Marc Faber says 'we are all doomed,' predicts cyber wars
Source: BI-ME , Author: BI-ME staff
Posted: Fri January 22, 2010 5:48 pm

INTERNATIONAL. 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.

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