Gloomy Times: Marc Faber, Jim Rogers, Ron Paul

I saw Marc Faber on television the other day, being interviewed about what he thinks will happen with the markets. A successful investor, Faber is mostly known for his newsletter, Gloom Boom and Doom. He has a Ph.D. in economics and has made prescient predictions in the past. One of these was his prediction of the 1987 stock market crash.

As a few others, right now he's advocating buying gold. He differs from the rest of the crowd, however, by advising people to buy physical gold and storing it outside of the United States. Buying derivatives on gold, he says, won't save investors if the US decides to make ownership of gold illegal. That this is a possibility that has some chance of occurring speaks to the gravity of our situation.

The following are some videos I found on YouTube. The first is the Faber interview I saw. The others are from further back in time. They are listed in reverse chronological order.





Jim Rogers, the famed investor who made a lot of money by shorting financials and buying commodities over the last couple of years has also been interviewed recently. Besides calling for the end of the Federal Reserve, he mentioned some things he's been buying lately: agriculture, Chinese stocks, overseas airlines, the Yen, and Swiss Franks. The videos are also arranged in reverse chronological order, so you can see which things Rogers has been right about and on which things he hasn't done as well.

Here's one memorable quote on the Fed's bailouts: "The patient has cancer. Giving more band-aids is not going to solve the problem."




Finally, here are a couple of videos of Ron Paul, the only member of congress who seems to know what's going on economically.




I'll Miss WaMu

If you had a deposit at Washington Mutual (WM), don't worry. Your money is safe for the time being. You're now a Chase (JPM) customer. The details can be found here. If you previously had a Chase account, and the value of your Chase and WaMu accounts is over $100,000, you should move the excess to other banks within the next six months to be fully protected by the FDIC. At present, for FDIC purposes your Washington Mutual and Chase accounts are at different institutions and are each protected up to $100,000.

I was a happy Washington Mutual customer for a few years (recently I've transferred most of my money to ING and HSBC--while I knew I'd get my money back when WaMu failed, I worried that there would be a delay). They had great rates on their online savings accounts, money market accounts, and CDs (because they needed money).

WaMu's customer service was also pretty good. I'm glad most of these people will get to keep their jobs, as Chase said it plans to keep around 90% of Washington Mutual's banches open.

I really liked that there were no holds on deposits. I could deposit a check and withdraw that money right away. I have to wait days at every other bank I have a relationship with.

I also liked the little teller islands at most WaMu branches. When the tellers are right next to the customers, things seem to move quicker. I've been on long WaMu lines that have moved faster than shorter lines at Chase and HSBC.

There were also no fees or minimum balance requirements, my original reason for getting a Washington Mutual account. Now with Chase taking over, this will probably change. My family and I have had bad experiences with Chase over the years. I'll probably pull my remaining $5 out and close my account.

Besides the loss of jobs and in some cases uninsured deposits, and lack of credit for businesses, another bad thing about bank failures is that the level of service the surviving banks will offer their customers will be minimal. Bank of America, Chase, HSBC are all terrible. They charge fees wherever they can and offer nothing in return.

I hope banks like WaMu (minus lending money to people who can't pay it back) emerge from the ashes soon. So far I'm happy with my ING, but it requires a separate institution to make deposits, and the money transfer process takes a while--especially with holds.


Where is Gold Going?

I haven't a clue where gold is going. Technical trader Adam Hewison seems to have an idea. I just received an email from him. He says if gold breaks through $980, it can go to around $1,500 by March 2009.

Adam writes, "I still believe that stocks are in a bear market and that we can see a trade down to the 10,000 level basis the DOW. Having said that, I would be trading gold from the long side until our "Trade Triangle" Technology points to a change in trend direction. With the technicals all in place, and the fundamentals certainly pointing to higher gold prices, I think traders should be looking at this market from the long side. Some of our cyclic work indicates that gold could be strong until February or March of 2009. "

Adam thinks traders should buy gold on pullbacks. For more details, check out the video he posted here.

I'm not a big fan of technical trading. I think daily price moves are either random or news driven. I don't see how charts can predict either. This is a great opportunity to see if INO's trade triangles work. The SPDR Gold Shares ETF (GLD) closed at $89.18 on 9/22/08. Let's see where it is in March.

I hope Adam posts updates when he thinks further developments undermine his current prediction.

Update 10/14/08: Adam has posted a new video on gold (along with crude oil and the dollar index). He now says that if gold goes below $817.45 an ounce, he will go short. GLD is currently trading at $82.69.

Update 10/16/08: A new video has been posted. Gold has gone down, through the $817.45 level, so Adam went short. His target is for $720 to $700 an ounce. The gold ETF GLD closed at $79.29. The video also includes technical analysis of the miner Barrick Gold (ABX).

Update 10/27/08: After going below $700 an ounce (that's a very nice short sell from $817.45), gold is now around $732. Adam thinks that there might be a rally to $795.

Update 11/27/08: Looks like Adam was right. Gold is now around $810 an ounce. There haven't been any new free videos posted (as far as I know), so I don't know what he's thinking next.

If you are interested in retracements, here's a pretty good, older video on the subject.

Disclosure: I hold no positions in any assets mentioned above.


Procter & Gamble, Folgers, and Smuckers

I mentioned Procter & Gamble's (PG) all stock sale of Folgers to Smuckers (SJM) in my bullish case for PG posted in July. The deal is expected to close by the end of the year. As the timeline and details of the deal are not very easily found online, I thought I'd post a summary.

All Smuckers shareholders of record as of 9/30/08 will receive a special dividend of $5 per share on 10/31/08. Smuckers shareholders will vote on the deal to merge with Folgers on October 16, 2008.

If Smuckers shareholders and the Federal Trade Commission approve the deal, Folgers will issue Folgers common stock amounting to 1.1524 times the number of Smuckers shares outstanding. Folgers will give this stock to Procter & Gamble. Folgers will then borrow $350 million and pay it to Procter & Gamble as a dividend.

Procter & Gamble then will deliver the Folgers shares to an exchange agent who will hold the shares in trust for PG's shareholders. Procter & Gamble shareholders will have the opportunity to exchange some or all of their shares for Folgers stock. The price at which the shares are exchanged will be determined by Procter & Gamble. It will be based on the prices at which PG and Smuckers are trading, and there will be a certain discount for PG shareholders. One of the deal's conditions is that at least 59% of the Folgers shares are exchanged for Procter & Gamble shares. If some Folgers shares are left over, they will be distributed (and converted into Smuckers shares) to PG shareholders as a pro rata dividend at a rate determined by the exchange agent.

A subsidiary of Smuckers will merge into Folgers. The Folgers shares will then convert into the right to receive one Smucker share for each Folgers share. Folgers shareholders will then own about 53.5% of the new company. Current Smuckers shareholders will own 46.5% of the new company.

The deal is expected to be beneficial for both Procter & Gamble and Smuckers. PG will have $350 million less debt on its balance sheet and won't have to worry about a low margin brand to which it hasn't been paying much attention. Smuckers, which can better focus on Folgers and which previously bought and successfully turned around PG's Jif and Crisco brands, will add around $1.6 billion to its annual sales. Currently at 0%, coffee is expected to produce 42% of Smucker's future sales. After the transaction, Smuckers will be more than twice as big as it currently is.

If you're a PG shareholder and are thinking about whether or not to exchange shares, please carefully read the prospectus that will be sent to you in the mail. It should come from your broker or clearinghouse, along with a slip to fill out if you want to exchange shares. The most important consideration is whether you want to be a Smuckers shareholder now that Smuckers will own Folgers, and whether you want to own as many shares of Procter & Gamble now that the company won't have a coffee business.

If you decide you want to exchange some of your PG shares for SJM shares, consider carefully all the risks involved in such an exchange. There are two big ones:

(1) You won't know how many shares of SJM you're getting until after the exchange takes place. This can mean that you're better off simply selling some of your PG shares and using the proceeds to buy SJM.

(2) After the exchange takes place, and especially if PG gives its shareholders some left over SJM shares as a dividend, SJM stock may be sold off. There are various mutual funds and ETFs that hold PG but either do not want to, or, by their rules, are not permitted to own SJM. Funds and ETFs that own only stocks in the Dow Jones Industrial Average (e.g., DIA) are one example. If they receive SJM stock they may be forced to sell. Depending on how many SJM shares are sold off as a result, the stock can go lower for a time.

I'm not sure whether I want to exchange some of my PG shares for SJM. However, given the two points above, I would rather wait until the deal is finalized, and then, if I decide to get some SJM in exchange for my PG, I'll sell PG and buy SJM in the regular way.

If you bought PG above where it's currently trading and would like to exchange some of your PG shares for SJM, it may be worthwhile to sell PG for a tax loss and use the proceeds to buy SJM rather than participating in the exchange.

Disclosure: At the time of writing, I own PG.