots more at 46.5c would mean an average price of 46.11c. With a DPU of 5.07c, post rights, it would be a distribution yield of almost 11%! Of course, owning more units could possibly entitle me to more excess rights as well.

Next, the biggie: earthquake in Japan. This has been described as the worst earthquake in Japan in many years. In my memory, the last big quake was the Kobe earthquake in 1995 and that measured 7.2 on the Richter scale. The earthquake in question now measured 8.9 on the Richter scale. It is a catastrophe that has triggered tsunami warnings "for countries to the west and across the Pacific as far away as Colombia and Peru". Read report here.

For investors of Saizen REIT, we are concerned as to how much of the REIT's portfolio is affected. Saizen REIT currently owns 146 buildings of which 28 are in the affected areas. These buildings jointly account for about 15% of the REIT's income and 15.5% of its NAV.

In a timely report by its co-CEO, Mr. Chang Sean Pey, it is revealed that "the asset manager of Saizen REIT are in the process of contacting the local property managers in Sendai, Koriyama and Morioka to find out their well being and to assess the impact of the Earthquake on Saizen REIT’s property portfolio.....(and) will continue to make appropriate announcements as and when it receives updates on the above matter." Read announcement here.

There is not much else we can do but to wait and I won't lose sleep over this. Why? The unit price of the REIT fell and hit 15c at one point before closing at 15.5c which is a support I just blogged about yesterday. It is where we find the upturned 100wMA now. Read blog post here.

Fundamentally, if Saizen REIT did not insure any of the buildings concerned and this is very unlikely, we could expect a revised NAV of about 22.67c/unit and a reduced DPU of 0.88c, bearing in mind that this could be 50% higher if not for the amortising nature of its loans. These numbers do not include potential contributions from YK Shintoku which is in default of its CMBS. Weaker numbers, no doubt, but not catastrophic.

So, stay calm and rational, wait for the management's report and if the market should overeact on the downside, I would buy more. That's what I'm doing and I am going to enjoy the weekend. You should too. :)

Mapletree Logistics Trust, Saizen falls on Japan quake
Friday, 11 March 2011

© 2011 - The Edge Singapore

GLP slumps on Japan quake; company checking properties
Friday, 11 March 2011

© 2011 - The Edge Singapore

Equities in USA and Europe to do better in 2011.

Dr. Marc Faber shares his latest views on global equities in this interview with CNBC Asia last month.



I think what we should realise is that equities in USA and Europe could outperform equities in emerging markets by simply having relatively smaller corrections. It does not necessarily mean that they would outperform on the upside, they could just be less dramatic on the downside. Now, that is sobering.

However, Dr. Marc Faber's advice is still to stay in equities and commodities as these are expected to do much better than bonds and cash in the next decade.

"I am very negative about the world, because I think that what caused the crisis in 2008 was excessive credit growth, excessive leverage in the system, and now the private sector is de-leveraging, but governments are printing money, and through huge fiscal deficits are creating even more debt growth. So in other words, what killed the economy is now being applied to revive the economy, and I think this will lead to a disaster. But if you think it through and you believe in the disaster scenario I'm envisioning, then you will be better off in equities and in commodities than in government bonds and cash."

USA is back on a growth path.

Warren Buffett sent an open letter to the U.S. government recently thanking it for a job well done:

"Uncle Sam, you delivered... overall your actions were remarkably effective."

Warren Buffett thinks that the stimulus money and bailouts worked. Well, there is finally hard evidence that the U.S.A. is back on a growth path. This is taken from Yahoo!Finance:

“In October we were able to rule out this double-dip nightmare scenario,” he says. “We are able to see very clearly, with a good deal of conviction, a revival in growth,” Achuthan tells Aaron and Dan in this clip. The improvements are widespread, Achuthan says.

-- Profit growth and productivity are on the rise. Achuthan says that leads to more hiring and capital investment in equipment.

-- Housing has stabilized. The outlook may not be rosy, but “it’s not falling off a new cliff,” which means it’s not a drag.

-- Cheap capital as a result of low interest rates. The private sector continues to create jobs.

-- Pent-up demand. Thanks to the jump in jobs, people are less afraid of losing their positions, Achuthan suggests. And after two years of saving and worrying, consumers have “frugality fatigue” which is beginning to show in the improvements in holiday shopping data.

Posted Dec 01, 2010 03:50pm EST by Peter Gorenstein

This bodes well for U.S.A.'s trading partners like Singapore.

Related posts:
Comments on the US economy.
The US consumers are back!

Rare earth minerals: A new old frontier?

On 21 Oct, I blogged about rare earth minerals and how China mines 93% of the world's supply.  I concluded the blog post by saying "Mining almost all of the world's rare earth minerals, non-renewable resources which seem to have no viable alternatives at the current point in time, makes the Chinese a force as formidable as OPEC and possibly more."

Well, the recent belligerent attitude of China towards its trading partners in the West could possibly backfire at least in the rare earth minerals trading department as I read this just now:

The rising global demand for rare earth metals - the elements needed to make items like hybrid electric cars and laptop batteries - have caused the value of rare earths mining companies to soar in just a few months.

We've told you about one company, Rare Element Resources, that saw its stock surge 1200% in the last year.

But China's outright monopoly in the industry, along with fears that it will cut down on its rare earth exports, are driving plenty of other stocks higher too.

Posted Oct 28, 2010 01:00pm EDT by Gregory White and Hannah Kim, Yahoo! Finance.

Read article here.

Related post:
Control of non-renewable resources!

Control of non-renewable resources!

I was first introduced to the concept of non-renewable resources probably during my days as an "A" level student.  It was believed that crude oil would be depleted in 30 years back then.  Well, 20 years have gone by but it seems that we have more proven reserves of crude oil than ever before but it does not change the fact that it is still a non-renewable resource.

OPEC has 12 members and between them, they control 60% of the world's proven crude oil reserves and produce 40% of the world's oil currently. OPEC's importance cannot be underestimated although there are more non-OPEC oil producers since the 1980s.  This is because oil output by non-OPEC oil producers is likely to fall over the next decade.

Although the world is still very much dependent on oil for its energy needs, there are many alternatives to oil.  The increasing awareness of global warming and climate change issues has encouraged efforts to produce energy cleanly and sustainably.  These efforts would only intensify over time.  So, crude oil might be non-renewable but it is replaceable.

Today, in the papers, I learned that there are some other non-renewable resources which are controlled to a large extent by a single Asian country. I first learned of this only a few weeks ago. Some of you might already know what I am talking about: rare earth minerals.  A quick check on Wikipedia reveals that "the majority of rare earth minerals are mined in Asia, with China producing 93 percent of the world's supply, and more than 99 percent of the most valuable supply!"

In the recent case of Japanese authorities arresting a Chinese fisherman in disputed waters, the Chinese stopped the export of such rare earth minerals to Japan. Apparently, these rare earth minerals are so important in the production of many advanced products that the Japanese authorities bowed to pressure and released the fisherman.

The papers today reported that the Chinese seem to have halted the shipments of these rare earth minerals to the United States and Europe as well.  This is in response to the rising trade and currency tensions China has with the West.  How long would this embargo last?

It is also reported that the Chinese plan to further reduce their annual export quota for rare earth minerals from next year.  Mining almost all of the world's rare earth minerals, non-renewable resources which seem to have no viable alternatives at the current point in time, makes the Chinese a force as formidable as OPEC and possibly more.

Business Cycles, Fiscal Policies and Monetary Policies.

I have always maintained that having some knowledge of Economics is useful in the modern world.  A reader, Paul, happens to be a student of the subject at a higher level.  He has kindly emailed me some essays which he has given me permission to publish.  I hope you find them as interesting as I have.

Business Cycles, Fiscal Policies and Monetary Policies

Business cycle refers to economic expansions and recessions. Developed economies normally have a 3-5% GDP growth annually. USA's potential GDP growth is about 2.5%. A recession happens when an economy has 2 consecutive quarters of negative GDP growth. Depression is a recession on a larger scale. It refers to a period when the GDP output falls by more than 25% and when there is high unemployment rate of about 20%. Depressions are longer in duration, often lasting more than 4 quarters.

Economic recessions could be the result of internal shocks and external shocks. In a recession, there is a lack of effective demand for goods and services. Some economists view recession as a natural occurrence as the economy goes through structural changes, as moving from sun-set industries to sun-rise industries. A recession could also be caused by structural failures such as the banking system. In short, the economy has to shed its excesses to be healthy again.

In the years prior to the recent financial crisis, Robert Lucas and Ben Bernanke declared that the central economic problem had been solved, business cycles were tamed and severe recessions were things of the past. We all know what happened in 2008.

After the Great Depression in 1930s, governments worldwide actively tried to tame the business cycles. USA went through a strong period of recovery powered by the industrial sector. The recessions were short and mild, while the recoveries were strong and sustained. This led to questions if the business cycle was obsolete? The next depression in the US was in 1970s, caused by external shocks such as the high oil prices. In the 1990s, the world again went through another period of small recessions and strong economic growth, which led to the comments made by Robert Lucas and Ben Bernanke. Is complacency one of the causes of the recent financial crisis?

Fiscal and monetary policies are employed by governments trying to tame the business cycle. Fiscal policies refer to the G component, which is the government. In times of economic expansion, governments would raise taxes, and cut their spending to prevent overheating of the economy. These are called contractionary fiscal policies which could lead to a budget surplus. In recessions, governments have to lower taxes and increase spending to stimulate demand in the economy. These are called expansionary fiscal policies which could lead to a budget deficit. For example, lowering taxes for both consumers and producers would increase their real income, and increase their spending respectively, all else being equal. This would result in a higher C and I component which increase the national income.

Monetary policies involved using the money supply to influence the interest rates. When money supply increases, interest rates will fall. When interest rates fall, cost of borrowing for both consumers and producers will fall. For example, this could lower mortgage interest payment for consumers and make it cheaper for producers to borrow money from the banks. This would again boost demand through C and I. Lower interest rates would also weaken the currency of the country, which would be positive for the country's trade balance, all else being equal.

Central Banks would normally be responsible for monetary policies in a country and they are supposed to be independent from the government with the main objective of achieving price stability, with an inflation target of 1-3%. In the recent crisis, Central Banks around the work also resorted to different methods to increase the money supply, such as quantitative easing and the use of reserve ratios for commercial banks.

As mentioned earlier, adopting expansionary fiscal policies could lead to deficits. Budget deficits could be funded by surpluses from previous budgets or the issuance of bonds to borrow from the market. As mentioned in earlier blog posts, most governments resorted to the issuance of bonds to finance budget deficits in the recent crisis. These bonds can be bought by domestic or foreign investors. Hence, we have the figures of debt to GDP ratio. When foreign investors are involved, it would cause movements in the exchange rates, due to changes in demand and supply of the home currency. This is one of the reason why Japan is upset when the Chinese government bought much more Japanese government bonds( JGBs) recently.

These policies are called demand side management policies, as they are used to stimulate demand in the economy. If fiscal spending is carried out to improve supply in the economy, for examples, through education and infrastructure spending, which would increase the future productivity of the country, then, these would be called supply side policies. The Singapore government has been constantly engaging in supply side policies through retraining programs for workers, investments in the education system, construction of new infrastructure such as metro rails, implementation of tax incentives for engaging in R&D activities etc. This would boost the country's productivity and competitiveness in the future.

The readings below focus on debt issues, and fiscal, monetary policies.

Sovereign Debt
http://www.economist.com/node/16397110?story_id=16397110
http://www.economist.com/blogs/buttonwood/2010/06/indebtedness_after_financial_crisis
http://www.economist.com/node/16397098?story_id=16397098
http://www.economist.com/node/16397086?story_id=16397086

Corporate Debt
http://www.economist.com/node/16397174?story_id=16397174

Consumer Debt
http://www.economist.com/node/16397124?story_id=16397124

Fiscal and Monetary Policies
http://www.economist.com/node/16943569?story_id=16943569

Related posts:
Hope this helps to refresh your "A" Level Economics!
USA, a rock and a hard place: Paul opines.

Gold nearing US$1,300 an ounce.

Gold is currently at US$1,293.50 an ounce and silver is at US$21.05 an ounce, even higher than just a week ago when I said "I see immediate support for gold at US$1,260.00 an ounce and immediate support for silver at US$20.20 an ounce.  Gold is now challenging resistance at US$1,270.00 and if it does break this, it could go much higher."

The Fed seems ready to increase liquidity in the US economy and this could possibly cause the US$ to depreciate further. What this might translate into is greater inflationary pressure in the USA in time and I have been a staunch believer of this eventuality as informed by Dr Marc Faber and Mr. Jim Rogers.

The worst thing to invest in would be the US government bonds (treasuries) as bondholders would basically be seeing their wealth eroding away as the US$ depreciates in value.  This is precisely why the Chinese government is so concerned since they are the world's largest holder of US$ debt, after Japan. However, in the short term, they could see bond prices bumping upwards because the Fed would buy bonds to keep interest rates low in an effort to encourage borrowing by the private sector.

Could gold go much higher?  It is my believe that it would but it would not be a straight line up.  The real value of gold is closer to US$2,000 an ounce and this would take time to materialise. So, for anyone who is thinking of having some exposure to the precious metal, it is my opinion that buying on pullbacks as supports are retested would be the way to go.

Related posts:
Gold and Silver highest in the last 12 months.
Real value of gold.

High yielding REITs.

I came across an article which reported Morningstar analyst John Coumarianos saying "I guess people are so exasperated with earning nothing on money market [funds], so they're opting for the 2 to 3 percent [yield] that they're getting on a REIT fund".

This is a reference to the situation in the USA.  2 to 3 percent yield? That's peanuts compared to what we are getting from REITs in Singapore!  I mentioned before that a 5 to 6 percent yield in a REIT is not enough to attract me because I can get an almost 10 percent yield in some REITs here. I think investors in REITs here are spoilt!

After the subprime mortgage crisis, all types of real estate investments were punished. Many experts thought that commercial real estate would be the next big bust. "The headlines were all so bad with the housing market," Sorensen says. "REITs don't have a ton to do with the housing market, and expectations there were so depressed. The reality has been better than expected."

Read the article here.
Will the REITs Rally Continue?

Ben Baden, On Thursday August 5, 2010, 11:43 am EDT

Related post:
Create more passive income with limited capital. 

What could go wrong?

“The market is overbought and there is a renewed sense of complacency in the marketplace that I think could get shattered pretty quickly,” says the chief economist and strategist at Gluskin Sheff in Toronto.

Posted Jul 28, 2010 11:18am EDT by Peter Gorenstein,Tech Ticker.

"In a country like North Korea, with conventional artillery lined up to literally obliterate Seoul within hours and with direct nuclear capacity and ballistic missile capacity, this is an unprecedented threat from a rogue state," Bremmer says. "Clearly there is a drumbeat in North Korea that they are trying to use to build patriotism and support for their own regime. The question is: how far do they have to go?"

Bremmer goes on to say that the markets have largely ignored South Korea's precarious situation. They should pay attention because Kim Jong-il wields enormous power and no one knows what he is capable of, including his presumed benefactors in China.

"So if this continues to escalate, and so far all indications are that it will, it is going to start creating an awful lot of concern on the ground with some economies that really matter to the world," he says.

Posted Jul 28, 2010 08:00am EDT by Keegan Bales, Tech Ticker.