...how does it compare to my thoughts...

[caption id="attachment_1853" align="alignright" width="216" caption="Photo by kevincollins"][/caption] Last Friday, I was invited to Business Times dialogue with Dr Marc Faber - The Financial Crisis - where we are now and where we are headed.  Also presenting was Dr V Nageswaran from Bank Julieu Baer. The Ritz Carlton Ball room was packed. We had the pleasure of two Dr Dooms and rather than go through what they said - I will just summarise what I think are the key points in the seminar from both speakers: a) the decade up to 2007 was a lost decade. There was no wealth creation only asset inflation from excessively soft interest rate policies by the Fed which tried to use low interest rates to get itself of every problem including LTCM. b) this same soft interest rate policies as well as fiscal policies might aggravate and prolong the current downturn. These same policies will once the deflation cycle has ended lead to a period of rampant inflation c) despite low interest rates and aggressive monetary and fiscal policies - the world is entering a severe and prolonged period of deflation due mainly to deleveraging - which is only about how done. d) the waves of selling in all asset classes comes from this deleveraging process which enters period of accelerated selling when certain asset classes are downgraded to junk status. e) another big bubble yet to burst is US Treasuries - its only a matter of time before this happens f) the recent US$ strength comes from the decline in the US Trade deficit and is only expected to be for a short while, ie expect US$ weakness later this year as the destruction of wealth in the US will take many years to rebuild. It took the Dow more than 20 years to recover above its post 1929 depression levels, ie such a massive crisis usually damages the economy and society for some time g) they expect the UK economy to be more badly affected than the US and the British pound to become the British peso h) China can become a new source of demand for the global economy but this will take time. They felt that China would struggle to do 8% GDP growth this year with a more likely figure being 4-6% So very broadbased trends with no index targets and levels for us to work with nor were there any stock recommendations. But they did like and dislike certain assets. These are: Like a) gold, crude oil and maybe soft commodities once the Global economy stabilises b) Asian banks and Asian corporate bonds c) Asian plantations d) Asian healthcare Dislike a) avoid real estate in financial centres (I guess this means Singapore and HK) b) avoid hotels, casinos and beach resorts - potential oversupply problems c) infrastructure - bottleneck problems and possible order cancellation My thoughts Both speakers confirmed my view that the worse is yet to come and we can expect more waves of selling as more asset classes are downgraded. They also confirmed that the very loose monetary policy will not work. To me only fiscal policy can work now when we have a credit crisis. They confirmed my positive view on Gold which I think will head to US$1200 an ounce and that crude oil is now grossly undervalued given steady state global demand and supply. What is most worrying was the comment about the more than 20 years after 1929 that the Dow took to recover because of very severe damage to the US economy and consumer. This is bad for open economies like Singapore which don't have sufficient domestic demand to support growth. No change in my index targets of 5500 for the Dow and 1200 for our own STI Index which I believe will see these levels over the next six months. Don't look at Earnings or PER valuations anymore because the E is very uncertain. Look more at solvency ratios and debt levels and the ability of the company to bear through a two year recession. I think we can start looking to accumulate stocks probably into Q4-2009. Meanwhile, we should build up our "Big One" short list. The Bear is not dead and probably still has a few more months (years) of life left if these two doom sayers are to be believed. Source: NRA Capital - Kevin’s Blog