Credit Bust: Time to Avoid US Dollar Denominated Assets

Bonus idea for the day: shower the APEC protestors with Chanel No.5.

Why are some morons happy to interrupt other people’s lives and livelihoods just to impose their point of view on the rest of us? How about we impose a little fragrance on them? It can’t help but improve the lot of them, and it’s probably going to be washed off by one of the police state’s water cannons anyway.

Once you give yourself the right to damage or destroy other people’s property, don’t be surprised when people have no respect for your opinions, or your property.

We’ll push on to the world of financial markets by ignoring them. That is, it is not the day to day fluctuations in stock prices that will tell us what we need to know. Odds are the August thrashing left stocks a bit oversold and a rally is in order. But what we really want to know is whether the deflating of the credit bubble will mean falling stock prices, a global recession, and a long bear market in credit as an asset class.

Luckily, the latest Gloom, Boom, and Doom report from Dr. Marc Faber showed up in our in-box last night. We published Dr. Faber’s missives in our stint as managing editor at Agora Financial Publishing in the first five years of the decade. He’s one of the few men in the financial world with the imagination, courage, and insight to show you what’s really going on, even if it’s not what you want to hear.

 “Unlike the majority of investors, I believe that we are dealing at present not just with a market correction, such as we had in May/June 2006 and February/March 2007, but with something far more serious. Also, unlike strategists who compared the current credit crisis to the credit crisis of 1998 (LTCM), I believe that the ongoing credit problems will be far worse and of a longer-term nature.”

But what about stocks, Dr. Doom? What about the market?

“This will make it difficult for the market to reach new highs in the near future. Moreover, even if the 1998 comparison were to hold, we would still be looking at a much deeper stock market correction than the 22% sell-off we saw in 1998.”

We concur. Accordingly, we have made a major decision regarding our US stock tips in the most recent issue of Outstanding Investments, due out later today. Suffice it to say we are not bullish on dollar-denominated assets, and we view now as a great time to fundamentally reorient your investment focus away from America while you still can.

By the way, Dr. Faber is not really doomy or gloomy at all. We shared a few bottles of wine with him on his last trip to Melbourne. He’s quite good natured and charming, even when talking about leverage.

“If leverage drove asset markets higher after 2003,” he writes, “and especially in 2006 and up until recently, it is inevitable that a slowing down in the rate of leverage growth will make it impossible for all asset markets to continue to rise at the same time, as has been the case since 2002. Moreover, if, as I believe, a process of de-leveraging is set in motion, it will exacerbate the decline in asset prices.”

All assets rose in concert in the credit boom. In the credit bust, most assets will fall in concert. But not all. So which ones will rise? Or which ones are worth owning after the credit burns out of the system? Dr. Faber likes the Yen and the Swiss Franc, as far as currencies go. After that, cash and blue chips.

“In this environment, cash of the highest quality will be desirable and less leverage preferable to high leverage. Large and higher market capitalisation companies should outperform mid-cap stocks.”

Dan Denning
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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4 Comments on "Credit Bust: Time to Avoid US Dollar Denominated Assets"

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I did receive Marc Faber’s [as ever] excellent bulletin.
Did you notice he did not say a word about gold ? nor did he recommend it alongside “quality cash” ?

I find your remarks curious. Isn’t the Daily Reckoning a bastion of anti-establishment thinking, not least big government & the trend towards globalisation, all of which are represented by APEC? Yet you choose to diminish those prospective protestors as ‘morons’ who are about to ‘impose their point of view on the rest of us’…isn’t this what APEC is also about to do? Haven’t they every right to protest (peacefully, of course) against what they may perceive as the jackboot of an authoritarian political system? And have they actually done anything yet? Before slipping the noose around their necks, shouldn’t we… Read more »
dubious pete in melbourne
dubious pete in melbourne
I must add that i was surprised and disappointed that this web site would buy into the govt line in regards to APEC. Belittling those who are trying to stand against the machine responsible for all the excesses which potentially undermine our entire economic system is mean spirited, hypocritical and unfounded- unless this site believes that the world leaders are there to find ways to bring greater prosperity and health to the citizens of the world, and they are going to be sitting down for 4 days coming up with better ways to share the resources amongst the people? Having… Read more »
Coffee Addict
On this one occasion I welcome George Bush. Why? Dubyah and his sidekick Ben just facilitated a US taxpayer funded bail out of dozens of Australian investors including our esteemed local councils with their BBB (thin tranche) CDOs. YOUR OWN super fund was probably looking down the barrel of significant securitised debt failures but no more! Dubyah and the US Cavalry have saved the day (and probably the next 6 months as well). Just enough to ensure the Democrats (and Labor) score all the blame and get just one term in office So there is. George has given you the… Read more »
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