Marc Faber on the global economy, bubbles, and inflation

Marc Faber offers some forecasts for the global economy in this recent Dubai hedge funds world conference video. 

Faber makes 2 important points at the outset of this talk.

First, he notes that at the start of his career (1970) investment banks were all private partnerships. Not a one was a publicly traded corporation, whereas today most large banks are listed corporations.

As a result, the risk profile at investment banks has completely changed from the days when partners at investment banks were personally liable for other people's mistakes. Today, bankers risk other people's money and face no real consequences for their mistakes. In fact, they are often bailed out with taxpayer funds when they go bust.

Secondly, Marc points out that the (neo-) Keynesians want to make interventions in the capitalist economy and "smooth out" the business cycle with fiscal and monetary measures. 

In Faber's view, these interventions have actually made fluctuations in the business cycle more violent and extreme. As he puts it, "the Keynesians always try to address long-term structural problems with short-term fixes...with an emphasis on creating bubbles to "help" the economy. Whereas bubbles usually hurt the majority of market participants." 

Check out the full presentation above for Faber's thoughts on how to navigate our global course of negative real interest rates, understated inflation, serial bubbles, and centrally planned markets. 

If you're enjoying these posts and would like to see more, please subscribe to our free RSS updates and follow Finance Trends in real-time on Twitter and StockTwits. You can also check out our related posts below for more market wisdom and trading insights.  

Related posts: 

1. Marc Faber: final crisis yet to come (video).

2. Nassim Taleb on Anti-fragility.

Patents and copyright? "Great artists steal"

Came across this clip of Apple CEO, Tim Cook complaining that the ongoing tech patent wars are a "pain in the ass".

Granted, this is a topic that's recently been covered by Mark Cuban, or going farther back, by Bastiat in his "Three Stages of Invention".

However, one could look beyond Tim Cook's complaints to examine the very idea of the supposed necessity of patents and copyrights. The book, Against Intellectual Monopoly does just that, arguing: "Patents and copyrights do not promote economic progress but impede it."

Note this passage, from the same book, which calls attention to the fact that patents can block the market's progress by preventing product imitation, development, and refinement:   

"Imitation is a great thing. It is among the most powerful technologies humans have ever developed … imitation is a technology that allows us to increase productive capacity. Innovators increase productive capacity directly...". 

Without Matisse, would we know Picasso? Steve Jobs quoting Picasso: "good artists copy, great artists steal."

Nassim Taleb on Antifragility

Nassim Taleb on Antifragility, interview at EconTalk (Hat tip: Nancy Miller).

Key early point from Russ Robert's chat w/ Taleb on fragility vs. "antifragility": 

"...Art [Devany] gave me a lot of ideas and suddenly everything flashed together, when I made the distinction between two types of systems, the organic and the non-organic.

The organic has the property that the difference between the living and the dead, the living and the non-living; the living, between living and a machine for example, requires stressors. That's how the complex systems communicate with their environment. You need a stressor. As with the bones, with your muscles, a lot of things. And usually overcompensate for the stressors--there is a mechanism in biology called hormesis. This table I have in front of me will never get better if I bang on it. Use it and lose it.

On the other hand, the human body gets better if it is exposed to the right amount of stressors. Of course, you have to define the stressor and the quantity of stress. But then that makes a difference between two worlds--the organic and the engineered. 

And now, if you can apply that to economic life--is economic life in the first or second category? If it's in the first category then we should have bailouts, top-down engineers, everything. If it's in the second category then sorry, you know, it doesn't work that way..." 

Enjoy the discussion, hope it stirs some reflection. 

Puplava: listen to what the markets are saying

While catching up with Chris Puplava's latest market update last night, I had to stop and share some of his words with our followers on Twitter. 

Read the opening of Chris' article, "Stop Talking and Start Listening!". You'll find some worthwhile comments on interpreting data and the importance of maintaining accountability in one's market calls. 

"...Far too often investment managers and economists spend more time espousing their views and then defending them until eventually proven right (“I was just early”), rather than spending more time analyzing their assumptions and being honest enough to say, “I WAS WRONG!” and then moving forward. 

Part of the problem is that they create a view and then find evidence to support their views rather than starting from the bottom up by collecting an exhaustive amount of data and then summarizing the collective message rather than their views. 

Basically, listen to the message of the markets and then interpret those messages rather than telling the markets what they should be doing. What the market IS doing is far more important than what you think the market SHOULD be doing..." 

This is an excellent summary of one of the biggest problems I see in the 24/7 cycle of market commentary and trading. People have become too enamored of their own market view/"thesis" and too concerned about the risk to their reputations to come out and admit they're wrong.

Of course, if you are tied to a certain view or position and can't admit you are wrong, it could have an adverse effect on your trading or investing returns. Some people may hesitate to cut their losses on a bad trade or reverse their position (say, by going from short to long on a certain security or asset) if they've anchored themselves to a privately held or publicly expressed view.

Now that blogs and real-time social networks have allowed us all to become "mini-pundits", the risk of spouting off in public and ignoring the message of the markets has shifted down from media stars and big-name fund managers to the rest of us. 

But guess what? That also provides us with an opportunity to face the music and occasionally admit we were wrong about something, which may actually help build trust with our audience (and in ourselves) in the long-term. 

Because let's face it: no one wants to listen to someone who is never wrong and is always (magically) right. Why? Simple. Such people don't exist, oracles and sages of mythology aside.

Now back to the macro view. Despite some well-known recent calls for recession from ECRI and others, Puplava feels the markets and economy are in "bullish harmony" and are sending us a message that there is no bear market or recession ahead. Take a look at the article and examine the arguments for yourself. 

And remember, hold yourself accountable for your own market actions and judgements. Try not to impose your views on the market, and try to be flexible in your trading, especially when it comes to admitting you are wrong about something. Your thinking and your results might improve!

Related articles and posts: 

1. Zen and the Art of Trading.

2. What makes a great trader? Managing risk.

Friedrich Hayek on Keynes (1978 interview)

F.A. Hayek discusses John Maynard Keynes in this 1978 interview clip.

Frederic Bastiat - The Law

"The law perverted! And the police powers of the state perverted along with it! 

The law, I say, not only turned from its proper purpose but made to follow an entirely contrary purpose! The law become the weapon of every kind of greed! Instead of checking crime, the law itself guilty of the evils it is supposed to punish!

If this is true, it is a serious fact, and moral duty requires me to call the attention of my fellow-citizens to it." - Frederic Bastiat, The Law (e-book, English translation).

Related articles and posts: 

1. Biography of Frederic Bastiat (1801-1850) - Mises.org.

2. The Law by Frederic Bastiat (audio book) - Free Audio. 

3. Works of Bastiat and web links - Bastiat.org.

Rewards for Failure

"The United States has lost its way".

Greg Simmons at ScopeLabs riffs on the rise and fall of nations and our bailout society in this excellent six minute YouTube video. 

Greg hipped me to this clip after I mentioned how I had enjoyed some of his Skype interviews with Matt Davio. From the moment I saw their first taped discussion, with Greg standing there in his Black Flag t-shirt, ready to talk trading and current events off the cuff, I knew I had found someone on my wavelength. 

This clip is a must-see, plain truth indictment of our societal decline. Will America wake up from its national brain-coma in time to right itself? Watch and learn, friends...watch and learn.

Black markets: a global $10 trillion economy

Excellent article from Foreign Policy entitled, "The Shadow Superpower", which examines the world's $10 trillion underground economy.

"You probably have never heard of System D.

Neither had I until I started visiting street markets and unlicensed bazaars around the globe.System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards.

To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of "l'economie de la débrouillardise."

Or, sweetened for street use, "Systeme D." This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy..."

Why the attraction to this unlicensed, improvised economy? Because that's where the jobs are, and where flexibility exists for entrepreneurs and traders/merchants to come in and do their thing without burdensome costs of regulation, licensing, and taxation (i.e., red tape). 

"...It used to be that System D was small -- a handful of market women selling a handful of shriveled carrots to earn a handful of pennies. It was the economy of desperation. But as trade has expanded and globalized, System D has scaled up too.

Today, System D is the economy of aspiration. It is where the jobs are. In 2009, the Organisation for Economic Co-operation and Development (OECD), a think tank sponsored by the governments of 30 of the most powerful capitalist countries and dedicated to promoting free-market institutions, concluded that half the workers of the world -- close to 1.8 billion people -- were working in System D: off the books, in jobs that were neither registered nor regulated, getting paid in cash, and, most often, avoiding income taxes. "

This is a trend I've talked about a bit on Twitter, but haven't covered here on the blog. Be sure to check out the full piece. It's well worth your time, and these trends will likely take hold here in the USA for similar reasons.

5 predictions from 'Trader Vic' Sperandeo

Victor Sperandeo makes 5 "Frightening Market Predictions", as well as a few policy prescriptions for the USA in this Real Clear Markets piece. Here's a taste: 

"...1. The U.S. is going into recession.

This is being entirely caused by the woefully misguided fiscal policies of the Obama administration.

Their anti-business, socialist agenda is killing the "Golden Goose" (i.e. Capitalism). Raising the costs for small and big business via tax hikes, Obamacare, and massive regulation is in effect causing a capital "strike" by entrepreneurs. As a result, GDP is going to decline..." 

Recession is not the only thing on Trader Vic's mind. Head on over for a few thoughts on gold, the future of the EU, hyperinflation, and the global bubble in debt. 

Plus, a few key changes that may help the US fix its problems and change our course for the future (only wish Victor had some more time and space to really flesh these out). Check it out. 

Long bonds flying on Operation Twist - $ZB_F $TLT

Earlier this afternoon on Twitter, I noted that the long bond ETF, TLT was up over 10% (then quoted near $114.60) since S&P downgraded the USA's debt rating to AA+ on August 5, 2011.

Well, it looks like we'll have to update those stats already, thanks to the pop in 30 year bonds (ZB_F) and in TLT on news of Operation Twist, the Fed's telegraphed scheme to sell $400bn of short maturity bonds and reinvest in longer (6 to 30 year) bonds by June 2012. 

Here's how the market reacted to that news. Note the flagpole move up in TLT and the 30 year Treasury futures, ZB_F on the intraday charts. 

 Above: 5 minute chart of the 30 year Treasury futures, via Finviz.com.

Here's an intraday chart of TLT, courtesy of freestockcharts.com.

The updated daily chart of the TLT, marking the August 5th closing price to today's action on the Twist announcement. Chart via freestockchats.com.

So in the space of 20 minutes, we had to recalculate that 6 week return figure (post S&P debt downgrade): the long bond ETF TLT is now up 13% since its close on August 5th, based on an intraday price of $117.70

What a difference a day makes...

Did the recession ever really go away?

"Their stupid and profligate stimulus did not work." 

That's the verdict of Jeffrey Tucker's new Mises.org article, "Did the Recession Ever Really Go Away?".

As Tucker points out, the massive stimulus programs and bailouts of the past three years (under Bush and Obama) haven't amounted to a hill of beans in terms of actual economic improvement. 

Has the average American's lot in life been improved due to these measures? No, but they have helped save some politically-connected institutions (banks, unions, insurers) and given the appearance of government doing something to "help" matters. 

Here's an excerpt from that piece: 

"The screaming pleas from the political class in 2008 weren't really about finding a cure. They were about saving the top players (banks, unions, insurers) in a system that was built on illusion.

According to official dating, the recession lasted only 18 months, and then recovery began. The belief that we are recovered then became the new illusion, mostly fostered by the injection of phony money and massive spending built on debt. As college grads faced a hostile labor market, as retailers dramatically shrunk inventories, as businesses have closed and closed, as income has shrunk, and as prices have pushed higher and higher, the feeling on the part of most people has been: something is not right...". 

Do have a look at the full piece. You'll find some skillfully woven intro paragraphs, thoughts on why the stimulus simply won't work, and a list of suggested reading material on Austrian economic principles and freedom. Pass it on.

Austrian economics and financial markets: Kevin Duffy interview

Mises Institute's Jeffrey Tucker interviews hedge fund manager, Kevin Duffy (Bearing Asset Mgmt.) to discuss Austrian economics and navigating the financial markets with an Austrian perspective.

This is a must watch, must hear discussion on basic economic principles and the problems of crony capitalism and the "political economy" that have grown out of the bailouts and stimulus-fueled responses to the 2007-2008 financial crisis.

QE and QE2 have helped spur a two year rally in the stock market, but Duffy argues that these easy money policies have created many harmful unintended consequences. Check out the full interview for insights into how Duffy and his firm use their Austrian viewpoint to analyze economic trends and invest in the capital markets.

Related articles and posts:

1. Marc Faber at Mises Circle: final crisis is yet to come.

2. Navigating the Financial Markets with an Austrian Compass (w/ Kevin Duffy).

Hedgeye on government shutdown

Must read note from Keith McCullough at Hedgeye on the government shutdown:

"Finally, we’re here. This week we’re finally going to see US Professional Politicians face the door that’s closing on their conflicted and compromised careers of debt-financed-deficit-spending. This isn’t the time to give into their fear-mongering. This is going to open he door for a generational opportunity in America. This is great news.

On Friday, the stop-gap bill to keep the US Government open for business expires. With $14,272,778,776,442 in US Debt + another $55,800,000,000,000 in unfunded Medicare and Medicaid liabilities, I say shut these politicians down. The biggest risk to America today isn’t what’s happening in the Middle East or Japan – it’s the 112th Congress..."

Keith just linked to this Monday research note on Twitter and I had to post it here. Hope you'll take a moment to read it and pass it along.

Is QE fueling commodity, food price inflation?

Is the Federal Reserve's quantitative easing policy fueling inflation in asset prices, including the price of commodities and foodstuffs?

That seems to be the big question in recent days, as civil unrest in Egypt and in other parts of the Middle East and Asia demonstrate how long-simmering tensions can quickly boil over when grain prices rise and the spectre of food shortages looms over a population.

The recent situation recalls the commodity and grain price surges of 2007-2008, when food stocks were diminishing and shortages and worries over food riots were a global phenomenon (and news item). Then, as now, grain ethanol and "excess speculation" were offered up as contributing causes to rising food prices.

Image via: FAO Food Price Index.

So what about the role of quantitative easing and increased money creation by the Fed and other central banks? Might that sort of liquidity operation be fueling a rise in asset prices across the globe?

Or are prices rising due to demand from increased populations and rising wealth in emerging nations as Fed Chairman Ben Bernanke would have it?

Last night, while reading through some interesting reactions to this topic on Twitter, I decided to do a little quick research and see what sort of answers I could find. As rising food prices and global inflation have been a big theme with economists and macro analysts in recent months, it didn't take long to find some worthwhile articles and posts addressing this topic.

One particularly interesting article from October 2010 anticipated a great deal of what we currently see unfolding in the world. Here's an excerpt from, "Bernanke sets the world on fire":

"...In 2007-2008, Bernanke's loose monetary policy fueled unprecedented commodity price inflation. But Bernanke put the blame on China and on oil producers.

So far in 2010, the price of crude oil has jumped by 27%, of corn by 63%, of wheat by 84% , of sugar by 55% , and of soybeans by 24%. Without the Fed's unprecedented loose monetary and near-zero interest rates, it would have been highly unlikely for commodity prices to increase at these alarming rates...

...The frightening food price inflation has raised the specter of another food crisis and food riots... Since liquidity for commodity price inflation is abundant and cheap, food price inflation could run up, stall world economic growth and spread social unrest. "

Certainly many other factors, including the use of food for ethanol, growing populations, increasing standards of living (changing diets), weather events, and gradual loss of prime arable land to urbanization are playing a large role in ongoing food price rises.

Still, is it possible that the role of cheap money flowing into asset markets (including commodities) is an under-acknowledged spark fueling higher prices?

Related articles and posts:

1. Bernanke says policies boost stocks, not food prices - Barron's.

2. Countering the myth that "World is running out of food" - Big Picture Ag.

3. FAO food price index and reports - United Nations, FAO.

Marc Faber on Davos, "dishonest" Obama (Bloomberg TV)

Newsy: Marc Faber talks to Bloomberg TV about Davos, the disastrous 1st term of our dishonest President Obama, the illusion of deficit spending prosperity, and more.

If you're a regular here, you already know how much we love the straight-shooting Dr. Faber. This latest chat is one more example of Faber's natural ability to cut through the propaganda and nonsense and get straight to the heart of matters.

Have a listen and catch Marc's latest thoughts on the US and emerging markets, the "global agenda setters" of Davos, bonds, inflation, and gold. Enjoy.

Related articles and posts:

1. Marc Faber: final crisis yet to come - Finance Trends.

2. Jim Rogers at Reuters 2011 Outlook Summit - Finance Trends.

On the value of financial blogging

Does blogging provide any real value for market participants, students of the markets, or blog readers?

I recently came across a few posts and discussions that speak directly to this question, and seem to answer back with an emphatic "yes" on all counts.

First, let's take a quick look at Michael Bigger's recent post in which he states that 99 percent of traders are missing out on the benefits of blogging.

Michael highlights a short clip of Seth Godin speaking about the advantages of writing a blog and how the act of writing helps to sharpen one's thinking and understanding of the subject at hand.

He adds that a trader's blog is his home base, and that everyone should think of blogging as their "thinking out loud" platform. I could not agree more with his visualization of the blog as an idea scrapbook or journal, as this was the initial purpose for Finance Trends Matter, but check out Michael's post and hear his (and Seth's) view on the subject.

I also want to highlight two worthwhile clips from StockTwits TV. First we have Tadas Viskanta at Abnormal Returns discussing the value of financial blogging.



As he makes clear in this discussion, the costs of and ease of entry to blogging have come down to the point where just about anyone get started writing their own blog. There are still risks (sometimes reputational), but the value of archiving one's thoughts and receiving feedback from engaged readers is a great benefit to investors, traders, researchers, and entrepreneurs.



You'll also find a link in Tadas' post to a new interview with Charles Kirk (The Kirk Report), one of the "godfathers" of the market blogosphere, who discusses his writing and trading methods with Howard Lindzon.

Be sure to check out some of the related items mentioned in Tadas' talk, and think about starting your own blog (or engaging with those you follow) to help you journal your ideas and learn from others in the financial blogging and trading world.

Finance Trends: The Best of 2010

We're wrapping up some of your favorite posts (and mine) for this Finance Trends "Best of 2010" features edition.

You'll find key interviews with leading businessmen and investors, along with the best of this year's posts emphasizing the strong trends and events that are shaping our country, our investment markets, and our world.

Without further ado, here are some key posts highlighting the big picture trends we've witnessed in 2010, some of which may continue to unfold in 2011 and beyond.

1. On a Return to Classical Education. Your educationally-deprived editor muses over the benefits of a Classical education, and how such a foundation in thinking might help us as investors and as citizens of the world.

2. Marc Faber: Final Crisis Yet to Come. Wonderful presentation by Marc at this year's Mises Circle in NYC, offering a crucial take on US monetary policy and the likely outcomes of the Fed's "quantitative easing" experiments. Video and presentation slides included.

3. Niall Ferguson on Fiscal Crises and Imperial Collapse. Must hear presentation from Ferguson offers a historical overview of government debt crises. Highly relevant back in May and only more so now that the developed nations' sovereign debt crisis continues to unfold here at year-end 2010.

4. LTCM and the Lessons of Failure. Thoughts on hedge fund collapses (and fund manager resurrections), the money manager merry-go-round, risk management, and the dangers of overconfidence.

5. Must Hear Interview with John Burbank of Passport Capital. Part of our series on global macro investors and hedge fund managers, this excellent discussion with John Burbank comes to us via Benzinga podcast.

6. Michael Burry: An Up & Coming Macro Star? An in-depth look at Michael Burry's gradual transition from a US stock-focused value investor to an international, global macro investor.

Includes an unedited transcript of Bloomberg TV's interview with Burry, in which he offers his views on the economy, investing, and his famous subprime short trade.

7. Jim Grant, John Hathaway and Peter Munk sit down with Charlie Rose to discuss gold as money, the causes of the recent final crisis, and likely outcomes of Fed and government intervention in the markets.

8. John Allison on "Leadership and Values". The former CEO and Chairman of BB&T bank speaks to Virginia's Darden School of Business on the importance of adhering to a sound ethical framework and engaging in "win-win" business transactions. Excellent talk on the spirit of true capitalism and personal responsibility.

That's all for 2010. Please join us for more in 2011, as we explore the coming year's macro investing themes and future economic events.

You can keep up with us in the meantime through our real-time updates on Twitter and StockTwits or via the Finance Trends RSS blog feed. Have a Happy New Year!

*Photo credit: Floor of the New York Stock Exchange via LOC.gov.

Jim Rogers at Reuters 2011 Outlook Summit

Jim Rogers said that the US government's inflation data was "a sham" and that interest rates would be heading "much, much higher" in the next few years while speaking at the Reuters 2011 Outlook Summit.

You'll find video of his chat w/ Chrystia Freeland at Investment Postcards or you can check the related video links in this Reuters article to see the full panel discussion.

As usual, Jim pulls no punches while discussing Ben Bernanke's foibles as Fed Chairman and the difficulties facing the US and European economies as inflation and runaway deficits take their toll.

He also points out some potential bright spots that could come about if the US government were to reduce its out of control spending and simplify (or do away with) the tax burdens on its citizens. Long term strength of the developing economies, commodities, and the rise of Asia are also highlighted.

Monday links: The Bernank, Macro view, & more

Came across some worthwhile links from the blogosphere and Twitter today, and thought I'd point you to 'em.

We've got some videos and posts on The Ben Bernank, a macro view of the economy and markets, interviews with Bruce Berkowitz and David Einhorn, and more for you in today's links.

1. Bear Mountain Bull wraps up some recent interviews and links on The Ben Bernank.

2. Abnormal Returns brings us 3 non-Bernanke videos, including interviews with investors Bruce Berkowitz and David Einhorn.

3. Catching up on the Macro view with Gregor Macdonald and the health of the stock market with Joe Fahmy.

Peruse what you like, leave the rest. Remember, our ability to process and retain information is finite, so focus on what's most important to you in your pursuit of market education and limit your exposure to extraneous "noise".

Thanks, as always, for stopping by.

Links: Insider trading, minimalist traders, & more

Here's what I'm reading and checking out today:

1. John Carney says, "The government's insider trading rules are still insane!"

2. 47 mind-blowing, psychology-proven facts you should know about yourself.

3. Lew Rockwell interviews Jim Grant, of Grant's Interest Rate Observer. Topics: the classical gold standard and Austrian economics.

4. Chicago Sean's series on The Minimalist Trader is inspired reading.

5. A way to "play" Mongolia? Part of a very cool series of posts on global investing from Adventures In Capitalism.

Stop by tomorrow, we may have a very interesting interview to share with you ahead of the Thanksgiving holiday. Until then, you can catch us on Twitter and StockTwits. Ciao!