Throwing Cold Water on Today's Rally: Mark Faber

This is a long clip but worth watching. Faber says governments "have no other option in the long term but to print more money and that will lead to inflation."



He makes the point that governments are trying to "ensure lending" when the reality ought to be the opposite. He says what they ought to be doing is encouraging saving and lower consumption, "but that is painful".

He says in a recession that "ordinary" American's will not get hit that bad but the owners of the assets will.

I tell you, the the more I look at it, the more I am thinking we are in for a period of "restrictive economic times". Now, the argument should be made that this is good because we have been "too loose for too long". While that may be true, like Faber says, getting back to normal will be painful and unpleasant, especially for those too exposed.

It also argues against simple index funds, since the major markets may go nowhere for a while; but there ought to be plenty of individual winners in the mix.

Comments

[MarvinMBA:]

Great comments that I fully agree with. I'm not smart enough to know what
sectors of the market are due for a bounce. I'm still sticking with my CD's for the indefinite future. We might bounce around before hitting new lows.
I think the real culprit like Faber says will be inflation later on...looking for 10% cds coming soon.......MarvinMBA

2008 Oct 20 04:47 PM

[MarvinMBA:]

Capital formation based on market performance is going to be a think of the past for quite a long time going forward....We just have to look at M1 and jobs to know where the bucks are going to come from to power the market up and if you spot any of this happening let me know...meanwhile the upward bounce is a dead cat bounce and I'm scared to death when the cat fall we will see new lows...MarvinMBA

2008 Oct 20 04:51 PM

[JasonC:]

Printing more money only leads to inflation if the demand for money is a constant and nobody else is destroying money equivalents. Neither is true. Safety demand for money is soaring, and near moneys are running off. Corporate paper has contracted $300 billion in 2 months, for example. There isn't going to be consumer inflation, there is going to be asset deflation. Why do you think none of the commodity bubble prices stuck? Faber is just trying to revive the dead as doornails commodity trade, but it is way too late for that.

2008 Oct 20 05:46 PM

[scholar:]

we have gone nowhere fast these fixes have not created one job he sright buy gold and get ready its going to hit the fan we cant keep printing money

2008 Oct 20 09:14 PM

[X-15:]

What about Natural Gas for inflation hedge?

2008 Oct 20 09:55 PM

[Mac77:]

In reply to JasonC

"Faber is just trying to revive the dead as doornails commodity trade, but it is way too late for that" Huh?

Use some charting software and graph Dow Jones-AIG Commodity Index (^DJC) vrs S&P500 Index starting in the year 2000 to present. Looks like Jim Rogers thesis...secular Bull market in commodities coinciding with secular Bear market in equities.

Historically flat equity markets have persisted for many years...it just hasn't happened during the lifetime of most people alive TODAY.

2008 Oct 20 11:18 PM

[Moon Kil Woong:]

There are no fiscal conservatives anymore. Everyone will leech off the government until the US becomes poorer than Russia and then we will probably invade Canada or someone for their resources for lack of any other way to solve the crisis. Which is why the rest of the world wants the US to get on page and stop their silly debt ridden, asset hiding, over-leveraged ways.

2008 Oct 21 03:01 AM

[ashizashiz:]

2 Things
Oct. 15 (Bloomberg) -- Treasury Secretary Henry Paulson persuaded nine major U.S. banks to accept $125 billion in government investment. Getting them to lend it out may prove a tougher sell. ``The truth of the matter is, they can't put a gun to their head and say you have to lend this money,'' said Charles Horn, a former official at the Office of the Comptroller of the Currency, part of the Treasury Department, and now a partner at the Mayer Brown law firm in Washington.

Actually Charlie, he CAN put a gun to their heads and make them do whatever he wants them to do. That's the whole point here. Spanky Paulson and his band of merry scumbags are the new Fascists: if they cannot get their way through lying (Which of course they did to Congress, but really they didn't have to because our Congress is replete with know-nothing, self-concerned, shit stains who care about as much for the common man as I care for the dead fly that is decomposing under my empty refrigerator...), they will get their way through coercion and force. It's that simple.

ALEXANDRIA (Louisiana), USA - US PRESIDENT George W. Bush said on Monday that he thought the US public's 'near panic' over the global financial crisis was easing as government-led economic rescue efforts paid off. After a round table with local business leaders, Mr Bush said 'I have heard that people's attitudes are beginning to change, from a period of intense concerns - and I would call it near panic - to being more relaxed.' People are 'beginning to see the effects of changes and the liquidity that is being pumped in the system,' said Mr Bush, referring to the US$700 billion (S$1 trillion) bailout plan.

I'm not sure who's worse, Bush or all of the people who believe him. Wow, it's really like living in a science fiction world, in which all of the citizens have their brains sucked out by some Fascist pig alien monster, and then they all stare blankly into the abyss with brain-numbing, empty smiles on their lifeless faces. First off, Bush is a liar and he's been lying to us for 8 years. That is pretty hard to refute. Secondly, the overwhelming majority of Americans have absolutely no concept either (a) monetary theory or (b) ever having had ONE original thought in their entire lives. The pretty little talking bobble heads on CNN and CNBC tell us what to think, what to feel...and that's what we do. The majority of Americans have never read any book, let alone a book about (God Forbid) economics. We watch TV and eat fast food in a gluttonous orgy of utter mindlessness. And George Bush's lies are spread by the empty-headed simps who sit in front of the FOX NEWS cameras and spew ANYTHING that they are told to spew. It boggles the mind. Bush says things are getting better, because he NEEDS things to SEEM like they're getting better. And we believe him because, well, because we are dumb. I mean, what else is there to say? Sorry for being so cold, but reality cannot be changed. And the reality here is that Bush is a liar, Paulson is a liar, and the entire system of FRACTIONAL RESERVE BANKING is going right down the shitter.

The global economy is in deep DEEP trouble, and hurling trillions of dollars of OUR $$$ at the situation, in order to increase lending and thus increase our level of DEBT, when it's lending and DEBT that got us into this mess in the 1st place, is madness.

So...I sit here in utter disbelief at how obtuse we are. Sure, in the near term things will appear brighter. The DOW will rise, because "panic and worry" will have been replaced by "optimism". I hate to tell you this: The situation that we find ourselves in has NOTHING TO DO WITH EMOTIONS LIKE PANIC OR CONFIDENCE, it has to do with DEBT. DEBT!!!!! And the more we allow criminals like Paulson and Bush to convince us to throw money at the crisis, the more disastrous will be the eventual outcome.

Einstein said it best:Insanity: doing the same thing over and over again and expecting different results.

2008 Oct 21 10:04 AM

[Selphone:]

Amen.

2008 Oct 21 01:41 PM

[alajac:]

That big rally was on p-poor volume. This baby is going DOWN BIG.

To those who search in vain for 'job growth',
GET WITH THE 21ST CENTURY:
ROBOTS AND COMPUTERS
DO ALL OF THE ACTUAL PRODUCTIVE LABOR.
All that is left is arts, crafts, service,
and sh*t work that isn't profitable to automate
as long as there are $8/hr wage slaves
lined up for miles for every $8/hr job opening.

You can't get bank transparency when the government is guaranteeing the losses. FDIC and every other kind of government guarantee has to go.

Make the banks earn the bailout by giving them the money via equal-dollar distribution to every legal US resident ($700B divided by 350M=$2000 ea.) Then no other stimulus is needed. They'll have to get transparent and extend credit to earn the deposits.

When all governments issue new currency in this manner, there will no longer be an illegal immigration problem.

Write-in Alan Jacquemotte for US President

to show support for this plan,

and your disdain for the other candidates, who, unlike Alan,

didn't see this coming and don't know what to do about it.

2008 Oct 21 03:28 PM

[bigmoney:]

>> He says in a recession that "ordinary" American's will not get hit that bad but the owners of the assets will

I am not sure about this. I guess it depends on what exactly is affected by a giant wave of inflation. Already, housing, food, fuel, medical care, college have seen very high inflation, much more than CPI. Housing inflation has caused a hardship in the sense it takes dual incomes to purchase houses these days. What results is people moving to the cities asteroid belts, looking for cheap housing, commuting one or more hours each way. Other people live in noisy apartments closer in the city. Neither option is very attractive to me.

2008 Oct 21 04:10 PM

[kurt walter:]

The federal government leaders think Americans are too soft to accept a recession. So they print money like crazy and flood the system with dollars that will prolong the agony over a longer time than just letting the business cycle happen. Trying to keep real estate prices high with fiscal bailouts is madness. The prices will come down. We are heading in the direction of Japan 1989 to 2008, the Japanese market goes from 39,000 to 8,000 over 20 years. The government wants nobody to feel any pain. Here is how you figure out the value of a house. What would the house rent for? A real rent figure not some pie in the sky number. Multiple that monthly rent figure by 12. That gives you the annual rental income. Now multiple that annual rental income by 12 (like a stock PE ratio). That gives you the maximum value for that property. Maximum. Not a great deal figure. Example: Rent for $1,500.00 per month. $1,500.00 times 12 = $18,000.00 x 12 = $216,000.00. That is the maximum value for that house. Anything more than that is overpriced.

2008 Oct 21 08:44 PM

[Moon Kil Woong:]

True all assets are theoretical in value unless they generate free cash flow of some sort or you can speculate as to some sort of pseudo theoretical appreciation or value of the asset (free cash flow... you must factor out taxes, depreciation, and maintenance from your formula). Unfortunately, people are too stupid to figure out the free cash flow of something and are too much of a sucker to realize that most people who tell you something is worth more than they are selling it for or will be worth more than what you bought it for plus inflation are usually as crooked as the brokerage companies. Any competent economist will tell you putting all your money into property is a terrible investment historically. And will tell you the only reason to buy one is to allow you to customize the place to your own desires, to save on rent, or to force you to save if you are too stupid to do it otherwise.

2008 Oct 22 12:56 AM

[xsuddensam:]

Faber is right on the money. We have borrowed ourselves into oblivion. The chickens have come home to roost and it warms my heart that that top 1% are feeling the pain. Wealth has not trickled down as the Republicans promised with their tax cuts for the rich and for the corporations.

It goes to disprove, "What's good for General Motors, is good for America ".

2008 Oct 23 06:19 AM