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Catching a Falling Financial Knife

Marc Faber on Gold, Silver, Deflation and the U.S. Economy

Stock-Markets / Financial Markets 2011 Jul 18, 2011 - 02:36 AM GMT

By: Aftab_Singh

Stock-Markets

Best Financial Markets Analysis ArticleMarc Faber was interviewed on the Financial Sense Newshour. It’s a long one, but it’s definitely worth a listen. As usual, we’ve included a summary below for our readers who don’t have the time to sit through the entire video.


Summary:

  • In the deflationist scenario, you don’t want to be in US govt. bonds & cash. In that scenario, the fiscal deficit would deteriorate greatly. If the Dow went below 1000, we would be in a total economic collapse where tax revenues would fall off a cliff. So even in the deflationist scenario you don’t want to be in the long end of the government bond market.
  • In the 50s and 60s, people were more free. Now, we have police states in the West, where restrictions are rather onerous. Also, back in the 50s & 60s, the Bretton Woods System restricted the potential for severe inflation.
  • ‘What is money?’ is a big question. Generally speaking, it’s a medium of exchange, a store of value and a unit of account. Gold is a much better store of value than the dollar. As a unit of account, the dollar is poor. Has the US really been growing at 3% per annum?
  • The standard of living for the average US household has gone down over the past 20 years. Relative to the rest of the World, the peak of US prosperity occurred in the 1950s. It’s very difficult to measure economic growth and prosperity.
  • The Emerging Markets used to be way behind the US. Now, the infrastructure in the Emerging Markets is way better than in the US. The US have grossly underinvested in infrastructure.
  • The US has survived on the continued expansion of borrowing to offset declining income in real terms. Now the power to borrow is gone.
  • Europeans & Americans are generally complaining about onerous regulations.
  • On the one hand you have money printing & expansionary fiscal policies. On the other, you have more and more regulation. The small businessman, who can’t employ an army of lawyers and accountants have no appetite to hire. They say that the more tax they pay, the more the government will harass them!
  • In Asia, there exists the opposite scenario: There is relative economic freedom insofar as you don’t criticise the government. A great quality of the US is that you can pretty much say what you want.
  • The likelihood of a hyperinflation has increased. If you go back to Jan 2011, would you have thought that the Middle East would blow up as it has? Would you have thought that the NATO countries would go to war against an idiot in Libya? He’s just one of many idiots, if you go after a country like Libya, you may as well go against 180 countries in the world!
  • The Western press is focussed on how to ‘contain’ China. One way is to control oil in the middle east; for then they can switch on the tap, or close it. The Allies have gone to the Middle East to attempt to gain control of the Oil. But this costs a lot! They’re not in a position to finance the war unless they print money. So we’re likely to see higher inflation.
  • Bernanke has some knowledge about economic contraction & expansion in a closed system. But he has no clue about the international system!
  • The more the US will print money, the more the dollar will depreciate against gold, silver, platinum & palladium.
  • Bernanke is a typical academic. He knows about everything in theory, but no clue about the real world.
  • A bubble occurs after several years of price increases. At the tail end of the trend, you get an annual appreciation that almost goes vertically. This hasn’t happened in the gold market.
  • Most people have sold their gold according to Marc Faber’s feedback from his subscribers at gloomboomdoom.com
  • Marc Faber was at a popular resource conference recently. He asked how many people had more than 5% invested in gold and only about 5 in 400 raised their hands!
  • If Marc Faber had to have one asset over the next 10 years, he would own gold (for maintenance of purchasing power) or equities (for profits).
  • It’s important to diversify your assets geographically. Political changes can completely wipe you out if you keep it all in one country.
  • It’s extremely difficult to get a bank account overseas if you’re an American. Officially there is a free foreign exchange market, but unofficially there are foreign exchange controls.
  • Easy monetary policies create greed & bubbles. One of the symptoms is fraud & embezzlement. Fannie Mae & Freddie Mac were frauds.
  • Money Printing in the US has produced bubbles elsewhere in the world.
  • Do what the Jews do! Marc Faber’s jewish friends have lots of gold and silver. Marc Faber has around 20% in gold & silver & mining stocks.
  • All this being said, we should note that a correction can occur!!!
  • In the previous gold bubble, everyone watched gold all day and all night! We don’t have a heavy euphoria yet.
  • America is a great place with great people. It’s only the Government that’s awful!
Aftab Singh is an independent analyst. He writes about markets & political economy at http://greshams-law.com .

© 2011 Copyright Aftab Singh - 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.


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Catching a Falling Financial Knife