Thursday, April 12, 2012

Marc Faber Bearish on Stocks - Benzinga

On Saturday, economist Marc Faber appeared on CNBC to his give his outlook for the stock market.

Faber was particularly bearish, stating that the US market was facing a significant correction ahead.

The action on Monday appeared to validate Faber's statements, as the poor jobs report on Friday may lead to the major indices losing roughly 1%. European markets remain closed for the holiday. When European markets reopen, it could trigger further losses for US equity investors if Spanish bond yields continue to move higher.

Faber cited a weakening of the US economy and poor fundamentals as his reason for becoming bearish. Still, Faber did not suggest actively shorting the market, as he believed that more money printing could likely keep stocks from tumbling too significantly.

Faber is widely known as being a gold bull, but believes that the price of the yellow metal could fall further in coming months.

View the original article here

Wednesday, April 11, 2012

Ease Up on Stocks, Gradually Accumulate Gold: Marc Faber - Yahoo! Finance (blog)

It may just be a sign of the times or could suggest something more sinister, but whatever the reasoning, doom is making a comeback. I mean, how else can you explain the fact that there is currently not one - but two - different shows dedicated to building doomsday survival bunkers on TV? Add in a smattering of apocalyptic forecasting, the Mayan Prophecy, some Iranian nuclear threats, and a some solar flare phobia, and suddenly "Dr. Gloom, Boom & Doom" is looking rather mainstream.

Of course I am referring to the newsletter written by noted Swiss economist Marc Faber, but when compared to the end-of-the-world scenarios of his fellow doomers, Faber's outlook seems modest. After all, he's only talking about money.

Even so, when you read his predictions like a "sudden, violent wealth destruction" on the magnitude of 50%, you tend to pay attention. And just like a good doctor should, Faber has written a prescription for survival which we discuss in the attached video.

Atop the list is his belief that investors should, generally speaking, "reduce their exposure to equities" and at least wait for a better entry point.

"Where investors were overly negative last year, they are now overly optimistic about the prospects for the U.S. economy," Faber says, pointing to the ''huge bull run'' we have had since 2009. "I think the (stock) market is very overbought."

At the same time, Faber has modified his advocacy for gold a bit, in the face of a six-month, 15% slump. While he still supports gold's long term opportunity, he feels the precious metal is "still in correction phase" and that "individual investors should gradually accumulate gold" because of the outlook for continued money printing by the Fed and other central banks around the world.

Speaking of the world, Faber is also tweaking his ''bias" for the outsized growth potential of Emerging markets (EEM) which he says were "very oversold last September and since then have become overbought."

His advice to investors is ''to hold some cash, hold some precious metals, hold some equities, and hold some real estate," he says, adding that "if one asset class or the other declines substantially move money into that asset class."

View the original article here

Fed Needs a Sympathy Sell-Off Before Doing QE3: Marc Faber - Yahoo! Finance (blog)

With each passing day of declines, the "Ben to the Rescue" cries are growing stronger. I mean, a full week has gone by now since Wall Street's ease-addicts originally got stiffed and came up empty handed from the Fed minutes, and nothing has been done yet? Then comes the March jobs data disaster Friday, followed by more selling Monday and still no sight of the Bernanke helicopter, swooping in to save the I mean, save the day.

But fear not ease-addicts, it's coming. Even opponents of the Fed's reflationary efforts, like Marc Faber, editor & publisher of The Gloom, Boom & Doom Report, are certain of it, saying Bernanke would look foolish if he just caved in now.

"I wouldn't want to be in his shoes but if I were in his shoes I would wait for the markets to sell-off to get some sympathy for implementing QE3," Faber says. "It's politically not very easy to implement QE3 now."

At least if you want to maintain even a shred of indepedence it isn't easy. But Faber says this Fed Chairman is too concerned with investor expectations, and too cavelier about damaging the dollar.

"If you're the head of a central bank, the number-one priority is to safeguard the integrity of money," Faber argues, refering to the currency's unique and critcal role as "the unit of account, the store of value and the means of exchange."

As much as the Fed's dual mandate of promoting full employment and stable prices has received its share of debate, Faber thinks Bernanke's performance on the money issue is worse.

"I dont think Bernanke has fulfilled these obligations," he states.

As for higher rates, Faber says the market will do the Fed's work long before there's any official tightening in late 2014.

"It could happen this year or next year," he says, but "one day rates will be much higher than they are at the present."

View the original article here

Tuesday, April 10, 2012

Marc Faber Warns Of Wealth Destruction Via Inflation, Deflation, Unrest - International Business Times

Marc Faber, the fund manager who publishes "The Gloom, Boom & Doom Report," is warning of "massive wealth destruction" sometime "down the line," citing unresolved financial excess accumulated globally over the past few decades.

(Photo: Reuters / Sherwin Crasto)<br />Marc Faber warns of a coming wealth destruction through a combination of deflation and inflation

Asked how much destruction he foresees, the Swiss investor told CNBC in an interview that some rich individuals could lose as much as 50 percent of their wealth.

Faber, a Barron's Roundtable participant, believes the destruction come will in the form of high inflation, deflation and/or social unrest.

Inflation destroys wealth by eroding currencies' purchasing power, while deflation does so by pushing down prices of financial assets. Social unrest, which can either cause or be a result of inflation/deflation, may also lead to destruction of physical assets such as buildings and stores.

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"Maybe all of it will happen but at different times," said Faber, one of several prominent commentators who expect monetary instability -- the dual threat of inflation and deflation.

"People have this extraordinary view that inflation and deflation are opposites, but of course they're not opposites at all. [The opposite] is monetary stability," said Jonathan Ruffer, a fund manager who oversees about $19 billion.

Before the global financial crisis, the most dominant force of financial markets was arguably excessive borrowing, which drove up the prices of financial assets.

After the massive leveraging bubble popped, financial markets were driven by the battle between the natural process of deleveraging, or reducing debt, and government interventions to stop it.

The Federal Reserve, for example, increased its balance from less than $1 trillion to nearly $3 trillion to combat the threat of deflation.

Whether financial markets will suffer from inflation or deflation at a particular time, therefore, depends on which force is winning the battle.

Hugh Hendry, a fund manager overseeing more than $700 million, thinks deflation will occur first, with inflation to follow as the world's central banks respond by printing money in massive fashion.

Faber, however, believes asset inflation will be first, as central banks take the slightest sign of an economic slowdown or financial weakness as their cue to resume printing money.

The Federal Reserve's primary dealers seem to agree that U.S. monetary policy is extremely loose, as 15 of 21 expect a third round of quantitative easing from the U.S. central bank, according to Bloomberg News.

At that point, the natural process of deflation will take over, according to Faber.

As for investors who wish to protect themselves against looming wealth destruction, Faber advises diversification: Allocate assets to four classes of 25 percent each -- equities, precious metals, cash and bonds, and real estate.

View the original article here

Marc Faber: Forget Treasuries, Housing Is the Place to Hide (XHB, VNQ) - ETF Daily News (blog)

Over the years, followers of the Swiss economist Marc Faber have come to expect the unconventional, or at least the unpopular, when it comes to contrarian themes and investment ideas within his publication The Gloom, Boom & Doom Report. That is why his latest tome titled “The Most Important Thing in Investments is to Hear What is Not Discussed!” is so striking.

“I think investors should start to think what investments will go down the least when there is massive wealth destruction,” Faber says in the attached video clip from his office in Thailand. “I happen to believe that home prices in the south of the U.S., in Arizona, Georgia, Nevada and so fourth, are relatively inexpensive compared to other asset prices.”

It needs to be said that Faber is not calling the bottom in housing, nor is he touting homebuilder stocks (NYSEArca:XHB), as he had done in November, since he thinks their doubling since then, and recent declines, have moved them into a corrective phase. "Nationalism will emerge. Healthier countries will not see fit to spend their hard earned money to bail out their less responsible neighbors."

See the full “Breakout” interview below:


Marc Faber: Where To Hide Your Gold (GLD, SLV, IAU, SGOL, PHYS)Jim Rogers vs Marc Faber: Faber Cautious On China; Rogers Bullish On All Commodities (FXI, FXP, GLD, SLV, EEM)Buy Gold “Right Away” Says Marc Faber (GLD, SLV, GDX, IAU, AGQ, UGL)Marc Faber Likes U.S. Real Estate & Concubine Tenants (EWJ, THD, IYR, EWZ, FXI, EWA)Marc Faber: Brace For “Massive Wealth Destruction” (GLD, SLV, UUP, IAU, UGL, SGOL, DZZ, UDN)VNQ, XHB

View the original article here

Monday, April 9, 2012

Will the Dow Beat Britain's Blue Chips? - Motley Fool

American investors are notorious for staying close to home with their money. The most you can expect the majority of U.S. investors to do is to pick American stocks that have worldwide exposure. That's one reason the Dow Jones Industrial Average (INDEX: ^DJI  ) is so popular: With so many of its component companies expanding internationally to try to take advantage of faster-growing markets overseas, you can essentially get global exposure even with a pure U.S. stock portfolio.

But if you rely solely on U.S. stocks, you'll miss out on a world of other opportunities. So this article is the first of a series looking at popular indexes in other countries to try to find promising stocks you might otherwise miss. Today, let's look at Great Britain and its FTSE 100 (INDEX: ^FTSE  ) index.

Getting to know the FTSE
Although the FTSE has more stocks than the Dow, the way the FTSE is weighted means that a similarly small number of its components have an inordinate amount of influence. Just the top 10 stocks in the index by market cap account for nearly half of the index's value. Still, because the FTSE uses market-cap weighting, it doesn't have some of the complications that the Dow's price-weighted calculations create.

Like the Dow, the FTSE is fairly well balanced across sectors. In fact, one way in which the FTSE outdoes the Dow is by including utility stocks in the index, rather than exiling them to a separately tracked metric. Still, the two largest sectors in the FTSE are oil and gas stocks and financials, with consumer goods coming in a close third.

What's working in Britain?
Looking at the top 10 stocks in the FTSE, you'll find clear winners and losers. On the gaining side are the more defensive names GlaxoSmithKline and British American Tobacco, both of which are up 20% or more over the past year. Glaxo is dealing with the same challenges that U.S. pharmaceutical companies are facing, as it tries to keep a healthy pipeline of new drugs in development to replace existing blockbusters that are approach their patent expiration dates. Meanwhile, British American has many of the same benefits as Philip Morris International, as it taps markets outside the U.S. that have favorably tolerant regulatory environments.

On the downside, however, are the big mining companies Rio Tinto (NYSE: RIO  ) and BHP Billiton. Both of those companies have seen huge growth in past years, but more recently, concerns about a slowing global economy and specifically weaker activity in China have led to a substantial correction in the shares.

Meanwhile, stuck in the middle are a variety of companies. Notorious oil giant BP (NYSE: BP  ) makes up almost 6% of the FTSE despite the big hit it took following the Gulf of Mexico oil spill. Shares have held their ground in the past year, but the overhang of tens of billions of dollars in paid and potential damages has put a lid on the company's growth. In telecom, Vodafone (Nasdaq: VOD  ) has benefited greatly from its stake in the Verizon Wireless joint venture and also has a big presence in emerging markets around the world. But trouble closer to home has shareholders nervous about its European business and the impact that continued economic uncertainty could have on Vodafone's overall finances.

Can the FTSE beat the Dow?
Over the past five years, the Dow has performed better than the FTSE on a price basis. But the FTSE has a higher overall dividend yield, with one FTSE-tracking ETF yield well over 3%, compared with around 2% for the Dow. So on a total return basis, the disparity isn't as great as it may appear at first glance.

It's clear that British markets trade more in line with exchanges on the Continent than the U.S. stock market does, so what could lead to future FTSE outperformance would be a better-than-expected recovery in Europe. With expectations extremely low, betting on the FTSE to rebound could be an idea worth looking at more seriously, especially if conditions in Europe's weaker economies begin to stabilize.

Adding international stocks to your portfolio is just one way to build a smart long-term investing plan. Get more tips by looking at The Motley Fool's special report on retirement, which also includes the names of three promising stock picks for long-term investors. Get your free report today before it's gone forever.

View the original article here

Marc Faber: Where To Hide Your Gold (GLD, SLV, IAU, SGOL, PHYS) - ETF Daily News (blog)

Marc Faber thinks people should keep gold holdings outside the reach of potential confiscators.

Central bankers will print money at any sign of a credit contraction or drop in economic activity.  Money printing, Faber said, is a strong reason behind rising oil prices, slowing economic activity especially in those countries that import it.  The virtuous circle of money printing, higher oil prices, slower economic activity and more printing won’t stop, according to him.  Moreover, Faber speculates that, at some point, the money printing must stop and the financial system will become a catastrophe.

"Nationalism will emerge. Healthier countries will not see fit to spend their hard earned money to bail out their less responsible neighbors."

As the system begins to savage financial institutions in the U.S. and Europe, too many investors will experience what customers of MF Global experienced late last year.  In response, these investors will most likely then turn to gold.  But, in doing so, they will also come under threat of confiscation by governments desperate to save the system.

“As you know, we had MF Global.  What did the clients get?  Less than what they had at the company,” Faber told Martenson.  “And I think eventually the financial system will be an MF Global, where you don’t get your money back from the banks and the investment banks and from the mutual funds and so forth and so on.  And so I think everybody has to think to himself: how do I protect myself against the Black Swan event?”

In the past, several Fed Governors have suggested that the Fed should unwind, or at the least, level its balance sheet at the first sign of accelerating consumer price inflation.  Faber said that any talk along those lines by the Fed should not be taken seriously.  According to him, no matter what the Fed says, it cannot reverse the credit-based Ponzi scheme without collapsing the system.

“I think the money printing will go on, unless the Fed would come up and say,  we’re no long going to print any money; the monetary base will remain steady,” said Faber.  “And even in that case I wouldn’t believe them.”

Martenson, who lost his $50 “placeholder” account with MF Global, asked Faber to speak on the subject of safe gold storage.

“Where is anything safe?  I mean, I think in a safe deposit box is relatively safe, but maybe not in a safe deposit box in the U.S.,” said Faber.  “If you look at the MF Global case, it seems—I don’t know for sure—but it seems some people got their money, but not others.  This is a very disturbing thing to happen in the financial system.  And when I see  this, I think we have to be very prudent, so I would hold a safe deposit box outside the U.S..

“Now the question is: how is it to hold a safe deposit box with a bank if the bank closes down.  And this happens,” Faber continued.  “You can also hold safe deposit boxes in duty-free stores, warehouses at airports around the  world. In Switzerland we have them; in Singapore we have them, and so  forth.  So that’s a possibility.”

Since the start of the financial crisis in 2008, Faber has said that, because the global economy is credit addicted, more and more investors over time will move into gold and equities as a means of preserving capital.  But there will come a day when central bankers cannot sell further debt issuance to rollover the  ever-increasing mountain of debt.  That’s when governments will turn to gold and seek to acquire it by any means, including confiscation.

“One day there will be a credit collapse, but I think we aren’t yet  there. Before it happens they’re going to print,” Faber told Financial Sense Newshour’s Jim Puplava in early December.  “And when printing as it has done in the last 12 years in the U.S. leads to discontent populations, because when you print money then only a few players in the economy that benefit, not the majority of households.

“Populist political leaders vying for votes from the masses will opt to score  easy points with the 90 percent have-nots at the expense of the haves, with draconian taxes on assets such as gold and silver held by the haves, not just through taxes on capital gains, but maybe even through a wealth tax on the holdings.

“This is what the tyranny of the masses can do,” he said. 

View the original article here

Marc Faber: Continuing Financial Crisis Must Be Endured - Seeking Alpha

By Ed Bace, CFA

Marc Faber, editor of “The Gloom, Boom and Doom Report,” kicked off the CFA Institute Middle East Investment Conference by quoting Ernest Hemingway who said, “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring permanent ruin.” On this downcast note, Faber attacked short-term Keynesian spending and reviewed the implications for investors of the accelerating shift of world economic and political power from the developed countries to the developing world.

Central bank action to cut interest rates, whilst intended to boost consumption and hence economic growth, has had unintended and severely negative consequences. Faber argued that “dollar bills dumped by helicopters” all over the US have not been channeled into housing, as hoped, but into other more speculative asset classes, particularly commodities such as precious metals and oil. He added that expansionist monetary policies have contributed to higher financial and economic volatility, in addition to inflation. Since greater money supply does not flow evenly across sectors, this gives rise to asset bubbles, which are not easy to identify.

For Faber, at the start of any bubble, “promoters have the vision, and investors have the money.” But the reverse occurs as the bubble bursts: the promoters end up with the money, while most people lose out. Current negative real interest rates, which make cash a safe, but poorly-returning investment, penalize savers, and encourage them to speculate. But Faber asked, “Is deflation such a bad thing?” During deflationary periods in the nineteenth century, real per capita income apparently increased faster than it does now.

Faber also noted that excessive debt always contributes to risk. For example highly leveraged US developers became insolvent when the housing bubble burst, in contrast to their more conservative Hong Kong counterparts who managed to remain solvent. Borrowing has increased just to maintain a standard of living. In 1980, US debt/GDP stood at 140%. Now it is approaching 400%, if unfunded liabilities such as social security and Medicare are taken into account. As a result, adjusted US government debt now exceeds $15 trillion, and continues to rise. US spending is up, but taxes are down. Faber contended that the vast majority of tax revenue goes to mandatory expenditures such as medical care, social security and interest expense rather than to capital formation. Given these imbalances Faber is unsurprised that the quality of US government bonds has been called into question.

By slashing interest rates, governments have also contributed to higher commodity prices, especially oil prices, according to Faber. Any intended boost to consumption is undone by higher energy prices which act as an additional tax on the consumer.

Adding that the G7’s exports continue to decline, Faber contrasted this with climbing developing world exports, resulting in rapidly growing reserves among emerging economies. These reserves will be spent on scarce resources such as precious metals and other commodities. Faber believes that oil demand among the emerging economies now exceeds that of the developed world. China is increasingly absorbing the world’s resources to feed its growth. It is positioning itself carefully as a global economic and political power, assiduously dominating shipping lanes, forging alliances with neighboring states, and investing heavily, so much so that Faber argues China has now got its own domestic credit bubble. Faber sees parallel scenarios being played out in India, Southeast Asia and Latin America. The growing economic power of these nations will inevitably lead to further geopolitical tensions where the MENA region is a potential powder keg.

So how should investors play this situation? Faber states that diversification is key alongside low leverage. His recommendations are as follows: cash and bonds are not hugely attractive, given negative real interest rates, but equity-like corporate bonds could form 25% of a portfolio. Another 25% could be made up of stocks, especially in emerging markets, with a further 25% in precious metals (which tend to be severely underweighted in a typical pension fund). Real estate in certain areas (such as Asia) could make up the remainder. He added that US house prices are looking decidedly cheap.

Faber closed his speech by emphasizing that the crucial question over the next decade is not “where will my returns be highest?” but “where will I lose the least money?” In fact, he believes that losses of 50% should be considered as a relative success. He advised that an investment in remote farmland could pay off, as growing social tensions could make urban life intolerable. In his view the welfare state has evolved from the many helping the few to the few helping the many and that the inevitable crash, or “rebooting the computer,” will simply have to be endured. Whether this crisis occurs soon, as further credit expansion is voluntarily abandoned, or occurs later, as the currency system meets final and total catastrophe, Faber cannot predict.

View the original article here

Sunday, April 8, 2012

Deep Portfolio Thoughts With Marc Faber - Seeking Alpha

Marc Faber's latest thoughts are making the rounds including in this blog post from the WSJ. Faber thinks inflation will erode the assets of the wealthiest among us. More interesting was Faber's idea of a sort of everyone into the bunker portfolio. Per the WSJ, Faber likes farmland, entire islands, real estate in New Zealand, Canada and Australia, foreign stocks, precious metals held in other countries, diamonds, stamps, art and defense stocks.

MARC FABER: Beware The Unintended Consequences Of Money Printing - Business Insider

Marc Faber does not mince words. He believes the money printing policies of the Federal Reserve and its sister central banks around the globe have put the world's currencies on an inexorable, accelerating inflationary down slope.

The dangers of money printing are many in his eyes. But in particular, he worries about the unintended consequences it subjects the populace to. Beyond currency devaluation, it creates malinvestment that leads to asset bubbles that wreak havoc when they burst. And even more nefarious, money printing disproportionately punishes the lower classes, resulting in volatile social and political tensions.

It's no surprise then that he's feeling particularly defensive these days. While he generally advises those looking to protect their purchasing power to invest capital in precious metals and the equity markets (the rationale being inflation should hurt equity prices less than bond prices), he warns that equities appear overbought at this time.

On Inflation

First of all, I do not believe that the central banks around the world will ever, and I repeat ever, reduce their balance sheets. They’ve gone the path of money printing and once you choose that path you’re in it, and you have to print more money.

If you start to print, it has the biggest impact. Then you print more - it has a lesser impact unless you increase the rate of money printing very significantly. And, the third money printing has even less impact. And the problem is like the Fed: they printed money because they wanted to lift the housing market, but the housing market is the only asset that didn’t go up substantially.

In general, I think that the purchasing power of money has diminished very significantly over the last ten, twenty, thirty years, and will continue to do so. So by being in cash and government bonds is not a protection against this depreciation in the value of money.

On His Love for Central Bankers

Basically the U.S. had a significant increase in the average household income in real terms from the late 1940s to essentially the mid-1960s. And, then inflation began to bite and real income growth slowed down. Then came the 1980s and in order not to disappoint the household income recipients you essentially printed money and had a huge debt expansion.

So if you have an economic system and you suddenly grow your debt at a very high rate, it's like an injection of a stimulant of steroids. So the economy grew at a relatively fast pace, but built on additional debt. And this obviously cannot go on forever and when it comes to an end, you have a problem. But the Fed had never paid any attention.

The Fed is about the worst economic forecaster you can imagine. They are academics. They never go to a local pub. They never go shopping -- or they lie. But basically they are a bunch of people who never worked a single day in their lives. They’re not businessmen that have to balance the books, earn some money by selling goods, and paying the expenditures. They get paid by the government. And so these people have no clue about the economy.

And, so what happens is they never paid any attention to excessive credit growth -- and let me remind you, between 2000 and 2007, credit growth was five times the growth of the economy in nominal terms. In other words, in order to create one dollar of GDP, you had to borrow another five dollars from the credit market. Now this came to an end in 2008.

Now the Fed never having paid any attention to credit growth, they realized if we have a credit-addicted economy and credit growth slows down we have to print money. So that’s what they did. But believe me it doesn’t take a rocket scientist to see that if you print money you don’t create prosperity. Otherwise, every country would be unbelievably rich because every country would print money and be happy thereafter.

On The Unintended Consequences of Money Printing

In the short term, it has been working to some extent in the sense that equity prices are up and interest rates are down. And, so companies can issue bonds at extremely low rates. But every money printing exercise in the world leads to unintended consequences at a later point. And, this is the important issue to remember. We don’t know yet for sure what the unintended consequences are.

We know one unintended consequence, and this is that the middle class and the lower classes of society, say 50% of the U.S. has rather been hurt by the increase in the quantity of money in the sense that commodity prices in particular food and energy have gone up very substantially. And, since below 50% of income recipients in the U.S. spend a lot, a much larger portion of their income on food and energy than to say the 10% richest people in America and highest income earners, they have been hurt by monetary policy. In addition, the lower income groups, if they have savings, traditionally they keep them in safe deposits and in cash because they don’t have much money to invest in the first place. So the increase in the value of the S&P hasn’t helped them, but it helped the 5% or 10% or 1% of the population that owns equities. So it's created a wider wealth inequality and that is a negative from a society point of view.

View the original article here

Marc Faber on the Badley Inflated Ego of Ben Bernanke - The Market Oracle

Best Financial Markets Analysis ArticleUS President Barack Obama gave a speech accusing Republicans of "social darwinism" with budget cuts they are proposing, calling them antithetical to the country's history as a land of opportunity. But how much opportunity is there left exactly. We speak with Dr. Marc Faber, publisher of the Gloom Boom & Doom report. He says that wealth destruction and social unrest may be on the way for Western economies, whose citizens are being outcompeted by those in emerging economies who are willing to work harder and are far hungrier than Westerners are.

And yesterday, Wall Street had a strong start to the second quarter, with the S&P 500 marking its highest close since mid-May 2008. And the FOMC minutes today reveal the Federal Reserve is holding off on more monetary easing unless US economic growth falters or inflation goes below two percent. So is this inflation or deflation? Is this risk on or risk off? And what does it mean for the economy that this is the way we are always looking at things? Marc Faber has his own thoughts on the matter. He believes that this debate is not quite so simple. He says inflation in money and credit can cause bubbles, but it is hard to know where they are, and it is not easy to know where inflation is taking place. Governments hide inflation through various official numbers and estimates, and also, much of that inflation goes into asset prices. We do not know exactly how much the Federal Reserve, the ECB, the BOJ, etc. are propping up the prices of stocks, commodities, etc. We can only estimate. The money printing and loose language of the central bankers and policy makers around the world certainly does distort the price mechanism, however, and Marc Faber is not optimistic about the ramifications of these actions.

And finally, we've heard talk about the possibility of a student loan bubble -- a more than $1 trillion debt problem. Well, it appears some senior citizens are on the hook along with kindergarteners. But what is the value of education really? After all, central bankers and economists have PhD's from the best ranking universities in the country. We'll break it down for you during our segment of "Loose Change," though Marc Faber weighs in on student debt as well.

View the original article here

Saturday, April 7, 2012

Marc Faber's "Wealth Destruction" Fears Shouldn't Scare The Wealthy - Forbes

Marc Faber, author of the Doom, Boom and Gloom Report on CNBC said the U.S. will see "massive wealth destruction" in the years ahead, citing social unrest and high inflation. He blamed most of that erosion on the Fed and Washington. But while the middle classes might see their asset prices erode -- such as housing and even real incomes -- the wealthy are forecast to do just fine. And a new report by Citi Private Bank shows just how well the multi-millionaires have done post-2008.

I suppose it can be fun to stand for something.

Some pundits stand for the crumbling of China and beat that dragon like a …I don’t know, like a dead dragon.

Others take a more Ron Paul/Lyndon LaRouche approach: the end is near, the U.S. will crumble to Third World status and it is all because of the Fed. Maybe, at some point, they will be proven correct. We will see New York City penthouses, now valued at millions, worth a schilling; as cheap as a house in the Caribbean ‘hoods of Brooklyn.

Once in a while, you get it right. Nouriel Roubini was right about the U.S. housing bubble and what that meant for derivatives no one’s ever heard of until they took down two brand name banks in Bear Stearns and Lehman Brothers and hundreds of smaller and mid-sized lenders across the nation.

But Marc Faber’s (CNBC’s “Gloom, Boom & Doom Report”) concerns that there will be “massive wealth destruction” is right, only if you’re middle class and poor. Their wealth will probably shrink from inflation and no real income growth in his best case scenario. But if you are already a millionaire, you have nothing to worry about. Much of Faber’s forecast is just part of his Doom and Gloom narrative. It’s part of the Faber brand. He can’t possibly believe all of it, especially for American millionaires.

“I think that people should own some gold and I think that people should own some equities, because before the collapse will happen, with Mr. Bernanke at the Fed, they’re going to print money and print and print and print,” he said on CNBC Monday. “So what you can get is a bad economy with rising equity prices.”

In part, he is right, even with regards to wealthy individuals. He is a smart man, after all. A million dollars in a bank CD or a 10 year Treasury bond isn’t going to yield much income. These are historic low rates, and by that measure, rich people are receiving historic low returns. Middle income people with a paltry $100 grand in the bank and without access to savvy investment advisers watching out for their capital gains will be in worse trouble. As usual, they’ll sell at the bottom, buy at the top. They’ll buy bonds yielding 2% and trading 20% above par, and then sell them at maturity at a discount, losing everything they basically got from the income.

Faber blames the Fed for a lot of the problems, with its reliance on free money in these weak economic times. But Fed and general government policies post-Lehman have largely benefited one class of people — the wealthy, especially the super wealthy. Moreover, they also have undying political support for them in Washington, and one political party that works for them around the clock (the one that talks about populism…go figure).

The wealthy have lawyers and accountants and investment advisers; they have research firms tracking their interests and investment trends around the clock so they know the square footage of real estate in São Paulo versus Miami, and whether or not that city will be a hot spot in the future. They have enough money to diversify. Five percent can mean another million to them. Five percent for the average middle class 401k might mean another $5,000 that year, enough to buy a 1995 Chevy Malibu. The middle class have Dancing with the Stars. The poor have Medicaid. They both still have the Social Security Administration, their biggest ally.

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The Rich Could Lose Half Their Wealth in Downturn, Says Faber - Wall Street Journal (blog)

In an interview on CNBC and in his latest “Gloom, Boom & Doom Report,” Faber says that the diverging fortunes of the rich and the rest has become unsustainable. He says that while asset inflation and Fed stimulus of the past 30 years has benefited a lucky few ? basically “those with assets” continued money printing could lead to sudden and violent wealth destruction.

“Somewhere down the line we will have a massive wealth destruction that usually happens either through very high inflation or through social unrest or through war or a credit market collapse,” he told CNBC. “Maybe all of it will happen, but at different times.”

When asked on CNBC how much money the wealthy could lose in such a scenario, Faber didn?t hesitate: “People may lose up to 50% of their total wealth. They will still be well-do-to. Instead of having a billion dollars they will have five hundred million.”

Faber admits he doesn?t know the exact timing of all of this. And he writes that assets and inequality will likely rise before falling. Yet he says that for the wealthy, safety will likely continue to be primary goal when it comes to investing.

“Questions about which assets will decline less than others will become more important and replace the current search for asets that are likely to appreciate the most,” he writes.

He recommends farmland, entire islands, real-estate in New Zealand, Canada and Australia, foreign stocks, precious metals held in custody outside the U.S. diamonds, stamps art and defense stocks.

He says the wealthy should support policies that would reduce inequality. Yet he says that?s unlikely, since “people of privilege tend to prefer to risk their own destruction than surrender any of their advantages.”

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