Thursday, February 7, 2008

Marc Faber Predicts the End of the Financial World - Again

CAPE TOWN Ever the contrarian, Dr. Marc Faber had a plethora of opinions on the state of the global financial system in his keynote address "Will the First Synchronised Global Economic Boom in the History of Capitalism Lead to a Synchronised Bust?" at the Mining Indaba 2008.

Faber, editor and publisher of "The Gloom, Boom and Doom Report", an economic and financial publication that promotes against the grain investments and cautions against widely accepted investment themes, said in his speech that he's not a believer in economic decoupling: A recession in one country is likely to lead to a recession globally. If a country begins to slow in economic growth, you can bet that other countries will slow as a result, he said.

"If people are looking for a decoupling financially, they're dreaming," Faber told Resource Investor.

"Decoupling, in my opinion, is not in the cards," he said during his speech. "If one country goes into a recession, it will affect other countries around the world."
Here are some of Faber's thoughts on the global economy:

Why This Bubble Is Different
"This time around, it isn't just one sector affected," he said. Now the whole world is in a bubble, rather than one region or industry; thus, its implications are much larger. "When bubbles broke in the past…it signalled major changes in that region or industrial sector," he said, but now the entire global economy could change.

The U.S. Federal Reserve
"U.S. economic policies are misguided," Faber said. The U.S. Federal Reserve wrongly tries to boost consumption by targeting consumption, he said. Instead, it should attempt to boost consumption by targeting capital formation.

In addition, inflation is measured incorrectly in the United States, according to Faber. "If inflation was measured correctly in the U.S., we'd already be in a period of stagflation."
He drew laughs from the crowd by suggesting that Fed Chief Ben Bernanke should spend some time with Zimbabwean President Robert Mugabe to learn that printing money does not work as a monetary policy.

"(Benanke) should have right when he started increased interest rates faster and not cut rates by so much recently," Faber said. "The market isn't clearing properly.

China and Other Developing Economies
"The last 250 years were very favourable for developed countries," Faber pointed out, but that is changing. Emerging economies are no longer the "poor cousins" of developed economies, Faber said, noting that factors like oil consumption in these countries is on the rise.

"The markets in physical terms have expanded very rapidly," he said. China, in particular, even has room to slow growth without hurting oil demand.

"Even if the Chinese economy slows down, an absolute decline in demand is not likely," Faber said. "By and large, demand for oil will remain the same."

The U.S. Dollar and the Euro
"In the long run, to own dollars is not very desirable," Faber said. But he added that the dollar could surprise in the short term, and that is why he would pick it for a quick investment over the euro.

He said his view is that the U.S. dollar will lose value against hard assets that can't be increased in supply easily. But don't think he just has negative comments for the dollar and the euro. Remember, this is contrarian analyst Marc Faber:

"All paper money is doomed to fail! It is doomed in the long run," he ended