The FED Will Keep Printing Money

The Swine Flu is a problem. In the next 20 years we will have goepolitical porblems, social problems and pandemic problems. They will all weigh in asset prices.

But don`t forget the worst things become, more money will be printed by Mr. Bernanke. He will print endlessly. Even if things are very bad economically, companies with no revenues and no earnings, but stocks will go up because of the money printing.

GM Restructuring Is Good For The Company

What GM is doing, mainly coverting debt into equity its the way restructuring should be done. Unlike the banking system where debt are not converted into equity and the government, the taxpayer pays the bills and pays the risk.

The GM retructuring is basically good for the company but off course bad for the existing shareholders who are diluted very badly.

The bondholders instead of getting interest on their bonds now they own shares and if the company restructures sucessfully and if a new management comes in that is capable, maybe General Motors can survive and then the share price will go up 5, 10, 20 times from the present level.

Latest Bloomberg Video Interview

Topics:

- Swine Flu
- Political Unrest
- The risks of money printing
- Fed will keep printing money
- Money Printing Lifts all Boats
- GM Restructure is good for the company


Bloomberg TV, April 27, 2009

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Markets Will Be Very Volatile

We live now in an environment of very, very high volatility, because on the one hand you have the private sector that has tightened lending conditions, and wealth has been destroyed. Households will save more and be more prudent financially than they've been. In other words, credit or liquidity is tightening.

Then on the other hand you have these clowns in government that think that they can solve any problem. As Mr. Geithner said recently, "we know how to fix the problems." Well if he knew so well how to fix the problems, why did he let the problems happen in the first place? He was the New York Fed Chairman when the conditions were created!

Why the Nickname Dr. Doom?

"I earned my name as ‘Dr Doom’ for predicting that stock market crash a week before it happened. It was lucky that it happened so soon after I made the prediction rather than six months later."

Marc Faber cemented his reputation further by turning bearish on the Japanese market in the late 1980s and also predicted the Asian crisis in the late 1990s. Over the course of the 1990s the subscribers to his Gloom Boom & Doom newsletter grew steadily.

Why Asia?

I stayed in Asia because I like the freewheeling economic freedom of the region. It is a much more exciting part of the world than Europe or the US.

Markets Are Overbought

The market very near term has become somewhat overbought, and the correction should essentially follow, but I doubt it will go and make new lows in the intermediate future. The lows in early March at 666 in the S&P will hold, and we’ll have another push up into July.

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Japanese in the 90`s Versus US Right Now

I think the Japanese had a peculiar situation. First of all, the stock market in Japan was probably more overvalued than the US market in the year 2000 or in the year 2007. Also, the real estate market was in "cuckoo-land" in Japan.

The good thing about Japan after 1990, when the recession hit and a period of no-growth began, is that the typical household never suffered very badly, for the simple reason that prices for assets, things like golf course memberships, nightclubs, housing prices, etc., all went down. So, their salaries didn't rise any more but stayed at the same level, and everything fell in price – we had deflation. So the typical household actually increased its standard of living.

In the US, the problem is that the household sector is terribly indebted. That wasn't the case in Japan. In Japan, the corporate sector was indebted and the banks and real estate companies were overleveraged, but not the household sector. And the household sector in Japan still had a savings rate of around 12 percent when the recession started.

In the US, the household sector had stopped saving out of current income throughout the 1990s. In 1990, the saving rate was nine percent; then it went to zero. Now, the savings rate will have to go up. The household sector will realize that savings out of illusory asset price gains, like stocks and real estate, are not permanent; and therefore, if we want to have money for retirement, we have to save money from current income. And that has, of course, a negative short-term impact on the economy.

Thailand Situation

Foreign investors may withdraw from Thailand’s stocks as clashes between anti-government protesters and troops escalate. The current political situation means that less foreigners will invest in the country and that portfolio managers may actually be sellers of equity. I don’t see any near-term solution.

I’m not sure that the Thai baht will go down that much more because it is already relatively low. The country has actually trade and current account surplus because the imports fell off the cliff.

Market May Corrrect, But The Low Will Hold

The market very near term has become somewhat overbought and the correction should essentially follow, but I doubt it will go and make new lows in the intermediate future. The lows in early March at 666 in the S&P will hold and we’ll have another push up into July.

With Free Money, Banks Will Have Decent Earnings

You have essentially a government that gives financials free money at the expense of the taxpayer. With this free money, they may actually have decent earnings in the near future.

S&P 500 May Reach 1,000

The Standard & Poor’s 500 Index may rise 17 percent to 1,000 in the next three months as government spending boosts bank profits, investor Marc Faber said.

U.S. stocks probably reached their bear market low when the S&P 500 fell to 666.79 during trading on March 6, Faber, who publishes the Gloom, Boom and Doom report, told Bloomberg Radio in an interview from Thailand.

(Bloomberg, April 13 2009)

Latest Insights on Bloomberg TV

Latest Marc Faber insights on Bloomberg TV:

- The S&P may decline to about 750 and probablyrebound after July.

- Global stock markets are unlikely to fall below their October and November lows.

- Commodity stocks have risen too sharply and are no longer attractive buys.

- Asian stocks are a much better value than US stocks.

- The US dollar may weaken, so investors should buy the currencies of Canada, Australia and Singapore.

- Bonds are entering a long bear market and should be avoided.

- Gold will be “dead money” for the next three to six months, but he plans to buy more gold if prices drop to between $750 and $800 an ounce.

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Mongolia Has Huge Potential

Marc Faber, the publisher of the Gloom, Boom & Doom report, said Mongolia is “torn between two lovers - China and Russia,” and is a country with huge potential.

“The country is incredibly resource rich, another Saudi Arabia, next to the largest population in the world”

(in Bloomberg, April 2009)

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Treasuries Bear Market Will Extend for 15 to 20 Years

The long end of the Treasury Bond Market, 10 and 30 Year Government Bonds have been in a bull market from September 1981 until December 2008, when yields on the 10 Year Bond touched 2% and yields on the 30 Year Bond touched 2.51%.

Since then despite intervention by the government yields have actually backed up. Basically he had a long term bull market in bonds from 1981 to 2008 and I think in 2009 we have now the beginning of a long term bear market that will extend for the next 15 to 20 years.

Buying Banks for a Trade

I bought some resource shares last November and many have doubled and tripled in value depending on which you bought.

The Newmont Mining`s of this world have doubled in value since November and the more speculative exploration companies have gone up 3 times from their lows. So in these stocks I am not particularly interested in.

But I have been buying some banks here and there, for a trade. If I look at Citigroup, it dropped from 57 to 1 dollar. It is around 2.5 dollars now and can easily rebound to 5 dollars a share. If it will go down to zero after that its another story.

All I am saying is that these companies have been decimated and they can hand over they lousy assets to the government, to the taxpayer. And they stay with some viable businesses where they can increase fees and again cheat the taxpayer.

Rally Will Go On, After a Correction

Its important to realize that many stocks made their lows already last October and then fewer stocks made their lows on November 21. Then he had a 25% rally in the S&P 500 Index.

We sold off into March 6 this year and since then the stock market is up 26% in the US.

In March although the indexes were lower than in November, only a few stocks made new lows and many markets in Asia dis not make new lows.If you take markets like Korea, Taiwan and Hong Kong, they are up 40% from the lows. I don`t think we will see new lows for these markets , because they would have to tumble very significantly.

Although the economic news won`t be good, the rate of getting worse has slowed down. So, the bullish wall street analysts will say "see, the economy has bottomed out".

After this rally we need some kind of correction, maybe around 5 to 10% and after that we can probably rally more into July.

We rallied from 666 to above 840 on the S&P. We are now at 830 and I think we can go down to around 750. But is important that we don`t go below the November lows on the S&P.

After this correction we will be able to rally somewhat more.

(Bloomberg TV, April 07 2009, transcript)

Live on Bloomberg TV - April 07 2009

Marc Faber Live on Bloomberg TV from Singapore.

PART 1

PART 2

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Stock Market, S&P 500 and Asia

In general, I don't like stocks. The Japanese market, as an example, is at the same level it was in 1981. So it's 30 years behind. If the US just went down to the level of 1990, the S&P would be at 300. It indicates that the Asian markets are at either 20 year lows or 30 year lows. The dividend yields on Asian stock markets is about three times the bond yields in those countries.

Relative to the US, Asia is quite inexpensive. So I think that, yes, emerging economies will be a place to look, and I would allocate probably now, ten to 20 percent into emerging economies.

Officials Are Not Telling the Truth About the US Economy

The problem is that no officials in the US are telling the truth. Let me give you an example: The elderly statesman in Singapore, Lee Kuan Yew, immediately said in last September, "we're going to face very tough times; we have to tighten our belts to stay competitive." This is something no president in the US will say: that you have to want for a few years, tighten your belts, and endure some pain in order to safeguard the country's economic health – for the sake of your children and for the sake of the nation as a whole.

Neither party in the US nor any elected government official dares to tell the electorate how disastrous conditions in the country have become. Ill-conceived policies by the last few administrations, Republicans as well as Democrats, were designed to stimulate consumptions. As a result of these policies, we will now have a period of subpar growth for quite some time. The government's policy should have been to stimulate capital formation, education, and R&D, and to encourage people to save.

If I had been Fed Chairman, I would have kept interest rates at a much higher level after 2001. I also wouldn't have cut interest rates as aggressively as Mr. Bernanke did after September 18, 2007. Don't forget, low interest rates actually hurt savers. There are a lot of people in America, like retirees, that have money on deposit, and now don't get much interest on their deposits. So it basically forces them to speculate.

If I were at the Treasury, I would let the financial institutions that overly leveraged themselves and gambled with other people's money, like AIG and Fannie Mae and Freddie Mac, go bankrupt. You can still protect depositors and the policyholders of these companies. But let the system, through the market mechanism, deal with the problem.

Bubbles and Investment Manias

We always had bubbles and investment mania in the world. Even in the 19th century, under the gold standard, from time-to-time investment manias and bubbles developed in railroads and in canals and in real estate, just to name a few. Under a fixed monetary, or gold, standard, where the quantity of money cannot be increased indefinitely; there is a natural limit to the scale of the crisis. Usually when there's a boom in one sector of the economy, you have some kind of deflation somewhere else; that was also the case in the 1970's. We had a boom in commodities, but bond prices collapsed.

What Mr. Greenspan and Mr. Bernanke have achieved is historically quite unique. They have managed to create a bubble in everything, everywhere in the world: in real estate, equities, commodities, art, worthless collectibles; even bond prices continued to rise as interest rates fell due to the loose monetary policy. Since 2007 and 2008, everything has collapsed.

But government bond prices continue to rise, and went ballistic between November 2008 and December 2008, when 10- and 30-year Treasury yields collapsed. So my view would be that this was the last bubble they managed to inflate. From here on, the government bond market will fall. In other words, the trend will be for interest rates to actually go up.

We Will Have Higher Inflation Then in the 70`s

There is no other way for the US but to inflate. It's not a desirable policy, and it has in the end disastrous social consequences. But given that we have a money-printer at the Fed and an Administration that wants to expand the role of government as a percentage, the result will be, unfortunately, inflation.

My view is that, eventually, we will see a much higher inflation rate than in the '70s. In the short term, because of the collapsing asset market and increased savings rate in the US, we will see deflationary pressures. But in the long run, we'll have a much higher inflation rate. That will be negative for US bonds and equities.

The Patient Has Died. No Matter How Much Stimulus There Is

An economy always fluctuates around the trend line. If you try to postpone recession the way the US government has tried to do, then one day you will have a much bigger problem. If you postpone recessions through deficit financing, or through easy monetary policies, then obviously you have very strong debt growth as we have had in the US.

Debt as a percentage of GDP has expanded from 130% in 1980 to 360% today. This does not include the unfunded liabilities arising from pensions and from Medicare and Social Security.

The best that the government could have done would have been to take a more severe recession in 2001, and then all the excess that followed would not have occurred. Now, we have an environment where the patient has died; no matter how much stimulus there is, it's not going to revive the economy.

Inflation Pressures Will Be Enormous

There are lots of academic studies on bailouts and stimuli; and also on money printing. In terms of fiscal spending, bailouts usually don`t work. When the government sits in and tries to offset sagging private demand with government demand, it usually does not work.

This is the pattern we have seen in the past. The long term effect on the US Economy from all the bailouts and deficits is basically that government`s debt will rise very substancially and the balance sheet of the Federal Reserve will expand.

Many people believe that the global recovery will begin in late 2009. I seriously doubt that. I think it will be at least two years from now, worst case maybe 10. And when we do start recovery, interest rates will rise and inflationary pressures will be enormous. (April, 2009)

Article on Financial Times

Marc Faber was quoted in Financial Times website today in an article untitled Bottoms, markets and Dr Doom. Basically the Fiancial Times describes Marc Faber`s view on the stock market and on the economy.

"Whereas Faber doesn’t expect any full stock market recovery within the next two years - and doesn’t feel we’ve yet seen the final low in the current bear market - he predicts some “further headway” before the coming summer.

In the very near term, the stock market has become overbought and should correct, he warns. Regardless of whether the market is heading up or down, for now, volatility is likely to remain high and market swings of 20% or more within a month or two will recur with high frequency, he warns.

To justify an intermediate positive stance, however, the level would need to stay above the November 2008 lows of 741 for the S&P500, he adds.

As for currencies, for dollar-centric investors, the message is in Chinese: diversify, diversify, diversify."

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world. Dr. Doom also trades currencies and commodity futures like Gold and Oil.