Following is the July global outlook from Marc Faber:
Commodities: Even though Dr. Copper bounced off its 200 day moving average, Faber would stay away from any commodity which is dependent on Chinese growth. The probabilities of a significant slowdown or crash in China have increased recently.
Gold: As Faber mentioned last month, gold is undergoing a short-term correction, which is natural during a bull market. The correction could take gold to as low as $1400. This would represent an excellent buying opportunity for investors. To counter the anti-gold crowd, Faber emphatically states that gold has not reached a major top and is likely to trend higher later this year.
Stocks: The stock market is going to rally in the short-term (July-August), but equities will not surpass their previous highs reached back on May 2. After this bounce, Faber believes the market will decline sharply to around 1100 on the S&P 500 (during the September-October period). This is when the Fed will likely consider implementing QE 3 to stimulate asset prices.
Bonds: The rally in US Treasuries is over and investors should take profits.
Dollar: Everyone and his brother loves to hate the US dollar and expects it to decline further. While Faber despises the dollar long-term, he thinks it is attractive compared to the Euro. In fact, Faber recommends investors short EUR/USD as the situation in Europe is likely to deteriorate. The recent bounce in EUR/USD provides a good entry to initiate a short position.
Money Market Funds: Faber is increasingly concerned about holding money market funds because of their exposure to European banks estimated at around $800 billion. This is why the 1 month T-Bill recently went negative. Faber says that he plans to reduce his exposure to money market funds.
Australian Real Estate: If you have been lucky enough to have owned Australian real estate over the last few years, you may want to take profits. The Australian housing market is in a bubble and is very susceptible to a housing crash. The likely catalyst for the sharp decline would be a major slowdown in China, which would depress demand for commodities.
1. Having money is better than not having money.
2. Don’t become “cash rich” and “time poor.”
3. Memories are better than material objects.
4. Watch your “lifestyle leverage,” especially early in your career.
5. Having goals is incredibly important.
6. You must live in the here and now.
7. It helps to be incredibly lucky.
Jeffrey Gundlach / DoubleLine: He used an Andy Warhol car crash painting as an illustration for the housing market. He said that Bank of America $BAC is a proxy for the ABX and says it's going lower. Gundlach likes natural gas.
Interestingly enough, Gundlach said that gold is too heavy to carry around to use as a form of currency to pay for things. Instead, he said to use gems to protect against a crash and uncertainty because they are more portable, noting that you can carry a ruby in your shoe. Gundlach prefers holding cash or gems instead of gold or silver.
As an aside, it's worth noting that diamond prices have been heading higher in recent months. They are not a publicly traded commodity and high demand from India and China seems to be driving prices there.
“Lately, I have been taking a beating from some Chinese real estate developers including one very recently…These kinds of criticisms, these ad hominem criticisms are fine, but what people again don’t seem to be attacking are the facts. The property developer stocks that we’re short have been declining. This has been a good place to be short for the last 18 months. I guess we can rest on that.”
“Actually, our team just got back from China, my research team.”
“The signs of overcapacity were much even greater than their last visit, which was late last year. Increasingly, the executives that they met with were sounding a little bit more uncomfortable about the current situation.”
“If you look at the balance sheet of the developers that claim they are pre-selling…If you look at the balance sheets of the developers, you’d be hard-pressed to see how healthy they were because they are all loaded up with land, just as our developers were at the top of our market. So for every yuan that they are earning presale, they are plowing it back and then some into new land development. They are drinking the Kool-Aid, so to speak.”
“We’ve maintained our pretty much dramatic overweight in our Chinese shorts, and we will leave it at that.”
“What we are seeing now is more cracks on the façade and what they observed, almost quite literally. The buildings that were only two to three years old were already beginning to show some signs of wear and tear…The quality of all this fixed asset construction is becoming sort of suspect.”
“I think this is actually one of the reasons contributing to the bubble in that it is a double edged bet that could turn into a double-edged sword. Investors are counting not only on asset appreciation of fixed assets in China, but they’re counting on the yuan being revalued upward. If it ever became apparent that might go the other way, you could see a real scramble to get out of these assets in China.”
“We have a hedge fund. We have a small, long short opportunity fund, which is a fraction of the size of our total holdings, and in that fund, we hedge off everything. We were short a bunch of developers, individual developers. We hedged it off on the long side with an ETF. We are not bullish. We’re just hedging in our hedge fund.”
“In our hedge fund, which is a small part of our assets, a couple hundred million, less than 5% of our assets, we have longs and shorts. To use the China example, not only are we hedging with the ETFs on the long side, but we own the debt of some of the developers against short positions in their stocks…Increasingly, the real estate developers can’t get bank loans for their project financing in China. They’re now going into the Hong Kong market to raise money in the bond market at very, very high rates, as high as 15%, 20%.”
He knows what he's talking about: he was a top exec at PayPal, founded LinkedIn, angel invested in dozens of hot companies and is now a VC at Greylock Partners. He's seen what works and what doesn't first-hand over and over.
Here are his tips:
- Rule #1: Look for disruptive change.
If you’re about to start on a new venture, ask yourself: What is becoming possible or necessary that wasn’t possible before? Is a new product or service able to take over an existing market or create a new market? When I co-founded LinkedIn the tech industry was in a deep depression. I looked at all the opportunities created by the Internet and had the idea that eventually everyone would need a professional profile online. The disruption was that people were able to directly reach the best candidates rather than hoping for responses from a listing in the paper or an ad on a Web site.
- Rule #2: Aim big.
Regardless of whether a start-up is targeting a big idea or a small one, it will still require the same amount of blood, sweat and tears—so aim big! What is “big?” It is a new product or service that creates or dominates a significant market.
- Rule #3: Build a network to magnify your company.
People tend to think that behind every great start-up is a single entrepreneur with a whiz-bang idea. The reality is great companies are built by a number of people with talent who are surrounded by amplifying networks. The most successful entrepreneurs bring in advisors, investors, collaborators and early customer relationships.
- Rule #4: Plan for good luck and bad luck.
You should always assume you will have both good luck and bad luck with your new company. Good luck is not as simple as “it worked out.” Rather, this is when you discover a great opportunity and can quickly shift to go after it. Bad luck is what happens when your first idea doesn’t work. It doesn’t mean failure; it means you need to pursue plan B.
- Rule #5: Maintain flexible persistence.
Very often entrepreneurs are given conflicting advice: “Be persistent! Stay committed to your vision!” or “Pivot on key data! Know when to change!” The challenge is to follow them both, but know which advice is most appropriate for which situation. You must know how to maintain flexible persistence.
- Rule #6: Launch early enough that you are embarrassed by your first product release.
With my first startup, Socialnet.com, it took us nine months to launch the first product. That was a disastrous mistake. We wanted to have all the detailed functionality right away, including social controls to people could decide to connect or not with the people in their networks. We wanted everyone to “Ooh” and “Aaah” about how terrific the product was. We wasted a bunch of time and it put us months behind on more important problems that needed to be solved, such as how to get our product in the hands of millions of people. From that I learned, if you are not embarrassed by your first release, you’ve launched too late!
- Rule #7: Aspire, but don’t drink your own Kool-Aid.
Target excellence, but be very careful about blind trust or belief in your theories. It is important to launch as early as you can in order to learn how your customers use your product or service. It is equally important to identify metrics that tell you if your aspirations and vision are on target. You should also get feedback from your network in order to iterate or pivot on the target, the product and/or the service. In other words, maintain your aspiration but always look for good perspective on how you are doing. It is very easy for creative innovators to get caught up in their own story rather than learning where they should be headed.
- Rule #8: Having a great product is important but having great product distribution is more important.
I meet a lot of entrepreneurs who think the best product is the most important thing and that the best product should always win. What a lot of people fail to realize is that without great distribution, the product dies. How will you get your product in the hands of millions or hundreds of millions of people?
- Rule #9: Pay close attention to culture and hires from the very beginning.
Your first hires set your culture, so make them good ones. These first people hire the next people and so on. The old wisdom was that you needed people with a decade more of experience in your start-up. The things a smart person learned a decade ago won’t help you now – you’re doing things that have never been done before, and the world and the competitive landscape are changing at hyper speeds. What you really need are people who can learn fast.
- Rule #10: Rules of entrepreneurship are guidelines, not laws of nature.
Do not pay too much attention to rules set by other people. Entrepreneurs are inventors. They are successful when they make something work for the very first time. Sometimes in order to make something work, you will drive over the guardrail of one of these rules. Entrepreneurs sometimes just make new rules.
Ray Dalio's ideas
Dalio on independent thinking:
In order to make money in the market you have to be an independent thinker. And i think also creative, you have to be willing to make mistakes. And so the process is that anybody in the company, if anything doesn't make sense to them, that they can bring up what doesn't make sense to them in a nonhierarchal way and look at whether it's true or not and what we should do about it. We particularly like looking at mistakes or weaknesses that we have in order to get stronger.
Dalio on the dollar's diminishing role as a reserve currency:
I think it's inevitable that the dollar's role as a world currency diminish from the dominant world currency to one of a few and it will happen over a gradual time. We've been very lucky, because the dollar is the world's currency and considered the place that's safe so foreign countries will save there and we've been able to borrow at cheaper rates than we could have otherwise. And so that is diminishing.
Dalio on the two-speed global economic recovery:
The world is broken into two parts now. We have the debtor-developed world. So the United States, Europe and Japan basically are countries which are overly in debt and expensive. Then we have the emerging world. Basically, it's 50-50. Emerging world now accounts for 53% of GDP. The developed world is 47% of GDP.
Dalio on emerging markets:
The one world is booming. The emerging market. Inflation rates and strong growth rate and tied through this currency link to the U.S., Europe and Japan. And as a result, they have totally inappropriate monetary policies because if you have a currency that's linked, you have interest rates that are linked. And it's created totally uneconomic behaviour in those countries. This is going to be the big next seismic shift, I believe. I think that probably something in 2012 it will become intolerable to maintain those currency links and we'll probably have a big shift.
Dalio on US shares:
U.S. Equities first are still comparatively cheap. But more importantly, the flows are beneficial to them because U.S. Equities benefit from currency depreciations. I think, as I say in 2012, the developed countries' currencies will devalue in relationship to the emerging countries' currencies.
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