Keep interest rates at zero, whilst printing trillions of dollars, pounds and yen out of thin air, and you can make investors do some pretty extraordinary things. "Central bankers control the price of money and therefore indirectly influence every market in the world. Given this immense power, the ideal central banker would be humble, cautious and deferential to market signals. Instead, modern central bankers are both bold and arrogant in their efforts to bend markets to their will. Top-down central planning, dictating resource allocation and industrial output based on supposedly superior knowledge of needs and wants, is an impulse that has infected political players throughout history." The result was always a conspicuous and dismal failure. Today’s central planners, especially the Federal Reserve, will encounter the same failure in time. The open issues are, when and at what cost to society?
Rickards does not expressly say one should put 33% of one’s wealth in gold but suggests that an allocation of between 10% and 33% would be prudent. In this regard, he echos Dr Marc Faber who suggested a 25% allocation to precious metals last week.
Last week BTFD failed for the Nasdaq and that class of talking-heads that we like to call asset-gatherers promulgated that there was no need to worry... this is a small segment of the market dragging down a high-beta index, rotate to bigger caps. The S&P has not failed the BTFD brigade since QE4EVA began... until today. For the first time, the S&P 500 cash index was unable to make a new high after bouncing off the 50DMA (in fact making a new cycle low)... now what?
"I think it's very likely that we're seeing, in the next 12 months, an '87-type of crash," warns a somewhat excited sounding Marc Faber, adding that he thinks "it will be worse." The pain is just getting started as Faber notes that "the market is slowly waking up to the fact that the Federal Reserve is a clueless organization." Internet and Biotech sectors (growth stocks) are "highly vulnerable because they're in cuckoo land in terms of valuations," and fully expects the selling to spread as The Fed "have no idea what they're doing. And so the confidence level of investors is diminishing," and that means we will see a major decline.
Dr Faber discussed the importance of not owning gold stored in the U.S., the mystery of the Fed gold, why Singapore is safest for gold storage, the risks of bitcoin and how small countries should revert to national currencies. The must watch interview can be watched here ...
The risk that creditors, savers and bondholders, rather than taxpayers will bear the brunt of rescuing a bank in trouble form part of the first credit ratings given to 18 of Europe's biggest banks yesterday by new ratings agency, Scope.
Jim Rickards said that gold should remain an essential part of diversified portfolios and Mark Faber pointed out that the question should be “how could you NOT own gold?” Faber has said that he favors owning gold in fully allocated gold accounts in Singapore and Switzerland.
Shockingly, the UK government will now be able to directly access taxpayers’ bank accounts, under little noticed measures announced in this month’s Budget speech. The significant HMRC legislation change was buried deep in the Budget document and comes amid preparations by the Bank of England for bail-ins.
While Marc Faber is adamant that "there’s lots of funny things that are happening in China. And when the whole thing unwinds it will be a disaster," it is his comments with regard Ukraine (and Russia) that are worth paying significant new attention to. As The Gloom, Boom & Doom Report editor notes in this brief Bloomberg TV interview, if you put yourself in Putin's shoes "he did the right thing from his perspective," given Crimea's strategic importance. However, as Faber concludes, "Crimea moving to Russia gives essentially a signal to China that one day they can also move and seize some territory that they perceive belongs to them."
The "good" news this evening is that Baoding Tianwei Baobian Electric Co (TBE), the company which as recently as two days ago was rumored to be the second "imminent" Chinese corporate bond default which sent copper to multi year lows, has issued a statement that it will not default on its upcoming interest payment (due July 11th - so how the delisted company is convinced it will have enough cash four months from now is a mustery). The "bad" news is that markets don't care. There is a slight whiff of positivity in Copper futures but aside from that, weakness continues in China's corporate bond and stock market. Simply put, the market gets it - this is no longer about the next idiosyncratic bond (or trust) to default; this is about Xi's renewed confidence in efforts to 'clean up' the mounting local government and corporate debts and shrink the shadow-banking bubble. This is systemic, and the markets know it.
"Excessive credit growth eventually leads to a crisis," Marc Faber tells CNBC Asia, warning that "it has always happened and will again." The Gloom, Boom, & Doom editor briefly explains how the facts are that China is growing at no more than 4% per annum (if one looks beneath the government's manufactured data) and in the case of China "we have a gigantic credit bubble." Reflecting on recent price action (and the potential for social unrest), Faber exclaims, to deny the problems is to believe "the market is wrong and the government is right."
"We are not clueless," Kevin Warsh notes in this September 16th 2008 Federal Reserve transcript (as the entire financial system was imploding around them); but it is the final 'debate' in this brief section that sums up what Marc Faber has feared all along. Adjective or Abverb?
By early March "the US will be in the 2nd longest bull market of the last 80 years," and as Marc Faber warns, "usually, these long bull markets end badly." Simply put, The Gloom, Boom, & Doom Report publisher notes "it's too late to buy US stocks," warning of previous major declines like 1987, 2000, and 2007. "It's not an opportune time" to buy US stocks but while it might be too early to buy some of the beaten-down emerging markets at these levels, Faber believes investors can make money in the longer-term - "I think I can make the case that over the next five to 10 years, I will make more money by buying now in the emerging economies then in the U.S."
Despite being told by Bullard, Yellen (and numerous other Federal Reserve thinkers) that quantitative easing was aimed at improving the housing market, the data suggests that - somewhat predictably - it did very little for mom-and-pop organic real home-buyer but stoked speculation and fervor among fast-money cheap-funding investors (and as Marc Faber noted actually hurt the average homebuyer via un-affordability). The week-to-week ebbs and and flows in mortgage applications are notable (this week saw purchase applications drop 5% and back near recent lows) but a bigger picture glance at just where this "recovery" has been tells a very different story about confidence among home-buyers.
It is remarkable that, Marc Faber begins, despite the growth the US has enjoyed since the 1960s, the poverty rate has barely changed. Faber believes there are far more “poor” people today as a percentage of the population than there were in the 1960s, because lower middle-class and middle-class people have moved into the ranks of the poor. In his opinion, the increase in poverty rests on four pillars: cultural and social factors, educational issues, excessive debt, and government handouts, which encourage people not to work. Other factors include: international competition, which keeps wages down; and monetary policies, which create bubbles and impoverish the majority... “It’s pretty hard to tell what does bring happiness; poverty and wealth have both failed.”