Marc Faber

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 © Eric Kraus, Nikitsky Russia/CIS Opportunities Fund www.nikitskyfund.com 7 July 2008 - 1 -  Bullish – On the Bear! Truth and Beauty (… and Russian Finance) Crack of Doom The Little Bear Who Cried “Wolf” 1 The Death of the Global Central Bank 3 Commodity prices An Unbalancing Act 4 Fear and Loathing in the Oil Patch 5 Inflation – the expanding Universe 6 Our Currency (and Now - Our Problem!) 8 The Eternal Russia Of Tempest and Teapots 9 How to Trade it - Fishing in turbulent waters 11 Emerging Equities – Show me the oil! 12 Russian Equities –Place Here / Time not Now 12 Asian Equities 13 Bonds 13 Currency trades 13 Appendix I 14 Appendix II 17 The Little Bear Who Cried “Wolf”  T&B is amazed! The financial television channels – that adult equivalent of the Cartoons Network – are all abuzz with arguments about whether or not the United States is technically in a recession… Frankly, if a recession is the worst thing to hit the US, T&B shall heave a great sigh of relief. What we hope to avoid is the spectre of Depression…a mere Recession would be something of a reprieve. T&B has long tried our reader’s patience with our tedious and reiterated warnings of the unsustainability of the entire US financial montage. More recently, we have suggested that rather than a US subprime crisis, we were witnessing a more thoroughgoing and systematic credit crisis; despite a series of dead- cat bounces, it is still far from over. We continue to believe that the entire Western financial montage is under threat due to a decade or more of faith-based economic (mis-)management – monetary, fiscal and financial. This crisis is certainly not confined to the US; thanks to the globalization of financial markets, and especially, to the criminal negligence of many global financial executives and regulators who wilfully chose to ignore the overwhelming evidence of impending disaster. This failure can be attributed to their inability to challenge their long-held and comfortable assumptions and mindset. Thus, US financial assets continued to be viewed as the ultimate store of value, long after any rational and diligent person should have taken steps to hedge his exposure. If our view seems somewhat harsh, we would invite the reader to ask himself how structured subprime securities issued by Russia, China or Brazil would have been rated, or how long any of the above countries could have run massive twin deficits before Mr. Market started to demand upfront payment. What we may have missed was the impact the inevitable was going to have upon much of the rest of the world – not via the mechanism most usually cited - a mechanical transmission from the slowdown in US GDP to industrial activity of the CA-surplus countries (given the unsustainability of the trade flows, this shift was inevitable, and it should gradually be absorbed by the increasing domestic consumption in the CA surplus countries) but rather, due to the ongoing collapse of a dangerously maladaptive global financial system: the quasi dollar-block. ERIC KRAUS [email protected] STRATEGY 7 JULY 2008

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