'The risk is really not to own any precious metals at all,' says Marc Faber
Source: BI-ME , Author: BI-ME staff
Posted: Sat February 6, 2010 12:16 pm

INTERNATIONAL. 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.


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