Only Stupid Foreigners Buy Chinese Stocks: Marc Faber and Much More

Investment guru Marc Faber resembles nothing so much as an ageing rock star, but his outlook on the investment world is generally downbeat. The author of the Gloom, Boom and Doom newsletter typically emphasises the ‘gloom’ and ‘doom’ scenario more than the ‘boom’ aspects. But today, Faber confesses to being drawn to the Indian stock market, particularly after the recent sharp market correction. “I think the Indian economy has very favourable prospects,” he told Firstpost on the sidelines of the CLSA Asia-Pacific Markets Investors’ Forum in Hong Kong. On China, although he reckons that economic growth will be sustained in the long term, he sees a “setback” in the form a credit bubble gone bust beginning to manifest itself. Excerpts from an interaction:
On the prospects for the Indian stock market
I think we have a bear market in India, and it will go lower. But if you’re a long-term investor, each time the market drops 40 percent from the peak, you should start buying. You will then have satisfactory returns in the long run. Not huge, but satisfactory returns.
The Indian economy, like the Chinese economy, has very favourable prospects in the long run. We’re starting from a very low GDP per capita in India – some $1,200 against $40,000 in the US. To go from $1,200 to $5000 is not difficult. But from $40,000, it’s hard to go much farther unless you print money.
On the Eurozone crisis effect
We had a bank failure in 2008 and the financial system in the western world went bankrupt. It was bailed out by governments, but the banks have learnt nothing. This is partly driven by artificially low interest rates and zero deposit rates. The banks continue to speculate on all kinds of products. What happened to UBS in London (where a rogue trader caused huge losses) can happen to any other bank.

Marc Faber thinks India still has very favourable prospects in the long run. Reuters
I have lots of clients and readers of my newsletters, and I don’t know anyone who owns Greek bonds. So why do the banks – particularly French banks — hold Greek bonds and Portuguese bonds and Spanish bonds and Italian bonds? This shows the banks have learnt nothing.
There has to be a separation of banking activity. They can have, on one side, investment banking activity – they can call themselves UBS Giant Hedge Fund; on the other side, the banking sector has to be ring-fenced for depositors and made 100 percent safe. They shouldn’t use that to speculate – as is happening at present.
Saying goodbye to Greece - softly

Sometimes the important part of an interview is what is not said, the answer avoided. So it may have been with Wayne Swan on the ABC's Insiders yesterday.
After spending a day with fellow finance ministers, the Australian Treasurer was asked by Barrie Cassidy if there was a universal view that Greece should not be allowed to default on its debt.
"Well these are matters essentially for the Europeans," Swan responded. "But the Europeans in the meetings I've been at have been absolutely determined to work out all of these issues, including the issues of Greece, within their existing frameworks."
See what wasn't there? A straight answer. And without a straight answer, we're left to consider the implications. The exchange could be paraphrased as:
Cassidy: Will Greece be bailed out? Will Greek default be avoided?
Swan: Rhubarb. European rhubarb.
A kinder interpretations of Swan's answer would be: "I can't answer 'yes'. What the Europeans are trying to do is find a way to avoid crashing the banking system – Greek default itself isn't the central issue. If a way can be found to let Greece go without setting off a chain reaction that stuffs half Europe's banks, Greece can go."
And then there's the really straight answer: "No."
It is mathematically impossible for Greece to service its existing debt on existing terms, so lending Athens more money doesn't solve the problem. Some form of de facto default will eventually be agreed but first the game must be prolonged until key European banks are recapitalised and Italy and Spain have their budgetary houses sufficiently in order to withstand the ructions expected when the inevitable occurs.
It is a ridiculous situation for the European community to find itself in, a ridiculous situation for the global financial system to be in, hostage to a profligate and dishonest fringe nation. And, in light of that, the tricky bit now is getting European parliaments to accept that continuing to fund Greece, throwing good money after bad, is the lesser evil.
Dire warnings
More here along with the video:

Betting on Bernanke Yields 28% Returns for Treasuries

Betting on Ben S. Bernanke has been the most profitable trade for government bond investors in 16 years, defying lawmakers in the U.S. and abroad who said the Federal Reserve chairman’s policies would lead to runaway inflation and the dollar’s debasement.
Treasuries due in 10 or more years have returned 28 percent in 2011, exceeding the 24.4 percent gain in all of 2008 during worst financial crisis since the Great Depression, according to Bank of America Merrill Lynch indexes. Not since 1995, when the securities soared 30.7 percent, have investors done so well owning longer-dated U.S. government debt.
The rally continued last week, driving yields to record lows, as the Fed said it would exchange $400 billion of short- term Treasuries for those maturing in more than six years. The move, dubbed Operation Twist by traders, is designed to lower borrowing costs and keep the economy growing. Previous Fed efforts unlocked credit markets and helped ward off deflation.
Bonds are producing “monster” gains, said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management, which oversees $22 billion, in a Sept. 19 telephone interview. “I’m dealing with a Federal Reserve with an unlimited balance sheet that is desperately looking for something to do to revive the economy.”

Unexpected Rally

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And finally from Mammoth these are a front & back photo of one of the nice Walking Liberty halves that I bought the other day. Very nice and Very Clean.