Marc Faber – we’re in the eye of the storm

By Filipe R. Costa

Marc Faber is an internationally recognised investor and fund manager. His Doom, Gloom and Boom Report, has fast achieved legendary status among investors, large and small. He has been an extremely vocal critic of the Fed’s monetary policy and is bearish on the long term prospects of the US Dollar. Faber believes we are currently living through the eye of the storm rather than the end of it. He expects the final damage will be fatal for the Fed, the US Government and, of course, the US dollar.

Above all, Marc Faber is against money printing to solve the debt crisis and shore up federal spending. He believes it is an unfair policy that affects people unequally. It is a selective action aimed at improving the welfare of just 3% to 5% of the population, which impairs the living standards of everyone else.  The people at the Fed don’t appear to understand this, as they never worked in real jobs. They have no further policy tools available, as  interest rates are already near zero.

The Fed’s aim is to inflate stock prices to make the economic outlook look better, but Faber believes they’re also inflating oil, commodities, housing and other prices. These have much more of an impact on ordinary American than rising stocks do.  The percentage of Americans holding stocks is less than 15%, while almost 100% are affected by a rise in gasoline prices. In fact, Americans have seen their real income decrease during the last six years. In 2007, real household income (at 2011 prices) was $55,627. Today it is $51,017, a level last seen in 1995.

The Fed is desperately trying to keep interest rates at record lows. That was possible until a certain point, but seems increasingly difficult. The yield on a 10-year Treasury rose from a low of 1.43% in June 2012 to almost 3%, just a few days ago. The non-taper decision helped ease yields a little, but at the current 2.63% level they’re still almost double last year’s values. Faber expects this decline to continue for a short period of time, probably towards 2.2% – 2.5% as an effect of continued money printing, but he believes interest rates are now out of control and will accelerate towards much higher levels.

When questioned about money printing and the non-taper decision, Faber says he wasn’t surprised with the Fed’s choice. He goes even further to say he expects QE to be unlimited, held forever, as they don’t have any other option at hand (at least one they understand). Federal debt is growing at a higher rate than the economy and that has been happening for a long time now. From a 55% debt-to-GDP level in 2001, when Clinton left office, the country now has a debt-to-GDP ratio of 102%, which is unsustainable.

The Fed will have to continue buying government assets to keep interest rates low. Nevertheless, Faber believes there will be a time when the Federal government will have to issue new debt just to pay for interest on existing debt and that will be the end of the dollar system. Sooner or later, the government will default on its obligations, monetary policy will fail and no one will be willing to take new freshly minted, worthless dollars.

When asked about gold, Faber says: “I always buy gold and I own gold. I don’t even value it. I regard it as an insurance policy. I think responsible citizens should own gold, period.”

For a long time here at Spreadbet Magazine, we have been warning our readers of all these problems. The current monetary policy stance is taking us towards a period of hyperinflation, which will likely see the dollar lose its preeminent status. An unimaginable amount of value will be inflated away (destroyed). Owning hard assets is the best way of protecting against this. Remember, a rich man is not one that owns dollars, but one that owns assets. The dollar is just a means of exchange, a means of acquiring wealth.

MARC FABER IS PROFILED IN THE LATEST EDITION OF OUR MAGAZINE, CLICK HERE TO READ – http://issuu.com/spreadbetmagazine/docs/spreadbet_magazine_v21_generic