Bonds

Jim Rogers: ‘You Should Be Prepared, You Should Be Knowledgeable, And You Should Be Worried’

Well-known investor, author, and financial commentator Jim Rogers recently talked to J.D. Hayworth, the host of the Newsmax TV show Newsmax Prime, about a number of topics, including what he suspects the Federal Reserve will do the next time there’s panic on Wall Street. From the exchange published on the Newsmax website tonight:

What’s going to happen is every time people start calling up and panicking they’re going to do something. I don’t know what they’ll do next. They’ll buy more shares. Or they’ll buy shares, they’ll buy more bonds, they’ll do something. And then we’ll have another big rally. But J.D., that’s going to be the last rally. Maybe they can save the market one more time. But the world is starting to give up on all this artificial money printing. It’s happening in Japan, Europe, Britain, and America. It’s never happened before in recorded history that all the major central banks are printing a lot of money. This is not going to end well, J.D. You should be prepared, you should be knowledgeable, and you should be worried

We’ve had economic slowdowns every four to seven years since the beginning of the Republic. We’re going to have them again. It’s been six years since the last time. So start getting worried. Maybe it’ll be seven, maybe it’ll be eight years this time, but it’s going to come…

(Editor’s note: Bold added for emphasis)

The former investing partner of George Soros went on to address Hayworth’s question regarding “three main things that need to happen to avert economic gloom-and-doom if possible.” You can watch the entire discussion over on the Newsmax website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Must-Read Marc Faber Interview

Regular readers of Survival And Prosperity know on Sundays I try and blog about the latest investment activities/recommendations of the “crash prophets”- Marc Faber, Jeremy Grantham, Jim Rogers, and Peter Schiff. This week, three of the “prophets” are sounding off. First up is Marc Faber. An interview of the Swiss-born investment advisor/money manager was published Friday on the website of MarcoPolis, a Paris-based international online publishing company. Johnnes Maierhofer and Peter Matay conducted one of the most comprehensive interviews of Dr. Faber I’ve ever come across, writing on MarcoPolis.net:

In this exclusive interview with Marcopolis.net Marc Faber covers it all: from commodities and China to the outlook on inflation, the Euro and gold. According to him the global economy is not healing. To the contrary, we might find ourselves back into recession within six months or a year. In that case he expects more money printing by central banks, which eventually could lead to high inflation rates and renewed strength in commodity prices.

On the bright side, he sees great economic potential in Vietnam. Also, the Iraqi stock market has good potential now that a deal with Iran has been reached. While mining stocks are extremely depressed we might see defaults before any meaningful recovery…

Followers of Faber know he’s been a gold bull for years now. The publisher of the monthly investment newsletter The Gloom Boom & Doom Report said this about the precious metal (and other investments of his) during the exchange:

I own gold and it doesn’t worry me that it went down because as I mentioned to you I have this diversification, the bonds in US dollars and the cash in US dollars has been a good investment essentially over the last twelve months. Then I own equities and I own properties in Asia that have been reasonably good investments so the fact that gold is going down doesn’t worry me and I buy every month a little bit but I think on this weakness I will increase the position substantially because I had maybe say 25% in gold but because equities and properties went up, the dollar went up and gold went down, the allocation to gold is no longer 25% but maybe only 10 or 15%.

So then I have to stock it up again. But I would say an individual should definitely own some physical gold…

“Doctor Doom” believes gold confiscation is a possibility, and added later in the discussion:

I think they will take the gold away and go back to some gold standard by revaluing the gold say from now 1000 dollars an oz. to say 10,000 dollars an oz…

A “must-read” interview for Faber followers, which you can access in its entirety on MarcoPolis.net here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Judge Rules Chicago’s Pension Reform Legislation Unconstitutional

Here’s the latest on Chicago’s public pension crisis. Hal Dardick and Rick Pearson reported on the Chicago Tribune website last night:

Mayor Rahm Emanuel’s administration said it will appeal a Cook County judge’s decision Friday that ruled unconstitutional a state law reducing municipal worker pension benefits in exchange for a city guarantee to fix their underfunded retirement systems.

The 35-page ruling by Judge Rita Novak, slapping down the city’s arguments point by point, could have wide-ranging effects if upheld by the Illinois Supreme Court. Her decision appeared to also discredit efforts at the state and Cook County levels to try to curb pension benefits to rein in growing costs that threaten funding for government services.

The issue of underfunded pensions, and how to restore their financial health, is crucial for the city and its taxpayers. The city workers and laborers funds at issue in Friday’s ruling are more than $8 billion short of what’s needed to meet obligations — and are at risk of going broke within 13 years — after many years of low investment returns fueled by recession and inadequate funding.

Without reducing benefits paid to retired workers, or requiring current workers to pay more, taxpayers could eventually be on the hook for hundreds of millions of dollars more in annual payments to those city funds — before the even worse-funded police and fire retirement accounts are factored into the taxing equation

(Editor’s note: Bold added for emphasis)

Chicagoans- let that last line from Dardick and Pearson sink in real good:

“Taxpayers could eventually be on the hook for hundreds of millions of dollars more in annual payments to those city funds — before the even worse-funded police and fire retirement accounts are factored into the taxing equation…”

And the City’s response to the ruling? Mayor Emanuel’s Press Office countered Friday:

Statement of City of Chicago Corporation Counsel Stephen Patton on SB1922

“While we are disappointed by the trial court’s ruling, we have always recognized that this matter will ultimately be resolved by the Illinois Supreme Court. We now look forward to having our arguments heard there. We continue to strongly believe that the City’s pension reform legislation, unlike the State legislation held unconstitutional this past spring, does not diminish or impair pension benefits, but rather preserves and protects them. This law not only rescues the municipal and laborer pension funds from certain insolvency, but ensures that, over time, they will be fully funded and the 61,000 affected City workers and retirees will receive the pensions they were promised.”

As to the City of Chicago’s credit rating possibly getting whacked after the decision? Timothy W. Martin reported on The Wall Street Journal website Friday afternoon:

Moody’s said Friday’s ruling had no effect on Chicago’s bond grade. But rival Standard & Poor’s Ratings Services, which currently has an investment-grade rating for the city, said that “regardless of the ultimate outcome” of Mr. Emanuel’s pension law, it “will likely lower” its Chicago rating in the next six months, unless city leaders chart out a solution to address its pension problems.

(Editor’s note: Bold added for emphasis)

Like I’ve been saying for a couple years now, that proverbial brick wall keeps approaching for Chicago.

Since City Hall can’t get its affairs in order, Chicagoans might want to look at straightening out theirs if they intend to stick around for the long haul.

Sources:

Dardick, Hal and Pearson, Rick. “Judge finds city’s changes to pension funds unconstitutional.” Chicago Tribune. 24 July 2015. (http://www.chicagotribune.com/news/local/politics/ct-chicago-pension-ruling-met-20150724-story.html). 25 July 2015.

Martin, Timothy W. “Chicago’s Pension Overhaul Plan Tossed Out by Judge.” The Wall Street Journal. 24 July 2015. (http://www.wsj.com/articles/judge-rules-2014-law-to-reduce-chicago-pension-shortfall-unconstitutional-1437754525). 25 July 2015.

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S&P Cuts Chicago’s Credit Rating Twice In Less Than 2 Months

Surprise, surprise. The City of Chicago’s credit rating was lowered yet again.

This time, it’s Standard & Poor’s that did the cutting.

Karen Pierog and Tanvi Mehta reported on the Reuters website last night:

Standard & Poor’s Ratings Services cut Chicago’s credit rating one notch to BBB-plus with a negative outlook on Wednesday, citing the windy city’s nagging structural budget deficit and the lack of a plan to close it.

S&P analyst John Kenward said the U.S.’ third-largest city needs “a credible, public, detailed plan” to deal with budget gaps projected to grow to $588 million in fiscal 2017, largely due to escalating contributions to its police and fire fighter retirement funds.

S&P also warned Chicago’s general obligation bond rating may fall further if a credible plan does not surface within six months…

(Editor’s note: Bold added for emphasis)

According to the S&P website, “BBB” indicates:

Adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

It was less than two months ago that Standard & Poor’s last downgraded the City of Chicago’s credit rating. I blogged on May 17:

Standard & Poor’s joined in on the downgrade parade later in the week. From a press release Friday:

Chicago, IL GO Bond Ratings Lowered To #A-# From #A+#, Placed On CreditWatch Due To Short-Term Liquidity Pressure
CHICAGO–15 May–Standard & Poor’s

CHICAGO (Standard & Poor’s) May 14, 2015–Standard & Poor’s Ratings Services lowered its rating to ‘A-‘ from ‘A+’ on the city of Chicago’s outstanding general obligation (GO) bonds, and placed the ratings on CreditWatch with negative implications…

Stay tuned…

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Mehta, Tanvi and Pierog, Karen. “UPDATE 1-S&P downgrades Chicago’s GO bond rating to BBB-plus.” Reuters. 8 July 2015. (http://www.reuters.com/article/2015/07/08/usa-chicago-sp-idUSL3N0ZO60H20150708). 9 July 2015.

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Chicago’s Credit Rating Lowered By Fitch Ratings, Moody’s, Standard & Poor’s

The three major U.S. credit rating agencies have downgraded the City of Chicago this past week. Last Tuesday, Moody’s announced on its website:

Rating Action: Moody’s downgrades Chicago, IL to Ba1, affecting $8.9B of GO, sales, and motor fuel tax debt; outlook negative

Also downgrades senior and second lien water bonds to Baa1 and Baa2 and downgrades senior and second lien sewer bonds to Baa2 and Baa3, affecting $3.8B; outlook negative

New York, May 12, 2015 — Moody’s Investors Service has downgraded to Ba1 from Baa2 the rating on the City of Chicago, IL’s $8.1 billion of outstanding general obligation (GO) debt; $542 million of outstanding sales tax revenue debt; and $268 million of outstanding and authorized motor fuel tax revenue debt…

In case readers didn’t notice, that was a two-notch downgrade from “Baa2” to “Ba1.”

According to Moody’s “US Municipal Ratings,” “Ba” indicates “Issuers or issues rated Ba demonstrate below-average creditworthiness relative to other US municipal or tax-exempt issuers or issues.”

In other words, “junk.”

A day later, Moody’s was at it again, lowering the Chicago Board of Education’s credit rating. From their site on May 13:

Moody’s downgrades Chicago Board of Education, IL’s GO to Ba3; outlook negative

Ba3 rating applies to $6.2 billion of GO debt

New York, May 13, 2015 — Moody’s Investors Service has downgraded to Ba3 from Baa3 the rating on the Chicago Board of Education, IL’s $6.2 billion of outstanding general obligation (GO) debt. The Chicago Board of Education is the primary debt issuer for the Chicago Public Schools (CPS) (the district). The outlook remains negative…

A three-notch downgrade. And even worse “junk.”

Standard & Poor’s joined in on the downgrade parade later in the week. From a press release Friday:

Chicago, IL GO Bond Ratings Lowered To #A-# From #A+#, Placed On CreditWatch Due To Short-Term Liquidity Pressure

CHICAGO–15 May–Standard & Poor’s

CHICAGO (Standard & Poor’s) May 14, 2015–Standard & Poor’s Ratings Services lowered its rating to ‘A-‘ from ‘A+’ on the city of Chicago’s outstanding general obligation (GO) bonds, and placed the ratings on CreditWatch with negative implications…

According to the S&P website, “A” indicates:

Somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.

Fitch Ratings was the last of the three major credit rating agencies to the party, releasing the following Friday on their website:

Fitch Downgrades Chicago, IL’s ULTGOs and Sales Tax Bonds to ‘BBB+’; Ratings on Negative Watch

Fitch Ratings-New York-15 May 2015: Fitch Ratings has downgraded the ratings on the following Chicago, Illinois obligations:

–$8.1 billion unlimited tax GO bonds to ‘BBB+’ from ‘A-‘;
–$546.5 million (accreted value) sales tax bonds to ‘BBB+’ from ‘A-‘;
–$200 million commercial paper notes, 2002 program series A (tax exempt) and B (taxable) bank bond ratings to ‘BBB’ from ‘BBB+’.

At the same time, the ratings have been placed on Negative Watch…

According to the Fitch Ratings website, “BBB” indicates:

Expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.

You can read the May 12 Moody’s press release on their website here. The May 13 Moody’s release is here. Standard & Poor’s press release can be found here (on thailand4.com) and the Fitch Ratings release on their website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Chicago To Be Run By Emergency Financial Control Board Within 2 Years?

Last Wednesday, I reminded Survival And Prosperity readers (local ones in particular) that Chicago- upon reelecting Rahm Emanuel as Mayor- remains in serious financial trouble. From that post:

As Rahm Emanuel enters his second term as Mayor of Chicago, I feel that proverbial brick wall is still fast-approaching.

Perhaps the best Chicagoans can hope for at this point is a controlled crash landing.

I know one thing. If I were still living in the city, I’d be preparing for the coming carnage…

Some readers might feel I was being a little too “sensational” with that statement. Therefore, I’d like to offer up the following for your consideration. Reuters’ Megan Davies and Karen Pierog reported on April 8:

Chicago has not seen the population losses Detroit did and its business and commercial real estate markets remain healthy, but its current circumstances are more dire than any other major American city today, with aggregate debt of $21.4 billion, up 60 percent since 2004.

Although Chicago’s situation isn’t bad enough yet to warrant a bankruptcy filing, that threat is out there if it fails to tackle its problems.

“People say Chicago’s not Detroit,” said Tom Metzold, a senior portfolio advisor at investment manager Eaton Vance. “Not right now. Chicago is Detroit ten years from now. I don’t care how economically strong your economy is. They don’t have a printing press. You can only tax so much.”

Metzold estimated the odds of a Chapter 9 bankruptcy in the next five years are “virtually zero” but said in the next 10 years that could rise to 25 percent if it fails to act

(Editor’s note: Bold added for emphasis)

In case readers are wondering, Metzold’s s “Street cred” includes serving as VP and Co-Director of Municipal Investments at Eaton Vance (one of the oldest investment management firms in the U.S.- established 1924), and as its Portfolio Manager since 1991.

Not as “optimistic” about Chicago’s financial future is Joe Mysak, Editor of Bloomberg Brief. He warned in an April 8 commentary:

I’m not a betting man. If I were, I’d bet that Chicago is going to be run by an Emergency Financial Control Board, or something like it, within two years, the same as New York City back in 1975 (and until 1986)…

(Editor’s note: Bold added for emphasis)

Mysak, who’s been covering the municipal bond market since 1981, pointed out the city’s abysmal Moody’s credit rating (“one step from the basement of investment grade”) and wrote:

So a cut to junk may well be in the cards, and with it diminished and eventually lack of access to capital. Chicago has already creatively used, and some would say abused, the municipal market to subsidize city operations…

When the banks no longer want to lend to Chicago is presumably when the state of Illinois would come in, offering cash, loan guarantees, intercession with the federal government and whatever else the city needs in exchange for external management via an Emergency Financial Control Board…

(Editor’s note: Bold added for emphasis)

The author of the Encyclopedia of Municipal Bonds signed-off with:

Two years. That’s how long I give the city of Chicago. Good luck, Rahm.

Good luck Chicago…

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Davies, Megan and Pierog, Karen. “Chicago Mayor Rahm Emanuel confronts fiscal nightmare as he begins second term.” Reuters. 8 Apr. 2015. (http://www.rawstory.com/rs/2015/04/chicago-mayor-rahm-emanuel-confronts-fiscal-nightmare-as-he-begins-second-term/). 12 Apr. 2015.

Mysak, Joe. “Next Stop for Chicago: Emergency Financial Control Board.” Bloomberg Brief. 8 Apr. 2015. (http://newsletters.briefs.bloomberg.com/document/3fz176niqylzjr6oax/commentary). 12 Apr. 2015.

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Lord Rothschild Warns ‘Geopolitical Situation Perhaps As Dangerous As Any We Have Faced Since World War II’

Jacob Rothschild, or 4th Baron Rothschild Bt, OM, GBE, FBA, as he’s known across “the pond,” has issued a warning to investors in RIT Capital Partners, an investment trust chaired by the 78-year-old banker. Lord Rothschild wrote in the £2.3 billion trust’s 2014 annual report (Report & Accounts for the year ended 31 December 2014) under “Chairman’s Statement”:

Our policy has been clearly expressed over the years. Simply put, it is to deliver long-term capital growth while preserving shareholders’ capital; the realization of this policy comes at a time of heightened risk, complexity and uncertainty. The economic and geopolitical environment therefore becomes increasingly difficult to predict.

The world economy grew at a disappointing and uneven rate in 2014 after six years of monetary stimulus and extraordinarily low interest rates. Stock market valuations however, are near an all-time high with equities benefiting from quantitative easing. Not surprisingly, the value of paper money has been debased as countries have sought to compete and generate growth by lowering the value of their currencies – the Euro and the Yen depreciated by over 12% against the US Dollar during the course of the year and Sterling by 5.9%. The unintended consequences of monetary experiments on such a scale are impossible to predict.

In addition to this difficult economic background, we are confronted by a geopolitical situation perhaps as dangerous as any we have faced since World War II: chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union.

However, in a world of zero or even negative bond yields, equities may well remain the destination of choice for investors. Furthermore, the majority of companies are reporting profits exceeding forecasts together with steady earnings growth. In Europe, the combination of a more competitive Euro, an aggressive programme of quantitative easing and the yields available on equities, may well lead to even higher valuations…

(Editor’s note: Bold added for emphasis)

In 2012, it was reported the elder member of the Rothschild banking family took a $200 million position against the euro.

You can read the entire report on RIT Capital Partners website here (.pdf format).

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Moody’s Downgrades Chicago’s Credit Rating Yet Again, Issues Negative Outlook

Chicago’s financial health is still pretty bleak in 2015.

Almost one year ago to this day, I blogged about bond credit rating giant Moody’s Investor Service downgrading the City of Chicago’s general obligation (GO) and sales tax ratings to Baa1 from A3, affecting $8.3 billion of GO and sales tax debt. I added last March:

According to Moody’s, “Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.”

Just before the weekend, Moody’s downgraded Chicago’s credit rating yet again. The Global Credit Research division announced on the Moody’s website under “Ratings News” Friday:

Rating Action: Moody’s downgrades Chicago, IL to Baa2; maintains negative outlook

Baa2 applies to $8.3B of GO debt, $542M of sales tax debt, and $268M of motor fuel tax debt

New York, February 27, 2015 — Moody’s Investors Service has downgraded to Baa2 from Baa1 the rating on the City of Chicago, IL’s $8.3 billion of outstanding general obligation (GO) debt, $542 million of outstanding sales tax revenue debt, and $268 million of outstanding or authorized motor fuel tax revenue debt. We have also downgraded to Speculative Grade (SG) from VMIG 3 the short-term rating on the city’s outstanding Sales Tax Revenue Refunding Bonds, Variable Rate Series 2002. The outlook on the long-term ratings remains negative…

“The outlook on the long-term ratings remains negative”

Kind of hard to get excited about the “Windy City’s” prospects after reading that.

To be fair, some are suggesting the credit rating downgrades are being influenced by City Hall in order to avoid meeting certain financial obligations (i.e., Chicago’s well-publicized public pension crisis).

“We ain’t got it.”

You can read the entire Moody’s press release on their website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Robert Shiller: ‘I’m Thinking Of Getting Out Of The United States Somewhat’

The second topic from earlier this week I’ll be revisiting tonight is Robert Shiller. The Nobel Prize-winning economist was on CNBC’s Squawk Box TV show Wednesday and talked equities (among other things) with Becky Quick, Andrew Ross Sorkin, and Brian Sullivan. From their exchange:

SHILLER: The things that is really striking- and maybe not today- is the low-level, long-term interest rates. It is just stunning how low they have gotten. Recently, the 30-year TIPS real rate was at half-a-percent. That’s incredible for 30 years. And that is pushing the stock market up. But it’s not the kind of euphoria that we saw notably in 2000.
SORKIN: What percentage do you have in equities?
SHILLER: It’s about half.
SORKIN: Half?
SHILLER: Yeah.
SORKIN: Have you changed it recently? Will you change it?
SHILLER: Yeah. I’m thinking of getting out of the United States somewhat.
SORKIN: You are?
SHILLER: Yeah. I think Europe is so much cheaper.
SORKIN: And you’d buy big multinationals based in Europe? You’d buy smaller companies in Europe? What would you do?
SHILLER: Well, what I have done is I’ve invested in Italy indexes. Spain index.
SORKIN: Are you hedging currency?
SHILLER: No, I’m not.


“Shiller: Europe so much cheaper than US”
CNBC Video

The Yale professor talked about exiting his U.S. stock positions not too long ago. I blogged on December 10, 2014:

Dr. Shiller appeared on CNBC Tuesday morning and told viewers the following when asked what he’s doing with his own money:

I worry about valuation in the stock market. And I’ve been wondering if I should pull out. But I have not. And in fact I’m still thinking that even at the CAPE ratio of 27, the expected return is still higher than you expect to get on either housing, on real estate, or fixed income. So it still seems like- I feel a little trepidation because I know my own indicator is looking kind of scary. I wouldn’t over go into the market, but I wouldn’t be completely out either.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

Dr. Shiller’s latest book (revision, actually)…

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Robert Shiller: ‘Stocks In Europe Are MUCH Cheaper Than In The United States’

The last time I blogged about Yale economics professor Robert Shiller, he was saying that the bond market “doesn’t clearly fit my definition of a bubble.” Dr. Shiller knows a thing or two about bubbles, considering he spotted the U.S. housing bubble last decade and the dot-com bubble a few years earlier.

Last Thursday, Shiller was interviewed by Bertha Coombs on CNBC’s Futures Now TV show where he shared his thoughts about bonds again (“it’s definitely high”) and some advice for investors. From their exchange:

SHILLER: One of them is, don’t use your usual assumptions about returns going forward. So that means you might want to save more. A lot of people are not saving enough. And incidentally, people are living longer now and health care is improving- you might end up retired for 30 years. People are not really preparing for that. The other thing is, diversify. And that helps reduce risk. And you can diversify outside the United States. Stocks in Europe are much cheaper than in the United States. So some people never invest in Europe- I think that’s a mistake.
COOMBS: So you’d rather go to Europe rather than emerging markets…
SHILLER: Or emerging markets, yeah…


“Robert Shiller’s unconventional investment advice”
CNBC Video

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Marc Faber: Central Banks, Governments Will Try To Confiscate Privately-Held Gold

Last week I was listening to a King World News interview of Swiss-born investment advisor/money manager Marc Faber. The publisher of the monthly investment newsletter The Gloom Boom & Doom Report warned listeners that he believes privately-held gold is in danger of being confiscated by central banks and governments. From an exchange between Eric King and Dr. Faber in that interview which appeared on the website on February 10, 2015:

KING: Marc, we were talking about the money printing earlier. Obviously, we had the revaluation of the Swiss franc overnight that led to so much chaos. But what I wanted to ask you today is, you’ve already said I think gold is going to have a strong 2015, but are we going to wake up at some point in the future and have a massive revaluation of gold overnight? Is that something you see happening not this year but in the future? Is that coming at some point?
FABER: Yes. But I think before it will happen the central banks and the governments will try to take the gold away from ordinary people, you understand? I think they know that this would be one solution for the global financial system to peg it again to some extent on gold. But before they do that, I think they’ll go after you and me and say, “Okay, parasites of society that do not spend but keep their money in gold that is unproductive- let us take it away.” That is the threat. I’m not worried about the price of gold. What do I care if the gold price is at $1,000 or $500 or $1,500 or $5,000? What I care is that I can keep ownership of gold.
KING: Just so I understand this, there may be a global coordinated effort by as many central banks that can get together on this to seize the gold, to take the gold.
FABER: Yes, because the professors at the central banks and the academics, most of them have never owned a single ounce of gold. And they know that gold is the honest currency that cannot be printed. Yes, the supply increases and sometimes the price goes up and sometimes the price goes down. But this is a market they really cannot control in the long-run. They can manipulate it in the short-run, but the more they manipulate it, the more it will eventually go to its real level. And so central bankers basically who are the money printers- the counterfeiters of this world- they hate gold. Period.

Later on in that King World News interview, “Dr. Doom” talked about the investments he owns these days. Faber revealed:

I own some real estate in Asia. I own some gold. I own some stocks. I own some bonds, because I agree with you at some point the bond market will diverge. In other words, they’ll print money and buy bonds, but the bond market will go down.

You can listen to the entire interview on the King News World website here (gold confiscation discussion begins at 14:09).

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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Signs Of The Time, Part 82

I had a tough choice to make earlier tonight- either watch President Obama’s 2015 State of the Union Speech, or finish up doing laundry.

After all my clothes were put away, I saw on my Internet service provider’s home page some jibberish about how some “shadow of crisis” had passed. I pulled up a transcript of the President’s speech tonight and sure enough there was this:

America, for all that we’ve endured; for all the grit and hard work required to come back; for all the tasks that lie ahead, know this:

The shadow of crisis has passed, and the State of the Union is strong.

At this moment — with a growing economy, shrinking deficits, bustling industry, and booming energy production — we have risen from recession freer to write our own future than any other nation on Earth. It’s now up to us to choose who we want to be over the next fifteen years, and for decades to come…

Mark my words. The “shadow of crisis” hasn’t passed. It was merely papered over. Keynesian “enlightenment,” government intervention, bailouts, stimulus packages, quantitative easing, QE 1, QE 2, QE 3, willing-and-able presstitutes, and what do we have? The Not-So-Great Recovery. Answer me this- if the economy is so strong, why have interest rates been effectively at zero for how many years now? “But Janet Yellen and the Federal Reserve are going to start raising interest rates soon.” We’ll see, but if they do, I suspect rates will be raised incrementally, and I can’t help but wonder if the next few years won’t resemble the early part of last decade when a housing bubble inflated (and eventually popped) under the guise of a strong economy, but with the Fed slow on the trigger to raise rates and take way the punch bowl. This time around, we could even have multiple asset bubbles (in bonds? housing? stocks?) formed before the next installment of the longer financial crash arrives. Who knows exactly how the next crisis will play out, but I’m pretty sure the end result will be much uglier than the last episode. Not many bullets left for Uncle Sam and the central bank to use.

One more thing. “We have risen from recession freer to write our own future than any other nation on Earth.” God forbid anyone scratch the surface to reveal how many more trillions of dollars of debt has been piled on our financial house of cards in order to kick the can down the road a little bit more. There’s no escaping the fact that the United States is the world’s largest debtor nation. And another inconvenient fact happens to be that taking on significant debt is akin to slavery.

“Freer to write our own future.” If only it were true. Financial reckoning day is more like it.

I’ll leave Survival And Prosperity readers with this. Back in the early 1990s while attending the University of Illinois in Urbana-Champaign I remember listening to a recording of “The Rat Pack” in action. Frank Sinatra was chiding Dean Martin and Sammy Davis, Jr. Now, the “Chairman Of The Board” made an observation that better describes the situation we’re in than what the President Of The United States said this evening:

You’ve had your fling and you flung it.

Enjoy the “good times” while they last, then prepare to batten down the hatches.


Scene from The Final Countdown (1980)
YouTube Video

Note that it’s not the end of the word I’m talking about here. But things will definitely suck for a while before the economy and society gets better again. By that time, we’ll probably be well on our way to having passed the baton to China.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Marc Faber: Gold Going Up 30% In 2015

“BullionVault, an online service for investors to buy and sell physical gold and silver, said its Gold Investor Index fell in December to an almost five-year low.

The gauge, which measures the balance of buyers against sellers, slipped to 50.5 from 52.1 in November, the London-based company said in an e-mailed report today. That’s the lowest level since February 2010 and marked the biggest drop since 2013. A reading above 50 indicates more buyers than sellers…”

-Bloomberg.com, January 6, 2015

Regular readers of Survival And Prosperity know that Swiss-born investment advisor/money manager Marc Faber has been a gold bull for some time. And the publisher of the monthly investment newsletter The Gloom Boom & Doom Report is so confident about a rising price of gold in 2015 (in spite of all the negative sentiment among investors) that he made an eye-opening prediction yesterday. Sara Sjolin reported on the MarketWatch website Tuesday afternoon:

“I’m positive [that] gold will go up substantially [in 2015] — say 30%,” Faber, whose investment letter is called the Gloom Boom Doom Report, said at Société Générale’s global strategy presentation in London on Tuesday.

“My belief is that the big surprise this year is that investor confidence in central banks collapses. And when that happens — I can’t short central banks, although I’d really like to, and the only way to short them is to go long gold, silver and platinum,” he said. “That’s the only way. That’s something I will do.”

(Editor’s note: Bold added for emphasis)

BullionVault

Dr. Faber repeated his recent “bubble in everything, everywhere” statement while in London. Sjolin added:

“We simply have highly inflated asset markets. Real estate is high, stocks are high, bonds are high, art prices are high, and interest rates and short-term deposits are basically zero,” Faber said. “The only sector that I think is very inexpensive is precious metals, and in particularly precious-metals stocks.”

(Editor’s note: Bold added for emphasis)

Faber, who became well-known for advising clients to get out of the U.S. stock market one week before the October 1987 crash and for predicting the 2008 global financial crisis, appeared on CNBC’s Squawk Box back on September 19, 2014, and warned viewers:

Today, the good news is we have a bubble in everything, everywhere– with very few exceptions. And, eventually, there will be a problem when these asset markets begin to perform poorly. The question is- what will be the catalyst? It could be a rise in interest rates not engineered by the Fed, because I think they’ll keep interests rates at zero on the Fed funds rate for a very long time… We could have essentially a break in bond markets at some point. We also could have a strong dollar. A strong dollar has already happened in the last two months signifies that international liquidity is tightening. And when that happens, usually it’s not very good for asset markets.

Dr. Faber also sees a potential investing opportunity in emerging markets, which you can read about in Sjolin’s piece on the MarketWatch website here.

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Robert Shiller On Bonds: ‘Doesn’t Clearly Fit My Definition Of Bubble’

I just blogged about Yale economics professor Robert Shiller on December 30- when he appeared on CNBC that morning and talked about housing. He would know, considering he spotted the U.S. housing bubble last decade and the dot-com bubble a few years earlier.

These days, Dr. Shiller is turning his attention to bonds. Pat Regnier reported on the Money magazine website on January 6, 2015:

Since at least 2009, some market observers have called the bond market a bubble.

Shiller, however, resists applying the B-word to bonds. “It doesn’t clearly fit my definition of ‘bubble,’” he says. “It doesn’t seem to be enthusiastic. It doesn’t seem to be built on expectations of rapid increases in bond prices.” (Shiller spoke with Money in December.)

(Editor’s note: Bold added for emphasis)

Dr. Shiller talks more about bonds in that Money piece, which you can read in its entirety on the magazine’s website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Sunday, January 11th, 2015 Bonds, Bubbles, Crash Prophets, Investing No Comments

Marc Faber, Jeremy Grantham, Jim Rogers, And Peter Schiff All Sound The Alarm

I find it both funny and disturbing that the financial types who missed the U.S. housing bubble/bust and global economic crisis that was readily-visible by the second half of 2008 are now claiming the U.S. economic “recovery” is on solid footing and there are no asset bubbles in sight.

Meanwhile, the few individuals who correctly-predicted that carnage- including Marc Faber, Jeremy Grantham, Jim Rogers, and Peter Schiff- are sounding the alarm again.

Here’s what each of these “crash prophets” have been saying lately (the following statements have all been blogged about previously on Survival And Prosperity).

Swiss-born investor and money manager Marc Faber warned CNBC Squawk Box viewers on September 19, 2014:

Today, the good news is we have a bubble in everything, everywhere– with very few exceptions. And, eventually, there will be a problem when these asset markets begin to perform poorly. The question is- what will be the catalyst? It could be a rise in interest rates not engineered by the Fed, because I think they’ll keep interests rates at zero on the Fed funds rate for a very long time… We could have essentially a break in bond markets at some point. We also could have a strong dollar. A strong dollar has already happened in the last two months signifies that international liquidity is tightening. And when that happens, usually it’s not very good for asset markets.

“A bubble in everything, everywhere.” Reminds me of what British-born investment strategist Jeremy Grantham said right before the asset bubbles popped during the “Panic of ’08.” Speaking of Grantham, he penned in his November 2014 quarterly investment letter entitled “Bubble Watch Update”:

I am still a believer that the Fed will engineer a fully-fledged bubble (S&P 500 over 2250) before a very serious decline…

My personal fond hope and expectation is still for a market that runs deep into bubble territory (which starts, as mentioned earlier, at 2250 on the S&P 500 on our data) before crashing as it always does. Hopefully by then, but depending on what the rest of the world’s equities do, our holdings of global equities will be down to 20% or less. Usually the bubble excitement – which seems inevitably to be led by U.S. markets – starts about now, entering the sweet spot of the Presidential Cycle’s year three, but occasionally, as you have probably discovered the hard way already, history can be a snare and not a help.

(Editor’s note: Bold added for emphasis)

“Fully-fledged bubble (S&P 500 over 2250) before a very serious decline…”

The S&P 500 stands at 2,058 this Sunday- only 192 points away from Grantham’s bubble “target.”

There’s also investor, financial commentator, and author Jim Rogers, who was talking U.S. equities on RT’s Boom Bust on December 26, 2014, when he remarked:

I know the bear market will come… The next bear market, Erin, is going to be much worse than the last one because the debt has gone through the roof. Debt worldwide, including the U.S., has skyrocketed, and we’re all going to have to pay a terrible price for all this money printing and all this debt.

(Editor’s note: Bold added for emphasis)

Finally, there’s Euro Pacific Capital’s Peter Schiff, who argued on The Schiff Report YouTube video blog on Halloween 2014:

When this illusion collapses, this fantasy of a U.S. economic recovery- because everybody believes there’s no recession anywhere in sight, that we’re years away from a U.S. recession- when in fact, another recession is right around the corner. And in fact, it will be worse than the recession that we had in 2008, 2009, if the Fed does not come in with QE 4…

I expect Janet Yellen to react to this coming recession the way Ben Bernanke reacted to the last one. The way Alan Greenspan reacted to the last one. Because that’s the only playbook we’ve got. And remember, when this recession starts, they can’t start with rate cuts. Rates are at zero. You can’t cut from zero. All they can do is revamp QE. And believe me, it’s going to have to be a lot bigger than QE 3. QE 4 is going to have to be bigger than QE 3 for the same reason QE 3 had to be bigger than QE 2- the economy builds up a tolerance. The more addicted to QE, the more QE you need to get any kind of result. And this last result was minimal in the real economy. I mean, yes- the Fed was able to get the stock market to go up, but the real economy never experienced any real economic growth. The average American is worse off today than when QE began. By far. Incomes are down. Real employment is down. Net worth is down. Poverty is up. Government dependency is up. The cost of living is up. Nothing has improved, except maybe the level of optimism on Wall Street…

This crisis is not really going to be about a credit crisis. Not private credit. It’s going to be about debt. Sovereign credit. It’s going to be about the dollar. A currency crisis. A sovereign crisis. Which is going to be very different than the crisis we had in 2008. It’s a crisis of an excess of QE. Of an overdose of QE. That’s the one that’s coming. That’s the one that we have to prepare for. That’s the one that I have been warning about since the beginning…

Schiff, who’s also a financial commentator and author, has been the most vocal of the four in warning of economic pain dead-ahead of us.

Jim Rogers talking the day after Christmas about the coming bear market alerted me to the fact that all these “crash prophets” whom I regularly-follow on this blog are now sounding the alarm at the same time. To summarize their recent warnings:

Marc Faber- “A bubble in everything, everywhere.” Actually, I believe he still likes Asia and Asian emerging economies.
Jeremy Grantham- “I am still a believer that the Fed will engineer a fully-fledged bubble (S&P 500 over 2250) before a very serious decline.”
Jim Rogers- “The next bear market… is going to be much worse than the last one because the debt has gone through the roof.”
Peter Schiff- “An overdose of QE. That’s the one that’s coming. That’s the one that we have to prepare for. That’s the one that I have been warning about since the beginning.”

At the start of 2015, it will be interesting to see how the next couple of years play out, for I believe Americans will get the chance to experience quite a bit of the above in that time period- whether they want to or not.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

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