Good to see you about. Thanks for the kind words. All the best for the New Year to you as well.
I well remember you post and honestly did not think that the A$ would crack 75c, let alone steamroll the 76-77c mark (which it is now likely to hit later tonight).
I'm now looking (as posted on the weekend) to a 78c high, but if the A$ breaks through that, then it's heading for 83c.
I also saw Mark Faber, extracts from which were published on the 2nd by Oz Equities (copied below, for those interested).
Faber's comments were interesting for many reasons, not the least of which is the rather unrecognised phenonema that is currently impacting countries such as the UK, Canada, Australia and the USA.
In each of those countries, dual income families (as well as the participation rate) are on the rise meaning that the traditional measures of social equity, private savings, debt and wealth creation are wrongly skewed.
On a per capita basis, the figures are progressively worsening. But on a family unit basis, they are improving.
In effect, many of the measurements being relied upon treat each family unit as being made up of several different income earners when, in fact, the family unit is comprised of a household income, contributed today by 1-2 earners, plus passive income (ie: from rent, shares, non-taxable hobbies such as buying and selling on EBay, etc).
When these factors are taken into account, countries such as Australia, NZ, Canada, the UK and the USA are actually caught by an over-stated situation (ie: regarding a worsening savings rate, growing debt, etc).
In contrast to this, many of the continental European countries and in many of the Asian countries, the participation rate is much lower, and the incidence of dual income families is veyr much smaller.
Faber's problem, therefore, is overstated concerning Western, English speaking countries and is under-stated concerning European countries. He is though just about right concerning many of the Asian economies (with the exception of Singapore).
The other 4 factors to bear in mind are that the USA: 1) has (in the past 10 years) re-located much of its global manufacturing capacity overseas tapping simultaneously local markets, and lower global costs of production; 2) introduced NAFTA; 3) restructured much of its corporate debt and strengthened generally corporate Balance Sheets (something which Asia has failed to do, Europe has been reluctant to do, and Australia has been slower to do); and 4) is being fueled by a growing economy where the natural birth rate, and net migration are both accelerating beyond what demographers consider are reasonable parameters of growth. Already, the USA's population has grown ~10M in excess of its 2003 stated position which demographers were otherwise estimating just 5 years ago. Even Australia's population is now showing rates of acceleration, as opposed to deceleration which demographers here thought likely back in 1996 and again in 2001.
My point, America's return to sustainable growth could well surprise on the upside (ie: sustainable above 3.5-4%). It's just that many commentators have yet to adjust their analyses to take account of shifting demographics and changing socio-economic structures (ie: concerning the family unit, etc).
As for today's trading action, Japan's resilience surprised, led however, by the motor vehicle manufacturers.
China really surprised notwithstanding the re-emergence of SARS and the cevet destruction orders isuued in relation to Guandong province.
The Philippines though were the star regional performers although for largely localised reasons.
From my perspective, I am sweating on the A$ because I have a sizeable discretionary investment position overseas (although, not as much exposed to the US$ as what I am now exposed to the EURO, the GBP and to the SEK).
I am concerned though for the way in which the A$ is travelling because the effects of the sustained lift in currency treatment (the TWI is up >25% in just on 12 months) translates to deteriorating terms of trade. Already this is showing up in a myriad of profit warnings now being issued (ie: since November).
It will take, however, a rough and bumpy profit reporting season (now fast coming up) to drive home this message to us. Hence, my call earlier today of the ASX finishing the year in the 2850-2900 region (and underperforming other global indices).
I want to see Australia prosper, but except for helping out the likes of DaveR with his home theatre system (etc), the continuing rise in the A$ is really doing no-one any favours. Soon, more on this will be revealed in the markets.
For now, here's Faber's report:
---------------------- Special report FABER: 2004 : MORE CHALLENGING FOR INVESTMENT RETURNS Extracts from “The Gloom, Boom & Doom Report” cover dated Dec 22
Dr Marc Faber in the latest “The Gloom, Boom & Doom Report” cover dated December 22 says investment returns in 2004 may be far more challenging than they were in 2003.
“Inactivity is sometimes the proper investment posture” He said he still likes gold and silver, but in the short term they are overbought although longer term the US dollar will lose all its purchasing power perhaps in company with all of the world’s other paper currencies while money printing by central banks will lift all hard asset prices including the precious metals. He still recommends exposure to the energy sector and to oil drilling companies. He says given the 100 pct rise in many Asian and Chinese shares over the last 12 months, he is reluctant to buy Asian equities saying that “inactivity is sometimes the proper investment posture”. Personally, Dr Faber said he has bought some long term treasury bonds as a trade for the next few weeks. He also expects some near term rebound of the US dollar against the Euro. Long term, he remains negative on both the US dollar and bonds.
Disturbing new issue mania and political clouds Dr Faber says, “Furthermore what disturbs me is the new-issue mania, which isn’t taking place only for Chinese-related shares but all around Asia. New stock issues jumping on the first trading day to huge premiums are more symptomatic of over-heated stock markets and market tops and never occur near major lows”. He adds, “An expected slowdown in Chinese growth, excessive speculation all over Asia and a red-hot new issue market aside, I am also wary because every fund manager I talk to is wildly bullish about Asia”. Dr Faber adds that there are some political clouds on the horizon, with the US volte face on Taiwan (which it now urges not to seek independence) possibly inflaming Taiwanese nationalistic fervor, which may encourage China to military attack. This may also have implications for the pace of democratisation in Hong Kong.
US recovery phase cannot last for long Dr Faber said the current “strong” recovery phase in the US cannot last for long as it is totally artificial. “There are simply too many imbalances in the system, as reflected by a record low national saving rate, record household debts and record trade and current account deficits for this recovery to lead to sustainable strong growth that would justify the present stock valuations. Discussing each component of the imbalances separately, Dr Faber also quotes economist Peter Bernstein, and reproduces some of his charts, including the long term decline in the US national savings rate as a percentage of nominal GDP (1946 to 2003), real personal consumption expenditure as a percentage of real GDP (1968-2003) and US household sector debt to net worth (1975 to 2003). The first chart falls sharply while the second chart rises strongly and the third chart shows an almost vertical rise from 1999 to 2003. Dr Faber quotes Merrill Lynch’s chief North American economist David Rosenberg as saying “the amount of leverage relative to the size of the consumer balance sheet has never been as large as it is today. While the asset side has been given a lift from the rebound in equity prices and the continuous strength in house values, the reality is that the aggregate liabilities in the household sector have risen by almost 12 pct in the past year outpacing asset growth by a factor of nearly three…So far in this nascent two year old “recovery” households have added more than 15 pct to their outstanding indebtedness and yet net worth has barely budged”. Dr Faber said the Merrill Lynch Housing Index has declined sharply since August and the growth rate in real estate loans has slowed to an 11.5 pct year over year growth rate, down from 15 pct in the summer. Moreover, real wages are declining (Dr Faber illustrates his argument with a chart by Gerard Minack, hourly earnings 1996-2003) and charts on pay cheques falling short of inflation (growth in Wages and Salaries less the PCE Deflator), 1990 to 2003 (Bureau of Economic analysis and Merrill Lynch). Dr Faber said the decline in real wages and salaries is far worse than the chart would suggest because the US government has been “purposely understating inflation figures by a wide margin. Moreover I believe that real wages won’t increase but could actually decline further, as overseas competition for manufacturing and services is here to stay and inflation may actually pick up”.
Other snippets *Dr Faber says in 1966 Alan Greenspan had made the following comment regarding the speculative boom of the late 1920s: “The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sup up the excess reserves and finally succeeded in breaking the boom. But it was too late. By 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenchment and a consequent demoralising of business confidence”.
*In “Gold and Economic Freedom” Greenspan wrote, “…gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other”.
*George Bernard Shaw wrote, “The most important thing about money is to maintain its stability .. you have to choose (as a voter) between trusting to the natural stability of gold and the natural stability and intelligence of the members of the Government. And with due respect to these gentlemen, I advise you, as long as the Capitalistic system lasts, to vote for gold”.
*Quoting Peter Bernstein, “In their calmer moments, investors recognise their inability to know what the future holds. In moments of extreme panic or enthusiasm, however, they become remarkably bold in their predictions; they act as though uncertainty has vanished and the outcome is beyond doubt. Reality is abruptly transformed into that hypothetical future where the outcome is known. These are rare occasions, but they are also unforgettable: major tops and bottoms in markets are defined by this switch from doubt to certainty”.
*Dr Faber’s guest columnist was Fred Sheehan, who wrote an essay on a book he admires by Maggie Mahar entitled “Bull!: A History of the Boom, 1982-1999”. The book traces the rise of the bull market and the contribution of the 401(k) pension plan to its excesses, the fact that no one on Wall Street has any earthly reason to regard any stock as over priced, the role of Enron and why its deception, and that of America Online became possible, the high priced analysts and their bullish comments and the role of media in stoking the fires for investor fervor. Fred Sheehan, saying investors should have a healthy understanding of how hard it is to make money by investing concluded, “Investors who understand .. cycles are more likely to survive the winter of a bear market and to avoid its final phase – despair. They know that eventually, summer always returns and more than that, they know that somewhere on the planet it is always summer”.
