Dr Marc Faber:
- In 1987 he warned his clients to cash out before Black Monday hit Wall Street.
- In 1990 he predicted the bursting of the Japanese bubble.
- In 1993 he predicted the downfall of US gaming stocks and foresaw the Asia Pacific Crisis of 1997-98.
- In 1999 he was calling NASDAQ top and advising going long in commodities and gold.
- Since 2000 he predicted the rise of oil, precious metals, other commodities, emerging markets, and especially China.
- He also correctly predicted the slide of US dollar (since 2002) and the 5/06 and 2/07 mini-corrections.
Born in Switzerland and educated in Geneva and Zurich, Dr Faber received his PhD in Economics from the University of Zurich at age 24. His motto is “Follow the course opposite to custom and you will almost always be right.”
Following the recent rate cuts, stock markets rallied and traders cheered, but Dr Faber doubt it will work. "I think it's suicidal to cut interest rates when the gold price is at $[US]715 or $[US]720, when food prices are going through the roof, when oil prices are at an all-time high," he said.
Even if you leave aside the inflation threat from soaring commodity prices, he thinks the Fed has got it wrong. "I think, actually, what the Fed should do is increase interest rates, because if you analyse the cause of the problems we have today, they are due to artificially low interest rates, expansionary monetary policies and extremely rapid credit growth that was fuelled by a totally irresponsible Fed," he said.
"I don't think that it is the responsibility of a central bank to look after the economy. The responsibility of a central bank is to look after the integrity of money, the maintenance of the purchasing power of money."
Dr Faber sees parallels with the lead-up to the Great Depression. "The Fed made a big mistake during the 1920s, that they let credit growth accelerate and that has lead to a lot of excesses in the credit market," he said.
"You have to see, it's not only credit growth that's important but the quality of credit, and this deteriorated in the 1920s and has also deteriorated here in the US in the last five to six years because of artificially low interest rates."
Dr Faber also linked his concerns to the high level of household debt in the US to his concern that the American economy was headed for recession. The Swiss finance guru said the whole US economy - where household debt is now almost 100 per cent of GDP - was "geared toward consumption".
"And that is the wrong approach in the first place. It means in my opinion the economy will go into recession if they cannot make asset prices go up."
My "US Recession?" posts were written and published before these TV interviews with Dr Faber and Jim Rogers (see I am not a Pessimist! Part II). My forecast is for financial markets to come to the realisation in 3 to 6 months. The latest US jobs report, which included a big upside revision for the number in August, was indeed a good reason for traders to cheer, but I wonder for how long, if it could delay my forecast. I am sorry that even after the Dow is making new high, I still can't quite paint a rosy macro view for the US.
Robert P Murphy:
"On September 18 the Fed cut its target for the fed funds rate by 50 basis points (0.5 percentage points), from 5.25% to 4.75%. The move surprised many analysts who had been expecting a more modest cut of 25 basis points.
For those versed in the Austrian theory of the business cycle, as developed by Ludwig von Mises and elaborated by Friedrich Hayek, the aggressive Fed "stimulus" is ominous indeed. Not only will it pave the way for much higher price inflation than Americans have seen in decades, but it will also exacerbate what could be the worst recession in twenty-five years."
David Galland:
"To be something less than politic, I find myself wondering how those who think that destroying the dollar is a free pass to a bright tomorrow, and back up that view with their investment dollars, could be so stupid?
My sincere belief - formed by my interactions with the breed while a partner in a mutual fund group some years back - is that the disconnect with what seems to be so obvious to us, but not to the “Street,” has to do with the herd mentality of mainstream financial analysts. And, by extension, the people who actually tune into mass media for their investment advice (which, to my way of thinking, is like going to McDonald’s in the expectation of enjoying fine dining). It is this herd mentality that makes them slow on the uptake."
Gary North:
"So, the smart guys and the smart money continue to believe the old phrase, "I'm from the Federal Reserve, and I'm here to help you." They continue to believe that legalized counterfeiting is still productive. They still believe that timely intervention by the FOMC will keep recession at bay.
Their faith is based on a premise: bad money produces rational prices. This leads to a conclusion: scarce capital that was allocated in terms of prices that were based on fiat-money will retain its present value when the new, more stable monetary conditions replace the older inflationary policy. So, there will be no need to re-price and reallocate capital when the original fiat money conditions no longer exist.
I say, take advantage of the smart guys' ignorance while you still can."
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