Sunday, October 30, 2011

Printing Money and China Real estate

When you print money everything goes up at different times, different asset classes," Faber said in a live interview. I think that stocks may still continue to go up, and I would rather own equities than government bonds for the next 10 years.
Printing money is the way global governments will evade debt crises such as the one that is gripping Europe now, he said.

The injections of new money supply also are harming the global economy and causing bubbles, one of which is in Chinese real estate, he added.
"If the Chinese bubble bursts one day, which inevitably will happen — maybe not tomorrow, maybe in three months, maybe in three years — when it happens it will have devastating consequences for the global economy," he said.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Monday, October 17, 2011

Marc Faber: Go Long The Dollar, But Occupy The Federal Reserve

Faber expects volatility to continue (not necessarily means a downside to the markets), but dollar should be a long trade as whenever there's a bubble, e.g. tech bubble, housing bubble, stocks bubble, and commodities bubble, usually after the bubble bursts, there typically will be a 10-15 years of volatility before markets settle down to reignite an uptrend.

"Despite the fact that the [European Central Bank] and the European government will flood the market with liquidity to bail themselves out, global liquidity is tightening.....Whenever global liquidity is tightening it is bad for asset prices but good for the U.S. dollar, as was the case in 2008."

He thinks there had been far too many "interventions" by the Western governments, 
where the total share of the economy that's government owned or sponsored have grown tremendously,.  Add to that, the high levels of debt, it is almost impossible for the developed countries including Japan, the U.S. and Western Europe to grow.  
When the economy stagnates over a long period of time, people ("the 99%) seeking answers start to go after the "top 1%" minority like Wall Street, which took advantage of the system for profits.  However, it was Washington and the lobbyists who created the system to begin with.  So from that perspective, Occupy Wall Street should move to DC and Occupy the Federal Reserve on the way, Faber laments.

His solution for the U.S. economy - Flat tax on everybody "would be a good measure", and reducing the restrictive regulatory environment to encourage business to start investing again.  Moreover, the lack of savings is the biggest problem of the U.S.  Essentially, the U.S. will have to work more, and get paid less to get out of this mess.

EconMatters Commentary 

Dollar, despite the Federal Reserve's continuous QEs and twist, is still holing up well attesting to the dangerous state of the world's finance and economy.  So in the near term, dollar could be still king, but with a high degree of uncertainty longer term, depending on how the Euro, the closest competing currency, will come out from this seemingly ever expanding EU sovereign debt crisis.

As to the economic and fiscal state of the U.S., we are not as pessimistic as Faber, but have written many times that the U.S. has many structural issues in the labor market, and the vital decisions of the country are  and will be made based on politics, and by politicians who can't walk the talk.  If the U.S. does not start to make some fundamental changes, it could eventually prove Faber right.  

Towards the end of the interview, Faber made reference to Lee Kuan Yew, the first Prime Minister of the Republic of Singapore for three decades.  Lee Kuan Yew retired in May 2011, but has remained one of the most influential political figures in South-East Asia.

In the three decades during Lee's tenure as PM, the country has been transformed from a developing economy to one that's the most developed in Asia.  However, the "Singapore Model" is based partly on a socialistic structure (e.g., single political party, state planning, and state-owned enterprises).

As to the current economic and fiscal state of the U.S., we are not as pessimistic as Faber, but have written many times that America has many structural issues within the labor market and too many of the country's vital decisions are and will be made based on politics and by politicians who can't walk the talk.  If the country does not start to make some fundamental changes, it could prove Faber right.  

Dr. Doom Roubini, in an interview with Business Day less than a month ago, also noted Singapore could be one country that he was not averse to state involvement in the economy and held up Singapore as an economy that might be shielded from global shocks.

So we find it quite interesting that as a result of the global financial crisis, more and more Western economists are now moving towards socialism, while the more socialist countries such as China are becoming more capitalistic.  Could this be the New World Order underway? .


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.



Sunday, October 16, 2011

Gloom, Boom & Doom Publisher Faber on Bloomberg Surveillance

TOM KEENE, BLOOMBERG SURVEILLANCE: The Gloom, Boom and Doom Report, one of our more popular guests, Marc Faber. Good morning.

MARC FABER, PUBLISHER, GLOOM, BOOM & DOOM REPORT: Yes, good morning. How are you?

KEENE: Well, I think I'm good. We've got the Volcker Rule out and banks under siege. Do you care if we have a new banking structure? Do you care that our financial system needs to become more conservative?

FABER: I think it is a very good move that banks become far more conservative because banks, when you think of it, your salary is probably paid into a bank account and you expect that money to be available to you at any time. So the bank has a fiduciary function, and it has a certain social function. And with your deposit, the banks should not go and speculate.

So my proposal is basically to ring fence the depositors, and the domestic operation that is the traditional bank, and then farm out into separate entity what the bank does with money in terms of hedge fund activity. There are a lot of banks they are just like hedge funds. They take huge positions here and there, and then we have losses - as occurred for UBS in London, that basically should not be your concern as a depositor.

KEN PREWITT, BLOOMBERG SURVEILLANCE: Well, Marc, we've had more than one complaint here from guests on Bloomberg Surveillance that they won't invest in banks because the financial reports are not transparent enough. You cannot figure out what is going on in there.

FABER: Well, basically, we had the stress test in Europe and out of 90 banks, only six or seven were deemed to be unsafe. The safe banks, including Dexia, are not safe because the stress test was not properly conducted.

PREWITT: Well, is that the case here in the U.S., too?

FABER: Well, it is very difficult to really assess the quality of earnings of banks. But I am told by experts here in the U.S. that the auditors have become very, very tough and that banks basically are at their lows recently. JPMorgan was at less than $27. That $27 now is $32.

And at their lows, basically the banks were selling below book value. So some people say that American banks are actually a very good investment opportunity at the present depressed level.

KEENE: Marc Faber with us, the Gloom, Boom & Doom Report. Marc, I want to switch gears here. You have a fabulous chart courtesy of the Financial Times, which really describes the gilded age, the plutocracy that we are in now. It is the ratio of income of the top one percent, -

FABER: Yes.

KEENE: - to the bottom 90 percent going back pre-Depression. It is absolutely stunning. Historically, with you being such a great student of our economic history, is it normal where we are now? Or is it normal where we were in the fifties, the sixties and the seventies?

FABER: I think normal is very difficult to define, but very clearly it is not normal where we are now. But we cannot blame Wall Street and well-to-do people for the mishap, for this ratio to have exploded on the upside. We have to blame essentially expansionary monetary policies that favor assets. So you have low consumer price inflation, you have no wage inflation.

In fact, the problem in America is that real wages, real compensation has been down since the 1970s. But at the same time, asset prices, equities, real estate and so forth have gone up dramatically, and that favors people who have these assets. And so the ratio expanded and you have now a record wealth, inequality, and income inequality.



Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.

Wednesday, October 5, 2011

October 2011 Gloom Boom Doom Report outlook:EU Debt Crisis, A China Meltdown

Marc Faber is out with the latest issue of his famous Gloom, Boom and Doom Report, which is always a must read for serious investors. Unlike most of the other talking heads, Faber has an excellent track record. He correctly predicted the top in the equity markets in Nov. 2007, and caught the bottom in March 2009, making his subscribers a lot of money. Here is a summary of his October 2011 report:

Stocks--Yes, stocks are very oversold, but that does not mean they cannot go lower. The dreadful price action in both Copper and the Shanghai Composite points to new lows for the equity markets. After US stocks make a new low below 1100 on the S&P 500 (SPY), there could be a year-end rally followed by a more meaningful decline into 2012. Investors should use any bounce in stocks as an opportunity to reduce their equity exposure. At this point, Faber advises no more than 25% of your portfolio be in stocks.

Gold--At $1900 gold was extremely overbought, and a correction was necessary. However, Faber now believes that gold could undergo a significant correction similar to what happened between 1974-1976, when gold fell 40%. Faber notes that a large decline in gold is now a distinct possibility. The first support level for gold is at the 200 DMA around $1500. Despite the potential for a pullback, Faber still likes gold and believes it will trade significantly higher.

Dollar--It's true that the dollar has no intrinsic value and is being printed into infinity, but the US dollar will be your best friend for the next few months. As global liquidity contracts on EU debt concerns and a possible hard landing in China, Faber advises investors to be long the dollar. Note this is a short-term call; longer term the dollar is going to zero.

Treasuries--Despite being bullish on the US dollar, Faber does not reccomend treasuries, noting that they are overbought and susceptible to a large correction.

China and Copper--If you think the market is falling because of incompetent EU bureaucrats you are behind the curve. According to Faber, the price of copper is signaling a very serious slowdown (if not complete collapse) in China. This is what is really behind the move down in all commodities. A hard landing in China would be devastating for the global economy. The Shanghai composite is making new lows along with copper, which is very bearish. Also stay away from the Australian and Canadian currencies. If China crashes, these markets will get massacred.

Emerging Markets--Stay away from these at all costs. All emerging markets are falling and making new lows. Even though Faber likes these longer term, they could still fall another 20%-30% before they would be good buys. These markets could even fall to their 2009 lows. However, this will represent a good buying opportunity because these markets will be the first to bottom.


Marc Faber is a famous contrarian investor and the publisher of the Gloom Boom & Doom Report newsletter.