ramcem

Dear all,

I hereby attach a summary interview between Larry Holmes and Dr. Marc Faber, an economist.

Interesting article.

~Ramcem

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I had the pleasure of listening to an online interview with Marc Faber this weekend. Here are some of the main points that he made...

1. There are two types of growth - growth through investment and growth through borrowing. The US has been financing growth through borrowing for quite some time now. Growth through borrowing is not sustainable.

2. There is a huge pool of money sloshing around the world, greatly expanded in recent years because of the policy of the world's central banks to increase the money supply (which created the stock market bubble of the 90's). But even though the central banks can inflate the money supply, they have no control over what kind of assets money flows into.

3. There is a major shift occurring from financial assets (stocks, bonds) to hard assets (raw materials, commodities, natural resources). It's a trend that will continue for several years to come as the US dollar weakens.

4. Contrary to what some think, we don't necessarily have a bubble in real estate right now. But we do have a bubble in the borrowing to purchase real estate.

5. Major investment themes are not widely recognized until they are well along the way. Once they are widely recognized as being good investments, the theme is close to running its course.

6. Once a bubble bursts, people keep hoping that the market will recover (US stocks, for example). But it won't recover because money is flowing into other undervalued assets.

7. The US has depended on foreign investments in recent years. In the future, the appetite for foreign investors to invest in US equities will not be as strong as in the past.

8. There are 3.6 billion people in Asia. It's the largest physical market in the world. As their standard of living increases, they will need more commodities (oil, coffee, cocoa, sugar, cotton, you name it).

9. The CRB (Commodity Research Bureau) index is up 25% in the last twelve months. It's the beginning of a major bull market. Over the next ten years, you will see much higher commodity prices.

10. China has a per capita consumption of oil of just one barrel. The per capita consumption of oil in the US is 22 barrels. In Latin America, the per capital consumption of oil is 4 barrels. China is not likely to consume oil the way the US does, but it is reasonable to think that they will consume oil at the rate of Latin America. When it happens, oil prices will go significantly higher.

11. Today, the capitalization of the Chinese stock market is tiny in comparison to the US market. But in ten years, the capitalization of the Chinese stock market may be bigger than the capitalization of the US stock market.

12. Changes in the next five or ten years will be absolutely mind boggling.

Like I've been emphasizing, and will continue to emphasize, successful investing will require an entirely different mindset than what most investors are used to. But those who are able to make the transition will be richly rewarded. I closely monitor the commodity markets for opportunities. Right now, I think that the commercial positions according to the latest Commitments of Traders reports indicate that we will have better opportunities to invest in commodities and hard assets down the road.

The best thing you can do right now is to prepare to invest. Here are some things that I think you should be doing in today's economic environment...

Reduce personal debt - This is not a good time to be in debt. If you have credit card debt, pay it off. If you're contributing to a 401(k) plan, and you have significant bad debt like credit card debt and/or installment debt, you may want to stop contributing to your 401 (k). Unless your plan will let you invest in bear mutual funds, emerging market funds, or commodity funds, then I doubt that you have many investment choices that will do well in the future. You're probably better off directing that money toward getting out of debt.

Mortgage debt - If you haven't refinanced in the last couple of years, consider doing so. Interest rates are low now, but I don't think that they will remain low. Also, if you have more house than you need, think of downsizing while the housing market is still strong. How secure is your job? What would happen if you or your spouse lost a job? Could you still afford the payment?

I'm not suggesting that you get out of real estate. If your payment is easy for you to make, and you think your job is going to be there, then you're OK. But if your job is not secure (not many are), and you're heavily mortgaged, then you have reason to be concerned.

Cash reserves - If you don't have debt problems, this is a good time to build your cash reserves. It's from your cash reserves that you're going to be able to take advantage of the exciting investment opportunities that are sure to come. There is little more frustrating than seeing a great investment opportunity and not having the cash to take advantage of it (I know, I've been there). Save at least 10% of whatever you earn and live off the rest. If you don't think you can save that much, cut expenses. You simply must learn to "pay yourself first."

Start a business - If you're not already a business owner, consider starting some kind of part-time business. It will give you additional security and another stream of income. As Robert Kiyosaki says, it's all about cash flow. Use the cash flow from your business to invest.

"The reasonable person accepts the world it is. The unreasonable person insists on changing the world to suit his own requirements. This is why all progress depends upon the unreasonable person."

~Anonymous

"To be able to stand in the midst of darkness and live as though all about you is light, is the final test of the human spirit."

"The soul of man is immortal, and its future is the future of a thing whose growth and splendour have no limit."