Faber says he won't put money in India at this point, but is positive on its economy in long term. Excerpts:
The Fed clearly has indicated that after QE2, no QE3. One is getting a sense that the cost of capital is moving up. Do you think the risk-off trade could start again?
No further stimulus. We have to qualify that statement. I think they will end QE2 and not tighten monetary conditions, but there could be a relative tightening the way we had it after the end of QE1 until QE2 was announced last August. So for the next three months or so, asset markets will continue to drift lower. Traditionally the month of May is very weak.
Also June and then from June on, we have some seasonal strength developing until the end of July, early August and then we have weak September-October months, seasonally speaking. The markets are oversold at the present time. We could re-bounce somewhat from herein to the end of July and then have another ground draft in October-November, but my forecast is very simple. If the S&P were to drop from here by, say, another 10-20%, for sure, for sure you will get QE3. There is no doubt about this.
How big a risk then is a crisis in the US economy for markets like us?
It depends on how you define a real crisis. Basically we had a boom into 2007, but the boom did not really help the average person in the United States. The boom was concentrated in asset prices and the financial sector and well-to-do people. The workers did not benefit much. Then we have the crisis in 2008, unemployment goes up and since then, employment has hardly gained, but we have the boom in emerging economies because of the money printing and the transmission mechanism.
So a crisis in the US, we are to some extent still in crisis for the workers, for the lower middle class, and we had a recovery in asset prices, notably equities, but not real estate, which essentially means the Bernanke would have liked to see rising real estate prices. So whether we will have a further crisis, I am not so sure, but the global financial system will eventually blow up because we have not solved the problems, we have postponed them.