114206272 50 Charts From Marc Faber

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Dr Marc Faber 2012

Presentation for the London Bullion Market Association

11.00am, Monday, November 12, 2012

At the Grand Hyatt Hotel

HONG KONG

Marc Faber Limited

Suite 801, The Workstation, 43 Lyndhurst Terrace

Central, Hong Kong

Tel: (852) 2801-5411

Fax: (852) 2845-9192

Email: [email protected]

Deflationary Bust or Government Profligacy and Money Printing

“Our analysis leads us to believe that recovery is sound only if it does come

of itself. For any revival which is merely due to artificial stimulus leaves part

of the work of the depressions undone and adds, to an undigested remnant of

maladjustments, new maladjustments of its own.”

Joseph Schumpeter

“There are two ways to conquer and enslave a nation. One is by the sword.

The other is by debt.”

John Adams



FED FUND RATE & CRISES, 1960 - 2012


Source: Ed Yardeni, www.yardeni.com

2

"If it were possible to take interest rates into negative territory I would be voting

for that.”

Janet Yellen



FOR HOW LONG WILL REAL INTEREST RATES

STAY NEGATIVE?


3

Source: Ron Griess, www.thechartstore.com



LONG TERM US INTEREST RATES, 1790 - 2012


Source: N/A

4

Since 1790, the average interest rate on US Long-Term Treasuries has been 5%!



TOTAL CREDIT MARKET DEBT AS PERCENTAGE OF

US GDP, 1921 – 2010

5


Source: Ned Davis Research

“There are two ways to conquer and enslave a nation. One is by the sword. The

other is by debt.” John Adams



IS A DEFLATIONARY COLLAPSE POSSIBLE?

Source: The Bank Credit Analyst, Barry Bannister, Stifel Nicolaus


6

“The overall level of debt makes no difference … one person’s liability is another

person’s asset.” Paul Krugman



PRIVATE SECTOR CREDIT GROWTH EXPANDING

AGAIN


7

Source: Ed Yardeni, www.yardeni.com

“The grand fight between central bank debt monetization and the natural order of

economic cleansing is about to enter a deeper, darker circle of hell.”

Bill King, The King Report (July 2012)



OFFICIAL US FISCAL DEFICIT AND CALCULATED

ACCORDING TO STANDARD ACCOUNTING RULES

(IN $ TRILLIONS)


9

Source: USA TODAY Research, Congressional Budget Office



10

THE UNLIKELY FISCAL CLIFF: SIZE OF FEDERAL TAX

INCREASES, 1968 – 2012

Source: Strategas Research Partners, www.chartoftheday.com





11

FEDERAL SPENDING AND INCOME AS A PERCENTAGE

OF GDP

Source: www.usgovernmentspending.com, www.theliscioreport.com

“We all know what to do, we just don't know how to get re-elected after we have done it.”

Jean- Claude Junker (Prime Minister Luxembourg)



Source: Dan Mitchell, International Liberty


12

FEDERAL SPENDING AS SHARE OF GDP:

CANADA AND US, 1965 - 2012



PERCENTAGE OF US POPULATION LIVING IN A

HOUSEHOLD RECEIVING

SOME GOVERNMENT BENEFIT, 1983 - 2012

13


Source: US Census Bureau, The Wall Street Journal

14



14


GOVERNMENT SPENDING AS A PERCENTAGE OF GDP,

1870 - 1913

Source: The Cato Institute

“Little else is requisite to carry a state to the highest degree of opulence from the lowest

barbarism, but peace, easy taxes and a tolerable administration of justice.”

Adam Smith

15



GROWING WEALTH INEQUITY: THE GAP BETWEEN

YOUNGER AND OLDER AMERICANS

(MEDIAN NET WORTH IN 1984 AND IN 2009)

15


Source: CNN Money, Pew Research Center, www.mybudget360.com

16



MEDIAN HOUSEHOLD NET WORTH BY AGE GROUP,

1989 – 2010

16


Source: Board of Governors of Federal Reserve System, 2010, Economic Policy Institute

“If all prices and incomes rose equally, no harm would be done to anyone. But the rise is not

equal. Many lose and some gain.” Irving Fisher

17




17

NET US DOMESTIC CAPITAL SPENDING,

1947 - 2012

Source: Ed Yardeni; www.yardeni.com

18



US TRADE BALANCE, 1950 - 2012


18


19



INCREMENTAL DEMAND FROM CHINA AND EXPANSIONARY

MONETARY POLICIES DROVE COMMODITY PRICES HIGHER


19

Source: Barry Bannister, Stifel Nicolaus

20



THE INDUSTRIALIZED COUNTRIES’ RELATIVE

ECONOMIC DECLINE

20



21



CHINA’S EXPORT DESTINATIONS


21

Source: The Bank Credit Analyst

22



SOUTH KOREA’S EXPORT DESTINATIONS


22


23



CHINA’S SHARE OF GLOBAL COMMODITY TRADE (NET

IMPORT AS PERCENTAGE OF WORLD IMPORT), 1992 - 2012


23

Source: IMF, Maybank Kim Eng

24



CHINA’S CURRENT SHARE OF

WORLD COMMODITY CONSUMPTION


24

Source: Barclays Capital, www.agorafinancial.com

25



25

AT SOME POINT COMMODITIES CONSUMPTION GROWTH

LEVELS OFF OR….



26



26

..…OR DECLINES AS IN THE MOST

ADVANCED ECONOMIES



27



A CREDIT BUBBLE IN CHINA!


27

Source: Bridgewater Associates

28



RATIO OF HOME PRICES TO ANNUAL INCOME IN

SELECTED CITIES, 2011


28

Source: IMF, Global Stability Report, Albert Edwards, Societe General

29



CHINA’S OIL CONSUMPTION, 1987 - 2012

29



30



CHINA’S “STRING OF PEARLS” TO PROTECT THE

SHIPPING LANES


30

Sources: International Maritime Bureau

“The first panacea for a mismanaged nation is inflation of the currency; the

second is war. Both bring a temporary prosperity; both bring permanent ruin.”

Ernest Hemingway

TENSIONS AROUND THE SOUTH CHINA SEA31



TENSIONS AROUND THE SOUTH CHINA SEA

www.gloomboomdoom.comSource: www.middlebury.edu



33



AVERAGE HOLDING PERIODS OF US EQUITIES,

1926 – 2011


Source: Alan Newman, www.cross-currents.net

34



HIGH VOLATILITY LIKELY TO CHARACTERIZE

ALL INVESTMENT MARKETS

Source: John Roque, WJB Capital Group ([email protected])




O O A ASS S A S36



HOW DO WE VALUE ASSETS WHEN REAL INTEREST

RATES ARE NEGATIVE?



37



WILL US CORPORATE PROFITS DISAPPOINT?

(AFTER-TAX PROFITS OF US CORPORATIONS AS A

PERCENTAGE OF BUSINESS GDP, 1950 – 2011)


Source: Gerard Minack, Morgan Stanley

“It has long been recognized, by the business world and by economists alike, that a

period of rising prices acts as a stimulus to enterprise and is beneficial to business

men.” John Maynard Keynes

38



PERCENTAGE OF US STOCKS WITH A DIVIDEND

YIELD HIGHER THAN TEN-YEAR TREASURY

NOTE YIELD, 2006 – 2012

Source: Wolfe Trahan & Co


39



SELECTED “PRICE BUBBLES”



40



SELECTED EQUITIES IN GREECE, PORTUGAL, SPAIN,

ITALY, AND FRANCE ARE INEXPENSIVE


Source: Thompson Reuters Datastream

“We are continually faced with a series of great opportunities brilliantly

disguised as insoluble problems.” John W. Gardner

41



WHAT IF THE EURO FALLS APART?



MEXICAN PESO, 1969 - 2009 (Monthly Spot – Pesos per USD)

42



MOVEMENT OF MEXICAN STOCKS IN PESO

AND USD, 1979 - 1988


Source: Acciones Y Valores De Mexico, SA;

Marc Faber, The Great Money Illusion (Hong Kong, 1988)

43



S&P 500 TRAILING 10-YEAR COMPOUND ANNUAL

TOTAL RETURN, 1825 - 2011



44



PREFERENCE FOR ASIAN EQUITIES


Source: Nicholas Smithie, UBS

“Inflation is like sin; every government denounces it and every government

practices it.” Frederick Leigh-Ross

ONE CONCERN: EMERGING MARKET CURRENCIES45



ONE CONCERN: EMERGING MARKET CURRENCIES

www.gloomboomdoom.comSource: The Bank Credit Analyst, J.P. Morgan Chase & Co

46



Source: McKinsey & Company


THE WORLD’S FINANCIAL WEALTH 2009



49



There is no means of avoiding a final collapseof a boom brought about by credit expansion.

The alternative is only whether the crisis

should come sooner as a result of a voluntary

abandonment of further credit expansion, orlater as a final and total catastrophe of the

currency system involved.

Ludwig von Mises

114206272 50 Charts From Marc Faber

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