Excess Capacity & Deflation: Marc Faber opines on Deflation

Marc Faber, Editor and Publisher of “The Gloom, Boom & Doom Report’” talks about deflation, quantitative easing and excess capacity.

What about QE being counterproductive in the sense that it actually increases deflationary pressures? The premise is that by keeping rates artificially suppressed, central banks make it impossible for the market to purge itself of inefficient actors. As a result, otherwise insolvent companies remain operational, adding even more to excess capacity. What do you think?

Yes. I think that is a very good point. That if you print money, the money will not flow evenly into the economic system and this has already been observed by Copernicus who wrote about money and it was later also observed by David Hume and by Irving Fisher that when you print money, the money flows do not benefit all classes of society and all industries equally at the same time.

What then happens is that you look for instance at commodity prices, ok, we had money printing and then prices rose but not only because of money printing, they rose mostly because of the incremental demand from China, but the Chinese boom came to some extent from money printing in the US which led to rising trade and current account deficits until 2008, until the crisis. Since then actually in terms of goods, the trade balance in the US has worsened again, further, but because of the oil industry the overall trade and current account deficit has been diminishing.

The point is simply this, the over capacities that we have in some industries like steel in China, cement and in resources, iron ore, this was made possible by money printing. I am not saying only, by to some extent money printing was responsible. The housing bubble, the housing inflation in the US was made possible by money printing and keeping interest rates artificially low.

Now we have a bubble in sovereign debt and we have a bubble in equities, certainly in US equities.
Now we have a bubble in sovereign debt and we have a bubble in equities, certainly in US equities. When that bubble deflates eventually in sovereign debt and in equities, what the impact will be on the economy will be interesting to watch because the markets are not prepared for rising interest rates.

Interview conducted by Johannes Maierhofer and Peter Matay

Full Interview - http://www.marcopolis.net/the-big-pic...




Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.

Deflation : We are at The beginning of a more significant Asset Class Deflation

Marc Faber : We are probably at the beginning of a more significant asset class deflation. If you look back, we had huge increases in asset prices, whether it is real estate, equities, bonds, gold or commodities.
When you print money, prices do not go up evenly and they do not fall all at the same time. So, the money flowed between 1996 and March 2000 into high-tech NASDAQ stocks and also in India. Then this was deflated and post 2000, we had in the US the colossal credit bubble where the money flowed mostly into housing which was deflated after 2007.
After that, we had a huge flow of funds into emerging markets and emerging market bonds. I think that will also be deflated as in some cases we have already gone down quite a bit.
In case of India, the Indian ETF is now down 32% from the November 2010 high. It has performed miserably, relatively to the US. So the market will bottom out, but it is too early to buy anything at the present time. - in a recent interview with ET NOW

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.

There will be a Massive Deflation in Financial Assets

MARC FABER : I feel deeply uncomfortable to hold cash in a bank and I think we are in an environment where financial assets are going to come under a lot of pressure at some point , Now will that some point be with Dow Jones at 20 000 , or 15 000 or 30 000 ? who knows ? but all I know is that the financial sector is disproportionately large to the global economy and that there will be a massive deflation in the financial assets
  In Fox Business News interview : click here to watch the full interview >>>>>>>


Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.

I do not really see any Deflation in the system at the present time

Marc Faber : Yes, ... because they focus say on one sector of the economy, which is the housing market or so, or they focus on the debt deflation that we have at the present time to some extent because the household sector has been reducing its debt on credit cards, and we have also some de-leveraging in other sectors of the economy. But that is offset by the government fiscal deficit and at the same time also by monetization on a massive scale. So I do not really see any deflation in the system at the present time. - in FSN

Marc Faber : We should have been in deflation after 1980

Dr. Marc Faber : "...We should have been in deflation after 1980 because the Kondratieff peaked out in 1980 or in the mid-seventies to the eighties and then we have a downward wave in commodity prices and declining interest rates. That is the time we should have had deflation. But now that commodity prices are turning up it‟s more likely that we are in a very high inflationary environment and the reason I have this debate with the deflation is not so much that they believe in deflation and that I believe in inflation - but their conclusion to buy U.S. government bonds in a deflationary environment is, of course, a disastrous recommendation because if you really have the credit collapse, the deflationists are arguing about, then obviously tax revenues will collapse and the fiscal deficit will go to the moon.I mean, Tim Geithner just signed the treasury report about the budget deficit about the financing of the U.S. for 2010. The deficit was not $1.4 trillion but $2 trillion signed by him. And so the government debt goes up and up and up and up and then the interest payments from the government go do go up and the quality of government debt goes down and so eventually you have a junk bond in the U.S.. I believe the U.S. government bonds are junk already today but as long as you have rating agencies that are dreaming and publishing reports that are completely useless, people still buy the government bonds in the U.S. " in a recent interview with Chris Martenson

Marc Faber on Deflation and Inflation

Marc Faber: Yes. And also I’d like to point out that in an economic system you can always have, in some sectors of the economy, deflation and then in the other sectors inflation. And we have now a global economy. I can assure you, you can go anywhere in the world – whether it’s Brazil, Africa, Asia, Central Asia, Russia.

The price level today is of course much higher than 20 years ago or ten years ago. So the US and western Europe, they may have on an international scale a bias towards maybe deflating a little bit, certainly. Real wages are deflating. But in emerging economies you have a lot of inflation. In some countries you have food prices going up annually at 20 percent per annum. And nobody can tell me that his energy bill is today lower than it was ten years ago.

Because the price of oil is much higher. It is up from ten dollars a barrel to say eighty dollars a barrel.
via the Daily Reckoning

Mohamed El-Erian deflation risk at 25%

Mohamed A. El-Erian, chief executive officer at Pimco Pacific Investment Management Co., said last week the possibility of deflation and a recession in the U.S. is 25 percent.El-Erian helps run the world's biggest bond fund with more than $1 trillion in assets under management.
"Structural problems need structural solutions" “Forget about being hostage to mindsets that are very cyclical and look broader, because there are some major structural changes -- there’s some major realignment both at the national level and at the global level,” Mohamed El-Erian Told Bloomberg in a radio interview on Aug. 13, 2010 “We should not over-depend on the Fed,” he added. “The Fed does not have enough instruments for what we’re looking at. You need other agencies to get involved. We’re not getting any structural solutions.”




Aug. 13 (Bloomberg) -- Mohammed El-Erian, chief executive officer and co-chief investment officer at Pacific Investment Management Co., discusses Federal Reserve monetary policy. El-Erian, speaking with Tom Keene and Ken Prewitt on Bloomberg Radio's "Bloomberg Surveillance," also discusses deflation and the outlook for the U.S. economy. (This report is an excerpt of the full interview. Source: Bloomberg)

Marc Faber : No deflationary bust under Bernanke's Fed

Dr. Marc Faber in a lecture on asset allocation & tips on gold in Abu Dhabi explained that extreme deflation scenarios are extremely unlikely under the Bernanke Fed , and that he prefers Gold and resource company equities over Cash and US treasuries , he pointed out that with the U.S. 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...

Via : http://www.arabianmoney.net/gold-silver/2010/08/08/marc-faber-lectures-abu-dhabi-on-asset-allocation

Marc Faber : stocks may adjust in real terms but not necessarily in nominal terms to the extent that the super bears are predicting

Marc Faber : not convinced of austerity measures as the way to go , Expect fiscal deficit to remain high

Marc Faber : Well Basically we got very over sold at the beginning of July and since then we rallied quite strongly , I think that we can rally some what more but if we look at the S&P the low was 1010 and the previous support was 1040 and the top at the end of April was 1219 so around 1170 there is a lot of resistance and it will be very difficult for the market to get through that resistance ....
we have to distinguish between what central Banks and the governments in the western world say and what they will do , I am not a great believer in this austerity that they are proclaiming , I think the fiscal deficit will actually stay very high or even increase and I think that if they decrease the fiscal deficit then it will be offset by very expansionary monetary policy in other words monetisation , so the whole burden to support the economy will fall on the monetary policies then they'll print money like crazy and so I would not pay too much attention to what they say but to what the markets do and it seems to me that the people that predicted the DOW JONES 1000 or S&P 500 or S&P 200 I think they're misreading the facts that under fiat monetary system you can print endless quantity of money and so stocks may adjust in real terms but not necessarily in nominal terms to the extent that the super bears are predicting ...
Nouriel Roubini Gary Shilling David Rosenberg these are the true deflationists says doctor Marc Faber they advice to be in US government bonds and to basically avoid everything else ...adds Marc Faber : I do not think that the US Bonds are desirable investment for the next 5-10 years....Investments in US Bonds and cash may be a very risky strategy in the long run , Dr Faber rather sees inflation coming than deflation : I am not a great believer in deflation , all the prices around the world are going up says Dr Faber ...


Marc Faber, investment guru and editor and publisher “The Gloom, Boom & Doom” report, said that markets were in an oversold zone in early July and since then global markets have rallied strongly and could rally somewhat more.

Marc Faber : Symptoms Of Deflation

Symptoms Of Deflation
"Another symptom of growing deflationary pressures and expectations is a collapse in lumber prices and the recent rally in long-term government bonds."

in FTB.com

Deflation Would Be a Good thing

"I think it would be very good for the world to have deflation"

Marc Faber in CNBC

Marc Faber on CNBC - Full Interview 6/17/10

Marc Faber : Deflation Would be a Good Thing Thursday, 17 June 2010

Marc Faber the author of the gloom boom and doom report was interviwed by CNBC this 17 June 2010 : I think we are in a correction phase , we got over sold as of two weeks ago 10 days ago we're rebounding , I think we can go on the S&P to around this resistance level 1170 and then we will probably have a bad September October ...I wonder who amongst this table will buy now a Spanish bond for ten years at 4.91 percent ...
Spain is about to issue 10 years and 30 years bonds , but Marc Faber does not seem bullish on them ...he says better be in equities at this point than in Spanish bonds...Marc Faber says he prefers Gold and Gold Shares
Marc Faber :"I think any government intervention has unintended consequences and is negative"
6-17-10 Marc Faber of the Gloom Doom and Boom report talks with CNBC Europe about the global economy. Faber states that inflation is in system and would like to see deflation in global economy. He is buying gold because there is nothing else worth buying. These are highlights of the interview featuring Marc Faber.
The global economy is likely to slow in the second half of the year, according to Steen Jakobsen from Limus Capital Partners. But that doesn't mean that stocks can't continue higher, Marc Faber of "The Gloom, Boom & Doom Report" told CNBC Thursday