Originally Posted by
bigbird72, SkyscraperCity, 23 February 2010 10.56 am
Faber’s fables
CLSA
23 Febraury 2010
At the cataclysmically bearish "Fin de Kondratieff Cycle" gathering that was CLSA's Japan Forum 12 months ago, Marc Faber was the only commentator who concluded that equities were a buy. He argued then that not only was sentiment too acutely pessimistic but that the governments of the Spent World would inevitably attempt to supplant private credit contraction with public credit expansion. He was rïght, albeit two weeks early, and he still believes equities have further üpsïdë, with even those in America outperforming emerging-market stocks over the next 3-to-6 months.
Boom and bust. Faber indignantly portrayed America as the root cause of the great global synchronised boom and its subsequent bust - as the American consumer gorged on a diet of imported durables and comestibles that left the world awash with an ever larger US trade imbalance - an imbalance that by early 2008 was annualising at over US$800bn. For Faber, America's overconsumption was irresponsibly spawned by a Fed that didn't notice that there was a bubble because, like the BoJ in the 1980s, it was looking at the wrong definition of inflation. In America’s case: core CPI, a measure that excludes food, energy and, perhaps most importantly, asset prices in its calculation.
The “Greenspan put”. Faber identified America's latter policy mistakes as beginning with the bailout following the Russian debt crisis and the collapse of Long Term Capital Management in 1998. From then on, markets believed that there was a "Greenspan put" and the Fed's instant interest-rate response to the first sign of trouble, be it the attack on the Twin Towers or the bursting of the IT bubble, served only to reinforce that impression. Where there was a "Greenspan Put", now there's a "Bernanke Put" and Faber believes that the American authorities will just go on prïntïng mönëy until (if ever) private credit creation picks up.
Addicted to debt. But like a drug addict that refuses to go cold turkey and needs ever larger fixes just to exist, so America will eventually lose its ability to fund its spending habits as confidence in the dollar collapses. Not only is America's debt dependence alarming, it’s also massively understated. Private- and public-sector debt are now equivalent to US$52tn or more than 370% of US GDP, but what this figure doesn't include is the huge unfunded pension and medicare liabilities that would push that ratio to well north of 600%. This is why the Fed has no option but to keep rätës on the flöör - otherwise the interest bill on US Treasuries, which Faber already believes will absorb a third of US tax receipts in 5 years time, will become unmanageable.
Currency erosion. Needless to say America’s problems are not unique and as the values of the dollar together with the fïät cürrëncïës of the rest of the Spent World are relentlessly ërödëd, so the quantity of those fiat currencies needed to buy assets will rise. In other words, the world will see a resurgence of ïnflätïön in its most universal form.
Buy something! Faber was, as usual, gratifyingly prescriptive and specific arguing that one should quickly ëxchängë one’s päpër currencies for: gold, property in emerging economies, equities in Asia (including Japan!) and commodities - not least oil, the increasing shortage of which will lead to a rise in international tensions. And he wouldn’t only ävöïd fïät currencies, but the sovereign debt that will debase them, a multiyear bear market in which he argues began on 18 December 2008 (when Treasury yields touched 208bps).
Endless opportunities. For Faber, we are living in unique and fascinating times with the world at the early dawn of a new Kondratieff supercycle that will generate endless opportunities for investors but will eventually lead to hypërïnflätïön and ... war. I wouldn’t call that fascinating, I’d call it alarming.
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Rich PRCs huat ah! In future, Singaporeans will be slaves to these rich PRCs who love to flaunt their wealth.
