Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Pakistan Booming House Prices Housing Market Mania Kabza Mafia Warning! - 29th Aug 16
Post Yellen = Market Confusion - 28th Aug 16
Theresa May Instructs Police, NHS Gp's, Public Sector To Stop Racial Discrimination in Service Delivery - 28th Aug 16
Ignore Yellen and Buy the Dip in Precious Metals - 27th Aug 16
SPX Downtrend Should be Underway - 27th Aug 16
Unraveling the Secular Economic Stagnation Story - 27th Aug 16
The Precious Metals Sector and the Fed. . . - 27th Aug 16
Stock Market - All Is Calm, All Is Not Right - 27th Aug 16
Gold Junior Stocks Q2 2016 Fundamentals - 26th Aug 16
Buy Gold’s August Dip? Gold’s Monthly Sweet Spot In September - 26th Aug 16
The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking - 26th Aug 16
Commodities Are the Best Bargain Now—Here’s What to Buy - 26th Aug 16
Why I Left Canada and Became A Citizen of the Dominican Republic - 26th Aug 16
The GLD vs GOLD - 26th Aug 16
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Economy - 3 Secret Charts

Marc Faber, Fed's QE2 Could Trigger stock Market Correction

Stock-Markets / Stock Markets 2010 Oct 30, 2010 - 08:32 AM GMT

By: Dian_L_Chu

Stock-Markets

Best Financial Markets Analysis ArticleMarc Faber, publisher of the Gloom, Boom & Doom report, discusses the potential impact of further quantitative easing (QE2) by the U.S. Federal Reserve in a Bloomberg interview on Oct. 36 (clip below).


Correction Triggered by QE2?

Faber sees Democrats--"sadly enough"--would get a shot at still retaining the majority, which would mean the monetary and fiscal policy will most likely stay on its current course.

Equity has done well in Sep. and Oct months; however, Faber thinks the markets are stretched in the inflation trade, and weak dollar, high commodity and precious metal prices, along with high equity valuations, all suggest a correction is overdue. 

Now, with QE2 being largely priced in, anything less than $1 trillion from the Fed would disappoint the markets and may trigger a correction in U.S. stocks, which could result in more quantitative easing.

But the correction should provide a buying opportunity for investors leading to an up cycle, instead of another bear market.   

Equity Better for the Next Decade

Looking at investing for the next ten years, equities, emerging economies in particular, would be a relatively better place to invest than U.S. government bonds, and cash.  However, Faber advises against financial, auto, and aircraft.  He's been in the high tech sector and likes Microsoft (MSFT).

Precious Metals Due for Pullback

Faber is currently recommending agriculture commodities, and the accumulation of precious metals.  On precious metals, he thinks they are overdue for "some kind of correction" by year end, and expect the next leg up in 2011.    

Dollar Near An Inflection Point

Faber says dollar is oversold, while in contrast, some of the foreign currencies such as Yen and Franc are overbought.  So, an inflection point could be near for a short-term dollar rally which could temporarily push down asset prices. 

He warns investors to be very careful about shorting dollar and long assets as the trade has become quite crowded.

Expect a Strong Pullback of Chinese Economy 

Although not quite gloom and doom, Faber does expect a "strong pullback" on the Chinese economy due to its many imbalances. 

According to Faber, the 0.25% interest rate hike effective Oct. 20 by the PBoC is "meaningless," because of skyrocketing property prices, and the cost of living inflation has gone up much more than the official figure.

He notes food prices have seen high inflation, and because of low GDP per capita where food would account for a high percentage of total expenditure, Faber estimates that the typical consumer inflation rate in countries like China, India, and Vietnam should be around 8 to 18 percent per year.

My Take on China Inflation

The inflation rate in China was last reported at 3.60 percent in September of 2010, climbing at the fastest pace in two years.  However, there are some hidden rampant inflation such as 50% on apparel, 20% on food, as reported by BusinessWeek.

Many analysts as well as academics also question how China could have such relatively moderate inflation rate given its double-digit growth and upward pressure on wages. Michael Pettis, a finance professor at Peking University, for example, estimates that "Inflation could well be 6 percent now for most people in China."

There's also another indicator--growth of money supply--which has a proven strong correlation with inflation. China's money supply, M1 and M2, has expanded by 56 percent and 53 percent respectively over the past two years. Currently, with the various tightening measures, both money supply figures are still growing at an annual rate of about 20 percent, based on Bloomberg data.

Furthermore, the continuing massive rural-to-urban migration will likely keep pushing up rents and food prices, just to name two of the many categories, and wages are expected to rise around 8 percent this year.     

As consumer inflation is typically a lagging indicator, China may experience continuing higher CPI.  That means Beijing is facing an increasingly difficult task of containing inflation, while maintaining sufficient growth to prevent a mass civil unrest.  As such, there will likely be more tightening, which would put the markets on a few roller coaster rides in the next two years or so. 

Nevertheless, since Chinese policymakers are keeping a close inflation watch, and are already taking actions (which is the key), I believe China is heading towards more sustainable growth.  And if China is "on a treadmill to hell" as Jim Chanos says, you can bet that the United States will be dragged along for the ride as well.


Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at Economic Forecasts & Opinions.

© 2010 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Nadeem_Walayat
04 Nov 10, 17:17
Marc Faber's Amensia

 

Marc Faber must suffer from amnesia because he keeps forgetting what he said in the past, for instance throughout the summer he was alluding towards the Hindenberg Omen triggering a stock market crash, off course he makes many contrary statements so as to cover all of his bases which is what one can expect from media whoring sales man who spends most of their time traveling to and from the make-up rooms of TV studios promotoing their services.

Dr Doom on stock markets Hindenburg Omen - FT - 31st July 2010

“Normally a single signal is not of great significance, but when several signals occur within a short period of time, the odds for a stock market crash increase”, says Faber.

As of Tuesday, July 23, the Hindenburg signal had fired at least eight times over the previous six weeks. The Hindenburg Omen is the alignment of several technical factors that measure the underlying condition of the stock market and warns of either impending market crashes or severe declines.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife