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Faber 'no Deflationary Bust'

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http://news.goldseek.com/PeterCooper/1281272400.php

Marc Faber Lectures Abu Dhabi on Asset Allocation and Tips Gold

By: Peter Cooper, Arabian Money

-- Posted Sunday, 8 August 2010 | Digg This ArticleDigg It! | Share this article | Source: GoldSeek.com

If Marc Faber had to choose one asset class for the next 10 years it woud be gold. Cash and US treasuries would be be his least preferred decennial investment. US equities would be a reasonable choice for wealth protection, though not necessarily grow much when adjusted for inflation.

This was the broad message that the author of The Gloom, Boom and Doom Report delivered to a CPA Association meeting last night in Abu Dhabi, home of the world’s biggest sovereign wealth fund the Abu Dhabi Investment Authority.

No deflationary bust

He began by explaining why extreme deflation scenarios are extremely unlikely under the Bernanke Fed, comparing the Fed chairman’s commitment to an anti-deflation strategy to Hitler’s Mein Kampf, a book that also clearly stated a policy program in advance but was not widely believed until it was too late.

Likewise Dr Faber believes Mr. Bernanke is committed to printing money and will in any case have very little choice because of entitlements and the US constitution. Thus he could see the S&P 500 dropping back from current levels to say 950 in this autumn but by then Fed monetary policy would be strongly inflationary and bring the market back up.

Dr Faber pointed out that with the US so deep in debt the Fed thinks it cannot allow asset prices to drop below a certain point because that would devastate the balance sheets of the banks with debt deflation. But he thinks in the long run this is just rolling up another crisis for the future that will destroy the US dollar and cause an even bigger financial crisis.

Declaring himself the ‘most pessimistic of forecasters, nobody is more pessimistic than me’ Dr Faber outlined a scenario in which the dollar has to be replaced by another unit after a future inflation, and holders of cash and bonds lose virtually everything in the process.

Mexican parallel

He drew an interesting parallel with the fate of the Mexican Peso in the 1980s and how the value of that currency was destroyed, while equities priced in Pesos at least held their value in real terms because they represented real assets. Bond and cash holders in Mexico lost almost everything.

Therefore he advises long-term investors – and he is still talking well within his own lifetime and he is 63 years old – to buy gold and equities, and particularly gold and resource stocks, although the timing to do so may not be exactly right now, and to do so on a globally diversified basis.

Despite being in Abu Dhabi his presentation did not mention the UAE and nobody from the audience asked a single question about the outlook here. Some readers might take that as a contrarian indicator of a market bottom in the UAE, as nobody is even asking questions any more.

But Dr Faber did say that emerging and frontier markets like the UAE have much better growth prospects over the next 20 years than the developed markets, not that he thought developed markets would cease to grow entirely.

China crisis coming

Indeed, his lecture noted that China now exports more to emerging markets than developed markets, and that this decoupling trend will continue. He also highlighted the growing dependence of China on oil imported from the Middle East, which is supportive of higher oil prices.

That said he saw trouble ahead for China in the immediate future with a ‘possible crash’ on the horizon after recent over expansion and excessive lending to maintain growth during the financial crisis. This would clearly be bad news for resource economies dependent on China.

Abu Dhabi is probably the world’s biggest long-term investor, with its sovereign wealth funds worth anything up to $1 trillion on some estimates, and a highly dieversified investor in global equities and also a big holder of US treasuries. Yet strangely the UAE central bank has no gold reserves. Perhaps that will change. Dr Faber would certainly advise the holding of more gold.

-- Posted Sunday, 8 August 2010 | Digg This Article | Source: GoldSeek.com

Previous Articles by Peter Cooper

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Good article.

I tend to agree, I can't see deflation touching UK or US shores, they;re going to print as soon as they can, when that will be is anyones guess. US might be after the mid terms? UK, could be at the same time or in April next year when the banks are having to repay all of the bailout loans.

It's just a shame that wage inflation won't be anything close to RPI and IR's will stay low it's going to devastate living standards.

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Good article.

I tend to agree, I can't see deflation touching UK or US shores, they;re going to print as soon as they can, when that will be is anyones guess. US might be after the mid terms? UK, could be at the same time or in April next year when the banks are having to repay all of the bailout loans.

It's just a shame that wage inflation won't be anything close to RPI and IR's will stay low it's going to devastate living standards.

It's all very predictable. As another thread has said, house prices down, everything else up due to China and India being able to pay more and more for their Oil. Countries that have stuff to sell to China and India, will do better than those that don't. Canada, Australia, many African countries, and South American countries, along with the Germans who produce genuinely desirable products, will do well, and their living standards may not fall so much, but Britain and the US, nations that have produced a generation of media studies graduates, lawyers and bankers, with a sense of entitlement, will suffer massive declines in living standards as salaries are erroded compared to the cost of living (excluding housing).

The greatest hope for our living standards is for an outbreak of bird flu that kills about 20-25% of the chinese and Indians. I'm not saying I want this, I'm just saying that this is the only way Britain will be able to afford a future like its past.

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China has already "explained" to the WEST what will happen if a "Strange new killer bug" turns up & starting killing Asians......Afica could not defend itself against the AIDS virus that was "accdently" give to them.............CHINA CAN!

Mike

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China has already "explained" to the WEST what will happen if a "Strange new killer bug" turns up & starting killing Asians......Afica could not defend itself against the AIDS virus that was "accdently" give to them.............CHINA CAN!

Mike

You're making this up as you go along aren't you.

Ever thought about writing children's books?

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Guest DissipatedYouthIsValuable

Bloke with gold and stocks says buy gold and stocks.

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I disagree with Faber. Past crisis have shown that deflation is the outcome of a credit driven binge. We have a quadrillion dollar of credit through the issue of derivatives. The 2 trillion of QE was a drop in the ocean. Already public support is waning for more QE. Look at the massive movement of the Tea Party in the US. Support for Obama is very low. People are not stupid and the more QE and stimulus happens the more people start saving as they fear an uncertain future. By saving cash they create a deflationary spiral.

What is credit crunch part 1 done. It has increased government deficits and total government debt around the world and we saw deflation big time around the globe. So I find it hard to believe with all that evidence that when credit crunch 2 comes around the corner, we have hyper inflation and gold will take off.. Lessons of CC 1 were that the dollar is king, gold got brutally sold of. At the end you can not fill your car with petrol and use gold as payment or buy your groceries. Cash, hard cash will be king.

What will trigger CC II, war, problems in China, a big bank default who knows. But when it happens we see credit default swaps go up, and when these go up the prices of assets come down fast.

On the true deflation front there is only one guy that has persistently being advocating it: Robert Prechter.

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Which ones?

* 1673 Bursting of the Tulip Mania

* Depression of 1873

* Great depression of 1930s.

Irving Fisher argued that the predominant factor leading to the Great Depression was over-indebtedness and deflation. Fisher tied loose credit to over-indebtedness, which fueled speculation and asset bubbles.[15] He then outlined 9 factors interacting with one another under conditions of debt and deflation to create the mechanics of boom to bust. The chain of events proceeded as follows:

* Debt liquidation and distress selling

* Contraction of the money supply as bank loans are paid off

* A fall in the level of asset prices

* A still greater fall in the net worths of business, precipitating bankruptcies

* A fall in profits

* A reduction in output, in trade and in employment.

* Pessimism and loss of confidence

* Hoarding of money

* A fall in nominal interest rates and a rise in deflation adjusted interest rates

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* 1673 Bursting of the Tulip Mania

Gold money.

* Depression of 1873

Gold money again.

* Great depression of 1930s.

Was inflationary, not deflationary.

Irving Fisher argued that the predominant factor leading to the Great Depression was over-indebtedness and deflation. Fisher tied loose credit to over-indebtedness, which fueled speculation and asset bubbles.[15] He then outlined 9 factors interacting with one another under conditions of debt and deflation to create the mechanics of boom to bust. The chain of events proceeded as follows:

* Debt liquidation and distress selling

* Contraction of the money supply as bank loans are paid off

* A fall in the level of asset prices

* A still greater fall in the net worths of business, precipitating bankruptcies

* A fall in profits

* A reduction in output, in trade and in employment.

* Pessimism and loss of confidence

* Hoarding of money

* A fall in nominal interest rates and a rise in deflation adjusted interest rates

Well what happend was that fractional reserve bank fraud was found out in a series of bank runs, savers were wiped out but the debts weren't. So people had to keep servicing the (actually invalid but legally enforcable) debts without the money rolling round the economy by going to savers.

Was inflationary, and wealth concentrating. For some reason people think that inflation isn't inflation if 5 rich guys wind up with all the money and everyone else has to struggle to get some from them. No clue why, it's not as though rich people aren't part of the economy or humanity.

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Gold money.

Gold money again.

Was inflationary, not deflationary.

Well what happend was that fractional reserve bank fraud was found out in a series of bank runs, savers were wiped out but the debts weren't. So people had to keep servicing the (actually invalid but legally enforcable) debts without the money rolling round the economy by going to savers.

Was inflationary, and wealth concentrating. For some reason people think that inflation isn't inflation if 5 rich guys wind up with all the money and everyone else has to struggle to get some from them. No clue why, it's not as though rich people aren't part of the economy or humanity.

You make no sense to me. Savings wiped out is that not deflationary. People wanted what everyone wants in a depression CASH. Asset prices will fall when you compare it to cash.

For the rest you sound like a goldbug they know only 2 words Printy Printy and inflation.

CC1 has told us when the sell off starts no asset is safe. Including gold. Gold as a form of payment in the globalised world has no meaning.

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You make no sense to me. Savings wiped out is that not deflationary. People wanted what everyone wants in a depression CASH. Asset prices will fall when you compare it to cash.

This doesn't have anything to do with inflation or deflation, both of which are concerned with the money supply.

For the rest you sound like a goldbug they know only 2 words Printy Printy and inflation.

Well I made "print printy" up and the goldbugs are right about the paper money crowd (but wrong about gold.)

CC1 has told us when the sell off starts no asset is safe. Including gold. Gold as a form of payment in the globalised world has no meaning.

I agree.

Doesn't change the fact that you are still wrong about deflation and the statement you earlier made.

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This doesn't have anything to do with inflation or deflation, both of which are concerned with the money supply.

Well I made "print printy" up and the goldbugs are right about the paper money crowd (but wrong about gold.)

I agree.

Doesn't change the fact that you are still wrong about deflation and the statement you earlier made.

Well we disagree here.

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Well we disagree here.

You dont get to disagree and have it mean anything.

You are wrong.

Simple as that.

You said that all previous credit busts were deflationary. 2 were under a different money system entirely (gold) and 1 was actually inflationary.

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  • 245 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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