Emerging Markets

Jeremy Grantham: Avoid U.S. Stocks, ‘Heavily Overweight’ Emerging Market Equities

When I last blogged about “Crash Prophet” Jeremy Grantham right after Thanksgiving, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently overseeing $74 billion in client assets) had just mentioned in a Wall Street Journal interview that although U.S. stock prices were high, profit margins were also are unusually high, lending support to high valuations. In addition, low interest rates make equities more attractive than fixed-income investments. As a result, he didn’t forecast a crash is stock prices as much as a decades-long reversion to anywhere near the long-term average.

Now, regular readers of Survival And Prosperity know I like to read and pick apart Grantham’s quarterly letters on the GMO website. And his third quarter letter has just been released. Grantham, whose individual clients have included former U.S. Vice President Dick Cheney and U.S. Secretary of State John Kerry, penned the following about U.S. equities in “Career Risk and Stalin’s Pension Fund: Investing in a World of Overpriced Assets (With a Single Reasonably-Priced Asset)”:

The trend line will regress back toward the old normal but at a substantially slower rate than normal because some of the reasons for major differences in the last 20 years are structural and will be slow to change. Factors such as an increase in political influence and monopoly power of corporations; the style of central bank management, which pushes down on interest rates; the aging of the population; greater income inequality; slower innovation and lower productivity and GDP growth would be possible or even probable examples. Therefore, I argue that even in 20 years these factors will only be two-thirds of the way back to the old normal of pre-1998. This still leaves returns over the 20-year period significantly sub-par. Another sharp drop in prices, the third in this new 20-year era, will not change this outcome in my opinion, as prices will bounce back a third time

Near-term major declines suggest a much-increased value of cash reserves and a greater haven benefit from high-rated bonds.

My assumption of slow regression produces an expectation of a dismal 2.5% real for the S&P and 3.5% to 5% for other global equities over 20 years, but also a best guess of approximately the same over 7 years.

(Editor’s note: Bold added for emphasis)

Grantham’s thoughts on where one might invest?

My conclusion is straightforward: heavily overweight EM equities, own some EAFE, and avoid US equities.

(Editor’s note: Bold added for emphasis)

Referring to an exhibit, he pointed out:

1) developed ex-US is well below its 20-year average and 40% below the US; and 2) Emerging is 65% below its high in 2007.

There were also these nuggets from the letter:

Pension funds should brace themselves for a disastrous 1% to 3% return in the next 10 years.

(Editor’s note: Bold added for emphasis)

And:

My view on Resources is that the cycle has turned, global economies are doing quite well by recent standards, and oil prices are likely to rise for three years or so.

(Editor’s note: Bold added for emphasis)

Yet another insightful letter from Grantham, which you can read here in its entirety on the GMO site.

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

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is 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 on the site.)

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Peter Schiff: Invest Overseas, Buy Commodities To Avoid Either U.S. Stock, Dollar Plummet

Turning to “crash prophet” Peter Schiff this afternoon, the CEO of Euro Pacific Capital was recently interviewed by Scott Gamm of TheStreet. Schiff, who correctly-called the housing bust and economic crisis last decade, echoed colleague Jim Rogers in warning about a future bear market in U.S. stocks. From the exchange:

THESTREET: Peter, it’s been an incredible record run here. And the levels we’re seeing now even with this slight pullback were record highs not too long ago. So, what do you say?
SCHIFF: Well, the bubble keeps getting bigger. Donald Trump called it himself as a candidate. He said it was a big, fat, ugly bubble. He was right then. He’s wrong now because now he denies it’s a bubble because he’s now the President and so it’s his bubble. And so he’d rather it be a bull market. But the valuations here really are extreme. The complacency is also extreme. I mean, investors are willing to pay very high prices and have very little worry (chuckle) that the stock market is going to go down. And people have very short memories. I’ve mean, we’ve had two major 50 percent declines in the stock market this century, since 2000. So we’ve had the market cut in half twice and it can easily happen again, yet nobody seems concerned. And I think one of the reasons is because the last two times the market went down the Fed was able to bail out investors to bet on one bubble by inflating a bigger one. So a lot of investors may have been conditioned to believe that even if the market implodes, if they hold on, they’ll get their money back. But the third time might not be the charm. It’s possible that the Fed can’t blow a bubble big enough to bail out investors this time…
THESTREET: So do you think that tide kind of turns in the next year?
SCHIFF: Hey, I don’t know. There’s no way to know. I mean, I think Donald Trump has nominated somebody who will try and do his best to keep the air in the bubble- cut rates, QE 4. But at some point, the market forces will overwhelm the Fed. The market will go down. And if it doesn’t go down the dollar will collapse instead. But either way, you’re going to see the real value of U.S. stocks come way down, whether it happens nominally or not. And I have a feeling that if the Fed prints enough money to prevent the market from going down dramatically, then the real losses will be even bigger because of the implosion of the U.S. dollar.

(Editor’s note: Bold added for emphasis)

When asked about advice for investors as to where to put their money right now if they’re worried about U.S. stocks, the author of The Real Crash: America’s Coming Bankruptcy – How to Save Yourself and Your Country told viewers:

People who are in the U.S. market are overlooking much better returns from much better valuation levels that are happening overseas. So I think people should take advantage of the overpriced U.S. stock market, the overpriced U.S. dollar, and sell, and move money abroad. Get into the international markets- developed and emerging. Get into the commodities space. Look at oil hitting a new two-year high again today. This is going on in commodities across the board. We are coming off of major bear markets. We’re in the infancy of new bull markets. And I think the dollar is about to get killed. This is the first year in many years now that the dollar is down. But I think it’s the first of many. I think the dollar could fall for the next 5 to 10 years in a major, major bear market taking the dollar to all-time record lows. And this will enable enormous profits for people who are invested outside the U.S. in the right currencies, the right assets, the right companies. That’s what I think we’re doing with our clients at Euro Pacific Capital and that’s certainly what I’m doing with my own money.


“Peter Schiff Slams Bitcoin, Federal Reserve and Antitrust Regulators”
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By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is 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 on the site.)

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Jim Rogers Predicts ‘A Canned Goods Kind Of Time’ In The Next Few Years

In our present discussion of money/investing matters on Survival And Prosperity I’ve already brought up one “crash prophet” this week in Jeremy Grantham. Today, I want to talk about another “prophet”- investor, author, and financial commentator Jim Rogers.

The former investing partner of George Soros in the legendary Quantum Fund is not as optimistic about the U.S. stock market as his British colleague. Rogers sat down with Pete Sweeney, Asia Editor of Reuters BREAKINGVIEWS, and issued the following warning in a November 22 podcast. From their exchange:

REUTERS: You’ve been predicting of late a big market crash to come. Now, as we have markets hitting new highs every minute it seems and people are shorting volatility indexes apparently. I just want to move us forward a little bit. Let’s assume it does happen next year. Let’s assume all this crazy happiness evaporates in a big disaster. What do you think the strategy is for positioning in terms of assets, regions?
ROGERS: Look, let me make sure that we have it clear. What I have said was, that we will have a bear market again some day. Now, Janet Yellen, the head of the Federal Reserve in America, says we won’t. She says everything is okay now and there won’t be anymore economic problems. I happen to disagree with her, and I know we will have bear markets again. And what I said was, the next one we have when it comes is going to be the worst in your life- the worst in my lifetime. And I think I’m older than you. The reason for that being, 2008 we had a problem- too much debt. We had a problem. The next time around debt, is so, so, so much higher Pete. In the last nine years debt has skyrocketed. So the next time we have a bear market, it’s going to be the worst in my lifetime. I wish I were smart enough to know when.
REUTERS: I’m just saying, for a hypothetical, because you’ve been watching these asset markets, because I hear people talking about this a lot. The question is, how do you make money off of it? You’re an investor. So you short everything? Do you buy canned goods, ammo, stuff? What looks attractive to you, assuming that you’re bearish on this?
ROGERS: Well, I’m not short. I bought stocks this week in China, in Japan, Zimbabwe, Taiwan. So I see opportunities on the long side in markets. Doesn’t mean I’m right. The bear market maybe start today. No, but I see opportunities. But if you’re worried about that you do need to learn how to sell short. Great fortunes can be made in a bear market selling short. I’m not sure canned goods is the place yet. No, no, don’t laugh, because we’re going to have some time in the next few years a canned goods kind of time. We’re going to have serious, serious problems in the world. I’m not sure canned goods is for the next bear market. But it’s… don’t forget your canned goods.

The commodities “guru” is still bullish on agriculture, suggesting:

If you’re worried about the world, and we are going to have a serious bear market, you should think about agriculture. Because agriculture will probably do well. That is a place that will probably disconnect, to use your term, in the next bear market.

The Chairman of Rogers Holdings and Beeland Interests, Inc. elaborated on his new acquisitions, telling listeners:

I bought Japanese ETFs, Chinese ETFs, Taiwan ETFs, and Zimbabwe, the comparable of ETFs in Zimbabwe.

Finally, Rogers shared the following as the interview came to a close:

I own Japanese shares. Am I going to make money? I don’t know. But my view is, the Japanese stock market may go back to its all-time highs. And that would be a double if it does…

At the moment, I still see reasons to be optimistic in some markets that are still very depressed compared to the ones going through the roof.

Good interview questions and even better replies from the Singapore-based Rogers. You can listen to the entire 13-minute interview on the Reuters BREAKINGVIEWS website here.

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

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is 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 on the site.)

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Jeremy Grantham On U.S. Bonds, Stocks, And A Market Crash

Regular readers of Survival And Prosperity may have noticed I retired the “Crash Prophets” page earlier this month (too much time to update). For those not familiar with this section, it’s where I compiled the investment activities/recommendations of “crash prophets” Dr. Marc Faber, Jeremy Grantham, Jim Rogers, and Peter Schiff (designation earned by being smart enough to spot the 2008 economic crisis and warning of future financial turbulence). Despite the retirement, I will continue to blog about the latest from these soothsayers.

And this morning I want to talk about Jeremy Grantham, the British-born investment strategist and founder/former chairman of Grantham, Mayo, Van Otterloo & Co. (currently overseeing $74 billion in client assets). In case readers missed it, a couple of weeks ago Grantham, whose individual clients have included former U.S. Vice President Dick Cheney and U.S. Secretary of State John Kerry, took part in an interview with The Wall Street Journal. The “crash prophet” discussed the booming U.S. stock market, a potential crash, and U.S. bonds. John Coumarianos wrote on the WSJ website on November 5:

With the S&P 500 up more than 15% this year, it may be time for a reality check. To that end, we spoke with Jeremy Grantham, co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo & Co. and a noted spotter of market bubbles.

He thinks U.S. stocks and bonds will fail to generate inflation-beating returns over the next seven years, but he doesn’t see an imminent crash in share prices…

Mr. Grantham has already cemented his legend by arguing that U.S. stocks were overvalued in 2000 and again in 2007, anticipating the market’s two most-recent crashes. He also noted before the 2008-09 financial crisis that the relationship between home prices and income had become unglued, and said at least one large financial institution would fail.

By Mr. Grantham’s lights, U.S. stock prices are again high, with an overall Shiller price/earnings ratio (share price relative to the past decade of real average earnings) over 30, compared with its average of 16.8 since 1880. But profit margins also are unusually high, lending support to the high valuations, he says. And the Federal Reserve’s policy of keeping interest rates low supports share prices by making fixed-income investments less attractive as an alternative to stocks.

So this time, instead of a crash, stock valuations may take decades to revert to anywhere near the long-term average, Mr. Grantham says…

(Editor’s note: Bold added for emphasis)

The actual interview proved insightful, with Grantham communicating his bullishness on foreign stocks. The exchange can be read in its entirety here on The Wall Street Journal website.

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

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is 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 on the site.)

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Marc Faber Warns Of Trump Inheriting ‘Hugely Inflated Asset Markets’

In an interview with CNBC-TV18 (India) earlier today, Swiss-born investment advisor/money manager Marc Faber talked about a potential financial “poisoned chalice” U.S. President-elect Donald Trump might be inheriting. The publisher of the monthly investment newsletter The Gloom Boom & Doom Report was asked about what he thought “the biggest risk for global markets in 2017” could be. “Doctor Doom,” as the financial press like to call him, responded with a trade war with China and the following:

When Mr Ronald Reagan became president in 1981, he was elected in November, 1980, asset markets were very depressed and interest rates at very elevated level. The treasury yields in America on the 20-year and 30-year bonds was over 15 percent. So, he inherited a huge tailwind of diminishing inflation, falling interest rates and depressed assets that had a huge upside potential in the 1980’s. Trump, he inherits, and that is the biggest risk, hugely inflated asset markets. The bond markets in the developed countries, as you know, have the lowest yield they ever had in the history of mankind. The bond yields will not go much lower. Now, can the 10-years yield that has gone from 1.3-1.4 percent to 2.5 percent, can it go back to 1.7 percent or 1.5 percent? Yes, possible, but it will not go much below 0 percent.

And number two, when you look at stock markets as a percent of the economy, the stock markets around the world as a percent of the economy are at a very high level, especially in the US. In other countries less so, but in the US they are. Furthermore, the US stock market has significantly, and I repeat, significantly outperformed other markets in the world since 2011 and it leaves it vulnerable to an adjustment. The adjustment may happen with the US not going up a lot. But other markets like India, emerging markets in general, Europe outperforming the US, or it could happen with everything coming down and then the US underperforming, going down more than other markets, which actually would be my view, what will happen. This is the risk…

(Editor’s notes: source CNBC-TV18 transcript and bold added for emphasis)

You can read the entire interview here on the CNBC-TV18 website.

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

(Editor’s notes: Info added to “Crash Prophets” page. A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is 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 contained herein.)

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Jim Rogers: Signs Of Next Economic Crisis ‘Already Happening’

The next two days I’ll be focusing on two “crash prophets” who correctly-called the 2008 global economic crisis and who see more carnage on the way. First up is the widely-followed investor, author, and financial commentator Jim Rogers, who appeared on the RT TV show SophieCo earlier today. From his exchange with host Sophie Shevardnadze (RT transcript):

SHEVARDNADZE: You’ve been talking about this impending recession for a while now, ready to strike the U.S., for instance, but, you know, we see American economy picking up, the unemployment rate is going down, so- why does it keep postponing itself?
ROGERS: Wait, wait. First of all, you are listening to government figures. You remember the Soviet Union, the government had a lot of numbers, they were very good. The U.S. now puts out a lot of figures that are not legitimate, accurate figures. Look at unemployment, what do they do? For instance, they just stopped counting many people, said they’re not looking for a job anymore – so the numbers are artificial in the U.S. Yes, some parts of the U.S. economy are doing very well. If you’re on Wall St. or if you’re in finance, you’re doing fine, because the government has been printing a lot of money and a lot of debt has been put out. But you go to Texas, go to the MidWest- they’re not doing well at all. Most of the country is not doing well.
SHEVARDNADZE: Alright, but give me something concrete- when do we have to expect this crisis to hit and what’s going to cause that meltdown?
ROGERS: Sophie, for the last 18 months in the U.S., most stocks have been going down. The average is a fraud, because of the few big companies that make the average go up and that’s because the government, the Fed Reserve, Central Bank is printing a lot of money. Stocks are going down in the U.S., most stock are down. So, the signs are already there. Now, unfortunately, they’re not visible, they don’t make headlines, so it’s already happening. Parts of the country are in recession, stock market, most stocks are going down – it’s already happening

(Editor’s note: Bold added for emphasis)

Back on March 28, I noted Rogers had warned on the Nikkei Asian Review (Japan) website eight days earlier:

I expect the American economy to be in recession sometime in the next year or two…

(Editor’s note: Bold added for emphasis)

And earlier that month I quoted a March 4, 2016, Bloomberg.com piece where it was reported:

The famous investor said that there was a 100 percent probability that the U.S. economy would be in a downturn within one year

(Editor’s note: Bold added for emphasis)

Shevarnadze did a good job extracting some investment nuggets from the former investing partner of George Soros. Rogers still thinks there will be a better chance to buy gold “sometime in the next year or two,” and added later in the discussion:

If the dollar goes up, gold may go down. But, if it goes down, I hope to buy a lot more gold, because eventually gold is going to go through the roof. As this turmoil increases and people lose more and more confidence in governments, more and more confidence in paper money, they’re going to look for something, and gold and silver will be a couple of those places. If you’re looking for something right now- agriculture

I have sold short the U.S. stocks and I have sold junk bonds, low-grade bonds, in the U.S., I own shares in China, I have shares in Russia, I bought Russian government bonds, several days ago. These are places that I am looking at, I am looking at Kazakhstan as a place to invest, Iran I’m looking at, Nigeria I am looking at

(Editor’s note: Bold added for emphasis)

Kazakhstan and Nigeria are two markets not often mentioned by Rogers. A terrific interview, which you can read in its entirety over on the RT website here.

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

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is 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 contained herein.)

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Jim Rogers: ‘I Am Looking For More Investments In Asia And In Russia’

Regular readers of Survival And Prosperity know that well-known investor, author, and financial commentator Jim Rogers is bullish on Asia (China in particular) and Russia. As recent as April 6, I blogged about a GoldSeek.com Radio interview (released April 1) in which the former investing partner of George Soros said:

I own Chinese renminbi. I own Chinese shares… I bought recently some Russian government short-term bonds in rubles.

He added later:

There are other places I’m looking at but I’m really not very active at all. I’m mainly just watching the world unfold. Be knowledgeable, be worried, and be prepared.

That last sentence is indicative of a lot of what Rogers has been sharing with the investing public lately.

Still, it’s being reported that the CEO of Rogers Holdings and Beeland Interests, Inc. is actively looking for places to put his substantial “war chest” ($300 million estimated net worth) to work. Katya Golubkova wrote on the Reuters website last Tuesday:

Veteran U.S. investor Jim Rogers is looking at possible investments into Russian oil firm Bashneft (BANE.MM) and diamond miner Alrosa (ALRS.MM) as he aims to add more Russian assets to his portfolio, he told Reuters…

“If they (Bashneft and Alrosa) are not under sanctions, I will take a look – as I said, I am looking for more investments in Asia and in Russia but I am an American and I have to be a little bit careful.”

(Editor’s note: Bold added for emphasis)

Golubkova added:

He already has interests in Russian state airline Aeroflot (AFLT.MM), the Moscow Exchange (MOEX.MM) and fertilizer producer PhosAgro (PHOR.MM). He owns some exchange traded funds (ETFs) and is investing in Russian treasury bonds.

“I am looking for more investments in Russia. I am trying to buy into a Russian tourist company, I am optimistic about Russian tourism,” Rogers said, adding that he was also looking to buy more stocks of Russian agriculture companies

(Editor’s note: Bold added for emphasis)

A little over a year ago, I discussed an April 6, 2015, Reuters piece in which Yelena Orekhova and Olga Popova wrote:

Russia could now be “the right place at the right time” for investors, he said. His own portfolio consists largely of Russian shares, he said, among them fertiliser company Phosagro , airline Aeroflot and the Moscow Exchange…

About those “Russian government short-term bonds in rubles” mentioned a week-and-a-half ago, Rogers expounded in the April 12, 2016, Reuters article:

“If I got a chance I would probably buy more,” Rogers said, adding that he was only investing in Russian rouble bonds, not Eurobonds.

“I want to buy rouble bonds, I am more optimistic about rouble bonds than I am in Eurobonds. Rouble bonds have much higher yields.”

(Editor’s note: Bold added for emphasis)

Nice work by Reuters for staying on top of Rogers’ (potential) Russian investments.

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

(Editor’s notes: Info added to “Crash Prophets” page; a qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. The creator/Editor of this blog is 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 contained herein.)

Source:

Goubkova, Katya. “Veteran U.S. investor Rogers looks to add more Russia to portfolio.” Reuters. 12 Apr. 2016. (http://www.reuters.com/article/us-russia-rogers-idUSKCN0X90SC). 17 Apr. 2016.

Jim Rogers’ latest book…

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