Marc Faber says economy not responding well to money printing
Source: BI-ME , Author: BI-ME staff
Posted: Thu November 19, 2009 11:00 am

INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said, considering the size of the stimulus packages and the monetary printing, the US economy hasn't responded well. What have responded well are asset markets, he said.

Speaking in an exclusive interview with India's CNBC TV-18, Faber said: "The benefit of quantitative easing has essentially flowed into Wall Street, into investment banks, into the banking sector but it hasn't flowed into the typical household in the US".

Unemployment is still horrible at the present time with a lot of people being either unemployed or under employed, he said.

As a result, "we have a very strange economy," Faber said, adding "We have booming financial markets, but at the same time the average household – the man on the street is basically suffering."

Answering a question on dollar carry trades, Faber said: " The dollar carry trade is frequently misunderstood in the sense that there are big short positions in the dollars. But one shouldn't over estimate the short positions in dollars because the world is basically awash in the dollars".

Faber believes that following the strong gains in equities so far this year, the risk/reward is no longer that favourable. We can see another 10%-15% rise but "it's very difficult to value assets when you have zero interest rates and when you have a central bank like in the US that has acknowledged and assured investors that they will print money," he said.

Warning against a kind of lose lose nightmare scenario, the legendary investor said: "What you may end up with is that the weaker the US economy is, the more the share market goes up, the more the dollar goes down because of another stimulus package, and further money printing".

On the S&P 500, he says, it is unlikely to break below low of 666. It may however go up to 1200 next year after revisiting 900 levels, he adds.

He expects to see weakness in corporate profits in 2010 and believes that it is unlikely for the developed markets to outperform emerging markets.

Turning to his position on gold Faber said: "We've broken through the US$1000 per ounce level with quite conviction and heavy volume. I believe that whereas in the past the US$1000 per ounce level was kind of a resistance level, now it becomes a support level. I don't think that you'll see gold below a US$1000 per ounce probably ever again."

"So I’m actually quite positive. Maybe gold at this level is a better buy than it was at US$300 per ounce in 2001," he added.

In the latest issue of the Gloom Boom & Doom Report, Faber had expressed some short-term concerns about commodity prices including gold.

"I would regard a failure to hold above the “upside breakout points” in the period directly ahead with great caution.  In the case of gold a decline below US$1,000 would likely lead to further more meaningful weakness, possibly down to between US$800 and US$900," Faber wrote.

Gold prices having held above the upside breakout, Faber now clearly sees the US$1,000-mark as the new floor.

Stating a view on crude oil likely to please proponents of 'peak oil' Faber said: Basically the world consumes more oil than the world is adding in terms of reserves every year. So the level of oil reserves in the world is basically going down and we could have at some stage a more acute shortage of crude".

Will it go up to a US$100 right away? I'm not so sure about that, Faber said.


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