In an interview on June 9, 2009 with King World News, Dr. Marc Faber discusses his ideas on quantitative easing, the potential for hyperinflation, US equity markets, commodities and Asian market entry points.
Marc Faber, the editor of the Gloom Boom and Doom Report, believes that quantitative easing will lead to a situation similar to that of Argentina, where hyper inflation will be rampant, though his time frame on something like this ocurring may be several years:
The problem is that the government’s debt is growing at a very rapid pace of the last 12 months. It increased by 1 .9 Trillion Dollars. In the next 12 months I would expect it to grow by about 2.2 Trillion dollars. And then it will be very difficult to bring down the deficits in my opinion.
At the same time you have a school of economists in the US that essentially tell the world that the way to stimulate the economy is to make savings worthless, in other words, if you deposit money, $100, with the bank today in theory the bank will only give you back $95 in a year’s time. It would force people not to have deposits but to do something with the money — either spend it or invest it.
Bernanke is a destroyer of the value of money, and he’s a wealth destroyer and he’s an economic criminal. And now he has written many times about inflation and how you can generate inflation by dropping dollars bills on the United States. In my opinion he’s a mad man, but you have to pay attention to mad men who are in a position of power. And Mr. Geithner, if you look at him, he’s not mad, but he’s dishonest, and this is proven.
So you have the two basically running monetary and fiscal policies in the United States, and they are extremely dangerous.
Essentially, you have savers in the USA being punished for not spending or risking (by means of investing) their money. If you hold your cash in a mattress (or in a low yield CD), chances are in 10 years it will be worth less than 50% of it’s value today if inflation were to go ‘hyper’ at levels of 10% or more per year.
Marc Faber believes that the market is due for a correction because of the sudden and significant increase in equity prices over the last 2 months:
For ten days or maybe even a month or two months you can have a rebound in the dollar and a rebound in bonds and equities correcting on the down side and commodities correcting on the downside.
We rallied from 200 (on the CRB Commodities index) to 260 yesterday, and the low was in February of this year at 199. I think we could go down to around 220, possible.
In principle, my outlook for asset markets is this. When you think about it, the S&P when to around 940. Let’s say we correct down to 800. If we go down to 800 and the CRB drops 10% – 15%, there will be a reason for that to happen. I suppose the reason would be that the economy is weak. So, what happens if the economy is weak, we have Mr. Bernanke, the money printer.
…I think the worse the economic situation becomes the more money they will print. I don’t think we’ll see new lows in asset markets this year, but maybe at a later stage when the whole system collapses, maybe next year or in 3 years.
My comments: Marc Faber is basically saying that with the addition of the money printing element into the economy, the situation becomes very difficult to predict and forecast. But, the system will collapse eventually. For those out there holding on to short positions, take the power of quantitative easing into consideration. If you really want to hold shorts, remove as much leverage from them as possible (i.e. go with 1:1 inverse ETF’s as opposed to leveraged instruments).
Interview Source: King World News