Noteworthy Pundit: Marc Faber's 2009 Predictions

Despite the stumbling introduction by Joe Kernen and some bizarre in-studio camera work on what appears to be a very old picture of Dr. Doom, this is a pretty good interview.

Summary: Buy gold, buy commodities, and buy natural resource stocks while getting ready to short U.S. debt "massively".

Comments

[SW Richmond:]

CNBC started doing that "moving camera" thing to hold the attention of the male ADHD video-game generation 30-somethings that are its target audience, or maybe the only audience they have left. I can't even look at it, I have to turn my head away.

Kernan totally blew the introduction, but Faber was Faber anyway.

Tim: does this trade get better or worse as it gets more crowded? It seems so obvious now to go long commodities and gold, and short Treasuries. Future currency debasement is so readily apparent...what are we missing?

2008 Dec 30 08:56 AM

[scotty1560:]

Marc Faber is a smart fellow, it's hard to question his well founded judgments.
He does suggest staying diversified, and for me the ten million dollar
question is...which direction is the dollar headed?..both camps make good arguments..Schiff and Faber vs say guys like Jack Crooks..if all assets are
to decline, why would metals not be included in that argument? If oil is to stay in the $35-$55 range, then gold stays in the $700-$1300 range? Yet the dollar
is a major wild card in the whole strategy, correct? Real estate and equities
will take the scenic route to recovery, imo, although again the dollar will
be a major factor, correct? So the dollar is "the" big wildcard, correct?

Opinions welcome.

2008 Dec 30 12:37 PM

[John Lounsbury:]

Good advice, but timing is everything. I am hurting on my TBT position (entered two months ago).

2008 Dec 30 01:33 PM

[derryl:]

SW,
I'm not so sure the currency debasement is in the future. Between the commercial banks' subprime trillions and investment banks' derivatives trillions the dollar was already debased to the tune of these 10s or hundreds of trillions of created money over the past decade or so. With these trillions unwinding and evaporating the Fed's creation of new trillions may do nothing more than stop the decline or partially restore the general money supply and price levels that were in effect before the deleveraging began.

Faber made a good point about Japan that I think applies to the US. Japanese price deflation mostly affected real estate and stocks, the 2 asset classes that had enjoyed the bulk of the previous inflation of money creation. Deleveraging deflates the same assets that it inflated. If you take out oil and transportation US CPI has hardly moved while real estate (only in the regions like California and Florida that were most inflated) and stock prices have plummeted. And the price of Wall St derivative assets is unwinding completely along with the fantasy money that was used to purchase them in the first place.

So I think the currency debasement has already happened and most of that money went into these 3 specific asset classes which are now deflating. Treasury prevented the mortgage industry from collapsing by taking Fannie and Freddie public. Bernanke's $350 billion went to preventing insolvency of Wall St commercial banks who created money for derivatives purchases, assets that are now either worth less or worthless. Everybody had to dump their still valuable assets--stocks--to try to cover their losses in the inflated categories, which deflated stocks. In the panic "real" money dumped stocks too so there's still a lot of money waiting to see what to do next.

Bernanke will not replace the evaporating derivatives trillions so that market will simply deflate, maybe (hopefully) permanently. Tim has explained that rapid real estate inflation is unsustainable for reasons of fundamental affordability so the deflating regions will not reflate to 2006 levels. More Treasury or Fed billions will just move the bad debt from private to public hands and move the good money from public to private hands--the banks, to encourage new lending to stop the decline and prevent broader deflation.

I share Faber's bullishness on long oil and other essential commodities, but unless somebody has a big international money system surprise up their sleeve gold is only a fear investment and as soon as fear subsides gold will decline. If things stay bad and fear lasts for over a year there could be some good gains in gold, but I have a suspicion a recovery will begin in mid-2009 because I think Obama will bail out underwater mortgages. I think some deal will be made for the Fed or Treasury to buy the underwater portions in order to stabilize both the real estate markets and people's mood.

So the upshot: There's still lots of money to evaporate as derivatives continue their terminal decline, but I think that problem has been or is being isolated from the rest of the economy. The investment bank money and the derivatives assets it purchased will decline in tandem. A portion of that money was leaking into the economy by way of salaries and bonuses paid to staff and by people cashing out before the scheme began unwinding. That flow should stop, so a replacement flow of new Fed money shouldn't be any more debasing than what was already happening.

2008 Dec 30 01:45 PM

[scotty1560:]

So derryl, is it fair to expect low returns of all assets not related to
essential resources? And for some years? When one looks at the
amount of leverage used in both equities and real estate, at least
from my thinking, is this whole run was basically artificial, with the
consequences taking years to create demand for another cycle.
Without "skin" in the game, I will have little confidence in assets-
true growth is conservative and based on fundamentals, not based on
tax laws or 0% financing. Agree with you on gold, look at the long term
charts and it is all over the place. I like oil in 2-3 year time frame and
scarce commodities in general long term- people have to live.
What do others think?

2008 Dec 30 01:59 PM

[nmelendez:]

Sorry but i am long gold. Too many people will hold gold at the present price. Gold will have a Bull run to 3200 but fall back to these levels. Remember, everyone will always maintain a 5 to 7% in gold/gold stocks. And since we are deleveraging, i really do not see gold go back to 600 on a permanent basis. from1969 to 1980 gold went up from average 35 to average 350 and stayed so for over 25 years. I believe we are on the next stage which places gold at average of 800 per once for the next 25 years.

2008 Dec 30 10:17 PM

[nmelendez:]

Truthfully, i really do not understand the concept of money. I know i pay my car and my house and my debts, but these are because i chose to. I go fishing, and bring back a 2 pd snapper or yellowtail. I'll broil or fry the fish with potatoes and yams a friend brought from the farm. Got some chickens and guinea hens, but not a farm. Truthfully, i could have bought what i needed for 1/10 th of what i paid and still have the same i have now as far as happiness. Got my savings, my medical plan, my 401k. But i am still happiest with my cane in my hand, with the ocean breeze on my face. I could lose everything right now, except my fishing cane and i'd be happy. BTW my rod and reel cost me $125.00 years ago.
The gold thing, i really don't know why i bought, i just know where it's going.

Disclosure: In 1986 saw Bill Gates on TV (remember PBR?) and i thought this guys gonna make millions. Bought 3000 worth of MSFT in 1986 and sold in 1987 for 14000. I sold due my brokers advice. My brokers house? Drexel, Burnham, Lambert. Remember them?

2008 Dec 30 10:32 PM

[nmelendez:]

You're missing a strategy and perseverance. Get both Dollars and gold and watch them seesaw upwards. Gold hedges the dollar and the dollar hedges gold. Betting on one is just like gambling at the roulette table.


On Dec 30 08:56 AM SW Richmond wrote:

> CNBC started doing that "moving camera" thing to hold the attention
> of the male ADHD video-game generation 30-somethings that are its
> target audience, or maybe the only audience they have left. I can't
> even look at it, I have to turn my head away.
>
> Kernan totally blew the introduction, but Faber was Faber anyway.
>
>
> Tim: does this trade get better or worse as it gets more crowded?
> It seems so obvious now to go long commodities and gold, and short
> Treasuries. Future currency debasement is so readily apparent...what
> are we missing?

2008 Dec 30 10:39 PM

[mrbill:]

They are mocking him. CNBC are jackasses. Including this anchorman.

On Dec 30 08:56 AM SW Richmond wrote:

> CNBC started doing that "moving camera" thing to hold the attention
> of the male ADHD video-game generation 30-somethings that are its
> target audience, or maybe the only audience they have left. I can't
> even look at it, I have to turn my head away.
>
> Kernan totally blew the introduction, but Faber was Faber anyway.
>

Jan 02 05:39 AM

[mrbill:]

You haven't seen the full interviews. He often says, "recover to between 1100-1200", but "drift back down", as the "economy deteriorates further". Paraphrasing. And I don't believe he said it will end at that level. Only that it will make it there at some point or another.

On Dec 31 06:10 AM H Moura wrote:

> Faber thinks the S&P might end 2009 around 1100-1200
>
> marcfaberblog.blogspot.../
>
> But I think the real trade of 2009 as he says in the video interview
> is to short treasuries. It will be a fantastic trade for 2 to 3 years.

Jan 02 05:45 AM

[tin1:]

let me rebut your long post with just one sentence. They want to implode the U.S economy and dollar to usher in a North American Union, Canada, U.S and Mexico


On Dec 30 01:45 PM derryl wrote:

> SW,
> I'm not so sure the currency debasement is in the future. Between
> the commercial banks' subprime trillions and investment banks' derivatives
> trillions the dollar was already debased to the tune of these 10s
> or hundreds of trillions of created money over the past decade or
> so. With these trillions unwinding and evaporating the Fed's creation
> of new trillions may do nothing more than stop the decline or partially
> restore the general money supply and price levels that were in effect
> before the deleveraging began.
>
> Faber made a good point about Japan that I think applies to the US.
> Japanese price deflation mostly affected real estate and stocks,
> the 2 asset classes that had enjoyed the bulk of the previous inflation
> of money creation. Deleveraging deflates the same assets that it
> inflated. If you take out oil and transportation US CPI has hardly
> moved while real estate (only in the regions like California and
> Florida that were most inflated) and stock prices have plummeted.
> And the price of Wall St derivative assets is unwinding completely
> along with the fantasy money that was used to purchase them in the
> first place.
>
> So I think the currency debasement has already happened and most
> of that money went into these 3 specific asset classes which are
> now deflating. Treasury prevented the mortgage industry from collapsing
> by taking Fannie and Freddie public. Bernanke's $350 billion went
> to preventing insolvency of Wall St commercial banks who created
> money for derivatives purchases, assets that are now either worth
> less or worthless. Everybody had to dump their still valuable assets--stocks--to
> try to cover their losses in the inflated categories, which deflated
> stocks. In the panic "real" money dumped stocks too so there's still
> a lot of money waiting to see what to do next.
>
> Bernanke will not replace the evaporating derivatives trillions so
> that market will simply deflate, maybe (hopefully) permanently. Tim
> has explained that rapid real estate inflation is unsustainable for
> reasons of fundamental affordability so the deflating regions will
> not reflate to 2006 levels. More Treasury or Fed billions will just
> move the bad debt from private to public hands and move the good
> money from public to private hands--the banks, to encourage new lending
> to stop the decline and prevent broader deflation.
>
> I share Faber's bullishness on long oil and other essential commodities,
> but unless somebody has a big international money system surprise
> up their sleeve gold is only a fear investment and as soon as fear
> subsides gold will decline. If things stay bad and fear lasts for
> over a year there could be some good gains in gold, but I have a
> suspicion a recovery will begin in mid-2009 because I think Obama
> will bail out underwater mortgages. I think some deal will be made
> for the Fed or Treasury to buy the underwater portions in order to
> stabilize both the real estate markets and people's mood.
>
> So the upshot: There's still lots of money to evaporate as derivatives
> continue their terminal decline, but I think that problem has been
> or is being isolated from the rest of the economy. The investment
> bank money and the derivatives assets it purchased will decline in
> tandem. A portion of that money was leaking into the economy by way
> of salaries and bonuses paid to staff and by people cashing out before
> the scheme began unwinding. That flow should stop, so a replacement
> flow of new Fed money shouldn't be any more debasing than what was
> already happening.
>

Jan 12 02:08 AM