Tuesday, August 23, 2011

Marc Faber turns “Ultra-Bearish”; what to do now? - Beacon Equity Research

After calling for a bear market in stocks two weeks ago, the publisher and editor of the Gloom Boom Doom Report Marc Faber has become more bearish on the outlook for the world’s financial markets by the minute.


Even the bull, Barton Biggs, who said stocks are at a bottom when the Dow was closer to 11,000 than 10,000, equivocated on his bullish stance on Bloomberg, yesterday.  So, even the bulls are questioning their logic of stock valuations during the solvency crisis in Europe and the contagion it will most assuredly spread to U.S. and Asian markets.


“Financial conditions are today worse than they were prior to the crisis in 2008,” Faber told MarketWatch earlier this week. “The fiscal deficits have exploded and the political system [in both the U.S. and Europe] has become completely dysfunctional.”


“Dysfunctional” may be the best word to describe revolving bailouts and further debt creation by the world’s Western debtors, certainly as far as creditors are concerned.  And the biggest creditor of them all, China, has repeatedly expressed outraged at the handling of the sovereign debt crisis in Europe and the U.S., voicing at times their concerns publicly of the future purchasing power of its $2 trillion of dollar-denominated assets.


No too surprisingly, the Chinese have opted to skip-out of the annual meeting of central bankers at Jackson Hole, Wyoming, slated for August 27, according to a Reuters report, released Friday.


“China will skip next week’s annual conference of central bankers in Jackson Hole, Wyoming,” according to Reuters.  But the news agency couldn’t get a comment from Beijing as to the reason for the no show, it stated.


“It’s a suicidal investment to own 10-year or 30-year U.S. Treasurys,” Faber said of U.S. paper, adding that “U.S. government bonds are junk bonds.”


If Beijing, who holds $2 trillion in dollar-denominated assets, is upset with the West’s devaluation of the future purchasing power of those paper assets, Faber’s point that if U.S. paper is indeed junk, than the preservation of capital should be priority one to every investor during these troubling times, leaving capital appreciation for a later time when central bankers finally must give up on the debt pyramid scheme, and stop the race to the bottom in the currency devaluation war.


For now, Faber’s recommends the safest of all financial vehicles, gold, taking a page from history as his guide for investors to survive the coming catastrophic endgame to this financial crisis.


“Physical gold in a safe deposit box is the safest,” Faber added. “Forget about huge capital gains. I would look at capital preservation. I want to preserve my capital.


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