Marc Faber: Prepare For Another War
Marc Faber of the "Gloom, Boom & Doom" report spoke at the Ira Sohn Conference yesterday, and talked about the destructive nature of U.S. monetary and fiscal policy, and a way to play it.
Faber said that U.S. monetary and fiscal policy has created more volatility, and we can expect more of that going forward. Faber mentioned the Long Term Capital bailout, the liquidity that rushed in during Y2K, and the end result. The NASDAQ crashed, falling some 50%, and it still has not come close to those levels.
Faber said that not all growth in the country has occurred during inflationary environments, despite what the Federal Reserve wants you to believe. The U.S. grew from 4 million to 80 million people, and new industries were created during a deflationary environment. He mentioned industries such as railroads that prospered during the deflationary environment, and even mentioned that incomes rose during this time.
He is not confident that the Federal Reserve will be able to get it right this time, as it has not gotten it right before. The Fed missed raising rates by 3 years after the NASDAQ crash. The economy started to grow in November 2001, and the Fed started raising in June 2004, despite the need for it three years prior. The Fed is also slow to realize problems of containment, specifically in subprime, which obviously was not contained.
The Federal Reserve created excessive growth in the system, as evidenced by the debt to GDP ratio, which has increased rapidly over the past few years. To get out of this, the Fed has two options: tight monetary policy, or print and print. Faber says the Fed will not pursue tight monetary policy, so the printing press will just keep running.
Of course, the Fed can't control what we do with the money, which is why bubbles continue to form. Both Alan Greenspan and Ben Bernanke have created massive bubbles, including equities, commodities, bonds, wages, and sometimes currencies. From 2002-2008, Greenspan and Bernanke have created massive bubbles.
To play this, Faber said that cash and bonds are undesirable in this environment, and you should not own U.S. debt. One way to play this is to own ProShares UltraShort 20+ Year Trea ETF (NYSE: TBT). He said that even if the deflationists are right, you should not own government debt.
Faber concluded by saying that he thinks we should prepare for the next war time, and gold might go ballistic. He said having gold all over the world is a safe hedge from potential confiscation.
We will have Marc Faber live on air between two and three May 27, 2011 at www.benzinga.com/live
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