Faber July 2012

Dr.
Marc Faber
Market Commentary July 1, 2012
We are most deeply asleep at the Switch when we believe to control all Switches
Marc Faber
The Monthly Market Commentary Report
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Dr. Marc Faber
We are most deeply asleep at the Switch when we believe to control all Switches
"I am indeed amazed when I consider how weak my mind is and how prone to error. Rene Descartes
"If all else fails, immortality can always be assured by spectacular error." John Kenneth Galbraith
"No estimate is more in danger of erroneous calculations than those by which a man computes the force of his own genius." Dr. Samuel Johnson
"Every man, wherever he goes, is encompassed by a cloud of comforting convictions, which move with him like flies on a summer day." Bertrand Russell
"Where we have strong emotions, we're liable to fool ourselves." Carl Sagan
Ludwig Wittgenstein once wrote that, "If there were a verb meaning 'to believe falsely', it would not have any significant first-person, present indicative." What Wittgenstein meant is that it is almost impossible for people to say in the present tense, I believe falsely. People will however occasionally - (seldom in my experience) - admit that they believed falsely using the past tense. I am bringing this up because Howard Marks who runs Oaktree (a very successful hedge fund, which invests principally in distressed securities)
www.gloomboomdoom.com Copyright 2012 by Marc Faber Limited - All rights reserved Page 2 of 29
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recently pointed out that mistakes are all that superior investing is about. In short, in order for one side of a transaction to turn out to be a major success, the other side has to have been a big mistake. Usually a buyer buys an asset because he thinks its worth more than the price hes paying. But the seller sells the asset because he thinks the price hes getting exceeds its value. Its pretty safe to say one of them has to be wrong. Strictly speaking, that doesnt have to be true, thanks to differences in things like tax status, timeframe and investors circumstances. But in general, win/win transactions are much less common than win/lose transactions. When the dust has settled after most trades, the buyer and seller are unlikely to be equally happy. I think Marks makes a very good point and my readers should consider his words very carefully. Over the years, my experience has been that most investors who lose money fail because of overconfidence (I can assure my readers that I have a lot of personal experience in losing money as well). When they buy, they are convinced that an investment will be highly profitable and seldom consider that they could be wrong. Likewise, when investors sell an asset they are sure that it no longer has a significant upside potential. Investors overconfidence leads to a complete lack of diversification and heavy concentration of money in a single asset class. As an example, I was stunned to hear from the Economic Policy Institute that the typical American family saw its net worth fall 39 percent after the collapse of the housing bubble, according to newly-released Federal Reserve data. Younger families were hardest hit, with those in the 35-44 age group - the age when families start getting serious about saving for retirement - experiencing a 54 percent drop between 2007 and 2010 (see Figure 1).
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Figure 1: Median Household Net Worth by Age Group, 1989 2010
Source: Board of Governors of Federal Reserve System, 2010, Economic Policy Institute
What is interesting is that the 75 years and older group was not that badly affected by the crisis. I presume that this group had accumulated savings, which allowed them to diversify between real estate, equities and bonds. In addition, they probably had only moderate borrowings against their assets. The problem with the 35 44 old is that they got caught in the NASDAQ bubble first. So when home prices soared after 2001 - the losses on their NASDAQ positions offset the gains on their homes. Then when home and equity prices declined sharply after 2007, their net-worth suffered very badly compared to the over 65
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years old group (see Figure 1). Overconfidence also leads to overtrading that is trading or the acquisition of assets with high-leverage (in the case of homes with mortgages, home equity loans, etc.). It is likely that the below 44 years old group were far more highly geared than the over 65 years old because of their lack of accumulated savings. Furthermore, this age group as indicated above - is unlikely to have had a significant exposure to bonds (see Figure 2). For this group bonds were completely unattractive compared to stocks and homes.
Figure 2: Performance of S&P 500 (including dividends) compared to Barclays Capital US Aggregate Bond Index, 2000 2012
Source: The Wall Street Journal, Erik Hanson, Hanson & Doremus Investment Management
This leads me to another observation about overconfidence (see Figure 3). Above I mentioned that overconfidence leads to overtrading. Overtrading is not only characterized by trading with high-leverage but also by very high trading volume.
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Figure 3: Apple, 2009 2012
Source: www.decisionpoint.com
Alan Newman recently mentioned in his excellent Crosscurrents newsletter (www.cross-currents.net) that, in the three months from the beginning of March to the end of May, transaction in AAPL comprised one of every $16 traded in the U.S. market, very likely the most concentrated focus on one stock in the stock market history. The dollar trading volume in just this one issue equated to $23 of GDP, or all business transacted for the entire country during the three months period. Now we have to ask ourselves why high trading volume in an asset class occurs. High trading volume in an asset class occurs usually towards the end of a speculative investment mania after a sharp increase in prices (NASDAQ in
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1999/2000 and homes in 2006/07). At such times, investors begin to confuse a bull market with their ability to make money and they begin to trade in-and-out of an asset at an ever-increasing rate (see Figure 4).
Figure 4: Average Holding Periods of US Equities, 1926 - 2011
Source: Alan Newman, www.cross-currents.net
I should mention here that another symptom of overconfidence is the conviction among each investor that he is an above average investor (just as most drivers believe that). Consequently, the trading volume increases because most investors believe that they can precisely time market entry and exit points either themselves or with the help of complex trading models. I am discussing here overtrading for several reasons. Purely based on the high trading volume of Apples stock - the company is highly popular and more likely to be in a manic phase than near a major low. From Figure 3, we can also see that Apples stock has recently been trading in a narrow trading range. This also applies to the S&P 500 (see Figure 5).
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Figure 5: S&P 500, 2009 - 2012
I have no particular insight into the fundamentals of Apple but based on the high trading volume of its stock and of the company being hyped up by the media - I suspect that the stock will shortly breakdown from its tight trading range (see Figure 3). This would likely also apply to the entire stock market following some further strength (see Figure 5). However, I need to admit that this is not a very high confidence opinion (see also below). Erik Kraus - one of my smarter friends (research@truthandbeauty.ru) - recently observed that, The market currently offers a truly extraordinary opportunity! There is only one problem We have absolutely no idea whether it is a buying or selling opportunity. I am sure Kraus had Bertrand Russells words in mind who said
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that, The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts. The problem I have with asset markets at present is that trading volumes are not only very high for equities but also in all asset classes. Trading volumes have increased because of easy money, which encourages speculation - from more traditional assets such as equities to commodities, diamonds, fine wines, etc. (see Figure 6).
Figure 6: The Liv-ex Fine Wine Investable Index, 2007 2012
Source: www.liv-ex.com
(The Liv-ex Fine Wine Investable Index tracks the most investable wines in the market - around 200 wines from 24 top Bordeaux chateaux - it is up from 100 in 2001). The other day I even received an invitation to participate in The Artist Rare Instrument Fund (www.arifpartners.com) which happens to be a newly launched fund investing in top quality rare Italian violins, violas and cellos (Stradivarius and Guarnerius). The email pointed out that just recently
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one of the most valuable instruments in the world - the Lady Blunt Stradivarius sold for nearly $16,000,000 - having been previously purchased in 2008 for $10,000,000. There are also numerous art and diamond funds which have been launched lately. But if I were interested in these type of investments, I would rather buy the art dealers (BID) or in the case of diamonds - Harry Winston (HWD - see Figure 7).
Figure 7: Harry Winston Diamond, 2009 - 2012
As I just insinuated- I am not interested in these types of funds because of limited liquidity, high costs, and relatively poor performance (one Liv-ex Fund is up 32% since 2006 and another Fund is down 7% since 2009). I dont intend
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here to engage in a debate about the merits of these more exotic assets but nevertheless - I wanted to show that excessive liquidity created increased trading volumes not only in equities but also in other asset classes and that relative to other assets - equities might not be terribly expensive. The question really is whether to own any assets at all and if one decides to own assets - then which asset classes: stocks, bonds, US real estate, diamonds, commodities, art or Australian and Canadian homes (see Figure 8).
Figure 8: Teranet Canadian Property Price Index, 2000 - 2012
Source: www.elliottwave.com
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To own assets or not is a very important issue. Moreover, if the ownership of assets is desirable then which assets should investors own? I had explained at the beginning of this report that lack of diversification is one of the principal mistake investors make. Therefore, I would strongly advise my readers against liquidating all assets and owning only cash (one would also have to decide which currency to hold). In the back of my mind, I think that all asset prices will eventually deflate (the Prechter scenario) but with all the money printing around the world - we do not know precisely from what level. Furthermore, it is likely that different asset prices will deflate at different times and with different intensity (the opposite of what happens in times of asset inflation!). As an example, US homes, and the stock markets of Greece, France, Portugal, Spain and Italy have already deflated badly and may offer some relative value (see Figure 9).
Figure 9: MIB Milan Index, 2006 - 2012
Dr. Marc Faber
I want to make myself perfectly clear here. I am not even remotely arguing that these depressed European markets cannot move lower. All I am saying is, today, I prefer to buy some high yielding stocks in these depressed markets rather than to invest in Australian and Canadian homes (see Figure 8), Stradivarius violins and fine wines (see above). The problems of Europe are well known and probably- largely discounted by the equity markets. I should add that I have a book in front of me which was published in the spring of 2010. The title: Invest in Europe Now - why Europes markets will outperform the U.S. in the coming years. I am mentioning this because investors should remember that not long ago there was widespread investors optimism about the growth prospects of Europe. Now, the opposite is true. This is not to imply that I am optimistic about Europe (it is already in recession) but I think that regardless whether the Euro survives or not - some quality multinational companies could perform reasonably well over the next ten years. I also believe that over the next decade, some high yielding European stocks and corporate bonds will outperform US Treasury notes and bonds which investors now perceive as risk free (see Figure 10). Figure 10: Near Month T-Bond Futures and Total Assets in IEF, 2008 2012
Source: Tom McClellan, www.msoscillator.com

Dr. Marc Faber
I recently bought some stocks in Europe including GDF Suez and Telefonica (see also my recommendations in last month report) with the view that if the Euro collapses - devaluations in the weaker countries will boost their stock prices by a larger amount than the devaluation (I also bought some Telefonica bonds). In sharp contrast to European pessimism stands US optimism, which mostly explains the significant outperformance of US stocks compared to European stocks since 2009. I perfectly understand the reasons why strategists and fund managers are more optimistic about the US than Europe but for every argument why the US is so much better off than the rest of the world - I can list counter reasons why the US will also face major problems relating to its fiscal deficits, unfunded liabilities, regulation, and health care. In addition, the great manufacturing revival is not evident in all industries (see Figure 11).
Figure 11: General Motors, 2011 2012
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Following my comments about natural gas in the June report and the essay by Pedro Noronha, which I sent out, I received an email from Margie Wilderoter (mwilderoter@gmail.com) who has been working for years in the gas industry. She writes: A quick comment about this essay. I have been working with this industry since shortly after it started the horizontal drilling and have spent a great deal of time with participants ranging from rig hands to executives. I think Pedro Noronha is right but what he did not stress is how rapidly the technology is improving. This industry has shaved many days off of drilling a well -- important when fixed costs per day are so extremely high. Generally producers are obligated to pay for the rig, hands, rental equipment and so forth even when not drilling. They have developed better bits, more powerful rigs, better processes, faster moves -- and it is even more important with gas prices so low. Imagine the producers' position when gas prices rise and they have improved efficiencies so much more because of this period. And from the demand side, we see declining electric costs, declining heating costs and chemical companies building multi-billion dollar facilities. Like you, I am bearish about many things happening in this country, especially when considering how much our government is spending and how easily it wastes. But sitting here in the middle of one of the most profitable shale plays, it is hard to not be optimistic about the potential power that natural gas and domestic oil could have on our nation's future despite the government and opposing environmentalists. It may be one of the few gifts we leave for future generations. Personally, I am more skeptical whether natural gas will be a game changer for the US economy. However, I can see that investors believe it and this may be one factor in supporting or even boosting US stock prices higher. What I certainly believe is that natural gas prices are extremely depressed and that prices could rebound strongly (see Figure 12). More so, I also think that US stocks are relatively attractive compared to US Treasuries (see Figure 13).
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Figure 12: Natural Gas, 2006 - 2012
Source: Ed Yardeni, www.yardeni.com
Figure 13: Percentage of US Stocks with a Dividend Yield Higher than Ten-Year Treasury Note Yield, 2006 - 2012
Source: Wolfe Trahan & Co
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Investors interested in natural gas should consider companies such as APA, ECA, ATO, NWN, SJI, PNY CHK, DVN while speculators who are convinced that natural gas prices could soar should buy futures or UNG (I do not like commodity related ETFs except for ETFs which hold the underlying physical commodity). There is another point I wish to make about the US stock market. From 2003 to 2011, emerging markets significantly outperformed the S&P 500. This period also coincided with strong Chinese economic growth and rising commodity prices. Now, there is increasing evidence that the Chinese economy is slowing down. My friend Jim Walker (www.asianom.com) who is one of the best economists and thinkers I know - argues that statistics published by Chinas main trading partners are far more reliable than Chinese statistics. He suggests looking at Taiwanese year-on-year export figures as an indicator of Chinese economic growth. They clearly show a contraction (see Figure 14).
Figure 14: Taiwan Merchandise Exports, 2007 - 2012
Source: Jim Walker, www.asianom.com
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At the beginning of this report, I mentioned that I suspected US stocks would likely break down from their recent narrow but volatile trading range. I need to clarify this point though. Last month, I explained that US stocks would likely rebound from the June 4 low at 1266 for the S&P 500. The rebound is likely to continue somewhat longer but I doubt that the April 2, 2012 high at 1422 for the S&P will be exceeded (and if so with only few stocks making new highs). Considering that an increasing number of companies are reporting disappointing earnings or reducing their earnings forecasts and that the global economy is hardly growing - further weakness below the June low is likely. Still it is likely that the S&P will continue to outperform emerging markets (see Figure 15).
Figure 15: S&P 500 compared to Brazilian Bovespa Index, 2003 - 2012
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As explained in earlier reports, I maintain the view that if the S&P 500 declined towards 1200 - the Fed would once again open the money spigot. Consequently - for now at least - I do not see a huge downside risk for US equities. I agree with Michael Gayed (see enclosed report entitled Money Illusion and Why the Bond Bubble must Burst. I am less sure about the timing because a final thrust up in US government bond prices could accompany renewed weakness in equities in the second half of the year. But for the immediate future bond prices could retreat. Commercials have record short positions and their trading record is rather enviable (see Figure 16).
Figure 16: T-Bond Prices and Commercials Net Short Position, 2009 2012
Source: Tom McClellan, www.msoscillator.com
Some readers have asked me in which currency I would hold cash. For now, I hold most of my cash in US dollars (without any great conviction) because emerging market currencies including the Yuan are likely to weaken further (see Figure 17).
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Figure 17: Chinese Yuan Fund, 2010 - 2012
Source: www.decisionpoint.com Strategists who talk about an enormous US manufacturing revival seem to forget that emerging economies can also engage in competitive devaluations. Should the Chinese economy decelerate much more, I have no doubt that Chinas leadership would take measure to lower the value of the Yuan. Although it is possible that gold could have another final downward thrust before the bull market resumes, I continue accumulating gradually physical gold. I am encouraged by the recent better market performance of gold and silver mining companies. In a world that is badly manipulated by questionable governments the risk is not to own any gold. Some final thoughts: As investors we need to live with the current money printing environment, government interventions and bailouts, regardless of the
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fact whether we like it or not. Different asset classes and different stock sectors will perform erratically and very differently (see Figure 18).
Figure 18: Diverging Performance of Developed Markets MSCI Sectors
Source: Morgan Stanley Research
Last Fridays market action (June 29) seem to have confirmed the old equation: Strong stocks, strong commodities, rising gold price = weak US dollar, weak US bond prices. Likewise, strong dollar, strong US bond prices = weak equities, weak commodities and precious metals as was the case since early April. In other words, the excessive liquidity created globally by central banks will flow somewhere and boost some asset prices while neglect or weaken others. The challenge for investors will be to avoid losing close to 30% or more of their money in one year by overexposing themselves in one sector or in one asset class. Moreover, when the average holding period for equities is close to a record low, maybe the time has come to adopt a buy and hold strategy of
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diversified assets (equities, bonds, real estate) purchased at relatively attractive valuations. As explained in previous reports, I consider US real estate in the South, selected European equities and corporate bonds, and the US dollar to be relatively attractive. At the end of his report Howard Marks quotes John Stuart Mill who wrote in On Liberty (1859) that, . . while every one well knows himself to be fallible, few . . . admit the supposition that any opinion, of which they feel very certain, may be one of the examples of the error to which they acknowledge themselves to be liable. Marks notes that, in other words, nearly everyone accepts that his or her opinion might be wrong . .just not this time. He concludes: In the end, superior investing is all about mistakes . . . and about being the person who profits from them, not the one who commits them.
Below my readers will find a vivid account about the recent Basel Art Fair by my art dealer friend Kenny Schachter. I have my own view about the current art scene and it is not a favorable one Separately, I am enclosing the report of Michael Gayed about bonds I referred to earlier. I wish my readers a nice, sunny and peaceful summer. Yours Marc Faber
Kenny Schachter [schachter@mindspring.com]
Basel Wrap-Up: You'll Never Eat Lunch in this Town Again

Got off to an early start this year prior to the onset of the ART Basel fair(s), at 5am very early, and headed off to Zurich for a jump on the proceedings. I received more .pdf's offering pre-fair fare than on any prior occasion, which can't foreshadow a good thing for sellers now or in the near
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future. At a recent lunch, a London property developer showed me agent emails predicting a slowdown for much touted high-end residential on the horizon. Could this all be a red flag for things to come, an indication of distress looming? I doubt it. But here was a prospect even scarier: longtime 1980's art dealer Tony Shafrazi announced he returned to making art after retiring his spray-can decades ago following his unprovoked vandalism attack against Picassos Guernica in the Museum of Modern Art in New York, threatening to show his hand at the fair, and what a hand it was to be (more on that to below). Basel is the big daddy of international art fairs, though at 43, its not the oldest that would be Cologne, which is now on life support. As an attendee at Basel, you even feel compelled to dress differently, like entering a place of worship, where all are dolled up in their Sunday best. But at the same time, many of the characters in and around the art world are smug and righteous who feel both superior and envious to those contributing to drive the art market. Auction and art fair aesthetics may not be definitive, but there is always a degree of underlying logic to a market as broad and far-reaching as art. The New Yorker critic Peter Schjeldahl recently stated: Our age will be bookmarked in history by the self-adoring gestures of the incredibly rich. Aesthetics ride coach. Sorry but I beg to differ as life isnt as straightforward and simple as us against them (or them against us, depending where you situate yourself). The VIP opening (has such stupid, vapid terminology any meaning or relevance anymore?) was stretched out over two days in order to avoid a relapse of last years billionaires stampede which rivaled a 1970s Who concert in the near death carnage. But everyone still finds reasons to complain about everythingthere were too many people, there were not enough people, there was no longer any impetus to make snap, spur-of-the-moment decisions as there was no longer the mad rush of having to pull the trigger prior to the admittance of the hoi polloi. Back to the art market: when you look at the macro macroeconomic picture, extrapolating from the bigger trends at large, all the pieces still seem firmly in place to keep this monster fed and roaring for the near future, despite the constant prognostications to the contrary. Checking into my hotel, the very first person I laid eyes on was a dealer who I had recently concluded a multi-million dollar deal with who then evaporated without a trace for months like a puff of smoke (maybe he was
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smoking something himself and forgot, but unlikely). Funny the art world manner of doing business, or lack of manners I should say. Such a fortuitous hotel lobby encounter with the New York deadbeat dealer was met with a dumb and sheepish shrug by the offender (who might have ginger hair), which was about all he could muster. Call that misadventure a roadmap for the way in which the unregulated art business is frequently conducted: miscommunications on top of misrepresentations by misfits. At a lunch before things kicked off, I was going in and out of consciousness during a speech by sculptor David Smiths daughter when she dropped the most poignant bomb: that her father refused to teach drawing, disallowed coloring books (or anything within an outline) and would not permit the use of crayons. She related that he said, You need to find your own line. I thought that just about encompassed the key to the meaning of life. After I explained what I do professionally to the woman seated next to me, she replied that the exclusive party she was due to throw was exclusively for collectors specifically excluding those involved a commercial capacity in art. So like Smiths daughter, I discovered my own line, which might have involved spinning a few lies, till an invite was presented. The most coveted dinner invite is not even in Basel but rather Zurich, where the thrower is so reticent each year about hosting the shindig she swears it off every time until succumbing and staging it once again as per usual. Though I bagged an invite I did a quick runner for despite the unimaginable beauty of the setting and plentitude of food, its still a meal peopled by hoards of dealers and a smattering of collectors, so how much fun could that be? Answer: not very much, indeed. The following night was an even better story and perfectly exemplifies the questionable high jinks of the art world. How do I dance around this without putting my foot in itbut I cant help but try. Lets say I facilitated a show for someone at a prestigious gallery, for which I subsequently received no credit. Over the years, the gallery continued to pursue the relationship, leaving me by the wayside, though the loyal artist always acted impeccably. When the publication from our exhibit was finally premiered at a Basel dinner, not only wasnt I invited to the launch, but I was also unsure my essay would even appear in the book. None of which stopped me from crashing the party of course. .
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Art Unlimited opened before the main attractiona portion of the fair meant for unwieldy, non-commercial scaled art installations, in a world where snot is monetized, thats a laugh. And let me tell you, in no uncertain terms, this show was an argument writ large for small, dispelling once and for all the concept that bigger is better. The exhibition lowlight was comprised of a midsized black Labrador lying prone on a carpet gasping for air directly positioned under a pounding spotlight in an otherwise dark and over-crowded space. Let the artist lie under a scorching light in an enclosed room being gawked at by a countless, never ending stream of VIPs (Very Insensitive People). Yes, you didnt know if the animal was dead, alive or animatronics, and it was certainly startling when the dog was startled back to life by its trainer for a breather. But it was atrocious nonetheless. Are the oh-so-clever art masses thus entertained? I wish theyd have asked me; Id have selflessly volunteered one of my horrific toy poodles for the hapless job. With no booth, my business often occurs in the cracks of the fairthe streets, trains, aisles and restaurants of Basel (substitute Cologne, Hong Kong, Miami, London, or New York). In one such instance, a perfect illustration of the inefficient nature of the art market, which makes it such an alluring place to be, was the following. My feet were burning with pain (chronic fair fatigue, a newly acknowledged syndrome) so I plopped myself down on a bench between two dealers I know, an indication of the extent of my suffering. One of them turned to me, interrupting his conversation and stated emphatically: Lets do a deal right now. He proceeded to show me a painting by an artist he knew I admired and quoted a figure he figured to be the retail price (he obviously hadnt checked for a whilewink, wink) and asked me make an offer from there. I went lower than low and he met me nearby and I was able to scoop up a masterpiece (relatively speaking) for a masterfully cheap price. And so it goes. No matter your feelings on art fairs, the majors are filled with great art across a vast expanse. And despite widespread skepticism, concern and even mistrust, I am certain the art market is deep and not under threat due to fundamental shifts in global patterns of consumption. There is an undeniable and indescribable excitement in acquisitions that brings to mind the doctor who squandered money funded to secure childrens heart surgeries in order to buy the latest contemporary art; before he went to prison for embezzlement. His property made for one hell of an entertaining auction in the late 90s when he was forced to dislodge it all by the authorities. The above is a caution to all that
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subscribe to the notion that the lack of dough is never an impediment to a good collector, rather, a challenge. Maybe it all just signifies a giant emotional black hole. A naked man and woman flanked the entrance to the Sean Kelly Gallery necessitating a certain finesse to squeeze through without creating an international incident. The work was a re-enactment of Marina Abramovi's famous performance "Imponderabilia." Amazing to think that in the Middle East it would not be permissible to stage this innocuous tableau, and even more outlandish that I was thrown off facebook for 24 hours for posting it on my blog. More suppressive then China and Syria, with a flagging stock, fb is a less happy concept then only a matter of months ago. Gagosian cobbled together 2 sets of Andy Warhol Oxidation paintings from 1978 by grouping 4 8x10 inch works into one frame and 4 16 x 12 inch works into another in an attempt to create something that exceeded the sum of its parts. He didnt succeed and I needed to find one for a client as I believe the series to be undervalued. But part of the fair upside and involving a rare display of camaraderie, is that if you ask enough acquaintances for opinions you will find key information you seek. In the case of the piss painting predicament, I was directed by a private dealer with a Warhol specialization, akin to independent specialists on the floor of a stock exchange, to Per Skarstedts booth where he had a larger, more significant work, in stock at the same price as Gagosian. As Diana Ross sang, it pays to reach and touch somebodys hand.
How hundreds of millions of dollars of business is consummated on the trading floor of a fair is actually an incredible exploit to conceive. A deal is made by agreeing to the financial terms and simply saying ok, I will buy a work at a given level and then boom, the transaction is complete on a handshake (sometimes not even), invoicing to follow, as old a way of doing business as business is old, entailing a nice leap of faith based purely on trust (by both parties) in the process. There you have it, and the result can be a rather intangible experience on both sides of the coin. Another upside is the sheer amount of information that is at hand; with so many whispered gems, among the best reasons to attend a fair, I can hardly remember which ones I'm not
Dr. Marc Faber
supposed to repeat. From the same source that mentioned the $250m Cezanne a year before it was publically announced, came the juicy gossip of a $160m Rothko recently transacted, what better evidence that the news of the art markets imminent demise is mere premature conjecture. Another unrepeatable tidbit of gossip was that a dealer I had worked with in the past was so hard up for money that he sold a painting 3 times, and more than once; and, now faces an investigation and possible jail term. Desperate times call for desperate actions but I desperately hope I am not sucked into the proceedings. Ugh. Enough about art business and back to the inimitable social life. When the fair is in full swing, the city of Basel, like Miami, is so taxed by the demands of the rich, famous and not so rich or famous that it verges on bursting. One night for dinner we ended up at a typical art world haunt, freezing outside with no service for miles; the restaurant so dangerously past their capacity, reservation holders were turned away, we had to steal plates not meant for us in order to eat, and in the end were asked for an address so a bill could be sent, they couldnt even muster the wherewithal to generate a check. And still business cards were exchanged at the table with other art world guests, similarly trembling in the cold. Amazing the art travelers, bordering on clinically cuckoo, that pass off as professionals in the midst of a heated market. The booths are strategically and hierarchically laid out at ART Basel like layers of an onion. The sweetest (most powerful) rings are situated around the inner courtyard, and they travel outward like waves until you reach the disparate corners. But like chickens moved to a new coop, not all fair-goers travel far and wide, many stay close to the center, until on occasion they peck each others eyes out. No patch of turf in the country of Switzerland is immune to the hustle of an art sale, attempted or otherwise, during the course of the fair. God knows I had a few dry runs in various hotel lobbies and other unorthodox venues, including a bizarre encounter with a famous collector I spied leaning against the concierge desk reading the newspaper on his iPad at 1:30am one evening, where I nonchalantly struck up a Richter conversation. No billionaire shall go unturned. What was the hottest commodity at the fair? Not art or money but phone chargers and the juice to run them. What happened to the time when battery life extended longer than an email? But its a dangerous thing to leave your phone in the booth of a dealer friend even when the device is lockedsnakes can get just about anywhere. After running out of batteries more than once, I had to lug around my charger like an artificial organ.
Dr. Marc Faber
Being in Basel can at times stir an urge to buy that transcends the immediate surroundings of the fairexposed to so much stimulus can trigger remote buying reflex. For example there were two Frederick Kiesler multipurpose chairs from Peggy Guggenheims Art of this Century Gallery from 1942 on offer at 450k each at the Design Fair. Only weeks before I was shown images of two replicas made in the 1960s for Kieslers appearance on a TV show for a fraction of the cost; in comparison to the real things I viewed in Basel, I jumped at the low cost simulacrum. An occasion of arbitrage opportunities that frequently pop up at fairs were two beautiful Bridget Riley drawings from the 1970sthe examples on exhibit were 90k each which reminded me of the even earlier and equally as attractive pieces displayed in Hong Kong only weeks ago at nearly half the cost. I was hoping to cement a deal before the HK dealer arrived in Basel, for timing counts for a lot. One of the gripes spreading through the aisles like wildfire was the fact that the fair management demanded collector details from the galleries prior to sending out the coveted VIP cards, which caused nothing short of a revolt. Galleries guard their clients like state secrets and would rather face a firing squad or torture then reveal even to their loved ones who the biggest buyers are (you never know how a relationship will end and who will make a grab for the business). After only a few days of looking, an act more strenuous than climbing, I had seen so much so closely, I couldnt bear the thought of a single museum visit; yes the true philistine in me reared its head, only to retreat in a sea of guilt. And my fair visit ended like it always does, faced with the nagging desire to flee early regardless of cost. Foolishly, I had been staying in Zurich which had the unforeseen effect of keeping me out of the bars and parties in Basel which was an hour train ride away; ostensibly and health-wise a good thing (and professionally), but on hindsight, I rather missed it all. Maybe for my next trip to the Miami fair I should commute from New Jersey. ART Basel should go one step further than the Cologne fair that hosted an autonomous NADA fair within the belly of the main event but still separated; and, in a seamless and nonhierarchical manner, fully integrate the design amongst its happy bedfellow, art. In another move towards abolishing the dull sameness of big art fairs, the second floor of Basel, hosting the more adventurous, less established and canonized art and artists should collapse and mix with its forefathers. We dont really live or think in a chronological universe where history is linear; the future is a non-narrative zone where we
Dr. Marc Faber
bounce between things, with a little more randomness and chaosdont fear, fair organizers, give us a little more credit to make our own associations and juxtapositions without spoon-feeding us the identical line, over and over and over. Call it a dose of creative destruction to cure us from the monotonyI'd much rather see a hodgepodge by way of a mishmash. Now that all is said and done, I get a phone call that the shit I have been writing on the machinations of the art world has inspired a TV show; I hope that a) I get some credit, i.e. the monetary variety; b) it has the chutzpah of Tony Shafrazi exhibiting his very own art within his very own booth with full knowledge hed be thrown out on his ass next year as a consequence; and, c) that it doesnt suck as much as Tonys show did. www.RoveCars.com www.RoveTV.net
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Market Commentary July 1, 2012

The Monthly Market Commentary Report

www.gloomboomdoom.com Copyright 2012 by Marc Faber Limited - All rights reserved

Dr. Marc Faber

Market Commentary July 1, 2012

Dr. Marc Faber

Market Commentary July 1, 2012

www.gloomboomdoom.com Copyright 2012 by Marc Faber Limited - All rights reserved

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Market Commentary July 1, 2012

Figure 1: Median Household Net Worth by Age Group, 1989 2010

Dr. Marc Faber

Market Commentary July 1, 2012

Dr. Marc Faber

Market Commentary July 1, 2012

Figure 3: Apple, 2009 2012

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Market Commentary July 1, 2012

Figure 4: Average Holding Periods of US Equities, 1926 - 2011

Source: Alan Newman, www.cross-currents.net

Dr. Marc Faber

Market Commentary July 1, 2012

Figure 5: S&P 500, 2009 - 2012

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Market Commentary July 1, 2012

Figure 6: The Liv-ex Fine Wine Investable Index, 2007 2012

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Market Commentary July 1, 2012

Figure 7: Harry Winston Diamond, 2009 - 2012

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Market Commentary July 1, 2012

Figure 8: Teranet Canadian Property Price Index, 2000 - 2012

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Market Commentary July 1, 2012

Figure 9: MIB Milan Index, 2006 - 2012

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Market Commentary July 1, 2012

Source: Tom McClellan, www.msoscillator.com

Dr. Marc Faber

Market Commentary July 1, 2012

Figure 11: General Motors, 2011 2012

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Market Commentary July 1, 2012

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Market Commentary July 1, 2012

Figure 12: Natural Gas, 2006 - 2012

Source: Ed Yardeni, www.yardeni.com

Source: Wolfe Trahan & Co

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Dr. Marc Faber

Market Commentary July 1, 2012

Figure 14: Taiwan Merchandise Exports, 2007 - 2012

Source: Jim Walker, www.asianom.com

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Dr. Marc Faber

Market Commentary July 1, 2012

www.gloomboomdoom.com Copyright 2012 by Marc Faber Limited - All rights reserved

Dr. Marc Faber

Market Commentary July 1, 2012