Marc Faber: Get Gold, Get Ready for QE99
Thursday, 10/16/2014 20:00
Tapering QE to zero, if it happens this month, will be temporary reckons Marc Faber...
SWISS-BORN and -educated Marc Faber's distinct voice is a common sound on CNBC and Bloomberg TV when it comes to big-picture forecasting in investments,
says Sumit Roy at Hard Assets Investor.
Publisher of the
Gloom, Boom & Doom Report, Faber's views on the markets are highly regarded. Here I spoke to him about the recent moves in stocks, the Dollar and gold.
HardAssetsInvestor: What's your view on the stock market? Is the recent volatility a sign of a top or will stocks hit new records by the end of the year?
Marc Faber: The likelihood that we have something more serious now is quite high. There has been considerable technical damage in the market, with approximately half of Nasdaq and Russell 2000 shares already down 20% or more from their highs. Combine that with the fact that Treasury bond yields have again declined meaningfully, and it suggests the economy is not on a very sound footing.
We are in a period of elevated prices. From real estate to equities to bonds, there is a lot of excess. Going forward, the return on these assets will be very disappointing.
HAI: The strength in the bond market has surprised a lot of people. We're seeing record-low interest rates for German and other European bonds. And even in the US, the 10-year yield is now hitting a new low for the year. Why are investors buying these bonds?
Marc Faber: The bond market is manipulated by central bank buying of government debt. Yields are lower than they would otherwise be if the Fed and other central banks didn't buy them. Secondly, the decline in yields may be a sign that bonds buyers don't believe in the global recovery story when it comes to the economy. In fact, the low yields on bonds would suggest that we may be entering a period of deflation.
HAI: The US Dollar has been rising and hit a four-year high earlier this month. Is the Dollar going to continue to rally from here?
Marc Faber: The trade and current account deficit of the US has been coming down because the balance in the energy trade has improved a lot. The US is almost oil self-sufficient. It's become the largest crude oil producer in the world.
And even though the US economy is not doing particularly well, it's in a slightly better position than the European economy. Thus, there are some reasons the Dollar should be stronger.
That said, based on sentiment figures, everybody is now bullish on the US Dollar. Usually when you have this kind of consensus, what can happen is a powerful contra-move. In other words, the Dollar could weaken for a while. That would be good for stocks and precious metals.
Additionally, if the Fed finds that the Dollar is too strong, it can print money. But you just don't know what these academics will eventually decide to do. That's why I recommend investors have a diversified portfolio, because nobody knows what the world will look like five years from now.
HAI: The Fed has said it's going to end QE this month and raise interest rates sometime in 2015. Do you believe that will happen?
Marc Faber: It won't raise interest rates for a long time. Certainly not in real terms. It's possible that it'll end QE4 and that the asset purchases come to an end. But only temporarily. When it introduced QE1, my view was that it would go to QE99. And I still maintain that view.
HAI: You're saying that it'll have to come back and do QE again sometime in the future?
Marc Faber: Yes. One of the reasons we have weak growth in the Western world, and in the US, and in Japan, is because of government interventions with fiscal policies. Spending – supported by money printing – has led to an ever-expanding government as a percent of the economy. And the bigger the government is, the slower economic growth will be. The extreme is when the government controls everything in the economy, such as under the socialist/communist planning system.
HAI: One way investors can hedge against all these risks is gold. We saw prices reach a low of $1183 last week, but it's bounced back since then. What do you make of gold right now?
Marc Faber: I've advocated owning gold since the late 1990s. It is a safe investment in times of monetary uncertainty and monetary inflation. I would keep roughly 25% of my assets in gold.
HAI: Do you consider it an investment that's going to stay stable? Or something that can increase in value from current levels?
Marc Faber: We had a huge bull market in gold that outperformed just about any other investment between 1999 and September 2011. We're now three years into a correction phase. Can gold drop below $1000 first before it goes up meaningfully? It's possible. Because as you know, there has been some manipulation in the gold market. However, gold will go higher over time.
HAI: Do you have any thoughts on oil's big decline? Prices are down $20-25 per barrel since June.
Marc Faber: The markets have become quite volatile, largely because of money printing. This concerns not just oil, but all commodities. The price of corn, wheat, soybeans are all down around 50% from the highs. They can be down for a while, but in my view, they will not stay down.
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