THE REAL DOCTOR DOOM !
Marc Faber, George Soros agree gold prices set to rise
Is gold in a cyclical bull market that could last for years to come or is it another asset bubble created by loose monetary conditions about to crash? The debate has been raging for some time and shows no signs of abating.
But, the strange thing about this debate is that some of the perceived opponents may actually be more in agreement than they would let us believe.
Renowned billionaire financier George Soros became the latest investor to issue a warning in January that with interest rates low around the world, policymakers are risking generating new bubbles which could cause crashes in the future.
Last month it was revealed that Soros more than doubled his fund's holding in the biggest gold exchange-traded fund (GLD) in the fourth quarte of 2009r, according to a filing with the US Securities and Exchange Commission.
Soros Fund Management LLC held nearly 6.2 million shares of GLD valued at about US$663 million as of December 31, adding 3.728 million shares valued at US$421 million That’s up from roughly 2.5 million shares at the end September.
Speaking to The Daily Telegraph, on the fringe of the World Economic Forum, Soros said: "When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment". The ultimate asset bubble is gold," he added.
So what's going on?
“Perhaps Soros thinks gold is going to bubble but the bubble is going to last for a while and he wants to profit from it,” Jeffrey Nichols, managing director of American Precious Metals Advisors and an adviser to central banks and mining companies told Bloomberg.
“We could have a bubble but gold can reach US$2,000 or US$3,000 before it’s over,” Nichols said.
Faber: Gold bull
Marc Faber the Swiss fund manager and Gloom Boom & Doom editor has been consistent about his bullish views on gold.
Speaking at Russia's Troika Dialog Forum in Moscow last month, Faber said: "The governments of every developed economy will eventually default on their sovereign debts, so the one thing he will never do in his life is 'sell my gold'. Potential defaulter include the US, the UK and Western Europe.
"I'm convinced the US government will go bankrupt, but not tomorrow, and before they do they will print money [and] you'll get a depression with very high inflation rates."
In an interview with the Financial Times in Hong Kong last week, Faber said: "All paper currencies will continue to lose their purchasing power as they have over the last 100 years or so".
"I suggest that people accumulate gold. They shouldn't market-time the gold price, because we're going to have volatility...But I will not sell my gold, not for as long as [the current US administration] is structuring fiscal, monetary and foreign policies.
"In the US, I don't think we will have real [positive] interest rates at any time in the next 10 years."
Faber has said in many interviews that he sees dips in gold as an opportunity to buy some more bullion.
But how long can the gold bull market last?
"The gold bull market will come to an end when sovereign wealth funds – sick and tired of their investments in financial stocks – will finally purchase gold," wrote Faber back in January 2008 in his Gloom, Boom & Doom report.
What does the market think?
Traders remain more bullish than in past years, with speculative long bets on gold on the New York Mercantile Exchange outnumbering short wagers by more than 7-to-1, compared with less than 5-to-1 in the three years before the September 2008 collapse of Lehman Brothers Holdings Inc. spurred demand for gold’s perceived safety, reported Bloomberg.
Central banks likely will expand their reserves for a second straight year, said CPM Group, a New York commodities researcher. The last time they added to stockpiles, in 1988, gold fell 15% and then took 15 years to recoup its losses, suggesting they may not be the best indicator of investment timing. Central banks hold about 18% of all gold ever mined, according to the news provider.
And bullion analysts?
Goldman predicts gold will reach US$1,235 in three months and US$1,380 in 12 months.
Barclays Capital says the metal will average US$1,235 in the fourth quarter. HSBC says it may peak at US$1,300 this year.
“I absolutely believe it’s heading into a bubble, but that’s why you buy it,” Charles Morris, who manages US$2.5 billion at HSBC Global Asset Management’s Absolute Return Fund in London told Bloomberg.
"A bubble is good,” he said, forecasting the metal may rise to US$5,000 in five years to explain why 11% of his fund is in gold.
Mark Heyhoe, senior mining analyst at Westhouse Securities, told the BBC: "He [George Soros] has previously said that gold is the ultimate hedge against inflation - if you think inflation's going to rise, then I'm not surprised he bought into gold.
"A lot of people were starting to look at gold, and a lot of people follow what he does," he added. "But you need to buy a lot of gold to shift the price."
As well as raising its stake in SPDR, Soros Fund Management also increased its holding in Canadian gold producer Yamana Gold.
Soros more bullion friend than enemy
"If you actually hear what George Soros said – rather than taking headline writers for gospel – gold's Hungarian friend is less of an enemy than he appears," writes Adrian Ash in a BullionVault.com article.
"But it's just possible he was making rather more accurate use of the English language than [British journalists]..."
Ultimate in Hungarian translates into végso
"Ultimate" means final. So does the Hungarian translation, végso. It does not mean "mother-of-all"...not outside what was once called Fleet Street, that rat-run of hacks now scattered along the Thames but still a very long way from the language schools of Budapest," Ash, the the editor of Gold News and head of research at BullionVault, adds.
"It's also worth noting, perhaps, that after escaping Nazi deportation in 1944, and fighting the occupation a year later, Soros is reputed to have begun his financial career trading currencies and jewelry amid the hyperinflation which then swept Hungary as its war-time economy and fascist puppet-government collapsed."
"By July 1946, the "ultimate" stage of that currency event – the worst-ever recorded inflation in history – shop prices were doubling every 15 hours. One gold Pengo coin, minted in 1931, was worth 130 trillion paper Pengos...," Ash concludes
'The risk is really not to own any precious metals at all,' says Marc Faber
Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said the US will be forced to massively monetize debts and reduce it through inflation.
Writing in the latest edition of the Gloom Boom & Doom report, Faber said the US will face difficult decisions soon. It could default on its debt obligations or monetize debt and reduce it through massive inflation.
“In my opinion,” he says, “additional massive monetization of debts is the most likely outcome”.
He however points out that “frantic monetization” is what caused the current banking problems.
Faber sees big banks as 'dangerous' by-products of the Fed's expansionist monetary policies, deeply embedded in a bull market culture of entitlement and greed.
The famed investor has been repeating his long-held views that the Federal Reserve’s expansionist monetary policies are the causes of the financial crisis by creating a large amount of leverage in the system and creating a credit-addicted economy.
Faber believes that at some stage, about 35%-50% of tax revenues will be used just to cover the interest payments on the US government debt. He says this is unsustainable and at that point the the Fed will be really forced to print more money.
“Maximum within 10 years time more than 35% of tax revenues will have to be used to pay the interest on the government debt and then you are in trouble – because then there will be not enough money out of the budget to pay for other stuff. I’m convinced the US government will go bankrupt, but not tomorrow. And before they go bankrupt, they’ll print money, and then you get high inflation rates, you have a depression and eventually they’ll go to war.”
How can we come back to our senses?
Faber says we need "to return to a rational monetary policy based on sensible interest rates, and an end to frantic monetization of federal debt and a stable exchange value for the dollar.”
Gold bull
It will be more difficult to make money in 2010 as the markets become more volatile, according to Faber.
“I think 2010 will be more of a year when not to lose any money will be very important,” said Faber. “I am a little more cautious in general.”
Regarding commodities, and precious metals specifically, Faber says "the risk is really not to own any precious metals at all."
Faber remains a bull on gold, and again confirmed it as a place of safety and a haven in ongoing turbulent times.
He acknowledges the possibility of a gold correction, depending on the liquidity in the markets, and says it could drop as low as US$950-US$1,050 an ounce.
That would only be a temporary event and would be the time to load up on more gold if that's the circumstances.
Choppy equities
As far as equities go for 2010, Faber believes they will perform in an up and down manner throughout the year.
In the near term, should stock markets – following a brief rebound in the first few days of February – decline into the second half of February, I would buy some stocks for a rebound. And if stocks now fail to decline and continue to rally right away I would use strength to lighten up positions.
Dollar rally won't last
While the dollar may rebound in the short term because it's been oversold, a rally won't last because the US will be forced to print more money to pay its debt, Faber recently said
I own my physical gold and I will never sell it, says Marc Faber
Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, warns that when the next crisis hits, 'you'd see people flee from all paper currencies into precious metals'.
Speaking in an exclusive two-part interview with The Daily Crux, Faber said: "When the percentage of interest payments to tax revenue gets too high, it will become clear to everyone that the government will need to print money in earnest to make these payments. That's when you're likely to see a crisis of confidence in the dollar".
"The question is will there be a crisis of confidence in all paper monies and what will the reaction of investors be? I would imagine that when the crisis really emerges, you'd see people flee from all paper currencies into precious metals," Faber added.
Does he think gold will fall anytime soon below US$1,000, or even US$900?
Faber wouldn't rule out a move to the US$950-US$1,000 level, where gold broke out last year.
"My sense is that if gold went lower than US$1,050, the Chinese would come in and buy some. I think they're waiting for lower prices".
"But honestly, I'm telling everybody in the world the same thing. I own my gold and I will never sell it, especially when I see clowns like Ben Bernanke, Larry Summers, Tim Geithner...
When I'm looking at all these characters in government, I want to own physical gold."
"We're just coming out of a seasonal period where gold is often weak, and heading into a period of seasonal strength, so it's possible gold may start outperforming here," Faber said.
Explaining how investors often miss on long term bullish trends by timing the market, Faber said:" As prices rise in a bull market, investors often try to be clever, and will sell thinking they'll buy the asset back when it drops back down a bit. Of course, many times they never get the chance to do that, and end up missing a large portion of the rise."
Speaking to 'CNBC Squawk Box Europe' last month, Faber said "we already have now a gold standard created by the market place."
"We have the exchange traded funds that have proliferated and we have more and more physical buying of gold," he added.
The famed investor pointed out that between 2001 and 2008, gold outperformed bonds and stocks, but starting with 2009 stocks outperformed. "This means investors must own gold because generally retail investors cannot move in and out of different assets like institutional investors".
Investors should avoid bonds and cash over the next 10 years and choose stocks instead, he said, but warned that printing money will lead to an economic collapse in the end.
"Before we have the final collapse that will be a deflationary collapse, we will have more and more money printing."
“I think interest rates forever in the US will be at zero. By zero I mean below the rate of inflation," Faber told CNBC.
In a recent interview with a German website Faber said it is impossible for the American government to fulfill its obligations because the current deficit is already US$1.6 trillion this year.
The total US debt is already 375% of the GDP, excluding medicaid medicare and social security. If you include these, the national debt is at 600% of the GDP, he said.
The legendary investor reiterared his belief that eventually there will be a big bust and then the whole credit expansion will come to an end. But before that happens, governments will continue printing money which in time will lead to Zimbabwe-style hyperinflation, and the economy will stop responding to stimulus.
Marc Faber says 'we are all doomed,' predicts cyber wars
Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said the US administration's interventions in the market will not solve problems and will bring about unintended consequences.
Speaking today on CNBC's Squawk Box Europe, Faber said: "Basically I think everybody will agree that in an economic system the market solves problems best."
"I don't have a very high opinion of Mr. Obama," Faber said, adding "I was negative of Mr. Bush but I think Mr. Obama makes him look like a genius."
The decision to reduce interest rates to zero drove oil prices to a peak in the first half of 2008, because investors were looking for a place to put their money to get a return, he explained.
The unintended consequence was that "the annual expenditures for oil in the US increased… you had another US$500 billion tax on the consumer. That pushed the consumer down even more in his reduction of consumption," he said.
"Most people don't have money left after the policies implemented in theUS," Faber said. "These people, they should all send a thank you note to Ben Bernanke for printing money because it didn't benefit the US, it benefited emerging countries."
"When someone tells me the government should regulate the banks, they shouldn't. It's a disaster. But they should have interest rates that are high, that curtail speculation," Faber said.
The legendary investor reiterared his belief that eventually there will be a big bust and then the whole credit expansion will come to an end. But before that happens, governments will continue printing money which in time will lead to a very high inflation rate, and the economy will stop responding to stimulus.
"The average family will be hurt by that, and then in order to distract the attention of the people, the US governments will go to war," he said.
In one of his most memorable rants, Faber then explained what kind of war he sees in the future.
This war will be different from World War I where troops faced each other in trenches or World War II where tank divisions faced each other, he said. This will be Cyber War, he added. A war where you can turn a switch and turn the London electricity supply off. This will be a war where you can stop airplanes from flying and bring the whole financial system of a country to a halt.
Faber even alluded to the curent hacking issue between China and internet giant Google, as an example of what may be happening in the future at a larger scale.
The next crisis is likely to be in sovereign debt, because interest payments on government debts could reach between 35%-50% of government revenue in 10 years, according to Faber. Defaults on sovereign debt are likely to proliferate, he said.
"In my opinion it's beyond repair. If the US were a corporation and had proper accounting, they would be 'Triple C, ' nobody would buy their bonds ," he pointed out.
"I think that sovereign debt is priced to perfection, you assume they will pay with the exception of maybe Greece, but that is a tall assumption," Faber told CNBC
"Having said that, in the near term I think the dollar could rally because the others are no better, the others are worse," said Faber. "I think that the dollar will rally now against the euro and against the pound sterling and probably against the yen."
The US will likely try to inflate its way out of its fiscal deficits, but many other countries do not have this option as their external debts are denominated in foreign currencies, Faber wrote in the latest issue of the Gloom, Boom & Doom Report
At some point, market participants will have second thoughts about the ability of governments to pay their debt and will shun sovereign credit, which in turn will take yields higher, accentuating the problem, according to the report.
"Investors who rushed into government-guaranteed debts in 2008-2009 in the belief that AAA-rated governments would always pay the interest on their debts and repay the creditor in full upon maturity could be in for a rude awakening sometime in the next 5 to 10 years," Faber wrote.
"So, whereas it was wise to own long-term US government bonds between 2000 and 2009, for the next 10 years I expect a massive outperformance of equities compared to bonds," he said.
Restating his views on gold, Faber told CNBC that the yellow metal is likely to hover between US$950 an ounce and US$1,050. "I doubt we'll go below 1,000," he added.
Investing in stocks is the way forward, because they protect against inflation, according to Faber. Real estate would be another asset for those seeking protection against price rises, but it is easier to be taxed.
"I think both the US markets and Japan this year might outperform emerging markets," he said..
Some of the American states have deficits as high as 45% of their revenue and increasing taxes to cover the gaps is not likely to work because people would just move elsewhere or leave the US altogether, Faber said.
"When you look at the US… it's a total disaster, we're all doomed, we're doomed," he said
We already have a new gold standard, says Marc Faber
Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, said the markets have created their own gold standard because of uncertainties regarding other asset classes.
Speaking to 'CNBC Squawk Box Europe' Thursday, Faber said: "I think we already have now a gold standard created by the market place".
"We have the exchange traded funds that have proliferated and we have more and more physical buying of gold," he added.
Faber pointed out that between 2001 and 2008, gold outperformed bonds and stocks, but starting with 2009 stocks outperformed. "This means investors must own gold because generally retail investors cannot move in and out of different assets like institutional investors," he said.
Investors should avoid bonds and cash over the next 10 years and choose stocks instead, he said, but warned that printing money will lead to an economic collapse in the end.
"Before we have the final collapse that will be a deflationary collapse, we will have more and more money printing."
“I think interest rates forever in the US will be at zero. By zero I mean below the rate of inflation," Faber told CNBC.
The same pattern occurred after the 2001 recovery. The fed fund rates went from 1% in June 2004 to 5.25% in August 2006 but there was never any monetary tightening
"It will result in a lot of inflation but inflation has a lot of different symptoms."
The financial sector, especially firms that know how to move money quickly between various asset classes, stand to gain from the increasing volatility, Faber said.
Discussing US Treasurys, Faber said an extreme bubble has been deflated for the moment and yields are likely to rise sharply over the next years.
"I still think that Treasurys are overpriced," Faber said told CNBC.com.
Yields on 10-year US Treasurys are likely to rise to between 10%-20% over the next 5-10 years because of inflation and oversupply, he said.
Writing in Gloom, Boom & Doom Report, Faber said Money-printing is just another way for governments to silently default on their debt.
"When a company or a government actually default on their payment obligations, the process is relatively fair because lenders get just 30, 60 or 80 cents a dollar for the money they lent," Faber wrote.
"But if a government decides to default through money printing, the burden of the default isn't shared equall".
"Defaulting through money printing means the repayment of the creditors occurs in a currency whose purchasing power was severely curtailed through the money-printing process," Faber explained.
Rising cost of living, a depreciating currency against other currencies or against precious metals and commodities are common symptoms of a loss in the purchasing power of a currency.
In a CNBC TV-18 interview earlier this month, Faber said gold prices will continue to rise in value against all depreciating paper currencies.
As gold's supply can't be increased at the same rate as you can print money, Faber recommended everybody should buy some gold every month "forever".
In an interview with the Financial Times in Hong Kong last month, Faber said: "All paper currencies will continue to lose their purchasing power as they have over the last 100 years or so".
"I suggest that people accumulate gold. They shouldn't market-time the gold price, because we're going to have volatility...But I will not sell my gold, not for as long as [the current US administration] is structuring fiscal, monetary and foreign policies
'Buy some gold every month' as protection against falling currencies, says Marc Faber
Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said gold prices will continue to rise in value against all depreciating paper currencies,
As gold's supply can't be increased at the same rate as you can print money, Faber recommends everybody should buy some gold every month "forever".
Speaking in an interview with India's CNBC-TV18, Faber said: "I don’t think the dollar will make a new low against the euro. The dollar bottomed out at 1.51 against the euro".
"Since November we had a correction in gold prices which bottomed out at US$1,045 per ounce on February 5. "The dollar and the euro have been weak against gold. We are now at US$ 1,138 per ounce," said Faber, adding that against gold "all paper currencies will continue to depreciate over time".
We had a very powerful rebound in US Dollar not against the Asian currencies but against the euro and against the Pound sterling
Faber expects the dollar to remain firm against, especially the pound sterling and the euro.
"The euro has been very weak against the US Dollar. Since November 25, we have gone down from 1.51 to 1.34. We are at 1.36 and we can rebound to around 1.40 before going lower. In general, the euro will weaken further against the US dollar not that there is anything good about the US Dollar, it is just that at the moment it is less bad," he told CNBC-TV18.
In an interview with the Financial Times in Hong Kong last month, Faber said: "All paper currencies will continue to lose their purchasing power as they have over the last 100 years or so".
"I suggest that people accumulate gold. They shouldn't market-time the gold price, because we're going to have volatility...But I will not sell my gold, not for as long as [the current US administration] is structuring fiscal, monetary and foreign policies.
"In the US, I don't think we will have real [positive] interest rates at any time in the next 10 years."
Gold offers wealth protection
Speaking in a CNBC interview Thursday, Faber summarised his stance on gold by saying: "Everybody should buy some gold every month forever".
Explaining his bullish stance, the famed investor said: "Gold is not a liability of someone else, you really own it, you keep it in a safe deposit box, its quantity can not be increased at the same rate as you can print money which will eventually again weaken the US dollar. I am not saying that the dollar will go straight down, but eventually the purchasing power of money will lose."
“I’m not saying that the dollar will go straight away down because other currencies apparently like the euro are even worse than the U.S. dollar at the present time,” he added.
Buy EM Equities
Clarifying his stance on equities, Faber said: “ Eventually if you print money, the purchasing power of money will lose [value] and what will happen is stocks will adjust on the upside..if you believe in equities, I would rather buy Vietnamese shares than US shares because I can make the case that the economy there will grow much faster than in the United States, from a much lower levels admittedly”.
“Or I would buy Indian, Chinese, Malaysian shares. I think if you want to be in the US stock they are better alternative than US stocks,” he added.
Greece plan won't work
Answering a question on Greece, Fabers said the South European country will be bailed out indirectly by the ECB, but the plan won’t succeed.
"I don't think it will work out, and I think other countries like Spain and probably Portugal (and Italy) will then also have to be bailed out eventually, and it will lead to more monetization in Europe, one of the reason the euro has been so week...
The pain of the austerity will be very, very burdensome on Greece, and eventually the economy can not grow with the kind of budget they will have to enact, and under these conditions their currency is way overvalued (they are in the euro). And so without the ability to grow, their ability to pay the interest and repay the debt will actually diminish...."
Great Depression II?
In a reply to a question by CNBC on the US and other countries having always been able to dig a way out their own troubles and why he thought this time was different, Faber pointed out that in the 1930s we did not have the credit card and the US government did not have liabilities such as Medicare and Social Securities. The interest payment will grow the 20, 30 or even 50% of the federal budget over the next decades.
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