Wednesday, August 28, 2013

We Have a Huge Imbalance in the World

I think that’s an issue. I am not convinced that someone in the US really sits and thinks, “What if we lose reserve currency status?” Clearly the US has a huge advantage in the sense that they can print money. Let’s say they go to war in Afghanistan, they actually do not pay for it, they just print the money. They go to war in Iraq, for now, they do not pay for it. The government prints money, creates large deficits, and the Fed buys this. It will have unintended consequences in the future, but for now it is OK. Other countries cannot do that. If you are a member of the EU, let’s say you are Greece or Spain, you cannot do that. If you wanted to do that you would have to leave the EU. In emerging economies if you print money, then the currency collapses and then you have import inflation. So the US has an advantage from the US dollar being a reserve currency. My view is that the dollar will stay as the reserve currency for a while, but I mentioned that in my view that eventually the financial system will collapse and we will move towards a new kind of arrangement with, most likely, the backing of some precious metals for currencies or with automatic stabilizers so that you have countries that are forced to essentially have a contraction if they have trade deficits and an expansion if they have trade surpluses to balance the trade surpluses and deficits. Today we have a huge imbalance in the world with the US having huge deficits externally and the rest of the world with surpluses.

- Source, The Prospect Group:

Tuesday, August 27, 2013

The FED Knows Nothing Else but to Print

I don’t pay much attention to what the Fed publishes. When you read their statements, they are completely confused and very vague. In other words, all is data-driven. If the stock market dropped ten, 20 percent, for sure there would be more QE programs.

On the other hand, if the economy is very strong, they may taper off somewhat. You get the picture. The worse the situation is in the US, whether regarding asset markets or the economy, the more QE there will be. The Fed doesn't know anything else.

- Source, Sprott Money Ask the Expert:

Sunday, August 25, 2013

The FED is Completely Clueless

I think that the Fed is completely clueless. It is composed by a group of academics. Most of them, or I would say 95 percent, have never worked in a regular job in their lives. They all went to universities and then they went to the Fed or other financial institutions. They have no clue what makes an economy move.

Having printed this much money, and we are essentially in QE4 and QE unlimited, the results have been very dismal. I think the Fed is scratching their head at the present time and can’t believe that when their objective was actually to lower interest rates from July 25 of last year, the ten year Treasury note yield has gone up from roughly 1.4% to, a few days ago, 2.7%. We have an almost doubling of the interest rate because of their QE programs. I think that really makes them scratch their heads and wonder, “What did we do wrong? What do we need to do? Do we taper, or do we have to increase asset purchases?”

- Source, Sprott Money Ask the Expert:

Friday, August 23, 2013

The FED Will Print More Money

I don’t think they will end QE. I rather think they will have to increase it because as you print money or as you purchase assets, from a central banking point of view, it loses its impact over time. In order to keep the impact going, you have to essentially increase it. I believe that the Doveish members of the Fed will print more money. Especially after the resignation of Mr. Bernanke early next year, when he will be replaced, there will be even more Doveish members.

- Source, Sprott Money:

Sunday, August 18, 2013

1987 Style Crash is Coming

"In 1987, we had a very powerful rally, but also earnings were no longer rising substantially, and the market became very overbought," Faber said on Thursday's "Futures Now." "The final rally into Aug. 25 occurred with a diminishing number of stocks hitting 52-week highs. In other words, the new-high list was contracting, and we have several breaks in different stocks."

Friday, August 16, 2013

The Stark Contrasts Of Mongolia's Economic Boom

Mongolia is in the middle of an economic boom. In the last ten years the GDP has more than doubled, and Marc Faber has said it could be the "Saudi Arabia of Asia" due to its tremendous mineral resources.

But all this growth hasn't come without problems, namely the "resource curse" where economies become unstable because of over reliance on one sector. Political problems are emerging, and neighbouring China's thirst for gold is leading to so-called "ninja miners" who work, dangerously and illegally, under the cover of darkness...

- Source, The Business Insider, read the full article here:

Wednesday, August 14, 2013

Has The FED Been Effective?

It is interesting that the money that has been printed essentially has not flown into the pockets of the workers or the middle class. We have precise statistics about who benefited from the money printing. Asset inflation has benefited a maximum of 3% or 4% of the population. It has benefited less than 1% meaningfully because if you look at real estate prices last year in the Hamptons, they were up 35% to record highs. Sandy Weill bought a condo in New York in 2007 for $43m at the peak and he sold it for $88m last August. Steve Cohen, a hedge fund manager, bought a condo for $24m on the East side and he is now putting it on the market for $115m. That price has gone up, the Mayfair economy or the luxury economy has gone up. But if you look at Las Vegas, or anywhere in the US that is not high end, it has recovered somewhat, but it is still way below the peak. But we also see this say in Asia. Recently I was in Bangkok and I have never seen such a big Ducati agent in the world. A Ducati is an expensive toy by Thai income standards. Driving around Thailand, you see a large number of Bentleys and Maseratis and Ferraris and BMWs and the works. These are expensive cars in this country because there is a 100% import duty on these cars. Whereby I think a lot of well to do people did not pay the import duty.

- Source, The Prospect Group:

Monday, August 12, 2013

China vs The United States

This is quickly becoming the favourite geopolitical parlour game. The Prospect Group put the question to Marc Faber and he was more than happy to oblige them with his thoughts on the subject.

Faber’s take on the two is the gap is narrowing but the US still remains the military superpower in the world. It is just quickly losing its perch as the number one market in the world. Which is to be expected according to Faber. China’s population warrants such a perch.

It would be odd for them not to be the leader in the mobile phone market of the refrigerator market if the country was fast growing.

What will cause the most tensions is the pivot towards Asia by the United States. With China flexing its military muscle, the US has been more willing to push out with its fleet and that has caused tensions to flare. Already, territorial disputes have erupted between Japan and China over an island chain.

Faber’s thought is that the US should let the countries resolve it on their own, but seeing as the US has strict alliances with countries such as Japan, that is unlikely. Plus, it is in the US national security interest to keep sea lanes open and controlled essentially by the US Navy.

Overall, the interview is an interesting listen and runs a pretty good clip. Clocks in at around 9 minutes so you’re not subjected to a lot of fluff. Plus this is Marc Faber. You know you’re going to get a steady diet of how he sees the world unfolding.

- Source, Trade the News, read the full interview here:

Saturday, August 10, 2013

The Issue of Abenomics

One of the main questions from the prospect group was in regards to Asian Central Banks incurring large losses due to local currency appreciation against foreign currency reserves. Faber pushes back on the question, saying that any losses incurred are small in comparison to those gained. Plus the protectionism being employed will quickly reverse the trend anyways.

He takes China as a prime example. Obviously they are the elephant in the room when it comes to global economies with massive foreign currency reserves. Over the past 12 years, they have build up over three trillion in mostly dollars and other currencies while their local currency did appreciate in value. So, they do have a loss.

Faber flips the argument here and says that loss may in fact be China’s gain. They enjoyed a massive trade surplus with the United States and the rest of the world. And with it came a huge transfer of technology to China as the country became the main producer.

So the small loss China incurred on the foreign exchange market netted it a huge transfer of wealth when it came to real wages, jobs and growth. Marc Faber sees it as a net positive when it comes down to brass tacks of either or.

Then there is the issue of Abenomics. Asian Central Banks are taking the Federal Reserve Experiment and going wild with it. In Japan, the BOJ is rapidly devaluing the yen to try and break the cycle of deflate. Its neighbour to the west Korea is already thinking of following suit. Faber wonders how long China will be able to hold off?

- Source, Trade the News Room:

Thursday, August 8, 2013

No Rush To Buy Emerging Market Stocks

Investment Guru Marc Faber says that one should be selling emerging markets when the foreigners are heavy buyers and vice versa. "So investment banks turning negative on India is indeed a positive for country," he says, adding that US may outperform emerging markets.

- Source, Bloomberg tv:

Friday, August 2, 2013

The Shadow Banking System

I have argued for many years that because of easy monetary policies, we had rapid credit growth in the Western world and also in other countries, whereby, after the Asian crisis, there was some de-leveraging in Asia. But in general, if you look at the world, say compared to the 1950s, 1960s, and even the 1970s, it is very clear that financial markets, official and less official, have grown disproportionately to the real economy. In other words, you have say, a global GDP of $60tr or whatever it is and you have financial markets that turn $60tr around in a week or less. I believe that one day this financial bubble will have to adjust on the downside. Either it will adjust on the downside because we have an inflationary burst or because we have a collapse of the system. We do not know exactly how the end game will be played. But in general, I cannot see how the derivatives market will continue to exist for the next 5,000 years. It has got to end one day and when it ends one day, either through war or through a financial collapse, it will be very painful.

- Source, The Prospect Group: