Tuesday, September 22, 2009

Marc Faber: Massive Gvt Stimulus + Super Easy Fed = Trouble Ahead

"Run for your lives! The future will be a total disaster, with a collapse of our capitalistic system as we know it today - wars, massive government debt defaults and the impoverishment of large segments of western society."

Interview gets good after 3 minute point:

Interviewer: "You are talking about Economic Armageddon here."

Farber: "Yes, Yes, Absolutely - that I am convinced. A high confidence prediction that total collapse will come."

Farber: Bullish now but ultra-bearish for the long term. (note: this is a comment that I disagree with - see charts at bottom of post for rationale)

Charts below extracted from Ty Andros's superb article - Fingers of Instability Part VI - Train Wreck Dead Ahead

Bottom line - near-term: I think we're overdue for another severe stockmarket downturn. Now I don't believe this near term market correction will lead to the complete Economic Armageddon Faber is talking about, but I do agree with him it will happen over the longer term... Main issue over the longer term being: The dollar is toast!


Justin_n_IL said...

Randy said:Main issue over the longer term being: The dollar is toast!

EXACTLY.... Anyone who argues otherwise is either in on the manipulation or downright delusional. A guy still needs some of that soon to be toilet paper around. But if he has much of it he best be safe handling it buy turning it into gold.

Justin_n_IL said...

P.S. Surely that waterfall is getting nearer. I think I can hear the crashing of the water.

Willy2 said...

Yes, the USD is going to be toast but NOT right now. A lot of folks expect a USD rally ! As carry trades unwind investors need USD and could/will push the USD higher. But AFTER the unwinding of all the carry trades the could indeed become toast. So, don't think the USD is going to be toast.

Robert Prechter, Mish, James Dines, Bob Hoye all expect a rally of the USDX/USD.

Ty Andros is ranting about (hyper-)inflation. Nonsense ! In the next months DEFLATION WILL accelerate and then holding USD/cash is actually a surprisingly good idea. Because the USD will go up in value against stocks, real estate and commodities ! Cash will go up in value against other assets.

Anonymous said...

Agreed, we all seem to acknowledge the USD is toast. The question is when and if it is prudent or otherwise worthwhile to risk participating in a game of musical chairs in order to eck out higher returns in the near term.

How will Gold react if the stock market tanks in October?

Can/will the USD go higher (short term) in a falling stock market given the current distaste for it worldwide?

In fact (just for curiosity sake) is there anybody, anywhere who actually believes and wants the USD (well... excluding Zimbabwe).

Randy said...


Agree the dollar is currently in an oversold condition and we are likely to see a bit of a corrective rally in the short-term. I don't however believe it will be as significant of a a "deleveraging run to safety" rally as what we saw the last time around.

As for Carry-trades: Yen please step aside as the dollar takes your place as the new carry trade currency...

I also see deflation - but in a different sense than those you list - Deflation will be experienced simultaneous with a currency crisis - Thus, asset values (homes, cars, flatscreens, computers, etc) will deflate simultaneous with significant increases in the cost of daily life essentials (food, clothing, energy, etc)

Always appreciate your perspective

Willy2 said...

Holding cash is not a good idea because a lot banks are broke. So, the second best way to hold cash is to hold ..... Treasuries ! Treasuries will actually rise in value as investors flee stocks and corporate bonds. But somewhere in the future one has to switch to gold or silver (or commodities) when the USD becomes toast. Gold and commodities simply can't be printed like governments print money.

Willy2 said...

How will react depends on how leveraged speculators are. If they have borrowde money to go long in gold and other assets then gold could go down (somewhat) along with other assets (stocks, bonds). Keywords: carry trade and deleveraging. I think (price-)action in gold from january 2008 onwards could provide a good guide what gold could do. Last year, gold actually went up against stocks, bonds and real estate.

T Z said...

Here is the big picture and you can take it to the banks. Canadian banks that it. The only banking system in G20 that did not take a hit and now flies like the rock solid Boeing 747.

1) This will be a 10-year severe recession. Japan's big recession after their blowout, the Lost Decade, is actually 15 years. And Japan then was in a much better financial and industrial position than the US now - without the wars.

2) Despite all the talks of reforms, there is still a large segment of US population, the elites and the dogmatic right, who will fight tooth and nail against any structural reforms. This will escalate to full scale civil upheaval in the coming years. It will tear the country apart.

3) Three more major train wrecks will come - commercial real estates, Alt-T and prime mortgages, and dozens of states marred in intractable insolvency. Either the feds bail them out or not. Either way, we know what it means.

4) Yes the dollar is toast. Let's be specific - it's toast as the only dominant global currency we see in the past decades. There are now 2 irreversible factors at play. Internally, US economics and finance can no longer sustain the global dollar strength. Externally, much of the world (G50?) has had enough of US financial irresponsibility after severely damaged by it. They are determined to be much less dependent on the US dollar. When political wind of such power blows, the dollar is finished in the dominant role it has played. The only reason the dollar has not yet collapsed is because foreign holders will be hurt as much without a credible replacement currency. They are working hard to create a new currency. Once that's in place, within a decade, the US economy will suffer its third and final hit. Because it can no longer print new money to pay the astronomical debt it has rung up.

The prognosis:
The US must fix it's most urgent domestic problems within a decade or its truly over.

Anonymous said...

I'm sure you have already heard about this but the Mass state Gov is boycotting a private cmpany because they don't like their business practices. Strong arm of government stuff...

Anonymous said...

Canadian bank "Sound and solid" ? I don't believe a word of it. 80% of canadian exports goes south into the US. So, when the US breaks down then the Canada WILL feel a lot of pain, as well. Rising canadian unemployment WILL translate into higher mortgage defaults and then canadian banks will a lot of pain as well.

Give it time !

Mike said...

I think there's a decent chance yesterday was the top in the equity markets for the year, but I am still leery of playing the market from the short side for longer term positions because of all the govt intervention and rules changes. Instead, for investors I think a safer plan is cash, gold, and gold mining stocks. It is pretty clear once again from the Fed's statement yesterday that it is going to do whatever is necessary to try to stave off deflation, and this means a lot more money printing. I just read some good articles at http://www.goldalert.com about the Fed's policies and potential effects on the dollar and the gold price. There are many unintended consequences from the often reckless and unprecedented actions of the Fed that our country is going to have to deal with eventually, in my opinion.

BxCapricorn said...

Randy, As always a great job with your blog. You find things, like graphics and videos, that truly inspire thought and reflection. I hope that I have helped return the favor and provided an interesting window into investment dynamics.

T Z said...


"Canadian bank "Sound and solid" ? I don't believe a word of it."

You are entitled to opinions. But not to your own facts.

Go to various financial webs and check the facts. We are now 1 year after Lehman Bros bust, 2 years after subprime. More than 200 US banks have imploded. Guess what - Cdn banks not only did not take a hit of any significance, they have actually strengthened. All continue to be profitable, issue full dividends, stock prices have risen. Not a cent of government money was used. The top 4 Cdn banks are now on the top 10 list of North America banks when none were in the top 20 before 2000. Canada has no subprime mortgages and house prices across the country, while flat last year, have already resumed full activities. In fact house prices have not dropped at all! (But they have no bubble either.) Exports to the US took a hit for sure, but that was made up by diverting exports overseas and $20B of stimulus projects. Hell, even the auto sector is now in full recovery.

These are facts you can check my friend.

Hot Cover Girls Central said...

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Anonymous said...

@ T Z:

Canadian banks are backstopped by the government. If mortgages go belly up then the canadian taxpayer has to foot the bill. Estimated amount of canadian mortgages backstopped: CAD 600 bln. To be paid by the canadian taxpayer. Somehow and somewhere in the future.

O.K., CAD 20 bln. stimulus program but that money has to be paid for by the taxpayer somewhere and somehow as well.

How much is mortgage debt in relation to GDP in Canada ?

And read this article: http://thecomingdepression.blogspot.com/2009/09/canadas-economy-to-follow-us-downfall.html

Just give it time and then the ugly truth will reveal it self.

Anonymous said...

@T Z:

Read this: http://marketdepth.typepad.com/marketdepth/2009/06/sell-the-banks.html

Topic: Canadian housing bubble.

Jim Twamley said...

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Jim Twamley, Professor of RVing