Marc Faber on Bloomberg Opalesque Industry Update – On Tuesday, Marc Faber (aka Dr Doom), publisher of the Gloom, Boom & Doom report, told Bloomberg, when discussing the U.S. Federal Reserve’s decision to keep the interest rates down through 2013, that the Fed had been right in not announcing QE3 “so they can watch the reaction” (video here).
But we should get a QE3 announcement, ultimately. “I think the Fed is underestimating the severity of the coming economic downturn here,” he added. However, with gold prices going up and the dollar weakening, there would be unintended consequences in implementing QE3 right now.
“The best thing would be for markets to collectively resign,” he quipped. “Everybody in the world has become a Keynesian. Everybody thinks the government should do this, the Fed should do that, the Treasury should do that. I think sometimes the best is to do nothing.” He added that QE1 and QE2 had done nothing for the labour and the housing markets. The U.S. should save more and spend less, he believes.
John Maynard Keynes, a British economist who died in 1946, advocated the use of fiscal and monetary measures to mitigate the adverse effects of economic recessions and depressions.
Faber does not think investing in treasuries is a good idea: “I think the treasuries market is another example of a gigantic bubble,” he went on. The long-dated treasuries are the short of the centuries, he says.
Longer-dated U.S. Treasury prices fell on Thursday (August 11th) in choppy trading as bond dealers tried to prepare for a 30-year bond auction amid more worries about Europe, Reuters reported.
As for gold, the straight-talking take-no-prisoners Dr Doom thinks a correction is overdue. However, he maintains that “every responsible adult should gradually accumulate gold,” because not owning any gold is to trust governments.
Gold prices edged lower, as lingering concerns about Europe struggled to balance selling pressure sparked by higher trading margin requirements, said The Wall Street Journal. The most actively traded contract, for December delivery, was down $25.80, or 1.4%, at $1,758.50 a troy ounce early in New York (on August 11th).
Faber sees opportunities in emerging economies, as their fundamentals are better than European and U.S.’s. This is consistent with his usual preferences.
“The market has sold off in such a rapid way with so much momentum that I am smelling as if something really wrong will happen in the next two or three months,” he concluded. “Because the market is a discounting mechanism… in March 2009, the market went up and people were baffled by that. And now it goes down, and maybe in three months, people will wake up scratch their head and understand why…”
In a recent interview with Swiss daily paper Le Temps, he said that he expects the market to rebound and then to go down again in October or November, when the S&P should reach around 1,100 points (it is currently at 1,120 points and down almost 11% YTD). This is when QE3 may be announced.
He does not invest in China even if he feels optimistic about it, due to a lack of trust in Chinese companies. He prefers exposure to China via Hong Kong.
With regards to Portugal, Ireland, Spain an Italy, he thinks that those countries should be let to go bankrupt and the banking systems with them – although savings should be protected. It is much better than using the taxpayers’ money to save them and then realise two years later that bankers have received top bonuses. “Bankers must be punished,” he said. “The banking sector has become too big, compared with the real economy.”