Every Decade Sure To Have Their Very Own "Dr. Doom"

We usually will laud the bullish experts who got things right. Many will despise the naysayers, the bearish buggers who seem to be always pessimistic. However, some of them have been prescient in their big calls, and deserve to be applauded. You will find them being tagged as the Dr. Dooms, and every decade seems to have a major one. As a Dr. Doom, they will shout loudest when they feel strongly about something going wrong, but usually you will not hear from them when markets turn bullish - not that they do not like bull runs, but its their attention to detail and them usually having a very high disposition to fear that will cause them not to issue buy signals even they see them. Hence when its bullish, and they are quiet, its good. When its bullish and they keep getting louder, its bad.

Not all of them are as good as the title may hint at. I have rated them out of 10, 10 being excellent.

Dr. Henry Kaufman - Dr. Doom of the 1970s & early 80s (my rating 8.5/10)

He was well-known during the 1970s and early 1980s for the interest rate forecasts he wrote for Salomon, and for their bearish views, generally predicting that bond prices would decrease (interest rate would increase). Thus, he earned the nickname "Dr. Doom." Dr. Henry Kaufman is the president of Henry Kaufman & Company, Inc., a firm specializing in economic and financial consulting. He was previously a managing director at Salomon Brothers and was a member of the executive committee in charge of the firm's four research departments.

Dr. Kaufman was also a vice chairman of the parent company, Salomon Inc. Before joining Salomon Brothers, he was in commercial banking and served as an economist at the Federal Reserve Bank of New York. Unwittingly, this Dr. Doom also triggered a major market rally after years of doom and gloom predictions, Kaufman’s prediction on August 17, 1982 that interest rates would fall sparked a stock market rally that can be dated as the beginning of the 1980’s bull market.

Dr. Kaufman's book, On Money and Markets, A WallStreetMemoir, was published in June 2000. In 1987, Dr. Kaufman was awarded the first George S. Eccles Prize for excellence in economic writing from the Columbia Business School for his book, Interest Rates, the Markets, and the New Financial World.

Dr. Kaufman received his bachelor's degree in economics from NYU in 1948, an M.S. in finance from Columbia University in 1949 and a Ph.D in banking and finance from New York University Graduate School of Business Administration in 1958. He also received an honorary Doctor of Laws degree from New York University in 1982, and an honorary Doctor of Humane Letters degree from Yeshiva University in 1986 and from Trinity College in 2005.

Kaufman is known among the insiders in the financial community as a genius at contrarian investing. During the 1970s downturn in New York City he was the buyer of last resort for Con Edison bonds, which resulted in huge gains. Kaufman was buying Con Edison Bonds at 30 percent of face value when the city was told no help was coming from the federal government to keep the lights on in New York. Of course the bonds never defaulted, and the returns were in mega millions to Kaufman.

Kaufman was the largest shareholder of Apple Bank of New York along with many other holdings. He was the financial controller of all of the $320 million Maurice Kanbar received for selling Skyy Vodka and created $190 million in additional profits from this account. One of the investments was buying 32 percent of downtown Tulsa, Oklahoma, at distress prices starting in 2005. Tulsa is one of the few cities that has weathered the U.S. real estate crisis and actually has increased in value. He also was the funding source of capital for Heine Herzog (Mutual Shares which merged with Franklin Templeton), the largest over-the-counter market maker in the U. S. Kaufman also bought buildings in Soho at $30 square foot in the distress times of the 70s and became a legend in value investing when the market climbed to $200 a square foot. His latest venture was going big into Costa Rica real estate last year, let's see if its going to be another winner for him.

Latest Mantras: Kaufman thinks the banks should be broken up ... "A much better approach would be to prohibit any financial institution from remaining or becoming too big to fail. This would require that regulators downsize large financial conglomerates. In this process, the prime targets for divestiture should be financial activities that pose risk to the stability of the deposit function as well as operations that pose conflicts of interest.

Our financial system is at a crossroads. We can either succumb to the forces that are shifting markets toward greater government back-stopping and socialization. Or we can create a structure in which no institution is too big to fail, and a financial system that is supervised effectively by a modernized central bank."

"Why are we so poor at managing our key economic institutions while at the same time so accomplished in medicine, engineering and telecommunications? Why can we land men on the moon with pinpoint accuracy, yet fail to steer our economy away from the rocks? Why do our computers work so well, except when we use them to manage derivatives and hedge funds?"

Kaufman warns: "The computations were correct, but far too often the conclusions drawn from them were not." Why? Selfish, myopic politicians and bankers.

Dr. Marc Faber - Dr. Doom of the 1990s and present time (my rating 6.5/10)

Dr Marc Faber was born in Zurich, Switzerland. He went to school in Geneva and Zurich and finished high school with the Matura. He studied Economics at the University of Zurich and, at the age of 24, obtained a PhD in Economics magna cum laude.

Between 1970 and 1978, Dr Faber worked for White Weld & Company Limited in New York, Zurich and Hong Kong.

Since 1973, he has lived in Hong Kong. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK) Ltd. In June 1990, he set up his own business, MARC FABER LIMITED which acts as an investment advisor and fund manager.

Dr Faber publishes a widely read monthly investment newsletter "The Gloom Boom & Doom Report" report which highlights unusual investment opportunities, and is the author of several books including “ TOMORROW'S GOLD – Asia's Age of Discovery” which was first published in 2002 and highlights future investment opportunities around the world. “ TOMORROW'S GOLD ” was for several weeks on Amazon's best seller list and is being translated into Japanese, Chinese, Korean, Thai and German.

Latest Mantras: Marc continues his bashing of the governments of all developed and overleveraged nations, which he claims will sooner or later default on their obligations. This could be the most scathing critique of the fiat-money system to date, which is the primary cause for the facility with which governments have accumulated untenable debt loads.

"In the developed world we have huge debt to GDP, in terms of government debt to GDP and unfunded liabilities that will come due, and these unfunded liabilities are so huge that eventually these governments will all have to print money before they default."

Faber also said he is turning from a bull to a bear on stock markets in 2010 because there was too much bullish sentiment and whenever there’s a mid-term election then it becomes negative for stocks, “Everybody was looking for further gains in stocks.”

Marc Faber says "the average life span of the world's greatest civilizations has been 200 years ... Once a society becomes successful it becomes arrogant, righteous, overconfident, corrupt, and decadent ... overspends ... costly wars ... wealth inequity and social tensions increase; and society enters a secular decline."


Robert Shiller - Dr. Doom of 2000s (my rating 9.5/10)

Shiller received his B.A. from the University of Michigan in 1967, S.M. from MIT in 1968, and his Ph.D from MIT in 1972. He has taught at Yale since 1982 and previously held faculty positions at the Wharton School of the University of Pennsylvania and the University of Minnesota, also giving frequent lectures at the LSE. His book Macro Markets won first annual Paul A. Samuelson Award.

In 1981 Shiller published an article titled "Do stock prices move too much to be justified by subsequent changes in dividends?" He challenged the efficient markets model, which at that time was the dominant view in the economics profession. Shiller argued that in a rational stock market, investors would base stock prices on the expected receipt of future dividends, discounted to a present value. He examined the performance of the U.S. stock market since the 1920s, and considered the kinds of expectations of future dividends and discount rates that could justify the wide range of variation experienced in the stock market. Shiller concluded that the volatility of the stock market was greater than could plausibly be explained by any rational view of the future.


In 1991, he formed Case Shiller Weiss with economists Karl Case and Allan Weiss. The company produced a repeat-sales index using home sales prices data from across the nation, studying home pricing trends. The index was developed by Shiller and Case when Case was studying unsustainable house pricing booms in Boston and Shiller was studying the behavioral aspects of economic bubbles. The repeat-sales index developed by Case and Shiller was later acquired and further developed by Fiserv and Standard & Poor, creating the now famous Case-Shiller index. His book Irrational Exuberence (2000) – a NYT bestseller, and now you know where that phrase came from (no its not Greenspan) – warned that the stock market had become a bubble in March 2000 (the very height of the market top) which could lead to a sharp decline.

Writing in the Wall Street Journal in August 2006, Shiller again warned that "there is significant risk of a very bad period, with slow sales, slim commissions, falling prices, rising default and foreclosures, serious trouble in financial markets, and a possible recession sooner than most of us expected.” Robert Shiller was awarded the Deutsche Bank Prize in Financial Economics in 2009 for his pioneering research in the field of financial economics, relating to the dynamics of asset prices, such as fixed income, equities, and real estate, and their metrics. His work has been influential in the development of the theory as well as its implications for practice and policy-making. His contributions on risk sharing, financial market volatility, bubbles and crises, have received widespread attention among academics, practitioners and policy makers alike.

Latest Mantras: Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997. Even the federal government has projected price decreases through 2010. As a baseline, the stress tests recently performed on big banks included a total fall in housing prices of 41 percent from 2006 through 2010. Their “more adverse” forecast projected a drop of 48 percent — suggesting that important housing ratios, like price to rent, and price to construction cost — would fall to their lowest levels in 20 years.

Remember a decade ago with "Irrational Exuberance?" Now he's warning: "Bubbles are primarily social phenomena. Until we understand and address the psychology that fuels them, they're going to keep forming. We recently lived through two epidemics of excessive financial optimism, we are close to a third episode, only this one will spread irrational pessimism and distrust -- not exuberance."


Nouriel Roubini - The Latest Dr. Doom, although he is not comfortable with the tag (my rating: 7.5/10)

Nourel Roubini is an economist and professor at New York University. He was one of the only people to accurately predict the current global economic crisis. Roubini started predicting a possible financial meltdown in 2004, and received the nickname "Dr. Doom" after a 2006 IMF meeting. Roubini, once an obscure economist, has become an in-demand analyst due to his uncannily accurate and pessimistic predictions.NY Times: Dr. Doom (August 15, 2008)



Roubini hasn't always been right in his predictions: In an August 2008 interview with Barron's, he said as many as 1,400 U.S. banks could fail. That number has been closer to 200, and it doesn't appear that the Federal Deposit Insurance Corp. and state authorities will have to shutter anywhere near the number he predicted.

He warned that the Federal Reserve and other government central banks are fueling a massive new asset "bubble" that -- while not in imminent danger of bursting -- will someday do so with calamitous consequences.

Here is Roubini's argument: The Fed is holding short-term interest rates near zero. Investors and speculators borrow dollars cheaply and use them to buy various assets -- stocks, bonds, gold, oil, minerals, foreign currencies. Prices rise. Huge profits can be made. But this can't last, Roubini warns. The Fed will eventually raise interest rates. Or outside events (a confrontation with Iran, fear of a double-dip recession) will change market psychology. Then investors will rush to lock in profits, and the sell-off will trigger a crash. Stock, bond and commodity prices will plunge. Losses will mount, confidence will fall and the real economy will suffer.

"The Fed and other policymakers seem unaware of the monster bubble they are creating," writes Roubini. "The longer they remain blind, the harder the markets will fall."

Like home values a few years ago, asset prices have risen spectacularly. Since its March 9 low, the Standard & Poor's 500-stock index has gained more than 50 percent. An index of stocks for 22 "emerging-market" countries (including Brazil, China and India) has doubled from its recent low. Oil, now around $80 a barrel, has increased 150 percent from its recent low of $31. Gold is near an all-time high, around $1,090 an ounce. Meanwhile, the dollar has dropped against many currencies. Half of Roubini's story resonates.

...... So, Roubini's new bubble remains unproved. But this doesn't invalidate his warning. We've learned that there's a thin line between promoting economic expansion and fostering bubbles. With hindsight, lax Fed policies contributed to both the "tech" bubble of the late 1990s and the recent housing bubble, though how much is debated.

“ I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.

The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.”

Latest Mantras: The shorting of USD is the “mother of all highly leveraged asset bubbles” now in progress. Shorts in the US dollar are being built up to unprecedented levels, and are being used to finance the purchase of every asset class, especially in energy, commodities, and precious metals. This bubble will be pricked by a huge snap back rally in the greenback, the exhaustion of Fed support measures, a growth surprise in the US leading to an early Fed tightening, or a real double dip recession. The inevitable collapse will make the last financial crisis look like a cake walk, and take all markets, especially equities, down to new lows.

I Kinda Like Marc Faber

Even though he is know as Dr. Doom, usually bearish, he does talk sense most of the time. He is best known for the Gloom Boom Doom newsletter. He was a managing director at Drexel Burnham Lambert Hong Kong from the beginning of 1978 until the firm's collapse in 1990. In 1990, he set up his own business, Marc Faber Limited. Faber now resides in Thailand, though he keeps a small office in Hong Kong. Faber's company, Marc Faber Limited, acts as an investment advisor company concentrating on value investments with tremendous upside often based on contrarian investment philosophies. Faber also invests and acts as a fund manager to private wealthy clients. Faber is a regular speaker on the investment circuit, often quoted in the financial press for his non-conformist viewpoint and alternative investment philosophies.

By WSJ Staff

Economic provocateur Marc Faber joined a chorus of commentators picking on Paul Krugman’s recent state-of-economics magazine article. Krugman “thinks it would be very good to have another bubble in the world and deal with it later on". Krugman, the columnist and Nobel prize winner, has advocated a strong government stimulus and big deficits to jumpstart the economy.
Faber, a Hong Kong-based investor and author of the Gloom, Doom & Boom report, suggested Krugman’s piece, entitled “How Did Economists Get it So Wrong,” missed the mark. There wasn’t “a single word about excessive credit growth” in Krugman’s article, he said. “He should have written ‘How did I get it so wrong?’”

Faber’s view is that the collapse was due to the massive increase in credit stoked by the Federal Reserve. The Fed and academic economists such as Krugman failed to acknowledge that the borrowing boom would create economic chaos, he said.

Faber was speaking at the CLSA Asia Pacific Markets investor conference in Hong Kong. (Probably as the counterbalance after listening to Sarah Palin speak at the same conference).

Faber, is, to put it mildly, a pessimist. “You can’t find anyone more negative about the world than I am,” he said. “But stocks can still go up,” thanks to continued printing of money. He actually expects stocks overall to rise around 7% a year over the next decade, though in places like the U.S., much of that return will be eroded by inflation, brought on by the increase in the money supply.

The last few years saw the world economy in a synchronized boom, and then bust, a rare thing in economic history. Going back 200 years, capital flowed to some sectors or geographic areas, stoking bubbles, yet other places saw deflation as capital fled.

This latest bubble was different. “You have to give credit to Bernanke and Greenspan. They have achieved something no central bankers have achieved in history. They created a bubble in everything…The only asset that went down from 2002 to 2007 was the U.S. dollar.”

There was one place he said that didn’t grow in the final years of the latest bubble. That was Zimbabwe, which suffered hyperinflation and economic collapse at the hands of dictator Robert Mugabe. The African country was “run by a money printer, Mugabe, a mentor of Bernanke,” Faber said. (That's a bit harsh, I think Bernanke did well, maybe he could have just lashed at Greenspan alone). The crowd chuckled.

Faber told the audience to put money in Asian equities and commodities. He said gold is important, but buy real gold, not derivatives, and keep the gold outside the U.S. The U.S. confiscated gold during the Great Depression, he noted. He, like Warren Buffett, Nouriel Roubini and others, thinks the dollar is destined to erode, though Faber said it could rebound over the next few months as signs of deflation stick around. “The dollar in the long run is a doomed currency,” he said. “This is the short of the century…The government’s policy is to make it worthless.”

p/s photo: Misha Omar

Marky Mark On Markets

Well, we have two Marks. Marc Faber, the famous Dr. Gloom and Mark Mobius, the Yul Brynner wanna-be from Templeton Emerging Markets. Surprisingly, both sounded pretty similar this time around. I generally agree with both, but 20% in 2009 is a bit low to me.

Marc Faber: China and other emerging markets offer value over the next two years as growth picks up, investor Marc Faber said. Investors should buy stocks and other assets in China after the market falls to its 2008 low to profit from an expected recovery, Faber said in an interview with Bloomberg Television. China is the world’s best-performing stock market this year.

“Rapidly growing countries have setbacks from time to time,” Faber, the publisher of the Gloom, Boom & Doom report, said in Hong Kong. “I think we’re going to test the lows again, but over the next two years, it’s probably a good time to invest.”

The MSCI World Index has retreated 18% this year, extending last year’s record 42% slump, amid concern the widening financial crisis and global recession will sap corporate profits. The Shanghai Composite Index, which tracks the larger of China’s two mainland exchanges, has gained 16% in 2009.

China is betting that a 4 trillion yuan ($900 billion) stimulus package and interest-rate cuts will help it reach its 8% growth target this year. The global economy is expected to expand at a 0.5% expansion, according to the International Monetary Fund. Industrial and precious metals are attractive investments after the Reuters/Jefferies CRB Index of 19 commodities “collapsed,” Faber added. The CRB Index has dropped 8% this year, adding to the 36% retreat in 2008.

“Asset markets have already discounted a lot of the bad economic news,” he said. “ Some assets like commodities are very, very inexpensive.”

Faber had advised buying gold at the start of its eight-year rally, when it traded for less than US$300 an ounce. The metal topped US$1,000 last year and traded at US$932.78 an ounce today. He also told investors to bail out of US stocks a week before the so-called Black Monday crash in 1987, according to his website. He continues to favour gold, which has gained 19% in the past six months because currencies including the US dollar are “not desirable”. Stock markets are “not particularly expensive” and investors should consider buying them in anticipation of a recovery, Faber advised. The MSCI global index is valued at 11 times reported earnings, half its 10-year average multiple of 22.

“We also have a lot of equities that are not particularly expensive because they’ve collapsed,” Faber said. “These are relatively sound companies and whenever the recovery will come, they will be in a strong position.”

Mark Mobius: Veteran fund manager Mark Mobius sees a potential 20% rise in emerging market stocks in 2009 and views extreme investor pessimism as a signal to gradually start buying equities. "The danger we face now is being too pessimistic," Mobius, the executive chairman of Templeton Asset Management, a division of San Mateo, California-based Franklin Templeton Investments, said in a telephone interview with Reuters.

“We are seeing that slight bottoming out, that we have to be cautious of because if we are caught with too much cash, specifically when we are looking at very good bargains, then we are going to be in trouble with our investors,” he said.

Latin America and Asia are the two favoured regions with China and Brazil among the top country picks. Select countries such as Egypt and Turkey stand out among harder hit regions. “Eastern Europe is pretty much a disaster”. He believes China’s stimulus plan will help it achieve its 8% GDP growth target this year, helping pull up Asia which increasingly sells more of its goods to the world’s third largest economy. Brazil’s diversified economy and growing consumerism also make it attractive, he said.

Mobius manages roughly US$20 billion in emerging market assets out of the firm’s US$377 billion assets under management. Asked how high emerging market stocks might go by year-end: “If you really press me I would say 20% would not be unlikely, and the reason I would say that with some degree of confidence is that we have already come up.”

MSCI’s emerging markets stock index fell 54.48% in 2008. While the index is down 9.46% year-to-date, it has risen more than 15% from its four-year low in October. The Templeton Developing Markets Trust, the main US registered fund Mobius manages, is down 11.44% so far this year after dropping over 57.77% in 2008, according to Reuters data. Cash levels for his portfolio fluctuate between the preferred level of zero and 7% he said. He characterises them as “normal, or certainly not higher than normal”. During the 1997–98 Asian financial crisis, cash levels in his funds reached 20%.

While market volatility may not be over, a market bottom could be in place, Mobius said when asked at what point in the next 12 months investors might claim they’ve cleared a hurdle. “I’m saying that now. I'm feeling that now because of the incredible pessimism that you see everywhere. That usually is a pretty good sign that we are over the hump,” he said.

“Almost universal pessimism is usually a very good time to be buying equities because equities lead the economy,” by six months to a year he said. Famous for his globe-trotting and “on the ground” research, Mobius said of a recent trip to Latin America that while companies were preparing for the worst, customer orders were still coming in and “a lot of them” are maintaining steady investment programmes. On the ground things look OK but with a slower pace. That is on the investment side. The valuations now are very very attractive, even if we do a big markdown on earnings,” he said.

p/s photos: Nia Ramadhani

The Men With The Golden Gun

Readers of this blog will know that I have a long position still in gold as I expect real assets to come to the fore in the wake of excessive liquidity injection and the upcoming decimation of value in major currencies. There have been two parties who have just come out with bullish calls on gold, namely Citigroup and Marc Faber. While I am certainly not as bullish as Citigroup, which said that $2,000 for gold is possible, I do think $1,250 is probable by end 2009.

The bank [Citigroup] said the damage caused by the financial excesses of the last quarter century was forcing the world’s authorities to take steps that had never been tried before. This gamble was likely to end in one of two extreme ways: with either a resurgence of inflation; or a downward spiral into depression, civil disorder, and possibly wars. Both outcomes will cause a rush for gold.

“They are throwing the kitchen sink at this,” said Tom Fitzpatrick, the bank’s chief technical strategist. "The world is not going back to normal after the magnitude of what they have done. When the dust settles this will either work, and the money they have pushed into the system will feed though into an inflation shock. Or it will not work because too much damage has already been done, and we will see continued financial deterioration, causing further economic deterioration, with the risk of a feedback loop. We don’t think this is the more likely outcome, but as each week and month passes, there is a growing danger of vicious circle as confidence erodes,” he said.

“This will lead to political instability. We are already seeing countries on the periphery of Europe under severe stress. Some leaders are now at record levels of unpopularity. There is a risk of domestic unrest, starting with strikes because people are feeling disenfranchised.”

“What happens if there is a meltdown in a country like Pakistan, which is a nuclear power. People react when they have their backs to the wall. We’re already seeing doubts emerge about the sovereign debts of developed AAA-rated countries, which is not something you can ignore,” he said.

Gold traders are playing close attention to reports from Beijing that the China is thinking of boosting its gold reserves from 600 tonnes to nearer 4,000 tonnes to diversify away from paper currencies. “If true, this is a very material change,” he said.

Celebrated contrarian investment advisor Dr. Marc Faber told Bloomberg television last weekend that he was buying gold exploration stocks as well as gold producers because prices were ridiculously cheap.

Dr. Faber wrote the book Tomorrow’s Gold earlier in this decade and has long been a holder of physical gold as a hedge against inflation and a meltdown in the global financial system. But he has previously not recommended buying exploration stocks, arguing that they could fall in price and that many companies could go out of business.

Given the huge slump in the values of gold exploration stocks over the summer he has, once again, been proven correct. However, the investment guru is now preaching with all the enthusiasm of a convert to the cause. Gold exploration stocks are leveraged to the gold price. Last week Citigroup - which Dr. Faber says should have been left to go bankrupt and not bailed out by the US government in a $306 billion deal last week - said gold may go to $2,000 an ounce in 2009.

Granted the link between the gold price and exploration stocks - remember the latter own the rights to potential future gold field development rights or claims - then such a price hike would mean an even bigger increase in the value of exploration stocks. That these stocks have been beaten down to almost nothing in the recent stock market crash just makes them a better buy. Dr. Faber is the first major commentator to make this call - and it comes against the worst performance in this sector in 40 years.

p/s photos: Kae Chollada