Dr.

Marc Faber

Market Commentary March 1, 2011

There is Nothing more Dangerous than a Powerful Fool

Marc Faber

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Dr. Marc Faber

Market Commentary March 1, 2011

There is Nothing more Dangerous than a Powerful Fool

"In Aristotelian terms, the good leader must have ethos, pathos and logos. The ethos is his moral character, the source of his ability to persuade. The pathos is his ability to touch feelings, to move people emotionally. The logos is his ability to give solid reasons for an action, to move people intellectually." Mortimer J. Adler "Outstanding leaders go out of the way to boost the selfesteem of their personnel. If people believe in themselves, it's amazing what they can accomplish." Sam Walton "There is suffering in life, and there are defeats. No one can avoid them. But it's better to lose some of the battles in the struggles for your dreams than to be defeated without ever knowing what you're fighting for." Paulo Coelho "I would never wish anyone a life of prosperity and security. These are bound to betray. I would wish instead for adventure, struggle and challenge." Dr. Marion Hilliard A reader of this report recently asked me: “How do you find meaning in life, because I get the feeling that you have done that.” Well, I find this to be a very difficult question to answer satisfactorily. The late Malcolm Forbes, not necessarily one of my favorite personalities (I always felt that his private Jet named “Capitalist Tool” and his fleet of big Harleys embodied some arrogance), once observed that, “The biggest mistake people make in life is not trying to make a living at doing what they like best.” I think that it is very important for

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In fact. I am bringing up some of these issues because I recently participated at a seminar hosted by Tony Robbins about financial independence. As Thomas Paine observed. appear to me no other than human inventions set up to terrify and enslave mankind.Dr. and monopolize power and profit. To achieve “liking toward your work” requires developing a keen interest in your profession. attending dinner parties where boring couples dish out the latest gossip and social climbing is of any interest to you. then spending time traveling. Some people will of course consider him to be some kind of a snake oil salesman with a huge talent for self promotion. Christian or Turkish. In private life. etc. he has the ability to move people into feeling better and enthusiastic about their own potential and about how they can improve their lives. gurus and motivational speakers because most of them convey their messages with some ulterior motives. If playing golf. "All national institutions of churches. I have to admit that I was very impressed by the show Tony put up. you grow into liking it a lot. you will have the opportunity to help others develop their own skills and this is where I see some meaning in life. should you ever have the opportunity to attend one of his events you should go (with a critical mind) because you will find him to be a master at enthusiastically communicating his ideas to the audience. At that time. further education or training through contacts and interactions with more knowledgeable or better skilled people than you are and through further reading. whether Jewish.All rights reserved Page 3 of 27 . going out and mixing with people from all kinds of lifestyles is advisable. I am purposely not saying that you should make a living at doing what you like best but that whatever you do. Once you really enjoy what you are doing. this is how you should spend your time. However if economic and social life interests you." Still. prophets. his knowledge and how well he had prepared himself for asking relevant questions (if you never heard him speak before you can Google him).gloomboomdoom. I am a believer that one spends one’s time with what one enjoys the best. you will become better at what you do and some financial reward will almost certainly follow. I always had second thoughts about preachers. With energy and charisma. his seminars have helped many people help www. Marc Faber Market Commentary March 1. I also believe that aside from his work having made him a very well to do person (which some people will find objectionable). I was very impressed by how well he organized his seminar. 2011 you to make an effort that your job is interesting and challenging. He is truly an outstanding speaker and communicator.com © Copyright 2011 by Marc Faber Limited . However.

com © Copyright 2011 by Marc Faber Limited . I also know countless strategists. By inspiration I mean that a newsletter or report should provide the investor with investment ideas and guide him on his journey toward capital preservation. Bob Farrell. I believe that we can make a difference to the people around us at the office. John Mendelson. Ralph Acampora. economists and portfolio managers all over the world. Believe me. Sam Walton said that. experience and most importantly with tolerance. Tom McClellan. kindness and compassion. Meaning each investor lives under different www. as Sam Walton noted. 2011 themselves. analysts. Robert Prechter. etc. “amazing what they can accomplish”. economists and industry analysts is to use them as a source of market intelligence and inspiration. However. have some problems or are simply less privileged than we are. All I can say is that everybody in the forecasting business has had for some time his place in the sun. Nobody paid any attention to him anymore although he correctly called the October 1987 low. Ian McAvity. I am still a member of several technical analyst societies and I have met most of the great technicians such as Joe Granville.Dr. I was very much attracted to technical analysis and market timers. When I started to work on Wall Street. However.gloomboomdoom. This takes me back to the question of the meaning of life. Stan Weinstein. Then in 1982. Should we be fortunate in acquiring special knowledge and skills.All rights reserved Page 4 of 27 . Joe Granville had a perfect record at identifying peaks and lows in the US stock market and he became world famous. This takes me to the purpose of an investment commentary. I cannot emphasize enough that anyone who thinks that by reading investment reports he will become rich is an incorrigible dreamer. I truly believe that whatever we do we should try to do it to the best of our abilities. In the 1970s. it is. market timers. we should try to help others improve their lives by counseling and teaching them with our expertise. now precisely 40 years ago. but also encountered periods when everything went wrong. at home and in our neighborhood that are at the beginning of their careers. Alan Shaw. Marc Faber Market Commentary March 1. he missed the August low and remained bearish until 1987. what reports (including this one) cannot do for investors is to make money for them because that will largely depend on investors allocating their capital wisely.“ I think Tony Robbins does boost the self-esteem of his followers and once they believe in themselves. "Outstanding leaders go out of the way to boost the self-esteem of their personnel. I am not a socialist and a “world improver”. Therefore I think that the best way of approaching reports by strategists. William Scheinman.

decisionpoint. Therefore.com © Copyright 2011 by Marc Faber Limited . Suncor and Chesapeake Energy (see Figure 1 and report of January 1). 2011 economic. the investment idea about buying energy worked out but it could also have gone the other way. Marc Faber Market Commentary March 1. 2010 – 2011 Source: www. Fortunately. As an example.gloomboomdoom. only he himself can know how much capital he should risk in a single investment or a particular strategy.All rights reserved Page 5 of 27 . On many occasions I highlighted stocks like Exxon. social and financial conditions and therefore. I have repeatedly written about the attractiveness of energy related investments in recent months under either a very positive or a very negative economic and political environment. an investor should always first consider how much money he could risk to lose and no matter how good an investment idea sounds – never forget to be prudent and hold a diversified portfolio of assets.Dr. Figure 1: Chesapeake Energy.com www.

Marc Faber Market Commentary March 1.All rights reserved Page 6 of 27 .Dr.com www.gloomboomdoom. If this nightmare scenario were about to unfold oil prices could really spike up (see Figure 2). Figure 2: Crude Oil Price. Nigeria.decisionpoint. Saudi Arabia. 2008 – 2011 Source: www.com © Copyright 2011 by Marc Faber Limited . 2011 Above I talked about allocating capital “wisely”. The investor who bought energy related stocks and the investor who has not yet bought energy related shares currently need to consider whether energy is still a good bet. Angola and Venezuela. Should positions be increased or initiated? Without going into all the intricacies of the spread of unrest in North Africa and in the Middle East it appears to me that tensions will more likely increase than decrease and that unrest is likely going to spread to other oil producing countries such as Iran.

Well-documented examples of agriculture wasting away are countries such as Nigeria and Egypt. J. can only deteriorate. 2011 An American journalist recently wrote that it is remarkable that the “revolution” in Egypt occurred with “no foreign involvement” (so far it has been a failed uprising since the army is still in charge). what this journalist (an American of course) failed to address is that the uprising was as much against Mr.All rights reserved Page 7 of 27 .Dr. However. Morgan www. Figure 3: MENA per Capita GDP and Exports (ex energy) Source: Michael Cembalest. Another issue relates to the “Curse of Oil”. as it was against US support for Mr.gloomboomdoom. In the Middle East. In most countries where oil production and therefore revenues from oil increased rapidly. Mubarak. Mubarak and against American interference in Egyptian affairs (notably in its foreign policy and in its complicity in suppressing the opposition). governments seldom used their enormous oil revenues for developing other economically competitive sectors with the result that employment opportunities remain extremely limited for the region’s exploding population (see Figure 3).com © Copyright 2011 by Marc Faber Limited . which supported the repressive regimes we find in most oil producing nations. All of us don’t know what the eventual outcome of the spreading unrest in oil producing nations is likely to be but it should be clear that relations with Western Powers. other industries are either atrophied or never developed. Marc Faber Market Commentary March 1.P.

1995 -2011 Source: Ed Yardeni. Morgan.Dr. the non-energy exports of the MENA countries (Middle East/North Africa) were in aggregate lower than Finland. when oil production declines after other sectors of the economy have been atrophied. Another problem is that in major oil producing countries the ruling families (royals or dictators) can easily steal money on a massive scale.yardeni. Marc Faber Market Commentary March 1. no jobs. no sex and no hope) and unrest follows (see Figure 4).gloomboomdoom. www. Figure 4: Egypt Oil Production (millions of barrels per day).com www.P.All rights reserved Page 8 of 27 . 2011 What is stunning is that according to Michael Cembalest of J. Finally. a country with 5% of the Middle Eastern population! Above I mentioned that when oil production and therefore revenues from oil increase rapidly other industries are atrophied or they never develop. the rulers simply cannot satisfy the aspirations and expectations of the rapidly growing population of young people (as a friend of mine said.com © Copyright 2011 by Marc Faber Limited .

2011 Therefore only an impermutable optimist such as my friend Abby Cohen would think that anything but calamitous would come out of the current wave of unrest in MENA countries.com I should add that according to the Federal Reserve Bank of St.yardeni.Dr.com © Copyright 2011 by Marc Faber Limited . Further oil price increases will naturally lead to higher food prices (fertilizer prices will increase). www. 1970 -2011 Source: Ed Yardeni. Marc Faber Market Commentary March 1. Figure 5: Rising Energy Prices are an Additional Tax on the US Consumer: Spending on Energy Goods and Services as Percentage of Disposable Personal Income. www. higher inflation rates and diminish discretionary consumption as households will have to spend a higher portion of their income on food and energy (see Figure 5). I believe it’s only a matter of time (possibly another year or so) until the situation in the Middle East will become very ugly (aside from Afghanistan and Pakistan) and push oil prices higher.All rights reserved Page 9 of 27 .gloomboomdoom. Louis. food prices are a very reliable indicator of future inflation rates (see Figure 6).

what is interesting about the performance of WMT’s stock is that it bottomed out already on February 6.Dr. Wal-Mart’s stock reacted to the downside (see Figure 7). Can therefore now. 2011.com With rising energy and food prices.8% in the quarter ended January 28.stls. Naturally.frb. www.gloomboomdoom. 1983 . WalMart also lead the market lower? www. 2009 and served as a leading indicator for the stock market’s explosive rise after March 6. courtesy of Bill King kingsupport@arborresearch.All rights reserved Page 10 of 27 . However. 2011 Figure 6: Food Prices and Personal Consumption Expenditure Price Index (PCEPI) ex Energy. January 2002.2001 Federal Reserve Bank of St Louis. US same store sales declined by 1. it should therefore come as no surprise that Wal-Mart Stores (WMT) posted its seventh straight sales decline at its US stores.com © Copyright 2011 by Marc Faber Limited . 2009. Marc Faber Market Commentary March 1. The Regional Economist.org.

gloomboomdoom.All rights reserved Page 11 of 27 . Usually investors will refer to Mr. Marc Faber Market Commentary March 1. Bernanke as a “money printer”. I think this tells us more about the state of the US economy than the glowing statistics published by the Ministry of Truth. there is another reason why oil prices could increase further. 2011 Figure 7: Wal-Mart. other central bankers around the world are not much better since they www.Dr. which undoubtedly he is.com Also noteworthy is that WMT’s stock is no higher than it was a year ago and at the same level it was in April 2009. but. 2007 -2011 Source: www.decisionpoint. However.com © Copyright 2011 by Marc Faber Limited .

Marc Faber Market Commentary March 1. China. www. What if the Global and in particular the Chinese economy weaken again? Isn’t it likely that central banks around the world will be quick to lower interest rates in order to stimulate economic growth? Consequently. I would expect money supply growth around the world to remain high under any scenario (see Figure 9). which will lead to even higher price increases.com © Copyright 2011 by Marc Faber Limited . 2011 have kept real interest rates significantly below the cost of living increases (see Figure 8). Vietnam and Singapore will lift short-term interest rates above the rate of cost of living increases? I am betting they won’t take such an action. I should mention that the cost of living increases everywhere in the world are far higher than those Government published inflation rates. Figure 8: Real Interest Rates in Asia David Cohen.gloomboomdoom. Action Economics LLC. Bloomberg Now consider two scenarios: Energy and food prices continue to increase. Does anyone really believe that the central banks of India.All rights reserved Page 12 of 27 .Dr.

monetization is in full swing (see Figure 11). 2000 .theeconomiccollapseblog.com Money supply is also increasing rapidly in India (see Figure 10).gloomboomdoom.2010 Source: www. www. Marc Faber Market Commentary March 1.All rights reserved Page 13 of 27 . 2011 Figure 9: China: M2 Money Supply.Dr. Even in Japan.com © Copyright 2011 by Marc Faber Limited .

com © Copyright 2011 by Marc Faber Limited .Dr. 2011 Figure 10: India M2 Money Supply.theeconomiccollapseblog.2010 Source: www.All rights reserved Page 14 of 27 . Marc Faber Market Commentary March 1.com www. 1980 . 1980 – 2010 Figure 11: Japan M2 Money Supply.gloomboomdoom.

All rights reserved Page 15 of 27 .Dr. Figure 12: Suncor Energy.decisionpoint. the uptrend should remain intact (see Figure 2). Still.gloomboomdoom.2011 Source: www.com © Copyright 2011 by Marc Faber Limited .com www. an explosive situation in Pakistan (a country with nuclear weapons and a population of 170 million) and central banks around the world with a strong penchant for printing money. Naturally. 2006 . oil prices and energy related equities could correct but as long light sweet crude oil prices do not decline below $90. 2011 Therefore given the likelihood for an escalation of unrest in MENA countries. in the near term I am slightly concerned that so many analysts are calling for $200 per barrel oil. I find it difficult to make a case for a sharp drop in oil prices. Marc Faber Market Commentary March 1. oil shares had a good move and now they are due for a correction (see Figure 1 and Figure 12). At the same time.

All rights reserved Page 16 of 27 . In addition further acceptance of gold as a legitimate monetary asset is seeping into the marketplace following the JP Morgan news that gold will be deemed as acceptable collateral in repo transactions” (emphasis added). India and China alone are absorbing over 50% of global mine production in 2010.Dr. there are some very nice people at Goldman Sachs) recently noted. reckless money printing and negative interest rates are likely to push equity prices higher (see Figure 13). 1972 .gloomboomdoom.1987 Source: Dylan Grice.com © Copyright 2011 by Marc Faber Limited . 2011 I should mention that the favorable factors for oil – discussed above – also apply for precious metals. Figure 13: Israeli All Share Index. The introduction of Gold accumulation accounts for depositors in China last April by ICBC has had tremendous take up and significant potential to be followed by other commercial banks. The small size of the silver market suggests it will outperform if this monetary demand continues. Zak: “What is more interesting is the geographical nature of gold demand. SG Cross Asset Research www. Their current gold demand seems to be increasing at an even faster rate. Marc Faber Market Commentary March 1. In contrast to real rate concerns in US/Europe. In addition. I should add that whereas unrest in the Middle East is not favorable for equities (except for energy. it’s possible that Asian investors are purchasing gold as policy tightening is falling behind inflationary pressures. as my friend Dhabalia Zak who runs the precious metal trading desk at Goldman Sachs (yes. gold and silver mining companies). gold demand in China is exploding.

Marc Faber Market Commentary March 1.investors should prepare for some downside volatility.com www.Dr.decisionpoint.500 during Israel’s hyperinflation between 1984 and 1987..” I pointed out that emerging markets could correct...com © Copyright 2011 by Marc Faber Limited . I am reprinting part of the May 2010 report.All rights reserved Page 17 of 27 . which provides a more detailed analysis of the performance of equities and the foreign exchange rate during high monetary inflation). In the February report. I concluded: “. they would underperform the US stock market” (see Figure 14). for a while at least.gloomboomdoom. 2006 2011 Source: www. Figure 14: Performance of Emerging Markets Relative to S&P 500. (At the end of this report under Addendum. 2011 As Dylan Grice noted Israeli stocks rose by a factor of 6. “by between 20% and 30% from their recent highs and that.

decisionpoint.Dr. Nevertheless. 2006 – 2011 Source: www. Marc Faber Market Commentary March 1. Dick and Harry believes that the US stock market will outperform emerging and Asian stock markets (see Figure 15). downside risk has diminished.com © Copyright 2011 by Marc Faber Limited .com www.gloomboomdoom. Figure 15: Hang Seng Index.All rights reserved Page 18 of 27 . 2011 Since then many stocks in the emerging markets. my sense is that the correction has further to run because suddenly every Tom. (even of the highest quality) are down by around 30% from their recent highs.

when the shares of Wal-Mart with annual US sales of $258 billion are breaking down (see Figure 7) then something is not quite right. www. www. The number of 52-week new highs has been contracting sharply and an increasing number of stocks are breaking down (see Figure 17). 2011 Therefore international funds are selling Asian and emerging stock markets.Dr. Marc Faber Market Commentary March 1.com © Copyright 2011 by Marc Faber Limited .All rights reserved Page 19 of 27 . there has been a significant deterioration in the US stock market’s technical position. More so.ubs.com/investmentresearch Moreover.gloomboomdoom. and buying US equities. The problem I have with this strategy is that most emerging markets would appear to be better value than US equities (see Figure 16). Figure 16: Forward PE Ratios by Country Source: Nicholas Smithie.

The ratio of shares sold to shares purchased was 855 to 1.net) notes “imagine our shock when we found only 4 buyers and a huge expansion in the number of those selling. 2009 .com © Copyright 2011 by Marc Faber Limited . Finally.gloomboomdoom. Alan Newmann (www.2011 Source: www. Marc Faber Market Commentary March 1.cross-currents. what really bothers me is the relentless selling by corporate insiders across the board. Bankers can sell to their heart’s content” (see Figure 18). 2011 Figure 17: Hewlett Packard.Dr. Referring to financial stocks.com Recently investors’ sentiment has also been far too optimistic and mutual fund cash positions are at historical lows. 68 in all.All rights reserved Page 20 of 27 .decisionpoint. www. Whatever impetus the Feds have provided has clearly had the desired effect.

profits of US corporations (also of European multinationals) would likely disappoint since there is hardly any growth in the US and in Europe.All rights reserved Page 21 of 27 .Dr. www. 2011 Figure 18: Financial Insider Transactions Alan Newmann (www. Thailand. This would be particularly true for equities. I expect central banks in emerging markets to keep interest rates below the true rate of inflation (negative real interest rates). I would think that on further weakness investors would rather opt for equities than for cash and bonds. Malaysia.cross-currents. Hong Kong and Japan). which have a higher dividend yield than cash and bond yields (Singapore. Therefore. Therefore. Marc Faber Market Commentary March 1. if there were really problems in emerging economies. Lastly as I explained above.net) There are other reasons why I would not necessarily sell emerging markets and buy US equities. About 30% of US corporate profits come from outside the US and their growth depends largely on expanding emerging economies (in particular China where as an example GM sells more cars than in the US).gloomboomdoom.com © Copyright 2011 by Marc Faber Limited .

gloomboomdoom. Aggressive traders (only) could consider shorting the Retail Holders ETF (RTH) with a stop loss order at $110 (ideally on a minor rebound . 2010 – 2011 Source: www.see Figure 19). Figure 19: Retail Holders. I reduced in the last six months. I would not rule out that we are dealing with something more serious than just a minor correction. Marc Faber Market Commentary March 1. Moreover in the back of my mind. if the S&P 500 failed to make a new high during this period (above the February 18 high at 1344). However. I believe all asset markets could correct further on the downside (except government bonds which could rebound further). I am postponing increasing my positions.Dr. 2011 For now.com © Copyright 2011 by Marc Faber Limited .decisionpoint.All rights reserved Page 22 of 27 . which as I explained in earlier reports. Usually there is seasonal strength from the middle of March until late April. stock markets could have formed a more significant top.com www.

I believe that precious metals may also correct somewhat more. In fact my favorites are US immigration officers and staff of the Transport Security Administration (TSA). I am still a buyer and I shall never sell any gold as long as we have powerful fools running our central banks. My friend Laura Stein. yes.gloomboomdoom. "I notice you buy a lot of bandages." replied the CFO. Marc Faber Market Commentary March 1. in his obnoxious way. if you read Darryl Robert Schoon’s report (www." noted the CFO. which I am enclosing with his permission. While the IRS agent was checking the books he turned to the CFO of the hospital and said.All rights reserved Page 23 of 27 . "We save them up and send them back to the bandage company and every now and then they send us a free box of bandages.com © Copyright 2011 by Marc Faber Limited ." "Oh. the IRS office sent an inspector to audit the books of a local hospital." replied the auditor. 2011 As always. At the end of the tax year. What do you do with the end of the roll when there's too little left to be of any use?" "Good question. realizing that the inspector was trying to trap him with an unanswerable question. which explains far better than I could do how efficiently the government functions. But on he went.com). the risk for investors is not to own any precious metals. "What about all these plaster purchases? What do you do with what's left over after setting a cast on a patient?" "Ah. Due to a heavy travel schedule. "We save it and send it back to the www. a very intelligent and perceptive lady who also happens to read my reports. I shall not be able to answer any emails between March 7 and April 3. sent me the story below.drschoon. However. I recommend the gradual accumulation of physical gold and silver.Dr. My regular readers will know about my great love for government officials. somewhat disappointed that his unusual question had a practical answer. As I said before.

I become very depressed and really cannot get excited about investing in equities. 2011 manufacturer. Scott Fitzgerald who stressed the importance of having “the ability to hold two opposed ideas in the mind at the same time”. and about once a year they send us a complete dick. we do not waste. social and geopolitical perspective. "What do you do with all the leftover foreskins from the circumcisions you perform?" "Here. thinking hard about how he could fluster the know-it-all CFO. I become very skeptical about “cash” being the safest investment. "What we do is save all the little foreskins and send them to the IRS Office.gloomboomdoom. when I see that the Fed is determined to keep interest rates at zero for and extended period of time." "I see. too. "Well. when a central bank pursues such an “inflationary” monetary policy www. So. Marc Faber Market Commentary March 1. By this I mean that even if the Fed increased in future the fed fund rate it would keep it below the rate of a broad measure of inflation (as was the case between June 2004 and August 2006 when the Fed increased the fed fund rate from 1% to 5.25%." Addendum about the Performance of Equities under high Monetary Inflation (reprint from May 2010 report) When I look at the world from an economic.com © Copyright 2011 by Marc Faber Limited . So we could have a situation where the fed fund rate would be at say 5% and a broad measure of inflation would show prices increasing at an annual rate of 8% or more (negative real interest rates of 3%). I believe that as far as the eye can see the Fed will keep the fed fund rate below zero percent.All rights reserved Page 24 of 27 ." answered the CFO. I accept the words of F." he went on.Dr. and every now and then they send us a free package of plaster. Now. In fact. which it usually is in a noninflationary environment." replied the auditor. Yet.

Marc Faber Market Commentary March 1.All rights reserved Page 25 of 27 . 1919 – 1999 Source: Ron Griess. Following the petrodollar crisis of 1980/81 most Latin American governments including Mexico followed these detrimental economic policies.gloomboomdoom. which led to depression like conditions amidst soaring inflation rates (see Figure 20 – please enlarge for clearer viewing).com As can be seen highly expansionary fiscal and monetary policies after 1979 led to a complete collapse of the Mexican peso between 1979 and 1989 (down against the US$ by more than 98%).545 in 1987 and closed at year www.com © Copyright 2011 by Marc Faber Limited . So. 2011 (usually in combination with expansionary fiscal policies) the following occurs: the currency collapses.Dr.thechartstore. From a low of 1066 the Mexican Bolsa Index increased to a high of 343. Figure 20: Mexican Peso (Pesos per US$). www. what happened to stock prices? In local currency terms stocks performed extremely well.

All rights reserved Page 26 of 27 . From Table 2. between 1979 and 1982/83. Mexican stocks in US$ increased to a high of 220 in 1987 and closed at 62 at the end of 1988. As can be seen from Table 2. Marc Faber Market Commentary March 1. So. 2. 2. but were (if you bought the index at the 1979 high of 70) largely flat in US$ because the currency depreciation offset the stock market gains in local currency (or nominal terms).Dr. 2011 end 1988 (following the 1987 global stock market crash at 139.620 (see Tables 1. in local currency stocks had a strongly rising trend.gloomboomdoom. But more important is to analyse the fluctuations that occurred between 1979 and 1989 from a trader’s point of view. Mexican stocks in www. and 3). Tables 1. 1979 – 1988 Source: The Gloom Boom & Doom Report In dollar terms the performance was however quite different because of the collapse in the Mexican peso (see Figure 20). and 3: Mexican Stocks in Pesos and US$. it is visible that from a low of 48 in 1979.com © Copyright 2011 by Marc Faber Limited .

But after 1983. Currently a complication arises because there are no “strong” paper currencies left. cash in US dollars and US government bonds may not be as safe as is perceived by investors.All rights reserved Page 27 of 27 . In terms of a strong currency (in the 1980s the US dollar – certainly compared to the Mexican peso) stocks will over time more or less maintain money’s purchasing power (will depend on the entry point). Why? Because between 1979 and 1982/83.Dr.gloomboomdoom. asset prices including real estate and stock prices will soar in value in local currency terms.com © Copyright 2011 by Marc Faber Limited . except maybe in relative terms. And what were the worst investments in Mexico between 1979 and 1988? Mexican peso cash and Mexican peso bonds! So. if the entry point is well-timed (in the case of Mexico in 1982/83) hyper-inflating countries offer investors huge profit opportunities. with Ben Bernanke and Janet Yellen at the Fed. Moreover. A few observations: If a central bank is determined to print money. So the best we can do is to measure the value of assets in gold terms. Mexican stocks in dollar terms increased from 5 in 1982/83 to 220 at the 1987 peak and closed at 62 in 1988 (see Table 2). As a result. Mexican stocks in US$ went ballistic because the stock market gains in Mexican peso terms exceeded the decline in the value of the Mexican peso by a wide margin. the Mexican peso depreciation (see Figure 20) exceeded the appreciation of Mexican stocks in peso terms (see Table 1). Marc Faber Market Commentary March 1. www. 2011 US$ collapsed from 70 to 5.