Wednesday, 5 September 2012

More Gloom from Dr Doom

From the latest Gloom, Boom & Doom Report from Dr. Marc Faber:
  • For decades, one dollar added to GDP in the US was tied to $1.40 in additional debt.
  • The "Greenspan growth model" has driven it to a record high, for one dollar of additional GDP, lately, there are $4 in additional debt (Greenspan and some helpers being the architects of the greatest credit bubble in economic history)
  • Faber recommends to reduce US equity positions, and he also not sees any great value in Asian markets, with very few exception
  • He remains faithful to physical gold, aiming at 20-25% weighting in his portfolio
  • The only possible outcome is a complete breakdown of the system such as we know it today. The only thing we don't know is what economic conditions will precipitate this breakdown and when it will occur (high inflation, or a deflationary bust, or war, or possibly all three)
  • This is not a time to maximize profits and to take huge risks. A well diversified portfolio of different asset classes will somewhat insulate investors from catastrophic losses.

Guest writer Geoffrey Batt made an equity risk table of 38 countries, comparing 2013 earnings yields on equity to the yield of a 1-year deposit rate.

Malaysia is 32nd on the list, with earnings yield of 7.5% versus deposit rate of 3.2% for an equity risk premium of only 4.3%, one of the lowest in the list. Singapore looks better with an earnings yield of 8.1% versus deposit rate of 0.3% for an equity risk premium of 7.8%.

Top of the list are beaten down countries like Iraq, Italy, Greece, Spain, France and (rather surprisingly) Hong Kong.

At the bottom of the list some countries that have high deposit rates like India, Turkey, Vietnam and Pakistan.


  1. The list seems not realistic. India and vietnam is experiencing hyper inflation. Maybe they view from other perspective.

  2. Agree, because of inflation interest rates are high.

    It is meant to be relative: if interest rates are high (because of inflation) and earnings yield is low, why bother to invest in shares, just take the fixed deposit interest rate.

    But it is just one indicator, and even in an "unattractive deemed" country there could still be a huge bargain.