Best of the Week
Most Popular
1.What Happened to the Stock Market Crash Experts Were Predicting - Sol_Palha
2.London Housing Market Property Bubble Vulnerable To Crash - GoldCore
3.The Plan to Control ALL Your Money is Now at Advanced Stage
4.Why Gold Is Set For An Epic Rally This Spring - James Burgess
5.MR ROBOT NHS Cyber Attack Hack - Why Israel, NSA, CIA and GCHQ are Culpable - Nadeem_Walayat
6.Emmanuel Macron and Banking Elite Win French Presidential Election 2017 - Nadeem_Walayat
7.Trend Lines Met, Technical's are Set - US Dollar is Ready to Rally (Elliott Wave Analysis) - Enda_Glynn
8.The Student Debt Servitude Sham - Gordon_T_Long
9.Czar Trump Fires Comey, Terminates Deep State FBI, CIA Director Next? - Nadeem_Walayat
10.UK Local Elections 2017 - Labour Blood Bath, UKIP Death, Tory June 8th Landslide - Nadeem_Walayat
Last 7 days
Manchester Bombing - ISIS Islamic Terrorist Attack Attempt to Influence BrExit Election - 23rd May 17
What an America First Trade Policy Could Mean for the US Dollar - 22nd May 17
Gold and Sillver Markets - Silver Price Sharp Selloff - 22nd May - 22nd May 17
Stock Market Volatile C-Wave - 22nd May 17
Stock Market Trend Forecast and Fear Trading - 22nd May 17
US Dollar Cycle : Deep Dive - 21st May 17
Bitcoin Breaks the $2,000 Mark as Cryptocurrencies Continue to Explode Higher - 21st May 17
Stocks, Commodities and Gold Multi-Market Status - 21st May 17
Stock Market Day Trading Strategies and Brief 20th May 2017 - 21st May 17
DOW Needs to Rally Big or Correction is Next - 20th May 17
EURUSD reaches DO or DIE moment! - 20th May 17
How to Get FREE Walkers Crisps Multi-packs! £5 to £28k Pay Packet Promo - 20th May 17
UK BrExit General Election 2017 - Will Opinion Pollsters Finally Get it Right? - 19th May 17
Gold Mining Junior Stocks GDXJ 2017 Fundamentals - 19th May 17
If China Can Fund Infrastructure With Its Own Credit, So Can We - 19th May 17
Evidence That Stocks are More Overvalued than Ever - 19th May 17
Obamacare May Become Zombiecare In 2018 - 19th May 17
The End of Reflation? Implications for Gold - 19th May 17
Gold and Silver Trading Alert: New Important Technical Development - 19th May 17
Subversion And Constructive Synthesis Of Capitalism And Socialism - 18th May 17
Silver: Train Leaving Station Soon! - 18th May 17
Credit and Volatility Signal That Financial Conditions Are Very Overheated - 18th May 17
Another Stock Market "Minsky Moment" or Will the Markets Calm Down? - 18th May 17
WannaCry Ransomware Virus Is a Globalist False Flag Attack On Bitcoin - 18th May 17
Euro, Stocks, Gold Momentum Extremes All Round! - 18th May 17
US Stock Market Slumps on Establishment / CIA Trump Impeachment Coup Plan - 18th May 17
Tory Landslide, Labour Bloodbath - Will Opinion Pollsters Finally Get a UK Election Right? - 17th May 17
The stock market sectors which are breaking out in 2017 - 17th May 17
A ‘Must-See’ Chart for Gold and Silver Aficionados  - 17th May 17
Will the SPX Stock Market Final Surge Fail to Appear? - 16th May 17
Claim your FREE copy of Jim Rickards’ explosive book - 16th May 17
GOP Establishment Elite Plots Trump Removal - 16th May 17
Walkers Crisps Pay Packet Cheats, Shoplifters and Staff Conning Customers - 16th May 17
Gold and Sillver Markets - Silver Price Sharp Selloff - 15th May 17
Gold Stocks Poised to Soar Sharply Higher! - 15th May 17
This One Undiscovered Pot Stock Could Help Investors Cash In On The “Green Gold Rush” - 15th May 17
WIll Trump Tax Cuts Debt Binge Save Stock Market From Double Top Bear Plunge? - 15th May 17
Trump Rally or Geopolitical Meltdown: Currency Management for Dollar Risk - 15th May 17
A Shallow Stock Market Correction? - 15th May 17

Market Oracle FREE Newsletter

Trading Commodity Markets

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