Mark Faber edits the Gloom, Boom, and Doom newsletter. He lives in Hong Kong. He is a pro-gold, anti-Keynesian analyst.
Marc Faber the Swiss fund manager and Gloom Boom & Doom editor recently discussed his 2012 predictions. In a nutshell, he expects politicians in the US and the EU to keep on addressing symptoms rather than dealing with the fundamental problems of the crisis.
He can smell more money printing and sees less prosperity – to the point that within 5 years many investments could lose 50% of their value.
“You can increase debt but it doesn’t increase prosperity or economic growth,” he says. He predicts the collapse of the derivatives market – down to zero – and favors equities and gold.
He attended a conference on commodities at the New York Stock Exchange on December 8.
He said that QE3 will come in Europe. The ECB began to inflate on December 21, lending newly created euros at 1% so that banks can but PIIGS bonds at 6% or more.
There will be more of the same in 2012: more government deficits and more monetary inflation.
“When the EU [and the eurozone] were formed, in the Maastricht treaty it was stated that no country should have a fiscal deficit of more than 3% and the debt to GDP ratio should not exceed 60%, but nobody kept that promise, Faber reminded his host.
The first one to violate [the rules] was Germany, he added.
Keynesianism is out of tricks.
The limit of these [Keynesian monetary] actions has been reached he said. You can increase debt but it doesn’t increase prosperity or economic growth, because there is a point where the excessive debt growth doesn’t stimulate economic activity any more, but it does create bubbles in different sectors of the economy.
And because we’re in a global economy, the intended consequences of the actions may not even happen in the US. “Mr. Bernanke’s monetary policy was designed to lift the housing market. The only asset that didn’t go up since 2008 is housing.”
European banks are leveraged. He says they will need at least $150 billion of new capital.
German banks need 13.1 billion euros and Italian banks 15.4 billion euros in core tier 1 capital, the European Banking Authority (EBA) said in a document published early December.
“The banks are in a very bad shape because they are so leveraged. US banks are also leveraged through the derivatives markets and so forth,” Faber told Yurman, adding that he was very bearish.
Europe’s large governments must supply this. But how? They are all running huge deficits.
Speaking to India’s NDTV December 14, Faber reiterated his ‘Europe solution’: “Any country can exit the Eurozone if they want to. If countries like Greece or Portugal leave the Eurozone, they could have local currency and the economy would be based on the local currency. Hence for international transactions, they might use the euro. However, the losses would be very substantial because they would default on their debt.”
“It would still be a correct solution because the market is already telling you that Greece is bankrupt and these countries can’t pay their debt. So, that is all they can do to monetize or acknowledge the problem. Thus, the best way to acknowledge the problem for the weak countries is to leave the Eurozone,” Faber added.
What is his advice?
“My advice would be to diversify 25 per cent of your assets in real estate, 25 per cent in equities and 25 per cent in cash and bonds and 25 per cent in precious metals.”