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faber interview

faber interview

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Published by: pick6 on Feb 28, 2011
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04/09/2011

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February 23, 2011; Interview with Dr. Marc Faber: 
Posted on 25 February 2011.
The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick 
Kevin:
David, before we go to our guest today, Marc Faber, the oil market is really onIt is very volatile.  We are starting to see it hit those kinds of numbers that we were seeing a couple of years ago.
David:
Here in the states we have West Texas Intermediate above 90, we have Brent at108.  We have gold, which is up in recent days, as much as 40 dollars.  It is movingabove that $1400 level.  Silver, impressively, above $34.  Kevin, something verysignificant is happening in the metals market, which is worthy of note for all of ourlisteners.  We have been in a trading range with the gold-silver ratio above 45, going back to 1983, and we just broke through this last Friday.  We are trading at around 42currently.The question is:  Will it hold?  Will silver maintain its advantage in the marketplace?  Wewant to get an international perspective, not just on the precious metals and commoditiestoday, but on a number of things.  Our guest has grown up in Europe, and has lived forthe last 30 years in Asia, so he brings, certainly, an international flavor.
Kevin:
This is why we have Dr. Marc Faber on the program today.  He is, of course,publisher of the
Gloom, Boom, and Doom Report 
.  He always has very insightful ideas asto the way we should be looking at the news right now.
David:
 Germany.    This was the secondmajor upset following Westphalia last year.  We had the German election in Baden-Württemberg in late March, in which we watched the dominance of the ChristianDemocratic Party relinquished.How does that play into the future of the EU, thestrength of the currency, or the strength of the union, itself?
Marc Faber:
I am not a political expert about European matters, and you should ask apolitician about this.  But in general, the point is simply this:  The German public isprobably not particularly happy about the fact that Germany bails out the PIIGS, in otherwords, Portugal, Ireland, and so forth.  So there is great opposition to Germany being partof the EU, and Germany supporting governments, including Greece, which have abusedthe system by not maintaining fiscal restraint.
David:
It seems that the pressures remain for Europe.  The debts remain for theindividual countries.  As you mentioned, Portugal, Italy, Ireland, Greece and Spain, andas long as the debts remain, the issues, whether it is insolvency or fiscal pressure, are areal burden, still, yet to bear.
 
What we would like to also look at is the U.S. equities market.  The developed world hashad a decent run in prices since March of 2009, and the emerging markets have not doneas well, relatively speaking.  Maybe you can speak to over-valuation and under-valuation,vulnerability in the equities markets.
Marc:
 
fantastic
run.  The S&P has doubled, andin emerging markets we have price increases that are far better than a doubling of theindices.  In general, emerging economy stock markets since 2003 have way outperformedthe S&P.  So we had unbelievable moves in markets.  In the U.S. we only had on twoprevious occasions a move such as we had in the last 27 months from 666 on the S&P toover 1300, and that was in 1934, coming off a major low when the market had declinedby 90% between 1929 and 1932, and then another move into between 1934 and 1937,and that was then followed by renewed extreme weakness in the markets.So stocks have done fantastically well, and I was fortunate to be relatively positive aboutequities between October 2008 and March 2009.I would have thoughtthe market would rebound, maybe by 40-50%, but not a doubling.The markets in the world, between March 2009 and today, have done actually muchbetter than anybody had expected.   Starting in November 2010, the American marketstarted to weaken, and I think that we have just begun a more significant correction in theU.S., whereby I expect the fact that international investors over-weighted the Americaneconomic stock market until recently, and under-weighted the U.S., and now money isflowing back into the U.S.  I think emerging stock markets will go down further, but Iwould probably just stay out of the U.S.
David:
As you look at the cyclically-adjusted price-earnings ratio for the S&P, it recentlyhit 24, which is very similar to what we saw in 1928, very similar to what we saw at themarket peak in 1937, and also in the massive bull market run up until 1966, wherevaluations were clearly overdone.  But what that implied was underperformance for anumber of years following, not necessarily a cataclysmic collapse, but certainlyunderperformance.So if investors are expecting a healthy rate of return in equities over the next ten years, itwould certainly be difficult to argue for that, based on the cyclically-adjusted price-earnings multiples.  What you are suggesting is that emerging markets and developingworld markets are really in the same boat, which would imply that the whole concept of decoupling is not necessarily one that you would agree with?
Marc:
I think that there will be some decoupling, and whenever you look at the markets,different sectors perform differently, but generally speaking, in the same direction.  So if someone were to take a very bearish view about emerging stock markets, I do not think he should go into European stocks or U.S. stocks.  I take a more balanced view.  I think we are in a money-printing environment.  If something happens in China, they will printeven more than the U.S. prints.  If something in happens in Europe, they will also printmoney.
 
They are going to print money everywhere, and with interest rates, essentially on short-term deposits, being zero, or below zero, inflation-adjusted, in other words, if inflationrates everywhere in the world are higher than the interest rates on short-term deposits, I- I think that you cannot make a very bullish case for stocks, but I think you can make amore bullish, or more positive, case for stocks than say, for U.S. government bonds,because the specifics in the U.S. will stay very high, and the quality of the banks willdiminish and the interest payments as a percent of tax revenues will go up, and so forth.and world growth, or if youbelieve in disaster, in either case you are probably better off in equities than in bonds.In terms of returns, I agree with you, I do not think that the returns will be fantastic, but if you print money it is very difficult to say what the returns will be, because it is not stocksthat adjust on the downside, but it is the currency that adjusts on the downside.  So intheory, it is possible that the Dow could double if you print money, or it could even go up10 times, depending on how much money you print, and with Mr. Bernanke at the Fed, Ithink it is quite likely that a lot of money will be printed.
David:
That is a critical observation, that what is happening is really a degradation of global currencies.  Certainly we saw that in Germany in 1919-1923, when the Germanstock market went up nearly 14 times, yet in terms relative to gold, still diminishedsignificantly, so it was a better bet than buying German bonds, or sitting in Germanmarks, but on the other hand, it was still a relative loser, you could say.I guess one of the critical issues today, for investors, is existing in a world of negativereal rates of return, where you have both an increase in taxation that is a potential, but thereality of money-printing and inflation, which strip away any of your real returns.  Withinto assets like gold and silver?rates of return otherwise?
Marc:
An investor has the choice to invest in real estate, in equities, in bonds, incommodities, and I separate precious metals from commodities, from industrial andagricultural commodities, because I consider it money.  Also we can buy art, and stamps,and other collectibles.I have a large subscriber base for my
Gloom, Boom and Doom Report 
, and I asked eachone of them to let me know if they have the impression that the cost of living increases,in other words, the percentage of how much they pay every year, more, for their families,is less than 5%.  So far I have not received a single email, so I think inflation is around5%.  The return on deposits is essentially zero.  And then people begin to worry, becausepaper money is no longer a store of value, and at the same time, it is a bad unit of accounts, because it is debased by the central bank.So people buy paintings, they buy real estate, they buy stocks, they buy, to some extent,bonds  last year, we had large inflows into bond funds  and they buy precious metals.The problem with all these easy monetary policies and artificially low interest rates, is

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