Marc Faber Sees A 1987-Like Crash Approaching

When given the opportunity to expand on his thoughts, Marc Faber, of the Gloom, Boom, & Doom Report, provides dismally clarifying detail on the state of the world. In this excellent (must-watch on a day when nothing changed but European stocks dead-cat-bounced) Bloomberg TV interview, the admittedly ursine Faber reflects on the US (slowing of revenue growth and the real linkages to European stress) noting that unless we get a huge QE3, there will be "a crash, like in 1987" noting he believes we have seen the highs for the year; on the likelihood of QE3 (agreeing with us that the Fed won't act unless asset markets plunge first); on Greece's exit of the Euro and whether policy-makers can manage the exit properly "bureaucrats in Brussels and the media are brainwashing everybody that if Greece exited the euro, it would be a disaster. My view is the best would be to dissolve the whole euro zone"; on the difference between investment markets and economic reality (thanks to financial repression); and on the global race-to-debase "I do not have a high opinion of the U.S. government, but the bureaucrats in Brussels make the government in the U.S. look like an organization consisting of geniuses. The bureaucrats in Brussels are completely useless functionaries".

Faber on whether he still thinks that profit margins will shrink and record profits seen will be no more for U.S. corporations:

"Yes, if you look at the statements by corporations, it is very clear. Earlier on, you had a commentator who said the exports to Europe from the U.S. are irrelevant. I agree with that. What is relevant are the businesses of American corporations in Europe and the earnings they derive from these businesses. That is definitely slowing down. The revenue growth is slowing down and, in my view, you will have more and more corporations that report earnings that are actually good but they do not exceed expectations…The bottom line is I think the market will have difficulty moving up strongly on less we have a massive QE3 and if it moves here and makes the high above 1422, the second half of the year could witness a crash."

"A crash, like in 1987…because the market would become technically very weak. I would expect the market making a new high. If it happens, it would be a new high with very few stocks pushing up and the majority of stocks have already rolled over. The earnings outlook is not particularly good because most economies in the world are slowing down. People focus on Greece but Greece is completely irrelevant. What is relevant are two countries -- China and India -- 2.5 billion people combined. They are a huge market for goods and these economies are slowing down massively at the present time."

On whether more Fed stimulus will put a floor on the S&P 500 this year:

"Yes, I think we had a rally that began March 2009 at 666 on the S&P. We made an orthodox pop a year ago on May 2, 2011 at 1370. Then we made a new high on April 2 of this year. The new high was not confirmed by the majority of shares and many shares are already down 20% or so and every day, there are shares that are breaking down or they no longer go on good news which is a bad sign. I think maybe we have seen the high from the year unless you get a huge QE3. That may not be forthcoming."

On whether the Fed will issue QE3:

"I think that QE3 will come, but it depends on asset markets. If the S&P dropped  here another 100-150 points, I think that QE3 will occur.  But if the S&P bounces back and we are above 1400, I think the Fed will essentially be waiting to see how the economy develops. The economy in the U.S. consists of different economies, some of it is very strong. I was in southern California and there the economy is doing fine. In other places, it is not doing fine. It is not universally bad. Compared to other countries, it is actually doing relatively well."

On whether Greece will exit the euro:

"There is a very good chance they will exit the euro and it would have been desirable if the euro countries had kicked out Greece three years ago. It would have saved a lot of agony. As a result of the bailout, the problem has become bigger and bigger and bigger."

On whether policymakers can manage the exit properly:

"I think it would be much better for Greece and the entire euro area if Greece were kicked out. Spain kicked out. Italy out and even France should be out. At the end you just have Germany with the euro. The other countries can have their own currencies and still trade and use the euro as an international currency."

"The bureaucrats in Brussels and the media are brainwashing everybody that if Greece exited the euro, it would be a disaster. My view is the best would be to dissolve the whole euro zone and that the countries would go back to their own currencies and still use the euro as an international currency the way you travel through Latin America and with a dollar you can pay anywhere you with. In my view, that would be the best. These countries that have financial difficulties, you will have to write off their debts and make it difficult for them to access the capital market in the future. Just to keep bailing them out will increase the problem. It will not solve the problem."

On how economic catastrophe can be avoided if the euro is dissolved:

"Explain to me why there would be an economic catastrophe. Many countries have pegged currencies have given up the peg to another currency and it was not a catastrophe. The public has been brainwashed that the breakup of the euro would be a complete disaster when in fact, it may be the solution."

On whether there will be a race to the bottom among various countries to devalue their own currencies if the euro is dissolved:

"I do not have a high opinion of the U.S. government, but the bureaucrats in Brussels make the government in the U.S. look like an organization consisting of geniuses. The bureaucrats in Brussels are completely useless functionaries and they want to maintain their power. They always talk about austerity being bad but if you look at the government expenditures of the EU, in 2000, it was 44% of GDP. Since then, it has grown by 76% under the influence of the Keynesian clowns and now it is 49% of GDP. That is the problem of Europe -- too much government spending and lack of fiscal discipline."

On whether it's a mistake to short the euro:

"I want to make this very clear -- the investment markets may move in different directions than the economic reality because if you print money. That's why in the Bloomberg poll, Mr. Bernanke is viewed so favorably because fund managers and analysts and strategists, they are only interested in having stocks up so their earnings increase and their bonus pool increases. But in reality, the economy can go downhill and stocks can go up just because of money printing and in Europe, the ECB has proven now that they are very good money printers."

On where to invest in Europe:

"Actually, usually when socialists come in or there is a crisis such as we have in Greece, it occurs usually near market lows. If someone really wanted to take speculative positions, he should look at quality non- financial stocks in countries like Spain, Italy, France, and Greece. I think rebound is coming. The market on a short-term basis is oversold. But if you look at the market action -- first of all, we made a low on the S&P last October at 1074. We went to 1422. The market is down from 1422 to less than 1360. The whole world is screaming we're in a bear market. This is a minor correction. I think it may become a more serious correction as the technical picture of the market has deteriorated very badly and as the S&P made a new high this year on April 2nd, all the European markets are lower than they were a year ago."

Comments

[Darkness]

He is wrong

[ebworthen]

Twist and shout.

QE3 and 4.

[Temporalist]

Fed Foe Ron Paul Breakfasts With Bernanke at Central Bank

http://blogs.wsj.com/washwire/2012/05/09/fed-foe-ron-paul-breakfasts-wit...

"So did Wednesday’s meeting overturn any deep-set beliefs?

“He’s for the gold standard now,” joked Mr. Paul."

[q99x2]

He's no right to talk about Southern California like that. He has some sheister meisters down here selling him properties (because he can't find other safe haven's for his cash) that are about to lose another 5 percent.

Why didn't she ask him why the Mexican workers are returning to Mexico.

Just because Raytheon may be building a few weapons systems for DHS doesn't mean this place is not in a recession. California sucks as far as unemployment and Southern California is much worse than Northern CA.

[RWR]

SEE IF THIS DOES'T PISS YOU OFF!!

http://www.wthr.com/video?clipId=7054149&autostart=true

[Martel]

It did not piss me off. But then again, I do not live in the U.S.

It seems you copied your tax system from Greece, though left out the juiciest bits.

[CCanuck]

4.2 Billion a year.... its hope and change for the kids of Mexico.

[sessinpo]

I differ in my opinion by suggesting we could experience a crash even with QE3. As has been posted by TD, we have been seeing diminishing returns on the printing press. QE3 will not matter. We have massive global imbalances occurring now whether it is debt, transers of PMs and various issues related to currency quality. And those are just the obvious ones.

[Freegold]

There will be no exiting the Euro, it will be suicide. The Euro is here to stay and the solution to both the Europroblem and the USAproblem is gold recapitalising the system. If the Euro would fail we will get there a little bit sooner. 40000+ gold in todays dollar, no problemo.

Gold, go get you some :)

[Bokkenrijder]

Marc has been awfully quiet about Gold lately...

[Martel]

He has been saying it won't probably perform very well in the near future.

I agree with him, because gold bugs need to be squashed every now and then. I'm going to "buy the fucking dip", if it ever materializes. http://www.youtube.com/watch?v=jllJ-HeErjU

[denny69]

The obvious question - How much does Marky-Mark make if another QE rolls around the bend?

[W10321303]

Do the Blood Sucking Zombie speculators on WALL Street have to worry about the same consequences of a BIG crash as all the regular suckers?

Here's why I ask.....(from nakedcapitalism.com)

Wednesday, May 9, 2012 The Bankruptcy “Reforms” of 2005: Creation of a New Debtor’s Prison?

An article by law professor Linda Coco, “Debtor’s Prison in the Neoliberal State: ‘Debtfare’ and the Cultural Logics of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,” (hat tip Michael Hudson) is a an informative, if disheartening, overview of the significance of the bankruptcy law reforms implemented in 2005.

Debtor’s Prison in the Neoliberal State

One might cynically observe that after 25 years of making it easier for consumers to borrow and encouraging them to load up, banks realized that they might have too much of a good thing and realized they needed to improve their ability to extract payments from the credit junkies they had created. But the passage of the 2005 law had been a prize the financial services industry had chased for over a decade. Credit card company MBNA (later bought by Bank of America) was one of the most aggressive backers of the bill. MBNA had penciled out that the new law would increase its profits $85 million a year, by extracting an extra $100 a month on average from consumers in bankruptcy.

As Coco points out, bankruptcy expert Elizabeth Warren said the new law would destroy the consumer bankruptcy system. It greatly restricted access to Chapter 7 bankruptcies (which apply all consumer funds, ex retirement accounts, to existing debts and wipes out the balance) and also made certain types of debt non-dischargeable, most important, student loans (note the change applied to private student loans). It also created hurdles to filing bankruptcy by making the process more costly: higher court charges and attorney fees, as well as requiring useless but borrower-paid credit counseling. As Jialan Wang noted in VoxEU, these changes increased the cost of filing for bankruptcy by 60%. She and her co-authors of a NBER paper found that this had the intended effect of inhibiting families from filing for bankruptcy, and getting an extra chunk of cash (they looked at tax rebates) led to an uptick in bankruptcy filings. She noted:

Liquidity-constrained households are likely to have the most to gain from bankruptcy, yet they are the ones screened out by high fees. Moreover, the increased costs do little to mitigate strategic behaviour such as OJ Simpson’s notorious purchase of an expensive home in Florida to exploit that state’s generous bankruptcy provisions.

This is only one piece of a bigger picture, and Coco sees the overall impact as a major shift between creditor and borrower rights, the creation of “debtfare”:

Under the guise of preventing abuse, BAPCPA imposes a litany of confusing procedures and requirements on consumer debtors and their counsel; therefore it contravenes the purpose of the 1978 Code which sought to provide debtors with a clean slate and a fresh start. BAPCPA destroys a “safety valve [for society] to deal with financial consequences of misfortunes,” and it undermines “one of the few areas of consumer law that works reasonably well to meet consumer needs.” BAPCPA successfully frustrates the operation of the 1978 Code, because it manifests fundamental changes in the class and power structures of the U.S. economy….

Free-market policy and the practice of deregulation facilitated enormous debt loads which resulting in a socio-economic experience of “debtfare”52 for the average American.53 Debtfare is interlocking payment obligations that last for years, such as mortgage payments, credit card payments, car loan payments, and other monthly debt obligations. Debtfare is a socially constructed trap. Political scientists Genevieve LeBaron and Adrienne Roberts explain debtfare as structures “that lock people’s current and future life choices and possibilities into unequal and unfree capitalist relations and limit their social and physical mobility within these relations.”54 BAPCPA supports the structures of debtfare by limiting the possibility of a discharge of debts and by regulating the manner, form and amount of debt repaid. By forcing repayment to lenders both inside and outside the bankruptcy system, BAPCPA mandates a lifestyle of austerity for middle class debtors. Thus, the insidious effect of BAPCPA is the creation of a large group of Americans servicing burdensome debts without any relief.

[Freegold]

What about personal responsibility? One should never go in to debt more than you have collateral against it. If you bought a home and it falls in value you sell before you are underwater. If you lose your job you unload your debtburden until it´s sustainable. Live in a two room rental with a couple of kids if you have to. You ALWAYS make choiches in life, choose wisely and stop blaming the system.

[blunderdog]

   One should never go in to debt more than you have collateral against it.

So how would people start large business ventures?  Or is that immoral activity in itself?

[Freegold]

If you are in a large businees you normally have some capital behind you.Either your own or someone elses. Same thing, if you get underwater the capital is lost. Sell the remainings and get on with your life.

[blunderdog]

That's feudalism.  It's a very stable system.

[Escapeclaws]

"Liquidity-constrained households are likely to have the most to gain from bankruptcy, yet they are the ones screened out by high fees...

By forcing repayment to lenders both inside and outside the bankruptcy system, BAPCPA mandates a lifestyle of austerity for middle class debtors. Thus, the insidious effect of BAPCPA is the creation of a large group of Americans servicing burdensome debts without any relief."

This has Republican fingerprints all over it. The Republican Party is about making the poor suffer, their bread of life.

Note that I am not saying Democrats are any better. I don't like politicians of whatever stripe. But Republicans do delight in watching the poor suffer. They have an existential need for this.

[reTARD]

We are all crash dummies in these rigged markets and crony governance. If they don't get you via your retirement accounts funds or pensions plan funds, they'll get you because you're still a taxpayer.

[jmcaule4]

KWN: Stocks to Crater 27%, Bonds to Rally & Gold to Remain Firm KWN: Greyerz - Investors Need To Be Positioned For More Chaos Zero Hedge: Faber Sees A 1987-Like Crash if U.S. stocks rise without QE3 The Big Picture: Regressing To The Trend Line

[GoodTrader]

I agree with much of what Marc Faber says.