Price to Income Chart (Real Estate)

Marc Faber again, he is very hot now

http://www.cnbc.com/id/28362273/

Marc Faber on Dec. 23th, 2008

http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vh4CZyP0iSKg.asf

As of May 2007

According to Wilshire Associates, the total U.S. market cap is approximately $15.35 trillion (May 23, 2007).

According to the World Federation of Exchanges, global market cap stood at 51.23 trillion in January 2007.

So the rest-of-world market cap is at least twice as large as the U.S. stock market.

Mainland Markets Surpass Japan in Market Cap

The China Economic Review reports:

Mainland China's two stock exchanges combined have become the world's second-largest stock market by capitalization with US$4.72 trillion, the South China Morning Post reported. According to Bloomberg, The combined market value of the Shanghai and Shenzhen stock exchanges passed that of the Tokyo Stock Exchange (TSE) on January 4, as Japan's Nikkei-225 Index fell to finish at a 117-month low. The TSE's market capitalization stood at US$4.11 trillion, yesterday while the two mainland exchanges posted a combined US$4.61 trillion.

Dow and SP, who leads who?

There are many articles talking about Dow being stronger than spx to be able to hold the rally, I took a look at 1987 crash chart and found it was true before the recovery but vice versa after, if history repeats, then the recent weaker dow stronger spx would indicates a real recovery in stock market has started.

Just my own wishful thinking.

Out with the Old

BECAUSE 2008 ALREADY SUFFERS A SURFEIT of gloom, let's begin with a little good news: Wall Street's top strategists believe -- or hope -- that the U.S. stock market has already absorbed the worst of the selling pressure this year, and will start to recover in 2009.


John Patrick for Barron's
2009 Outlook: Stocks will scale sharp peaks and brave deep valleys to reach higher ground in 2009.
The not-so-great news: Any progress might be limited.

That's not to say there won't be violent rallies and sharp pullbacks along the way. An urgent scramble to dump risky assets and hoard capital this year triggered a crisis of credit -- and confidence -- that wiped out more than half of the stock market's value. And while stocks quickly rebounded 18% from their late-November low, the dozen strategists and chief investment officers surveyed by Barron'sexpect the Standard & Poor's 500 index to finish 2009 near an average of 1045, or 18% above today's level of 888.

Such a forecast may not seem very modest at first -- until you consider strategists' vocationally bullish bent, how this volatile market can easily cover 18% in mere days, and all those statistics promising massive gains a year after stocks first slip into -- and presumably bounce out of -- a bear market. In fact, a majority of the surveyed strategists have pinned their 2009 year-end targets within a narrow 50 points of the 1,000 mark as though there's safety in numbers.

The source of their circumspection: the uncertain economy. Nearly everyone expects the U.S. economy to worsen as companies cut costs and lay off workers (on top of the 1.25 million jobs already eliminated from September to November), and as economists pencil in gross domestic product declines of 4% or more for the fourth quarter of 2008 and early 2009. And while the consensus hopes for a second-half rehabilitation, no one knows when a lasting recovery will take hold. Indeed, 10 of the 12 firms surveyed see the U.S. economy contracting in 2009.

So why should stocks rise in the face of such ambiguity? For a start, the strategists hope that a stock market that has already fallen 52% from its 2007 peak to its Nov. 20 low has discounted much of the deterioration still to come. With more than 37% of mutual-fund assets recently parked in money-market funds, the highest level since 1991, there's ample cash for bargain hunting should stocks dip below a certain threshold. Hopes run high that cheaper energy costs will support consumer spending, and -- most important -- that the deep freeze in the credit markets triggered by Lehman Brothers' collapse will continue to thaw. And everyone is counting on the government's aggressive policies to help stop the rot.

"The size of global policy response to stabilize both the financial system and the growth outlook is virtually unprecedented," says Morgan Stanley chief global equity strategist Abhijit Chakrabortti. "It does not appear likely to us that equity markets will fall substantially from here, given growth expectations have been substantially lowered, growth data are depressed and there is a high level of skepticism surrounding the ability of policy-makers to salvage the financial system and stabilize growth."

A year earlier, forecasters made the mistake of placing too much faith in the Fed -- back then, they believed the Federal Reserve's interest rate cuts and thriving foreign economies could help the U.S. stave off a recession. This time around, their trust may be more justified: at least the government is no longer in denial about the economic threat, and fighting deflation has become the urgent priority for governments around the world. Just last week, the Fed cut benchmark rates below a historic 0.25% and promised a vast array of lending programs to consumers and businesses.

AT THE SAME TIME, investor expectations have been quashed -- the bar is set low when today's yardstick is the Great Depression. Witness the lunge for safety and near-zero yields on short-term Treasuries. "People are practically paying the government to hold their money -- if that's not a sign of negative sentiment, I don't know what is," says Jason Trennert of Strategas Research Partners.

No one thinks wild swings will subside quickly from record 5%-a-day moves in October, but the downward plunges have at least been replaced by volatility of the sideways variety. "The market can rally fiercely and then pull back some," says Citigroup's chief investment strategist Tobias Levkovich. Over the eight years after the 1932 bottom, there were at least five rallies that averaged 93%. The 1974 bear-market bottom spawned no fewer than six rallies over the next eight years averaging 32.5%. The surges, however, were followed by retreats, and Levkovich sees the choppy S&P 500 ending 2009 at 1,000.

IF THESE STRATEGISTS ARE RIGHT, the 39% gain from the Nov. 20 low of 752 to 1045 might mark the tentative start of a new bull market -- or a big bounce within an extended bear market. Even those who expect the S&P 500 to hold its Nov. 20 low see that threshold being tested in 2009 -- not immediately, since fresh allocations toward decimated stocks will provide a momentary lift. But buyers' resolve will be tested as early as February, when companies reporting messy fourth-quarter earnings offer a peek at the damage they've sustained.

Also, "I think a lot of bad decisions might have been made in the record volatility of this year's second half, and odds are there could be another surprise," warns Thomas Lee of JPMorgan. Potential threats that might rattle the market include a collapse of, say, a big U.S. industrial company or a foreign bellwether, or debt defaults by a sovereign power. Lee sees a range-bound first half, before a possible second-quarter test spawns a constructive second half. All through 2009, Wall Street expects the Fed to keep borrowing costs at extremely hospitable levels to goose spending, and at least nine strategists (or their economists) see benchmark rates kept below 1% even a year from today.

The flight to quality that drove 10-year Treasuries' yield down toward 2% last week also smacks of "a crowded trade and feels a little overdone," says Alison Deans, Neuberger Berman's chief investment officer. The firm's portfolio managers increasingly are scouring investment-grade corporate debt -- sporting attractive yields above 7% -- to park their money while browsing for stocks. In fact, 10 of the 12 strategists expect Treasuries to back off next year and for the 10-year yield to reverse its slide; the holdouts are JPMorgan, whose bond strategists see the benchmark yield finishing 2009 at 1.65%, and Merrill Lynch. (For Barron's bond-market outlook, see Current Yield.)

Anyone looking for change in 2009 will not be disappointed. As America weans itself off debt, and as the government begins to own banks, insurers or even automakers, a "tectonic shift occurs with the transfer of leverage from the private to the public sector," says Christopher Hyzy, chief investment officer of U.S. Trust, Bank of America's private wealth-management unit. The world's gross imbalances will begin to moderate. For example, developing Asia will see savings decline and spending rise, while the West, anxious to mend its balance sheets, will save more and spend less.


Top strategists and chief investment officers on whether the market has hit bottom yet. (Dec. 20)

The clearest consensus about this period of rebalance and repair is for stocks to suffer limited downside risk, but also capped upside gains. But when pressed to pick which one of these two notions they feel more confident about, the strategists become quite evenly divided.

BULLS WHO THINK THIS TIGHTLY wound market is more likely to surprise to the upside point out how cheap stocks have become. "Bottom-up" predictions by Street analysts for the S&P 500 to earn $78 a share next year seem naïve, and surely will be slashed toward less-deluded "top-down" estimates from strategists who have factored in the weakening economy and who peg profits at $60.20.

David Kostin, Goldman Sachs' chief investment strategist, expects operating earnings to slip 33% this year to $55 a share, then fall another 5% next year to $53 before rebounding in 2010 to $69. While he steers clients toward more defensive companies with strong balance sheets and reliable dividend growth, he says that an overall market trading at 1.7 times book value -- half the 10-year average of 3.4 times -- is a sign "the equity market is undervalued from a long-term perspective."

Studying how far multiples shrank during previous swoons, Kostin pegs the trough for the S&P 500 at 850 if this proves to be an average bear market. But if this bear market plays out to a worst-case scenario, the bottom could be a lot lower, at about 630.

Valuation multiples expanded relentlessly in the 1980s and 1990s as long-term interest rates fell. Stocks won't enjoy the same lift today, with the 10-year yield already near 2%. Still, price-to-earnings multiples "are well below where they should be, given where interest rates are and where inflation is," argues Larry Adam of Deutsche Bank Private Wealth Management. He thinks multiples can expand as investors' appetite for risk returns.

"The S&P 500 also is at its most broadly diversified in at least a decade," Adam adds. Technology hogged 30% of the benchmark's weight in 1999, while financials took up more than 22% in 2006, but today the most prominent segments -- technology, consumer staples -- represent no more than 15% of the increasingly balanced market.

James Paulsen of Wells Capital Management says the U.S. was dealt a below-the-belt blow from which it can bounce back. "The one policy that had been tremendously effective was the well-orchestrated fear-mongering campaign" waged by the Treasury and the Fed to persuade Congress to pass a $700 billion bailout bill, Paulsen says.

The bad news: the resulting crisis of confidence frightened perfectly healthy corporations and consumers into suspending economic activity. "But the good news also is that it is a crisis of confidence," Paulsen says. "Just as we're surprised by the crisis' depth and severity going in, we might be surprised by how sharp the rebound can be going out."

Concerns about the collapse of consumer spending -- the engine that drives the U.S. economy -- also may have been exaggerated. "Credit won't grow at the rate we're accustomed to, but there's still pent-up demand from deferred purchases," says Jerry Webman, Oppenheimer Funds' senior investment officer. And let's not forget the boost that comes from $40 oil.

SO WHAT'S HOLDING STOCKS BACK? "If you have to point to one constant in the market, it is uncertainty," says Hyzy. More cautious strategists think the S&P 500 will struggle to sustain rallies above 1050, since investors will be asked to pay more than 15 times for per-share earnings of $70 or more.

Many strategists, of course, hope housing demand will recover as mortgage rates fall and as the new administration pushes consumer-friendlier reform. Unemployment might not peak until late-2009 near 9%, but it is a lagging indicator, since employers typically hold off new hires until they are convinced things are looking up. Still, weaker operating leverage, compressed profit margins, a stronger dollar and anemic foreign growth could all cap rallies.

Among the more prescient calls from last year's forecast was Merrill Lynch's prediction of "the first consumer-led recession since 1991," even if the firm, too, underestimated the severity of this year's selloff. While others were anticipating a profit rebound, Merrill also was among the first to forecast weaker profits in 2009 -- a view that has since become consensus.

Today, the firm still hews to its defensive crouch, although chief investment strategist Richard Bernstein reckons "2009 is likely to be better than 2008 for investors." Among other things, he preaches patience in the rush to pick a market bottom, "since the opportunity cost is low and there's a stiff penalty for being early and wrong." Merrill economist David Rosenberg thinks fiscal stimulus can help "cushion the blow but will not reverse the business cycle." Spirited consumption by baby boomers kept recent recessions short and mild. But now, "the average boomer is in his 50s and after two decades of spending, the boomer is done."

With this decade's booms -- in commodities, real estate, hedge funds and private equity -- all swelled by cheap money, Bernstein says the violent market shakeup and bursting of the credit bubble will pave the way for new market leaders. Defensive segments like consumer staples and health care may prove to be more than a temporary shelter, and could outperform even over the longer run.

Asked what it'll take before he turns more bullish, Rosenberg flags three markers that could signal a sustainable economic expansion: the rise of the U.S. personal savings rate to 8% from 2%; a decline in the glut of unsold new homes, currently at 11 months' supply, to about eight months' worth; and for the percentage of household after-tax income spent servicing debt to fall from more than 13% to about 10.5%.

Where lurk the potential shocks? For many strategists, the happiest surprise is if the financial system gets fixed swiftly. That could drive the S&P 500 to 1190, and Chakrabortti pegs the chances of that at 20%.

By early next year, the losses suffered by banks and brokerages also will pass the $1 trillion mark, and "odds are good that markdowns and provisioning have already peaked," says Chakrabortti, who warned more than a year ago that downturns led by housing -- the world's slowest-moving assets -- tend to be prolonged. Improving value for deeply discounted loans might even trigger "write-backs," where financial firms that haven't dumped their debt get to bump up the value of their loan portfolios.

Table: 2009 ForecastsOn the other hand, policy failure and dislocated financial markets could send the S&P 500 to 400, the odds of which Chakrabortti pegs at 25%. "Another potential downside surprise is if Asian or emerging-market consumption falls sharply -- I don't think that has been discounted by the market."

Meanwhile, inflation -- so feared just a few months ago -- goes virtually unremarked these days, even though the government bluntly promises it will print as much money as necessary to keep the financial systems functioning. "The trade of 2009 will be to figure out when to stop playing deflation and begin playing inflation again," Trennert says.

AGAINST THIS UNCERTAINTY, model portfolios must walk a delicate balance between guarded and bold: The three sectors favored by BlackRock's global chief investment officer Robert Doll are health care, with its strong cash flow and its defensive stance; technology, which straddles the divide between stability and cyclicality; and energy, which is the most economically sensitive.

Forcing borrowing rates down to zero will need time to work. In this climate, Hyzy prefers "the top of the capital structure" -- essentially more secure senior debt -- and keeping an eye on small- to mid-cap stocks that could outperform if the Obama administration manages to stimulate job creation. He also emphasizes infrastructure and defense stocks. "There is a propensity for violence during tough times, and conflicts can arise as the global economic downturn picks up steam," he says. "We must be prepared for that."

While the market has flocked toward quality -- strong balance sheet, robust cash flow, predictable profits -- investors should keep an eye out for improving credit spreads and a return of risk appetite. "At some point, the argument for quality could become long in the tooth, and lower quality will do just fine -- thank you very much," Doll says. When that happens, investors might shift some money from big pharmaceuticals toward HMOs within health care, from software toward select chip makers, and from big integrated oil companies toward explorers and refiners. Ditto a shift from the currently popular domestic focus back toward multinationals with international clout.

No surprise: health care is the new year's most crowded trade, with the sector beloved by 10 of 12 strategists.

Curiously, technology was favored by five out of the six buy-side CIOs, but not one sell-side strategist. Deutsche's Adam, for one, likes tech companies' cash stash and self-sufficiency from the debt market. Inventory is disciplined after the bloated bubble years, and technology improves productivity of companies operating with leaner staff. Our next president, Barack Obama, is a tech-savvy broadband geek, and even his health care reform includes tech-reliant proposals like the modernizing of medical records.

The knock on the sector, however, is how companies might find it easier to slash capital spending than lay off workers. Credit-market indicators suggest that payrolls will shrink another 3% by the summer, but capital spending could be cut 15%, says Citi's Levkovich. "Companies that sell to consumers could suffer, but companies that sell to other companies will be worse off," he says. His picks include retailers, where "expectations are already extraordinarily poor."

A chasm also has opened up in financials, which is favored by four sell-side strategists. "America's private debt -- the aggregate value of household and corporate debt -- is trading at 70 cents on the dollar, and that's not the right price," says JPMorgan's Lee, who expects this fear-driven discount to narrow after the rush to delever. Tightening credit spreads and a steeper yield curve also should help financial firms.

ODDLY ENOUGH, NOT ONE of the surveyed buy-side managers is ready to warm up to financials. Like tech stocks earlier this decade and energy stocks in the early 1980s, financial stocks need a lot more time to recover from the pricking of the credit bubble. "More capacity needs to be taken out, which means more bad debt, write-offs and consolidation," Doll says. "Policy is an ameliorating factor and it is targeted at financials, the sickest part of the market. But if it works, it will benefit the whole economy." In other words: why risk betting on financials?

Meanwhile, the sectors that led the most recent bull market have become its new pariahs: Energy is recommended by just two strategists, and materials by only one. "While demand for commodities will be hurt in a global recession, we have done virtually nothing to solve our oil dependence," says Doll, who sees energy stocks bouncing should the economy return to any semblance of normalcy. Crude oil has also fallen more than 70% to below $40 a barrel, and Doll sees the $40 level "as a flashpoint below which oil-producing countries will curtail supply." (OPEC, in fact, voted last week to reduce supply.)

In contrast, four strategists suggest avoiding energy, four are dissing materials and five suggest steering clear of industrials. Quite remarkably, 12 of these 13 negative calls against these commodity-driven sectors are from the sell-side. Materials and industrial companies, for instance, are famously capital-intensive. They suffer big depreciation expenses that erode earnings and pressure margins, and commodity prices are still falling. "The bar is set very high for companies that led the previous bull market," Lee says, "and it's rare for old leaders to re-assert themselves."

For that matter, even the vanquished bull market itself will need a little help -- and a little hope -- to reassert itself in the year ahead.

Barclays Recommends Caution, Nasty Surprises Ahead

Barclays (BCS) stays cautious in its global outlook for December:


We are in the midst of the most severe global recession since at least the early 1980s, if not the Great Depression. It is difficult to find an economy anywhere in the world that is not being hit hard, and the downward momentum underway virtually ensures that activity will continue to fall significantly through Q1.


If fiscal stimulus plans and market supports do their job, Barclays says this contraction could bottom around mid-2009 but warns:


Plenty of nasty surprises lie ahead, as economic performance in the fourth and first quarters is set to be considerably worse than anything in the current cycle thus far. This will take its toll on income statements, balance sheets, and liquidity around the globe. We thus suggest keeping relatively sizeable portions of portfolios in liquid instruments to allow investors to take advantage of opportunities as they arise.


We could get an early 2009 rally off recent lows, but the rest of the year remains largely uncertain. So what to buy? Barclays recommends the following (bold is mine):

Buy US investment grade credit and TIPS. Our valuation metrics suggest that corporate debt spreads are already close to the highs they reached in the Great Depression, and even if they remain elevated, the amount of carry suggests that decent profits are likely to be made by investing and holding these assets. Real yields on TIPS in the 5-7yr part of the curve are in excess of 3%, and are pricing in an extended period of deflation.
Given the high degree of risk associated with any scenario in today’s environment, it is wise to hedge even these relatively cautious positions. Nominal European government bonds seem relatively cheap considering the likely economic weakness and associated monetary ease that we expect in Europe. A long position is likely to provide an effective hedge to significantly weaker economic growth or a more extended period of deflation than we expect.
We are cautious on emerging market assets, commodities and equities. Emerging market debt and equity were hit relatively late in the de-leveraging cycle and it could well take some time before investor interest is rekindled. We thus recommend underweight positions in emerging market equities and non-investment grade credit. The downturn is having a devastating effect on demand for commodities, and it is hard to be confident that the bottom in prices has yet been reached. OPEC production cuts should help support oil prices, but similar supply management is not expected to benefit other commodities in the near term. Equity valuations are cheap compared to history, but not as cheap as credit. Over the long run, we believe equities offer excellent value, but we are concerned that the weakness in earnings that will follow the sharp contractions in economies in Q4 and Q1 is not yet fully appreciated. Consequently, we recommend a very cautious dip-buying approach, primarily in Europe, where valuations are the lowest.
Most of the position reduction in currency markets that has favored the dollar and the yen appears to have run its course, and we are not looking for further significant gains in these former funding currencies. The commodity currencies may have somewhat further to fall as the global downturn plays out, whereas sterling seems set to recover as the gloom surrounding UK prospects – particularly relative to the euro area – seems to be overdone.
The above, plus today's pull-back from Wednesday's Fed-inspired rally, should keep equity investors from becoming too optimistic.

The Madoff Dynasty June, 2000

The Madoff Dynasty

Bernie Madoff, Chairman and CEO of Bernard L. Madoff Investment Securities, is surrounded at the office by his brother, Peter, his nephew, Charles, his niece, Shana and his sons, Mark and Andrew. But back in 1960 when he started his firm with $5,000 saved from lifeguarding at Rockaway Beach and later installing underground sprinkler systems, there was only his wife, Ruth-who helped with some bookkeeping-and dreams of Wall Street success.


Today, Bernard L. Madoff Investment Securities is a leading market maker in off-exchange and after-hours trading of U.S. stocks, including all companies in the S&P 500 and 200 leading Nasdaq stocks. It is also one of the largest market makers in convertible bonds, preferred stocks, warrants, units and rights. Madoff Securities has over $300 million in firm capital and currently ranks among the top one percent of U.S. securities firms. But it took some time to get there.


Back in the 1970s, the Madoffs found that NYSE Rule 390-which was only recently rescinded-gave them the advantage of being able to trade NYSE-listed stocks away from the floor, which NYSE members could not do. The Madoffs accessed those stocks through the National Market System (NMS) which was mandated by the Securities Acts Amendments of 1975 to stir competition in U.S. equity markets.


Subsequently, the Intermarket Trading System (ITS) was developed, an order-routing system linking the regional stock exchanges with the NYSE, AMEX and OTC market. In order to enhance the liquidity of their trading pool, the Madoffs became involved with Nasdaq and the Cincinnati Stock Exchange, which facilitated links to other exchanges.


The need to embrace technology early on just to get in the game has served the Madoffs well over the years. They were one of the first firms to automate when they hired TCAM Systems to develop execution software that would read the consolidated quote feed showing all specialists bids and offers on the regional exchanges, the NYSE and the AMEX. Because the executions were totally automated, faster and more efficient, and because the firm guaranteed to match the national best bid and offer for orders up to 5,000 shares-and price improvement if the spread was higher than the minimum increment-Madoff Securities Inc. began to attract significant order flow from regional and discount brokerage firms.


With such activity at the office, it's no wonder business found its way to the dinner table at home. "All of his family members grew up with this being our lives. When it is a family operated business you don't go home at night and shut everything off, so you take things home with you, which is how all of us grew up," says Mark Madoff, director of listed trading at Madoff Securities.


Mark joined the family team in 1986 when he graduated from the University of Michigan. By that time, he was the third family member to jump on board. Peter Madoff, senior managing director and head of trading, began at the firm in 1965 and graduated from Fordham Law School in 1967. That same year Peter had a daughter named Shana. She joined the firm in 1995 after graduating from the same law school her father attended and currently serves as in-house council. Following Peter came Charles Wiener, the son of Bernie's sister Sandra. Charles joined Madoff Securities in 1978 and now serves as director of administration. After Mark joined in 1986, Andrew Madoff, Bernie's youngest son, started in 1988 having graduated from the University of Pennsylvania's Wharton School of business and is currently director of Nasdaq trading. Peter's son Roger Madoff joined Primex Trading in 1999-Primex is an alternative trading system formed from a partnership of four large investment banks and Madoff Securities. "What's nice is that everyone has their own area, I have compliance, Mark has listing, Andy has Nasdaq. So even though we can work together, we're not all thrust into one position fighting over something to do," says Shana.


Mark says, "What makes it fun for all of us is to walk into the office in the morning and see the rest of your family sitting there. That's a good feeling to have. To Bernie and Peter, that's what it's all about." -Anthony Guerra

The Third Worst Bear Market

Volatility? Huh

From Art Cashin's UBS note this morning.

Last Wednesday, I cited some work produced by Paul Leming, who is an associate of my friend, Vince Farrell. Paul's work showed that in the 14,284 trading days since January 1, 1950, there were 68 days that had moves of 4% or more. Further, 28 of those 68 (41%) have occurred in the last three months. Since I wrote of that, we've had two more 4% days. Now it's 30 out of 70 (43%). The volatility remains historic, and nerve-wracking.

Undervalued?

ANNANDALE, Va. (MarketWatch) -- It is one of the ironies of stock-market timing that it is easier to forecast where the market will be in several years than where it will be in several days.

And, according to a valuation model from a research firm with an excellent long-term record, the stock market is likely to be significantly higher in several years' time -- regardless of whether the final low of the last year's bear market has been seen.
The firm in question is Ford Equity Research of San Diego. This firm is on my radar screen because it publishes a newsletter entitled Ford Equity Research Investment Review. And its market-timing model deserves to be on your radar screen because it has a good long-term record.
Ford bases its model on an analysis of individual stocks' valuations. For each of several thousand issues, Ford calculates a so-called price-to-value ratio, which "is computed by dividing the price of a company's stock by the value derived from a proprietary intrinsic value model."

According to Ford, "A [price-to-value ratio] greater than 1.00 indicates that a company is overpriced while a [ratio] less than 1.00 implies that a stock is trading below the level justified by its earnings, quality rating, dividends, projected growth rate, and prevailing interest rates." After calculating a price-to-value ratio for each of the several thousand stocks that it monitors, Ford calculates an overall average.

Since 1970, when Ford started calculating the ratio, this average's record high level was 1.81, which it hit at the end of September 1987, three weeks prior to the worst crash in U.S. stock market history. Its second highest level, 1.79, was registered at the end of February 2000, just a couple of weeks prior to the bursting of the Internet bubble and the beginning of the 2000-2002 bear market.

Today, this average stands at 0.68. That's the lowest since December 1974, when it got slightly lower, to 0.61. Other than that December 1974 reading, the current level of this average is the lowest since 1970, when Ford began calculating it.

In addition, the current level is well below the four-decade average, which stands at 1.17.

This would certainly appear to be good news for the stock market.

To test whether Ford's model has statistical significance, I fed the monthly values for the average price-to-value ratio into my PC's statistical package, along with data on how the stock market performed. As expected, I found an inverse correlation between where the Ford average stood and the stock market's performance over the subsequent one-, three-, and five-year periods.

That is, higher price-to-value ratios were more often than not followed by lower market returns, and vice versa. And these correlations were significant at the 95% confidence level that statisticians often use to judge whether a correlation is genuine.

Can the Ford data be used to forecast anything shorter term?

Ford's analysts pointed out in a recent special report prepared for their clients that the average price-to-value ratio of U.S. stocks "dropped below 1.0 [only] seven previous times - April 1973, April 1976, April 1980, September 1990, August 1993, August 1998, and June 2002. In each of these cases, the market made an initial low within the first three months" after breaking below that 1.0 level.

In the current bear market, the 1.0 level wasn't broken until October. As a result, Ford's analysts conclude that, "We should expect to see that the market has bottomed by year-end."

Unemployment Comparison 74 vs. 08

1974 (Half of the work force)
November - 368K
December - 602K
January -360k
February -378k
March -270k
April -186k
May +160k
June -104k

2008
November - 533K

Stay tuned.

1929 Bear Market

Recession vs. Credit Cycle

Case-Shiller survey shows 16.6% annual decline in summer months as housing picture continues to deteriorate.

NEW YORK (CNNMoney.com) -- The home price plunge stayed on a record pace this summer, according to a widely watched gauge of national real estate markets released Tuesday.

The S&P Case-Shiller Home Price national index recorded a 16.6% decline in the third quarter compared with the same period a year ago. That eclipsed the previous record of 15.1% set during the second quarter.

Prices in Case-Shiller's separate index of 10 major cities fell a record 18.6%, while its 20-city index dropped a record 17.4%.

With foreclosures soaring at record rates, the economic picture dimming and job losses ramping up, all the elements were in place to push prices lower.

"The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its own fundamentals." said David Blitzer, Standard & Poor's spokesman for the indexes, in a press release. "All three aggregate indices and 13 of the 20 metro areas are reporting new record rates of decline. . . . Prices are back to where they were in early 2004."

The 10-city index is now 23.4% off its peak price, which came in June 2006; the 20-city index is down 21.8% from its July 2006 high and the national index has fallen 21% since the third quarter of 2006.

Green and beautiful without utility bills!
Home prices in the 10-city index have fallen for 26 consecutive months. The decline has broadened over the past 12 months, with prices dropping in every city of the 20-city index during September.

In the weakest market, Phoenix, the 12-month loss came to 31.9%. Las Vegas prices plummeted 31.3% and San Francisco recorded a 29.5% decline. The best performing markets, Dallas and Charlotte, N.C., still posted drops - 2.7% in Dallas and 3.5% in Charlotte.

With San Francisco and Las Vegas, the other members of the 10-city index are: Miami, down 28.4% year-over-year; Los Angeles, down 27.6%; San Diego, down 26.3%; Washington, down 17%; Chicago, down 10.1%; New York, down 7.3%; Boston, down 5.7%; and Denver, down 5.4%.

In addition to Phoenix, Dallas, Charlotte and the cities in the 10-city index, the 20-city index is made up of: Detroit, down 18.6%; Tampa, Fla., down 18.5%; Minneapolis, down 14%; Seattle, down 9.8%; Atlanta, down 9.5%; Portland, Ore., down 8.6%; and Cleveland, down 6.4%.

Foreclosures continue to take a heavy toll, with sales in some cities dominated by properties repossessed by banks and then put back on the market, often at bargain prices. In Las Vegas and Cleveland, for example, about half of all homes for sale are bank-owned properties, according to the real estate Web site, Trulia.com.

"Foreclosures are clearly a part of the market now," said Blitzer.

He added that the national index price trends tend to be more moderate because they encompass many more exurban and rural areas, where, in many cases, home prices never skyrocketed as they did in some of the hotter, urban markets.

Karl Case, the Wellesley economics professor who is the Case in Case-Shiller, said during a news conference about the latest index report that he would hesitate to put a number on how much further prices could fall, but the increasing job losses will surely worsen the situation.

"There's no cushion against unemployment," he said.

And Pat Newport, an economist with Global Insight, pointed out that the latest numbers don't even capture the impact of some of the events of the past couple of months.

"The real economy took a sharp turn for the worse towards the end of the third quarter," he said. "Since then, housing permits are down, the National Association of Home Builders index of activity dropped to a record low in November and purchase loan applications were down 15%. That's telling us the housing market has worsened a lot."

Add to that a jumping unemployment rate and more bank woes and it adds up to lousy home price numbers for months to come, according to Newport.

"As bad as the latest Case-Shiller numbers appear to be, they are bound to get a lot worse," he said.

Marc Faber Nov. 20 2009

Well, I think we have reached extreme points in the sense that asset markets are, by and large terribly oversold, whether these are gold mining shares, or commodities, or equities. On the other hand, we have an overbought U.S. dollar and overbought U.S. Treasury bonds. So I think that volatility will continue. But what you could get within the next 3 months is a very strong rebound in asset markets, in equities, and a sell-off in bonds, and eventually a selloff in the dollar.

http://www.cnbc.com/id/27835292/

History Chart

Chart from Natureflow at Hutong

Banks!

Perhaps if Goldman Sachs goes belly up, the government will stop appointing guys from that firm to run the Treasury. The models that permeate throughout Wall Street got us into this mess. We need some original thinking from outside lower Manhattan to get us out.
I continue to have a bullish stance near-term, given both the tremendous negativity in the market and extreme oversold levels. But days like today make it tough.
I contend that what would surprise money managers the most is not the S&P 500 hitting 750 but rather the S&P 500 hitting 1150. The unrelenting bearishness I am hearing is deafening.
The last time we had a 35% decline over two months as we did from the close on August 28 to the close on October 27 was in 1937. In fact, there have only been 13 occasions since 1928 when the market fell by 35% or more from any given daily close out of 20,305 trading days.
The first eight occasions all occurred around the crash of 1929, with a two-month decline of 35% occurring on October 29, 1929, November 6, 1929, and each day from November 11 through 18, 1929.
A month after October 29, the market was up 2.5%. The nadir was on November 13, with the market having been cut in half from its peak in August. Stocks then rallied 23% over the next month.
On October 5, 1931, the market was down 34.9% compared to the previous month (thus not making it one of the 13 in the sample). Stocks bounced 23% a month later.
On May 3 and May 5, 1932, the market had also fallen at least 35% over two months. However, returns were negative a month later, with declines of 22% and 14% respectively. Two other 35% declines occurred on May 31 and June 1 of that year. The market was flat a month later, with a loss of 0.7% and a gain of 2.5% respectively.
The final two-month decline occurred on October 18, 1937. A month later, stocks were up 6%.
For what it’s worth.
The positive news today? NYSE Composite volume was 4.38 billion, down from 4.79 billion on Friday. That is the lowest volume since September 24, and one the lowest volume days in months. Also, breadth was 2.3:1, the lowest negative breadth on a down day in nearly a month. Generally, the selling as of late has been program driven, with negative breadth on down days more likely to be 10:1 or 20:1.
More good news? The 2-year swap spread ticked down to 1.07%, although it was below 1% at the open this morning.
LIBOR was down. However, the TED spread ticked up because 3-month T-bills hit a yield of 0.20%, nearing the multi-year lows set in September and October.
I asked our bond guys why the T-bill yield was so low. Short-term interest rates are hitting lows seen during the panic in October. We are not panicking now. In fact, spreads are narrowing. So why are short-term interest rates dropping like a stone? They called around the Street to ask but nobody seemed to know.
We came to the conclusion that the low yield is probably because of cash hoarding to meet redemptions. As I understand it, most hedge fund investors have until November 15 to ask for their money back at the end of the year. Rather than selling after the fact, funds are liquidating pro-actively. Mutual funds have also been selling to meet expected redemptions. Pension funds, which have been caught in highly illiquid asset-backed commercial paper in their cash accounts, are over-invested in T-bills. In other words, large investors are sitting in the most liquid asset available to meet expected capital calls.
This leads to an interesting proposition - what if redemptions are not as large as funds expect? One contact told me that their prime broker is saying that hedge fund redemption request are coming in a bit higher than expected. However, there appears to be a great deal of liquidity floating around.
Staying on fixed income, here is a graph of the yield curve.
Usually, this means that the economy is going to be okay. The bears will argue that is because the long-end of the curve is either a.) discounting inflation, or b.) deluded and will eventually fall.
The VIX is interesting here.

It may be in the process of tracing out a lower high. Perhaps the chart is forming the right shoulder of a head-and-shoulders pattern those technicians like to see. Or maybe it is the process of re-testing the highs. We will know over the next few days.
Speaking of the technicals, we may be seeing positive divergences in MACD and RSI for the market.

The RSI at the top may be hitting higher lows while MACD at the bottom is nowhere near the levels experienced last month.
Make your conclusions accordingly

Jeremy Grantham: Letter to investors

On October 10th we can say that, with the S&P at 900, stocks are cheap in the U.S. and cheaper still overseas. We will therefore be steady buyers at these prices. Not necessarily rapid buyers, in fact probably not, but steady buyers. But we have no illusions. Timing is difficult and is apparently not usually our skill set, although we got desperately and atypically lucky moving rapidly to underweight in emerging equities three months ago. That aside, we play the numbers. And we recognize the real possibilities of severe and typical overruns. We also recognize that the current crisis comes with possibly unique dangers of a global meltdown. We recognize, in short, that we are very probably buying too soon. Caveat emptor…

Rounds I and II – the asset bubbles breaking and the credit crisis – will soon be mostly behind us, but the effect on the real world of economic output lies, unfortunately for all of us, almost entirely ahead. Employing our usual historically loaded armchair technique, we have been writing for several quarters that global economic weakness will be substantially worse and will last substantially longer than the official forecasts. We maintain that view even though official forecasts have dropped considerably. The global economy is likely to show the scars of this crisis for several years. In particular, the illusion of wealth created by over-inflated asset prices has been dramatically reduced and, though most of this effect is behind us, a substantial part of the housing decline in some European countries and the U.S. is still to occur…

This reversal of the illusory wealth effect added to deleveraging will be felt worldwide, but especially in the so-called Anglo-Saxon countries, and will be a permanently depressing feature of the next decade or so compared with the last decade. It is indeed the end of an era.

Galbraith on Economists' Inability to Forecast the Credit Crisis

Do you find it odd that so few economists foresaw the current credit disaster? Some did. The person with the most serious claim for seeing it coming is Dean Baker, the Washington economist. I saw it coming in general terms.

But there are at least 15,000 professional economists in this country, and you’re saying only two or three of them foresaw the mortgage crisis? Ten or 12 would be closer than two or three.

What does that say about the field of economics, which claims to be a science? It’s an enormous blot on the reputation of the profession. There are thousands of economists. Most of them teach. And most of them teach a theoretical framework that has been shown to be fundamentally useless.

Morgan Stanley strategist points to buy signal

The strategist who warned investors to sell equities in June 2007, just before the credit crisis, is saying the market is sending its strongest buy signal for six years.

The last time Morgan Stanley flagged a "full house buy" for European equities was in September 2002, just before a five-year bull market began.

Teun Draaisma, European equity strategist at Morgan Stanley, said yesterday that full house buy signals had a near-perfect track record and had been very good at indicating when markets were nearing a turning point.

He said that "each of the four indicators [valuation, capitulation, risk, fundamentals] tell us to buy.

"The latest elements that pushed us there have been a capitulation among retail investors, purchasing managers and sell-side analysts, as measured by record mutual fund outflows, ISM new orders below 40 and analysts' revisions collapsing . . . When these three groups know about the bad news, equity prices are probably already reflecting it."

Mr Draaisma warned that full house signals had sometimes been early but had only been wrong once, in November 2001. This was later followed by all indicators giving a sell signal in April 2002.

"Despite the bad fundamental outlook, prudent investors should not be short equities," he said.

The bank believes the market is in the worst earnings recession for 40 years but that the bad news is already priced in.

"We see 15 per cent upside to our 12 month target for MSCI Europe."

Mr Draaisma believes the "severe part of the bear market is over" even though he points to many short-term risks.

The FTSE Eurofirst 300 yesterday completed its first five-day winning streak since October 2007 as expectations grew the the ECB would cut rates.

"The more prudent investor may wish to stay in cash and not be overweight equities, but our advice is not to be short or underweight any more," Mr Draaisma said.

"Our advice is also for long-term investors to keep on averaging in at these and lower levels."

US Inflation Chart

Year end dressing or Year end Tax selling

Tomorrow is the last day for both.

Jeremy Grantham is buying

U.S. pension funds are crying in their soup now, but they can at least find some solace in the fact that, for the first time in 20 years, we’re looking at all global equities being modestly cheap,” said Mr. Grantham. Some are substantially cheap, which has left GMO looking to add to its holdings, he said. “Catching a falling knife is never without pain, (but) the prime directive is to buy cheap assets.”

There’s no need to rush, however. CFOs should phase back into equities “with all deliberate slowness, as opposed to all deliberate speed,” Mr. Grantham warned. Even though the S&P 500 is trading below GMO’s fair value estimate for that index of 975, markets typically overshoot on the downside by 20% or more, he noted. If the market panics, that bottom could be reached in days or weeks. If it’s a more orderly affair, it could take until 2010, as investors digest a likely stream of wretched economic news, he said.

SPX vs Consumer confidence

Is there any connection between weak consumer confidence readings and bullish reversals in the stock market? To decide, have a look at the following quick-and-dirty overview (which includes all data going back to the Feb-67 start of the confidence series):

SPX performance since 1927

VIX closed at record

With the VIX under 75 and only ten minutes left in the trading day, it looked like volatility was on the wane, but aggressive selling into the close dropped the DJIA 200 points and helped to push the VIX up over the 80 during the extra 15 minutes of index options trading.

This is the first time the VIX has closed over 80 and the 8th time in the past 16 trading days that the VIX has registered a new record close.

Posted by Bill Luby at 1:34 PM 3

Funny Picture

Fed Liquidity Efforts `Hyper-Inflationary'

http://www.youtube.com/watch?v=T6DkGtkA_w4

一个小故事

今天和BETSY去吃饭，说到公司历史， 她说我们的创始人本是个富家子弟，绝顶聪敏但整天不干正事，他父亲开了个广告公司让他管， 他就天天去混混， 1929大萧条，股市崩盘他还是天天吊儿郎当。至到有一天， 公司楼下的Pain Webber老板来找他，　说我的SalesMan都快饿死了， 你想个产品给他们卖卖吧。 公子哥良心大发， 开始进入金融市场， 他发现几家当时算高科技的Utility sector势头很足，于是就把公司改成Asset Managment Firm, 建了几个ＵＴＩＬＩＴＹ的债卷基金，让Pain Webber做销售。 结果大获成功。

Marc Faber is hot now

http://www.cnbc.com/id/21419786

Jeremy Grantham: U.S. Stocks Now 'Very Reasonable Buys for Brave Value Managers'

Jeremy Grantham of GMO has released Part I of his Q3 letter (.pdf, dated October 17, 2008). Here's how Grantham sees the market at this juncture:

At under 1000 on the S&P 500, U.S. stocks are very reasonable buys for brave value managers willing to be early. The same applies to EAFE and emerging equities at October 10th prices, but even more so.

History warns, though, that new lows are more likely than not. Fixed income has wide areas of very attractive, aberrant pricing. The dollar and the yen look okay for now, but the pound does not.

Don’t worry at all about inflation. We can all save up our worries there for a couple of years from now and then really worry! Commodities may have big rallies, but the fundamentals of the next 18 months should wear them down to new two-year lows.

As for us in asset allocation, we have made our choice: hesitant and careful buying at these prices and lower.

The Road to Ruins

JIM PUPLAVA: Well, here we are at the beginning of the year, and as we always do at the beginning of the year, people are looking for predictions, and especially with all of the volatility and unpredictability of the markets. But just like the polls in the United States, which seem to be missing out on things, it’s getting more difficult to predict.

Joining us on the program this year is Dr. Marc Faber, he’s the editor of The Gloom, Boom & Doom Report.

And Marc, I want to start out with something you said in your January newsletter, and you quote Lao Tzu, the 6th Century Chinese poet, where he said: Those who have knowledge don’t predict; those who predict don’t have knowledge. Isn’t this going to be one of those difficult years to predict where the markets are going? It just seems like there are too many crosscurrents this year.

MARC FABER: I don’t think that it is all that difficult to predict markets, but we have to understand that you can’t give a target for, say, the Dow Jones because you essentially have a manipulated market. Manipulated by the Federal Reserve, in the sense that if the Fed cuts interest rates to say zero percent or one percent, as they’ve done after 2001, then stock prices can be supported. But obviously a cut of interest rates at this stage of the cycle where we clearly have inflationary pressure would obviously increase the rate of inflation and probably weaken the dollar further – certainly against a hard asset such as gold and other precious metals. So let’s say someone said the Dow will go up to, oh, I don’t know, double. Say for argument’s sake, from 13,000 to 26,000. We would have to measure that increase –this doubling of the Dow Jones – in a hard currency such as either a foreign currency or in gold. And if the Dow doubles because of money printing by the Fed to 26,000, it wouldn’t mean necessarily that economic conditions improved, but it would mean maybe that inflation picked up dramatically and that the gold price goes up three times. [2:52]

JIM: You also quote Peter Bernstein the economist and strategist and he said that:

The current scene bears no resemblance to a typical economic peak or to conditions usually preceding a slowdown in business activity. Those kinds of conditions feature excesses in the business sector. But the business sector at the present time has a relatively clean bill of health. There are no signs of the usual boom in capital spending that leads to a cyclical top and leaves an overhang of capacity.

I’d like to get your thoughts on the current condition of business. Is this the one saving grace that we have in the US economy right now?

MARC: I think that it is difficult to say that we don’t have, let’s say, excesses in capital spending because we live in a globalized world. In other words, capital spending may not have been excessive in the United States – although I could argue that home building is some kind of capital investment; the whole commercial real estate market is some kind of capital investment. And what we have is we have excesses in capital spending in other countries such as in China and in other emerging economies. So basically, the US has outsourced largely it’s production, and that’s where the excesses in capital spending are occurring.

Moreover, in a business cycle you just don’t only look at capital spending. I think the biggest excess was in consumption in the United States, where consumption as a percent of the economy has increased from around 60% in 1980 to now over 70%. So in an economy where you essentially have maladjustments as a result of easy monetary policies the excesses do not necessarily have to be in capital spending. The excesses can be in asset markets, such as the housing market, in stocks, in commodities and they can be in consumption. [5:04]

JIM: Let’s talk about consumption, because the big question everybody has here –and there is such an emphasis in the US economy on consumption – and that’s the US consumer. And we’ve got a situation now where you know they can’t take out money out of their mortgages like they used to and use them as an ATM machine. We’ve seen a bit of a slowdown in the fourth quarter with consumer spending. Do you think this is the time that the US consumer finally goes on hold. I mean, they’ve been counting the US consumer out for years and decades, but it’s like the Energizer Bunny: They keep on spending.

MARC: Yes, I agree that there has been a lot of let’s say apprehension about the ability of the consumer in the US to continue to consume, but I think the important question here is the Federal Reserve and also the Treasury have encouraged, in the US, consumption. And does consumption lead to the creation of wealth? Or if you have a table full of food and you just eat the whole food away does it lead to a reduction of wealth? That is really the issue here. And I think that in the US the excessive consumption which was driven by asset markets, in other words by increasing asset prices – stocks until 2000, and after that by the real estate market – have essentially led to an economy that is starved [of] savings and starved of capital spending and characterized by excessive consumption which is on evidence from the growing trade and current account deficits. And now the goldilocks apostles they will always say, “well, the trade and current account deficits do not matter.” But they do matter in the sense that there has been a huge transfer of wealth to foreign countries, and now foreign countries have these sovereign funds which they invest globally; and there has been a huge creation of wealth, in particular in the resource-producing countries; and also there has been extended US dollar weakness. And so the current account deficit and the excessive consumption does matter to some extent for the well-being of the US. [7:33]

JIM: One thing that we’re starting to hear in the US, we’ve heard it from Hank Paulson and the President in December (we’ve seen it recently – the White House convened last Friday), they’re talking about some kind of stimulus package coming out from Washington. Whether it’s going to help people that are under duress right now because of mortgage resets – but some kind of fiscal spending program – who knows? Maybe we get some kind of helicopter drop. What about the US government combined with fiscal stimulus and monetary stimulus as it appears right now that the Fed is probably going to get more aggressive in its rate cutting.

MARC: Yes. I’m sure that they will implement a stimulus package, but I think the stimulus package will be an ill-fated attempt to revitalize the economy. If you look at the problem of the economy, it’s been excessive credit growth that came from easy monetary policies. And what they want to do now is essentially to implement another set of monetary policies and other measures to stimulate consumption, when consumption precisely has been the problem of the United States – the excessive consumption. And I think a stimulus package may be useful if it were directed at the stimulation of capital spending and at the encouragement of saving at the expense of consumption. And that can only lead to essentially a readjustment period in the economy. Readjustments – basically what the US needs is a recession. And only a recession can redress the excesses that have taken place. And if you superimpose another bubble on the existing bubble you create more maladjustments in the economy and more ill-fated measures that eventually lead to a total breakdown of the system. [9:42]

JIM: You know, unfortunately here in the US, whether you’re watching both parties – the Republicans or the Democrats – they’re talking about ways to increase consumption because they’re worried by a slowdown in consumer spending. And nobody in a presidential election year seems to want to take the pain to go through a recession and redress a lot of the imbalances or cleanse the system because of the imbalances we see right now – whether it’s mortgages, excess consumption and indebt[edness]. So in the end, could you see a scenario, Marc, something like this: In the first quarter we see economic weakness as we’ve been seeing, we see more write offs coming from the financial system (there’s talk about Citigroup maybe writing off $16 billion), also there’s going to be a slowdown in corporate earnings, and then we get a massive response from the Federal Reserve that temporarily probably stimulates the markets. So let’s say, in between, if you think of an Oreo cookie, a hard first quarter, a creamy filling in the second and third, and by the fourth quarter higher interest rates and inflation come back to bite us again.

MARC: Well, personally, I think that the US, if you measure economic statistics properly –and the government is lying blatantly – the US went into recession 3 months ago. And I’m saying the government is lying blatantly, because they take nominal GDP and then they fiddle around with inflation figures. I mean none of your listeners have an inflation rate of less than 5 to 6% per annum. You just can’t exclude food and energy prices and healthcare costs from the CPI, from the cost-of-living increases. So nominally the US economy may still be growing, but inflation adjusted –in other words, in real terms – we’re already in a recession. And most US households, except for the super rich, are today no better off than they were five or seven years ago. Their income gains have all been eaten up by cost increases by inflation.

Now, some people have benefited from asset inflation in the sense that their houses in which they live have appreciated in value but that has been precisely because of easy monetary policies and the debt growth that have now brought about problems.

And all I can say is that corporate profits in my opinion began to contract in the third quarter of last year and they will continue to contract, because corporations now –and this is important to understand – corporations are facing cost increases. So the margins are going to be squeezed. And whereas the valuation of the stock market is not unbelievably high in the sense that stocks are not selling at 50 to 80 times earnings like in Japan in 1989, if you exclude say the energy sector from the S&P which is selling at 12 times earnings or 10 times earnings, then the S&P valuation is over 20 times earnings. If you’re faced with declining earnings then basically the S&P is not a great bargain here. [13:14]

JIM: Let me just continue on that inflation theory, because what you are talking about in the fourth quarter the GDP deflator, if I recall, was falling from the second, third and fourth quarter last year; and I know in the third quarter the GDP deflator was the lowest since Eisenhower was president. So could you get statistically, and I’m just looking forward in an election year, maybe we get the lowest inflation rates since Calvin Coolidge was president. So in nominal terms as reported by the government we get this slow growth figure that they’re talking about – one to two percent – in those terms, we avoid a recession even though in real terms we are in one.

MARC: Well, basically, that would be a form of stagflation. And I mean it’s very difficult to measure GDP in the first place, and what you have to look at is essentially standards-of-living increases in an economy. And I don’t think that there are many standards-of-living increases in the United States at the present time, nor for that matter in Western Europe. We have huge standard-of-living improvements in emerging economies where a middle class is being created and where even workers or farmers are doing better than say a couple of years ago. But my point is simply that the government is lying. And they will continue to lie because they don’t want to admit that they created an unbelievable economic mess. Nor will the Fed admit that their ill-conceived monetary policies led to the crisis that we have today in the financial markets. [15:01]

JIM: What about the theory that’s being bandied about, even though the US economy slows down as we are now seeing that –they call the decoupling theory – that the rest of the world (whether it’s Europe, Asia, emerging markets) will continue to be strong? So therefore, if you are let’s say a large cap international company where you get a good majority of your sales overseas – and a good example would be, for example, DuPont this week beat estimates. They get 60% of their business overseas and because of that business doing very well their earnings were higher than expected. Do you subscribe to the decoupling theory, or do you think a slowdown in the US will have some effect on Europe and the rest of the world?

MARC: Well, basically, we have to first of all distinguish between an economic decoupling and a financial decoupling. In other words, can some countries grow when the US is say in a no-growth mode or in a recession mode? I think that this is possible because if you look at basically the US economy over the last two hundred years, occasionally you had a recession in one state, say, Texas in the early 1980s (when the oil price started to go down), and you had expansion in another state like New England (which benefited from lower oil prices); or in the early 1990s, you had a recession in California but other states they were expanding. So in an economy which is very complex, where you have different regions and you have different sectors – industrial sectors and service sectors – it is conceivable that one sector is in recession and other sectors or other regions are not; that is entirely possible. But I would argue that over the last seven years we had an unprecedented global economic boom where essentially every country has been growing with the exception of Zimbabwe, because you have a money printer in Zimbabwe who essentially should be joined by Mr. Bernanke. He would fit very well with Mr. Mugabe in that country.

Now, what happens if the US no longer grows is that the trade and current account deficits of the US shrink. In other words, we had during the excessive consumption period 1998-2006, a current account deficit in the US that increased from 2% of GDP to over 7% of GDP, and at the end was supplying the world with $800 billion annually. And this river flows into the world through the American current account deficits, and essentially provided the world with the so-called excess liquidity and created booms in everything from art prices to commodities, stocks, bonds, real estate, what not. And once the US no longer has this growing current account deficit, but a shrinking current account deficit, you have essentially a relative illiquidity coming up in the world. It is not that it’s tight money, but the rate of growth of liquidity shrinks and it does have obviously an impact on the economies and on the asset markets. And it is conceivable that say the US goes into a recession, Europe goes into a recession and that China does not go into a recession but into a growth slowdown, say from 8 to 10% GDP growth down to 3 to 6% of GDP growth. But this decline in the growth rate is still very uncomfortable for China, as well as for India. So I’m not a great believer in this decoupling theory.

Moreover, I don’t believe that financial markets will be decoupled. In fact, I would argue: If you look at look at the last four years, 2002 to today, then emerging markets have been the big bubble. The US markets have not been a gigantic bubble in the sense that US equities, especially large cap stocks, are not terribly expensive by world standards because the dollar has gone down so much. And so the big bubble is probably in emerging markets; and these markets, obviously if the S&P goes down, will be hit very hard. And I would argue, if someone puts a gun to my head, and says, “Marc, you must buy stocks,” as much as I dislike saying this but I would probably rather buy US stocks today, than say some of the emerging markets that are selling at 30 to 50 times earnings. [20:08]

JIM: You bring up an interesting point about liquidity in the world which has a genesis in much of the US trade deficit. As we look around the globe today, Marc – I have a screen on my Bloomberg that has year-over-year money supply growth rates around the globe and what is surprising as I look at this table is to see double digit money supply growth around the globe out of 18 of the top 20 central banks. I think Europe reported last week it’s money supply is growing at over 12%, yet Trichet is talking about being tough on inflation. You know, the inflation rates that we’re seeing here in the United States, are they not global in nature? Are you finding that, for example, in China where you have the inflation rate going at 6 or 7%, that this is a global phenomenon?

MARC: Yes, I mean that’s the point. I mean when recently people were very negative about the US dollar and so forth – and of course, long term you cannot be optimistic about the US dollar – but the US dollar has declined quite substantially, especially against the euro in the last couple of years; and the Europeans are also good money printers. It’s not just Mr. Bernanke that is the chief money printer. The others are not much better either. So basically, you have this excess liquidity being created in order to support asset markets and so forth.

But the point about this excess liquidity is that an eternal boom is out of the question. So what the Fed and the other central banks can do is kind of stimulate, through easy monetary policies, credit growth; but the private sector if it becomes, say, risk adverse can withdraw liquidity and a) not lend and people can also refuse to borrow, and so the credit does not accelerate but actually contracts. And that leads to what I call a relative illiquidity (it’s not an absolute illiquidity, it’s a relative illiquidity) and that then has some negative implications on some asset markets. But to come back to the first question you raise about making predictions, I think the difficulty today is that under normal conditions, say under a gold standard, we would be in a massive deflationary recession at the present time. Now, the central banks are all intent to prevent that and they print money like crazy and throw liquidity at the system by cutting interest rates and taking extraordinary measures. And so the question arises: How did you measure really economic growth and how do you measure your wealth? Say, as I mentioned, if the Dow goes from here to 26,000 – it doubles in value – if at the same time the gold price goes up 5 times, you lost out by being in financial assets. And I think this is what has happened since year 2000. In year 2000, as you know, you could buy with one Dow Jones, 44 ounces of gold. And now you can buy less 15 ounces of gold.

Now, I’m not saying that gold cannot have a meaningful correction, but I think that the central banks have created actually a state which I would almost call a hyperinflation where asset prices go up very substantially and they don’t make you really richer. I mean say in 1980, there were six billionaires in the world, and today you have thousands of billionaires in the world, everywhere. And money – the value of money – the purchasing power of money has depreciated very considerably. And I’m not speaking here of the US, because I was recently in New York and I saw that the price level in New York is actually quite reasonable compared to, say, the price level in Europe and in other countries. But usually when you have a situation like the US that has achieved relatively low prices levels through currency devaluations – and the US has pursued a policy to lower the value of the dollar – what usually follows (and not every time – usually what follows) is high and accelerating inflation rates. And the US government of course they will understate inflation, but the pocketbook of the consumer will notice this increase in inflation and what you will then get is essentially prices going up and the standards of living of people going down – in other words, stagflation. [25:08]

JIM: Isn’t this one of the signals that gold is giving to the financial markets? When you look through this period of time where we have seen nominal increases in assets and stock markets around the globe, yet if you look at the summer of 2001 when gold was at 255, and here we’re looking at gold heading towards $900 – do you think this is what is being recognized around the globe, that everybody knows that money is dying, it’s losing its value so gold is becoming the ultimate currency to hold?

MARC: Basically, my view is this: Normally, the safest investments in a society is cash, deposited in a bank or in Treasury bills. But the Western democracies and governments in general have created over time an environment where actually cash is a disastrous investment because you’re losing out to inflation like in the 70s as a result of consumer price increases or in the last couple of years as a result of asset price increases. Now, I’m not suggesting that there cannot be times – three months, six months, one year – when cash does better than, say, stocks or better than real estate. Say, in the last nine months it was better to be in cash than in stocks that depreciated or in real estate that depreciated. But basically, if you print money like the Fed or other central banks do, the value of money – of paper money – goes down and then it’s reflected in an increase in the value of assets such as gold that cannot be multiplied at the same rate. I mean someone could say, “oh, the gold price has gone up a lot since 2001.” I can turn around and say: “No, the gold price is the same. It’s the dollar the dollar that has collapsed against the price of gold.” And why did the dollar collapse against the price of gold. You call up Mr. Greenspan and Mr. Bernanke and you ask them about it. Of course, they will never give an answer. Each time Ron Paul asks them a sensible question they just evade the question and they move on to something else because, as I explained, they are a bunch of liars. And actually, if there was a court for honest money, both Mr. Greenspan and Mr. Bernanke should be hanged. [27:44]

JIM: You know, it was interesting – you mentioned Congressman Ron Paul. The last time Bernanke was on Capitol Hill, he asked him about curing inflation with more inflation, and asked him about what was happening to the dollar. And Mr. Bernanke responded – which I was horrified – and he said, “well, actually if you live in the United States and you pay for things with dollars it really doesn’t affect you.”

MARC: He’s out of his mind. Go to Zimbabwe and ask the citizens there: If you pay in Zimbabwe dollars it affects you that the currency has collapsed? Of course it affects you.

JIM: There’s a situation I want to move on to in the financial markets. A lot of the risks that we’ve seen erupt last year, whether it was in February with intermediate lenders or August with the collateralized debt obligations, something that has not gotten much attention and I think could even be a bigger issue and that is credit default swaps, which are now estimated to be somewhere in the neighborhood of 45 trillion. I think there have been a lot of people, Marc, in the hedge fund community and the banking community during this period when we were inflating between 2003 and 2006, they were writing these credit default swaps on corporate bonds because it was almost like free money. Now, if the US economy has gone into a recession –even though we’re not saying it formally – when you go into a recession companies have greater difficulties making their earnings, earnings slow down, cash flow slows down. And what happens if you start getting a bunch of corporate bond defaults? I think this is an issue with these credit default swaps that nobody is looking at. A few people have talked about it; Bill Gross saying it could be somewhere in the neighborhood of $250 billion losses. This is another issues that could surface this year that could throw chaos into the markets.

MARC: Well, I think you’re touching on something very important. I think that over the last 25 years we had numerous financial innovations. And I have to say is, the Federal Reserve had the power to control the financial innovations but actually they encouraged it and led to the excesses we had recently. And I think that the problem that occurred in subprime lending is a symptom of a much wider problem, and that the subprime lending crisis infects obviously other credit markets and so forth and that it will spread like a bush fire through the economy, especially if an economy was essentially driven by excessive credit growth. I mean in the last seven years GDP increased by $4.2 trillion and total credit between 2000 and 2007 increased by $21.2 trillion. In other words, debt has been growing much faster than the nominal GDP.

And I think that now we are in a process of deleveraging – of credit contraction, basically – but the Fed and the Treasury will do everything to restimulate the credit growth that led to the problems in the first place. That’s why I’m arguing that the policies of Mr. Greenspan, of Mr. Bernanke and Mr. Hank Paulson are totally misguided. Totally. And I believe, you know, the financial stocks, every bull market I’ve seen since 1970 when I started to work was accompanied by strength in financial stocks. When you have weakness in financial stocks something is wrong. And therefore, I don’t believe that this bull market that we had since October 2002 to the Summer of 2007 that this will come back. I rather believe that we are in a period of high volatility like in the 70s, when the Dow moved up and down every year by 20%, and in 1982 the Dow was still no higher than we were in 1964. So I think we can have a lot of fluctuations here. And at times the Fed, through rate cuts, can manipulate equity prices higher and so forth. And at times we will have disappointing earnings, disappointing results. And I would suppose that we will have massive bankruptcies as well where financial firms become illiquid and insolvent and are forced to the wall. And so the market environment for financial assets is not going to be particularly good. [32:46]

JIM: Let’s talk about a couple of investment themes among this volatility that we’re seeing. A couple of things that stand out or strike me, Marc, is energy which has been on a roll – and I happen to subscribe to the peak oil theory. I mean we have not made any major discoveries, we’re not replacing what it is that we consume, we have more people consuming energy today. That is one theme that I can see. And along those lines and something similar – you cover this in your current newsletter – is you’ve got a little over 1% population growth in the world, the acreage for growing crops isn’t expanding. In fact, in certain areas like China it’s being turned into parking lots – like Joni Mitchell’s song – or buildings. What about the theme of energy, food and precious metals if you wanted to be in this market as a long term investor?

MARC: Yes, I think that’s a very good point. In general, I believe that you should be in assets that cannot be multiplied easily, such as commodities (whether it’s copper or zinc or nickel or oil or precious metals), or food items (wheat, corn, soybeans, sugar and so forth). But the commodity markets had a very big move and the price of oil has gone up essentially almost 10 times since 1998 from $12 a barrel to now close to $100 a barrel. And in an environment of slowing growth in the world, I would be somewhat careful of investing now in industrial commodities whose demand depends essentially on strong economic growth. So I would not be surprised to see – as has already happened in some commodities like nickel – that prices correct meaningfully. And all I can say to investors is I’m bullish about gold in the long run, but don’t buy anything –whether it’s a house or stocks or precious metals – if you are not prepared to ride through say a 20% correction, because we have higher volatility. We will get more corrections along the way up. I mean I remember the great bull market of the Taiwanese stock market, 1984 to 1990. The market went from an index of less than 500 to 12,500, but we had in 1987 a 50% correction, in 88 a 40% correction, in 89 a 30% correction until we reached a final peak. So investors have to get accustomed to higher volatility. And someone who cannot live with this volatility because he is leveraged, is going to be forced to the wall.

So my advice is to be prudent. And yes, I like energy. I think energy stocks are actually quite inexpensive. But if the oil price for one reason or another drops to say $70, then obviously energy stocks will be down. And all I notice is when I started to like commodities in the year 1999 to 2002, it was not a widely accepted investment theme. And today, the investment theme is much more well known, and there are many more speculators in the market place. So I’m still positive in the long run but cautious say for the next six months. And I would also add, as of today – you see, if I remember, well, in 1980, after 10 years of consumer price inflation in the US, everybody thought that consumer price inflation would continue forever. And what then happened after 1980 is that consumer price inflation slowed down and we had a period of disinflation. Today, if there is one consensus it is that paper money will become worthless and that asset prices will continue to go up. And I would still think that it’s not very likely that Robert Prechter is going to be right with his deflationary bias –with everything, with gold prices collapsing to the Dow going down and so forth – but I would still think that there is still a small probability that we could have actually a period of deflation in the near future, which then will lead the central banks to print money like crazy. But in this period of deflation that I would not rule out we would have big declines in asset markets – big declines. [38:09]

JIM: Let’s say we start to get deflation. I mean certainly we’re seeing falling housing prices in the US and other places of the world. Do you think that we get preemptive strikes and perhaps they just throw all caution to the wind? Like right now, the latest consensus is when the Fed meets January 30th it’s going to be 50 basis points; and there’s even talk within the markets that they don’t wait until January 30th if things begin to deteriorate. I know there’s a lag effect to all kinds of things, whether it’s raising interest rates or lowering interest rates. If this deflationary period that could possibly erupt, do you believe it would be short-lived?

MARC: Yeah, very good question. I am quite sure the Fed will cut by 50 basis points; and if not by 50 at least by 25. But as you know, in Japan they cut rates dramatically to essentially zero and we still had deflation. I mean we cut interest rates from 6.5% on the Fed funds rate in January 2001, to 1% in 2003, and yet the NASDAQ still went down. So whether interest rate cuts and even a stimulus package – fiscal package – will help much remains to be seen. We could be in an unusual situation where it doesn’t help much. It’s possible because the public or the household suddenly starts to save; in other words, the savings rate goes up and people become risk adverse. As I said, I don’t know how the world will look like in a year’s time. I’d rather be in gold than in the Dow Jones, whereby maybe for the next three months the Dow Jones could outperform gold for a while. But in general, it’s very, very difficult to make any kind of predictions that make sense simply because you don’t know how irresponsible Mr. Bernanke and Mr. Hank Paulson will be. We just don’t have any idea. As you say, they can do a lot of things to try to support the asset markets. And Mr. Bernanke has written and spoken about this: that you cannot identify bubbles but when they burst you should step in with extraordinary measures. We just don’t know how extraordinary his measures will be. I mean the best for Mr. Bernanke, the best extraordinary measure would be to resign and say: “We failed. We are incompetent.” [40:54]

JIM: But you know, Marc, if you take a look at his study of the Great Depression and people might recall the comment he made at Milton Friedman’s birthday where he said to Mr. Friedman: “You know, you were right, we made the mistake. We caused the Great Depression. I assure you, it will never happen again.” Basically saying, according to Mr. Bernanke’s view and study of the Great Depression, the reason we had it was the Fed didn’t print enough money. Had they been able to do so the Depression would never have occurred. So it almost gives you an insight in terms of his thinking, which is along the lines with Mr. Greenspan in the sense that anytime there’s a problem in the economy or the financial markets massive liquidity seems to be the response and answer.

MARC: Yes, that is correct and I’ve written about this. And I think that the entire analysis of the Great Depression, especially by Mr. Bernanke, is totally wrong. The causes of the Depression were not tight monetary policies by the Fed, but easy monetary policies by the Fed. And Paul Warburg, who was at that time a Fed member, later on commented about this; that the Fed should have pursued tighter monetary policies in the years leading to 1929. And I’d just like to mention one point: In 1929, the PE on the Dow Jones was just about 13 times earnings. We didn’t have a massive stock market bubble in terms of valuation, but what we had is an earnings bubble and half the earnings collapsed. And I think today we don’t have, you know, like 50 times earnings on the stock market like we had in Japan. But I think we have an earnings bubble and that the earnings will disappoint very badly. But I’m just convinced that in a democracy, especially in a country like the United States, the politicians will print money. And whether or not it will always help to support asset markets is very questionable.

The one thing I can assure you is that money printing doesn’t create wealth. That is important to understand. And at some point, as my friend Barry Bannister pointed out, you reach with credit growth the zero hour. In other words, you print money, credit grows, but the economy doesn’t respond. And I think we are already in that situation. And what the outcome will be, hyperinflation or deflation, that is the difficulty to judge. But I think personally as an investor, I would be positioned to some extent in gold because in a deflationary environment I happen to believe that gold would outperform other asset classes because things will get so bad that people will run into gold as a safe haven. And at the same time, I would hold essentially some cash and I would probably deleverage. In other words, I wouldn’t hold a lot of debt in the present environment. If there is hyperinflation, to hold a lot of debt is the right thing to do; but just in case we have deflation, like now in housing and now probably also in commercial properties (that is the next shoe to drop), that in such an environment you’re better off by not holding too many debts. [44:40]

JIM: I want to cover a point in your January newsletter and just let our listeners know, if you don’t subscribe to Marc’s newsletter you’re really missing out on some good thinking.

MARC: Well, it is very kind of you.

JIM: You had a gentleman who has written pieces for your newsletter in the past, his name is Michael O’Higgins, he’s author of Beating The Dow – a very sharp money manager, and I’m going to quote from your newsletter here, and he goes:

So where does one find value in today’s investment world? In my view, given that the main focus of the current US Federal Reserve board remains one of fighting deflation, investors should avoid bonds entirely and concentrate on investments that can protect them from a rising inflation rate i.e. stocks and commodities. With these two categories we have our portfolios equally invested among four investment themes: dogs of the Dow; dogs of the world; precious metals and mining; and energy.

What do you think of that?

MARC: Well, basically, I agree with Michael and I think that if you buy today at 10 years the US Treasury, or 30 year US Treasury, you’re flirting with disaster because they will only perform well in an environment of total deflation, given the low yields they provide at the present time. But as I said, the concept of inflation and deflation is very complex because you can have an economic system where some assets are inflating and some assets are deflating. Like in the US, say in the last 12 months, you would have been better off in US Treasuries than say in the housing market, which has declined in value. So in general, I of course agree with Michael to be in stocks in the long run and to be in precious metals and in energy in the long run and so forth. I’m not sure whether that is the right medicine for, say, the next three to six months. I mean I’m very cash rich here. I’m cash rich US dollars. I think the US dollar does not have a significant downside risk against the euro. In other words, if you put a gun on my head and said, “Marc, you have to choose one currency today, for the next three months: the euro or the US dollar,” I think I would choose the US dollar. Although, I’m very negative about the US dollar in the very long run. But just for the next three months I think the dollar will hold because the current account deficit is now shrinking, the trade deficit is no longer expanding and so forth and so on; and the dollar is relatively inexpensive vis a vis the euro. Would the question be: put all your money into US dollars cash, or put all of your money in gold? As of today, that would be a very tough question because the gold market in my opinion is now somewhat overbought and could undergo easily a 10 to 20% correction. [47:59]

JIM: I’m sensing, Marc, as we’ve had this discussion and also from reading your newsletter, that you’re very cautious at this point. The fact that you’re holding larger amounts of cash and in the dollar is that because of the amount of uncertainty? And what would cause you to move out of cash?

MARC: Well, I think that as an investor – and I’m not a mutual fund manager or hedge fund manager that needs to show performance every week or every month – I’m a believer that occasionally the markets create an unusual opportunity. The unusual opportunity of the last 10 years was really commodities in the years 1999 to 2001, and emerging economies following the Asian crisis. They provided a lifetime buying opportunity. Now that the whole world is captivated with investments, and buying this and selling that and moving here and moving there and performance, I sometimes feel I want to actually be on the sidelines and just give it some time until I make the next major bet. I mean I’m involved quite heavily in gold. Would I put now all my money tomorrow into gold? I doubt it. And I want to be diversified. And all I can say: investment opportunities arise again and again. I mean, I suppose if Citigroup went down to $5, I’d be tempted to look at it. I’m not particularly interested here at the 27 to $30 level, because the financial excesses we had that were built over the last 25 years will take time to kind of correct. And if you have a boom sector, say, like the oil sector in the 70s, afterwards for 20 years oil was unattractive and the drillers were unattractive. And so financial stocks, after a bubble burst in that sector may not provide the leadership in the future and may be unattractive for many, many years to come. But I’m convinced, like I wrote about in my last report about Cambodia, I think there are some countries in the world whether it’s Cambodia or Ukraine or Belarus or parts of China or parts of India, or parts of Russia that can have strong economic growth even in a weakening global environment and provide investors with unusual opportunities. [50:50]

JIM: Marc, you do a lot of traveling around the globe and I think that gives you a different perspective than let’s say some analyst that stays in his office all the time. As you have been traveling over the let’s say last 12 months, is there anything that stands out in your mind and things that you’ve observed?

MARC: Well, I mean people talk about the housing bubble in the United States and the downturn in housing prices in the US. What stands out to me –and I never experienced that before and I’ve been traveling extensively since the 1960s – is wherever you go you encounter boom conditions. And some boom conditions are bigger than others. Say three years ago there was a boom in Dubai. Two years ago the boom was a bit bigger; a year ago it was a bit larger; and now, it’s difficult to imagine how the boom could become bigger to what it is right now. And the same happens in many other countries. Everywhere you have essentially a forest of cranes building; and we have an unbelievable construction boom everywhere in the world. And my view is simply: If you have a synchronized global economic boom as we have had, then the consequence is one day a global synchronized bust, because in the past usually booms were concentrated in one sector, say oil in the 70s or NASDAQ, I mean technology in the late 1990s, or Japan (1985-1990). So that was just one sector of the global economy that was booming and the others weren’t. But now I can assure you: Everywhere you have a colossal boom; and I think this will give way to colossal bust. If it’s this year or next year, who knows? But I don’t want to be caught in this colossal bust. And if someone says, “oh, we can make a lot of money over the next 12 months until it happens,” then good luck to him. I just don’t want to be overly exposed to this boom at the time when, say, cyclically I can see that there is this relative illiquidity coming up and where it is difficult to build much on the existing boom. And besides from that, if you really have boom conditions, that doesn’t guarantee that equities go up. Sometimes you have strong economic conditions and stocks go down like in the Middle East in 2006, early 2007. We had boom conditions but stocks still dropped 50 percent. [53:41]

JIM: Well, you know, Marc, I think it’s in the next week or so you meet with the Barron’s roundtable group. I’m sure I think your views are going to be much, much different than the roundtable. They usually are. Do you expect optimism to be expressed there. I mean one of the standard things that we see today, slow growth, rising markets, even though earnings are going down, interest rates are going down, so we could see multiple expansions. What do you expect your group of peers to be saying?

MARC: Well, basically, the interview took place last Monday and the group by and large is bearish on the economy. But they are in denial about the stock market. They all think that stocks will be okay, but they are bearish on the economy. And that’s what I think is happening throughout essentially the money management establishment. People are kind of cautious on the economy. The economists predict, say, a soft landing and the analysts are essentially actually quite positive because they predict the S&P earnings to grow by 12 percent this year. And so there is this environment of what I would call self-delusion. And my view is that the markets won’t perform well. But equally, as I said, if someone said you must own stocks, I think the emerging stock markets today are more vulnerable than the Dow Jones. And so if I had to own stocks, probably I would be in the Dow Jones – whereby I’d prefer not to own any stocks. [55:15]

JIM: Well, Marc, I want to thank you for joining us on the Financial Sense Newshour. You’ve been very generous with your time. I know it’s late there in Thailand where you join us. If our listeners would like to find out more about your work –and by the way, my compliments, it’s probably one of the best written newsletters out there. It’s always full of interesting aspects or thoughts on investing – tell them how they could do so.

MARC: Well, basically, they can send me an email at FaberDoom@yahoo.com, or they can go to the website www.gloomboomdoom.com.

JIM: Marc, I want to thank you so much for joining us on the program. I want to wish you a happy, prosperous and healthy new year.

MARC: Well, thank you very much for having me.

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