Wednesday, July 22, 2009

Marc Faber Says Global Economy Could Head for a Bigger Asset Bubble

From Money Morning Australia:

...After listening to Dr. Faber’s 45-minute presentation we’re pleased to report we’re more convinced than ever that public policy decisions taken by hapless pen-pushers and paper-shufflers the world over are setting the global economy up for a bigger and badder asset bubble.

Of course, that doesn’t mean you shouldn’t try to make money from it. It just means you’ve got to know where to invest.

So, without any further delay, let me take you through what Dr. Marc Faber had to say for himself.

But before you read on, let me warn you. Dr. Faber hasn’t exactly been guzzling down the ‘happy juice.’ His presentation contained predictions of dire future consequences of the terrible economic decisions being taken today.

A quick scan of our notes reveals his forecast for a collapse in US commercial real estate, higher inflation, a further devaluation of the US dollar and a ‘dirty war’ waged by the Chinese.

And I bet you thought your editor was a doom merchant.

There was much to note, and we did our best to take everything down. Here’s what we thought were the most important parts of Dr. Faber’s presentation.

“By keeping interest rates low, the Fed [US Federal Reserve] is forcing people to speculate on something. They did that from 2001, and they’re doing it again.”

It’s a common theme we expect to hear during the rest of the week. And he’s right. If you’re getting next to no real return on a conservative cash investment you are forced to take more risks. Either that or you have to eat into your capital.

Whichever you choose, the government is forcing your hand. Australia is no different to the US, even though interest rates are higher in Australia than in the US. That’s because once you factor in rising prices, your cost of living is going up while your cash reserves are going down.

We note today’s News Ltd story “Experts tip modest price rises: It may not seem like it but official statistics are expected to show that prices are rising modestly.”

Clearly the journalist is living in a parallel universe, or hasn’t been shopping recently. Prices have been going up, they are going up, and they will go up. The statistical boffins that get excited over the “underlying rate, the average of weighted median and the trimmed mean indexes” which excludes volatile items, wouldn’t know a price rise if it smacked them on the head.

In fact part of the reason you get asset bubbles is due to investors trying to take advantage of, or being forced to participate in market anomalies.

Think of how many times you hear the ’speculators’ being demonized by politicians. In many cases you’ll find the speculators have only acted because of wrong-headed short-term policy decisions by politicians – look at the Aussie housing bubble as an example.

Dr. Faber had more to say…

“Mr. Greenspan and Mr. Bernanke have achieved something which no-one had ever before achieve;, they created a bubble in everything.” The one exception, he noted, was the US dollar. The value of which, Greenspan and Bernanke have helped to destroy....MORE