Wednesday, November 16, 2011

Stocks Beat Bonds over time: Faber

Money-printing central banks such as the US Federal Reserve will keep prices elevated for risky assets like stocks. "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.

European ministers are convening to devise a way for Greece to get out of its debt jam, with a likely large bailout fund on the way for nations in similar distress as well as a separate allocation toward recapitalizing banks holding the bad debt.

Policymakers are facing criticism, though, for forestalling the crisis rather than solving it.
"The end crisis will be postponed until the sovereigns go bankrupt," Faber said. "They can postpone the end-game endlessly...say another five to 10 years. Each money-printing exercise brings about unintended consequences. These unintended consequences are higher inflation rates than had no money been printed."

The Fed, for one, has expanded its balance sheet to nearly $2.9 trillion in an effort to boost the economy through buying various forms of government debt. Faber has been a frequent critic of the
quantitative easing practices, which he thinks will continue.

But he said he's trying to maintain a positive outlook despite the dim view he takes of the policy approaches thus far.
"I think I'm very constructive and I'm a great optimist in life. Otherwise I would commit suicide in view of the kind of governments we have nowadays," Faber said. "For sure they will take wealth away from the well-to-do people one way or the other, and from the middle class they will take it away through inflating the economy and lowering the standard of living."
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.

Monday, November 14, 2011

Peter Schiff makes bold call

Sentiment for a euro swan dive must stand at a record; it must dwarf any negative reading the U.S. dollar ever had. No fresh data are available on the sentiment for the USD:euro cross, but the chatter everywhere about the imminent demise of the EU is truly deafening.

The Mr. Magoo of Wall Street, Euro Pacific Capital’s Peter Schiff appears to have not noticed.  As the crowd runs from talking nice things about the euro, he just muddles along with his prediction of a renewed U.S. dollar weakness against the euro—and sterling, yen, Swiss franc and the other small-weighted currencies making up the UDX. Sign-up for my 100% FREE Alerts!

“Our short-term target for the euro, maybe by year end, will be up near 1.48,” Schiff told KWN on Oct. 25.  “I think that’s going to catch a lot of people off guard who were writing the obituaries for the euro, to see the euro approaching the 1.50 level.  The dollar index should be headed back down to the 72 level.”

Schiff appears to be completely alone with that call.  Even Jim Rogers and Marc Faber cannot be quoted about the overly negative sentiment in the euro.

That should trouble contrarian investors; it reminds us of similar negatve sentiment of the U.S. dollar prior to Lehman’s death.  At that time, the USDX hovered at an all-time low of 72 in March 2008, scaring the bejesus out of the financial media of an imminent collapse of the dollar.

And like magic, the USDX soared approximately 24 percent to 89 by March 2009—a year latter, amid the Lehman Armageddon and talk of ‘deflation’ of 2009.  Jim Rogers and Marc Faber were among the handful of market savvy observers who warned of too many traders on one side of the boat before Lehman.  Not so today.

So, fast forward to today; it’s the euro’s turn.  And like clockwork, the media’s favorite apologist for the dollar among the gold community, Dennis Gartman, told Bloomberg News on Nov. 4, “The driving force in the gold market is the problems in the euro,” Gartman said in a telephone interview. “Central banks in Europe and individuals will want to lower their euro holdings and buy gold since no one knows what is happening to the euro. The euro is heading towards parity once again.”

Friday, November 11, 2011

Marc Faber believes the Fed will keep rates near zero longer than 2013

The Fed will keep rates near zero even longer than 2013.

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

Friday, November 4, 2011

Facts about economy-markets disconnect

Veteran investor Marc Faber has made a very interesting observation in his latest Gloom Boom and Doom report that conflicts this basic principle. Faber agrees that economic and stock market cycles have moved in tandem in the past. But he makes a case for them not being so closely linked in the future. The reason being the concentration of wealth, and liquidity if you will, in the hands of a few. Faber argues that despite poor economic fundamentals in the developed markets, equity and other asset classes may not suffer too much. The premise of this argument is that since the 1980s, wealth inequity has increased significantly. According to him, currently the top 1% percent of households in developed economies earns 20% of all incomes. Also they own 33.4% of the total net worth of these economies. Hence, even though consumer sentiment is controlled by 80% of the population, just 1% of the population controls the money supply and fiscal deficits. The latter in turn largely determine the value of assets and exchange rates. With economic uncertainties like lower income growth and unemployment not impacting the moneyed class too much going forward, Faber believes that equity investing may remain unaffected.

While the logic of Faber's comment cannot be sidelined, we believe that his observation about economy and markets getting disconnected is a theoretical misnomer. For even the 1% population does get affected by the poor sentiment amongst 80% of the population. And when that happens, money supply deserts risky asset classes likes stocks and chases safe returns. At such times most rich households too prefer to maintain their wealth in cash or safe and liquid assets. Hence income inequality may be a reality in developed and developing markets alike. But neither can remain insulated from the downsides of economic cycles by the virtue of wealth concentration.