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Faber: 'cash And Bonds Very Dangerous'

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http://www.businessweek.com/news/2010-06-09/marc-faber-says-cash-bonds-will-be-very-dangerous-update1-.html

Marc Faber Says Cash, Bonds Will Be ‘Very Dangerous’ (Update1)

June 09, 2010, 4:46 AM EDT

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By Saeromi Shin

June 9 (Bloomberg) -- Investor Marc Faber said cash and bonds will be “very dangerous” in the next 10 years as governments increase money supply to cover fiscal deficits.

“There’s no other way out but to print money,” Faber, the publisher of the Gloom, Boom & Doom report, said at a forum in Seoul today. “In the long run, all paper money will go exactly to its intrinsic value, which is zero.” Faber advised investors to protect themselves with assets such gold and silver.

Bullion climbed to a record in euros, pounds and Swiss francs yesterday as investors sought to preserve their wealth against declining currencies. Risks to the global economic outlook have “risen significantly” and room for policymakers to support growth has become “much more limited and has, in some cases, been exhausted,” International Monetary Fund Deputy Managing Director Naoyuki Shinohara said in Singapore today.

Total assets held by U.S. Federal Reserve banks rose to a record $2.35 trillion on May 19 as central bankers printed money to buy debt and rescue lenders as credit markets froze during the global financial crisis. The European Union last month pledged a 750 billion-euro ($900 billion) aid package to prevent a debt spiral that could spread from Greece to Spain and Italy.

Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., says the best is over for bonds. Record budget deficits and sales of government debt will eventually spur inflation, drawing the almost three-decade bond market rally to a close, the Newport Beach, California-based firm’s co-chief investment officer, said in a March interview.

‘Least Dirty’

Earlier this month, he said the U.S. is emerging as “the least dirty shirt” because it is drawing investors who are seeking safety during the European debt crisis.

Spot gold has climbed 12 percent this year and silver has advanced 7 percent. At the same time, the euro has slumped 16 percent as the fiscal crisis made money managers wary that some debt-swamped nations might default, or even revert to old currencies. The MSCI World Index of stocks has slid 10 percent.

“If not gold and silver, you will be better off with equities,” Faber said, adding that stocks are unlikely to revisit the lows set in March 2009. “They may not go up a lot, but they will adjust to money printers at central banks.”

Faber advised investors to buy U.S. stocks on March 9, 2009, when the S&P 500 reached its lowest level since 1996. The measure subsequently rallied as much as 70 percent. He also predicted in May 2005 that stocks would make little headway that year, with the S&P 500 gaining 3 percent.

Faber was less prescient in March 2007, when he said the S&P 500 was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P 500 climbed 10 percent between then and its record of 1,565.15 seven months later.

--With assistance from Wes Goodman and David Yong in Singapore. Editor: Reinie Booysen, Linus Chua

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net

To contact the editor responsible for this story: Linus Chua in at lchua@bloomberg.net

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http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Bill+Gross+June+2010+Investment+Outlook.htm

Granted, sovereign debtor nations are now saying all the right things and in some cases enacting legislation that promises to halt growing debt burdens. Not only Greece and the southern European peripherals, but France, the U.K., Japan, and even the U.S. are sounding alarms that might eventually move them towards less imbalanced budgets and lower deficits as a percentage of GDP. Still, credit and equity market vigilantes are wondering if in many cases sovereigns haven’t already gone too far and that the only way out might be via default or the more politely used phrase of “restructuring.” At the now restrictive yields of LIBOR+ 300-350 basis points being imposed by the EU and the IMF alike, there is no reasonable scenario which would allow Greece to “grow” its way out of its sixteen tons. Fiscal tightening, while conservative in intent, leads to lower and lower growth in the short run. Tougher sovereign budgets produce government worker layoffs, pay cuts, reduced pension benefits and a drag on consumption and the ability of the private sector to accept an attempted hand-off from fiscal authorities. Recession becomes the fait accompli, and the deficit/GDP ratio moves ever higher because of skyrocketing risk premiums and a plunging GDP denominator. In many cases therefore, it may not be possible for a country to escape a debt crisis by reducing deficits!
Several months ago I rhetorically asked whether it was possible to get out of debt crisis by increasing debt. Yes – was the answer, but it was a qualified yes. Given that initial conditions were favorable – relative low debt as a % of GDP, with the ability to produce low/negative short-term policy rates and constructively direct fiscal deficit spending towards growth positive investments – a country could escape a debt deflation by creating more debt. But those countries are few – the U.S. among perhaps a handful that have that privilege, and investors, including PIMCO, have strong doubts about U.S. fiscal deficits leading to strong future growth rates.
So the developing predicament is becoming more obvious to Shakespeare’s “lenders and borrowers be.” Fiscal tightening and budget conservatism may have come too late for Greece and its global lookalikes. Continued deficit spending may be an exorbitant privilege extended to only a few. Caught in the middle are many developed countries that likely face New Normal growth rates and a continued bumpy journey toward that destination.
Investors must respect this rather tortuous journey in the months and years ahead for what it is: A deleveraging process based upon too much debt and too little growth to service it. No longer will “two get you three” in the investment world. Not 1,000%, but 4-6% annualized returns for a
diversified portfolio of stocks and bonds is the likely outcome
.
And be careful – sometimes “three gets you two.”
William H. Gross
Managing Director
Edited by Realistbear

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Gee, I was just about to go and flog the missus to buy some gold but then RB came on here and I feel better now.

I feel the need for gold fading into the background... must stop fantasising that I have a missus also... :unsure:

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Gee, I was just about to go and flog the missus to buy some gold but then RB came on here and I feel better now.

I feel the need for gold fading into the background... must stop fantasising that I have a missus also... :unsure:

Dr Faber is very smart. RB is pretty good too. But don't leave gold and silver out of your mix. Any pullback and I will buy more because for the next year or two there iwill be huge pressure on it as fear bites. You ain't seen nothin' yet in these markets. If you think Faber is right atall, then the ride will be rough. The Eurozone cannot pay the debts and they are so huge for the PIGS and UK that cuts or no cuts 'there will be trouble ahead, but while there's moonlight....'

Fiat cirrencies are going to fall substantially in value even if you don't see it because of competitive devaluation - they are all going down together. Silver and Gold prices tell you this is so. They are now often going up against the stockmarket and very well on any bad news days.

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Dr Faber is very smart. RB is pretty good too. But don't leave gold and silver out of your mix. Any pullback and I will buy more because for the next year or two there iwill be huge pressure on it as fear bites. You ain't seen nothin' yet in these markets. If you think Faber is right atall, then the ride will be rough. The Eurozone cannot pay the debts and they are so huge for the PIGS and UK that cuts or no cuts 'there will be trouble ahead, but while there's moonlight....'

Fiat cirrencies are going to fall substantially in value even if you don't see it because of competitive devaluation - they are all going down together. Silver and Gold prices tell you this is so. They are now often going up against the stockmarket and very well on any bad news days.

You can't say these things on here! Only deflation talk is allowed, dont you know :lol:

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You can't say these things on here! Only deflation talk is allowed, dont you know :lol:

Some on here have divided loyalties and it puts them between the horns of a dilemma.

If you are an avid fan of a HPC you want to see DEFLATION and the consequential drop in prices a la Japan.

Then, just like a rabbit caught between two stools, some want gold to rise in value which is more likely with inflation which will send house prices soaring again.

So its a bit like being a Catch 22 straddling the rock and a hard place, wanting our cake and eat it too.

I think we have to choose this day whom we shall serve:

1. The HPC and necessary deflation, or

2. Moon bound gold prices and inflation in house prices along with everything else.

Metaphorically speaking, of course.

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Guest spp

In the near future Gold and Silver are once again going to prove to the whole world why they have been 'real' money throughout history!

What does Faber recommend? You guessed it...PM's!

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Some on here have divided loyalties and it puts them between the horns of a dilemma.

If you are an avid fan of a HPC you want to see DEFLATION and the consequential drop in prices a la Japan.

Then, just like a rabbit caught between two stools, some want gold to rise in value which is more likely with inflation which will send house prices soaring again.

So its a bit like being a Catch 22 straddling the rock and a hard place, wanting our cake and eat it too.

I think we have to choose this day whom we shall serve:

1. The HPC and necessary deflation, or

2. Moon bound gold prices and inflation in house prices along with everything else.

Metaphorically speaking, of course.

How about ignoring 'camps' and trying to foresee accurately what will happen whatever it may be. Wouldn't that be more useful?

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How about ignoring 'camps' and trying to foresee accurately what will happen whatever it may be. Wouldn't that be more useful?

yep

but that involves thinking though - something that is discouraged

still deflation in leveraged assets for now - get ready for the response though

but id rather own gold silver and food than government paper

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If you are an avid fan of a HPC you want to see DEFLATION and the consequential drop in prices a la Japan.

What we want is irrelevant.

The only relevant thing is what will actually happen.

I want to win the lottery; however what I need to plan for is the 99.99993% chance that I won't.

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yep

but that involves thinking though - something that is discouraged

still deflation in leveraged assets for now - get ready for the response though

but id rather own gold silver and food than government paper

Physical Gold/Silver is Solvent...Government paper is not!

The inflation/deflation debate is just a distraction. Politicians and Central banks are hell bent on avoiding deflation so it's inflation for now. Any serious deflation = currency collapse. Gold does well in either situation.

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Then, just like a rabbit caught between two stools, some want gold to rise in value which is more likely with inflation which will send house prices soaring again.

So its a bit like being a Catch 22 straddling the rock and a hard place, wanting our cake and eat it too.

nonsense.

UK_House_Prices_in_Gold_LOG_GUESS.jpg

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Can someone explain in bit more plain language, how CASH can be dangerous?

Come on!

The typical current bank rate on a savings account is 2-3% if you are lucky.

The current inflation rate is 3.7% (CPI) and 5.4% (RPI).

So essentially you are paying the government 2-3% per annum to look after your cash for you. Possibly more if you think the inflation figures are skewed to the downside like I do.

This 'negative interest rate' scenario will likely stay for a decade if you believe Dr Faber as I do. It may get worse where inflation hits say 10% and interest rates are only at 5%.

In such a scenario cash and bonds will become trash. They promise to pay you your money back, they dont promise it will be worth anything. In such an environment commodities, stocks and even possibly property will be the place to park your hard earned savings.

The UK and Western world has so much debt that printing away and destroying cash and bonds in the mean time will likely be the most politically palatable option.

Edited by ringledman

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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