Marc Faber: Long The Dollar, But Occupy The Federal Reserve
Marc Faber, asset manager at the Gloom, Doom & Boom Report, popped in at CNBC (Clip Here) on Oct. 11 while visiting in Montreal, Canada (He is usually based in Thailand.)
Faber expects volatility to continue (not necessarily means a downside to the markets), but dollar should be a long trade as whenever there's a bubble, e.g. tech bubble, housing bubble, stocks bubble, and commodities bubble, usually after the bubble bursts, there typically will be a 10-15 years of volatility before markets settle down to reignite an uptrend.
"Despite the fact that the [European Central Bank] and the European government will flood the market with liquidity to bail themselves out, global liquidity is tightening.....Whenever global liquidity is tightening it is bad for asset prices but good for the U.S. dollar, as was the case in 2008."
He thinks there had been far too many "interventions" by the Western governments, where the total share of the economy that's government owned or sponsored have grown tremendously,. Add to that, the high levels of debt, it is almost impossible for the developed countries including Japan, the U.S. and Western Europe to grow.
When the economy stagnates over a long period of time, people ("the 99%") seeking answers start to go after the "top 1%" minority like Wall Street, which took advantage of the system for profits. However, it was Washington and the lobbyists who created the system to begin with. So from that perspective, Occupy Wall Street should move to DC and Occupy the Federal Reserve on the way, Faber laments.
His solution for the U.S. economy - Flat tax on everybody "would be a good measure", and reducing the restrictive regulatory environment to encourage business to start investing again. Moreover, the lack of savings is the biggest problem of the U.S. Essentially, the U.S. will have to work more, and get paid less to get out of this mess. Faber also says that Cameron austerity measures have not worked is because "people in the UK don't want to work."
Dollar, despite the Federal Reserve's continuous QEs and twist, is still holing up well attesting to the dangerous state of the world's finance and economy. So in the near term, dollar could be still king, but with a high degree of uncertainty longer term, depending on how the Euro, the closest competing currency, will come out from this seemingly ever expanding EU sovereign debt crisis.
As to the economic and fiscal state of the U.S., we are not as pessimistic as Faber, but have written many times that the U.S. has many structural issues in the labor market, the decades-long anti-jobs policies, and that the vital decisions of the country are and will be made based on politics, and by politicians who can't walk the talk. If the U.S. does not start to make some fundamental changes, it could eventually prove Faber right.
Towards the end of the interview, Faber made reference to Lee Kuan Yew, the first Prime Minister of the Republic of Singapore for three decades. Lee Kuan Yew retired in May 2011, but has remained one of the most influential political figures in South-East Asia.
In the three decades during Lee's tenure as PM, Singapore has been transformed from a developing economy to one that's the most developed in Asia. However, the "Singapore Model" is based partly on a socialistic structure (e.g., single political party, state planning, and state-owned enterprises).
Dr. Doom Roubini, in an interview with Business Day less than a month ago, also noted Singapore could be one country that he was not averse to state involvement in the economy and held up Singapore as an economy that might be shielded from global shocks.
So we find it quite interesting that as a result of the global financial crisis, more and more Western economists are now moving towards socialism, while the more socialist countries such as China are becoming more capitalistic. Could this be the New World Order underway? .