Marc Faber sees a lot more Quantitative Easing as the Fed 'will continue to print'
Source: BI-ME , Author: BI-ME staff
Posted: Wed March 16, 2011 1:39 pm

INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said the Japanese earthquake and fears of a nuclear meltdown are a catalyst for a global correction in equities and that falling stocks will be met by further Quantitative Easing by the Fed.

Speaking to CNBC Squawk Box Tuesday, Faber said: 'I think all stock markets & commodities markets were due for a meaningful correction because we have more than doubled since March 2009".

"I think this is an event that is most unfortunate but obviously it is a catalyst for a global correction in asset markets in particular in Japan".

He went on to provide his latest views on the impact of the current events on the Japanese economy, inflation, equities, bonds and the Yen.

"As an investor it is a human tragedy and as an economist you have to say Ok, we have essentially destruction in Japan which will necessitate very heavy spending, reconstruction expenditures that will be inflationary for the Japanese economy and somewhat positive for equities and somewhat negative for JGBs (Japan Government Bonds) and in my opinion in the long-term very negative for the Yen," Faber said adding that this is a "turning point for the Yen'.

"As an economist investor, I would say this huge sell-off is an investment opportunity in Japanese equities but if a meltdown occurs then all bets are off," Faber warned.

Asked by the CNBC anchors whether the Japan situation would have any impact on the Fed's Treasury purchases, AKA Quantitative Easing (QE) and whether it would make it harder for the Fed to pull back in June, The Gloom Boom & Doom editor said he expected further equities weakness and suggested the Fed will pull back until the S&P drops up to 15%.

"We may drop 10%-15%. Then QE 2 will come, (then) QE 4, QE 5, QE 6, QE 7—whatever you want. The money printer will continue to print, that I'm sure," he predicted.

So is additional Quantitative Easing in the US based more on what happens to the S&P than to global growth, Faber was asked.

"I think Mr. Bernanke doesn't know much about the global economy but he probably watches the S&P every day," he said, adding that although QE may temporarily stop in June he still expects more Quantitative Easing. There isn't anything else they can do.

Later in the interview, he clarified, "Actually I made a mistake. I meant to say QE 18".

Federal Reserve officials signaled they’re unlikely to expand a US$600-billion bond purchase plan as the recovery picks up steam.

The US economy is on a “firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said in a statement yesterday.

While commodity prices have “risen significantly,” inflation expectations have “remained stable,” the Fed statement added.

As for the employment situation in the US, Faber said in general the economy has bottomed out and a mild economic recovery is ongoing, but the outlook for US employment is not particularly good.

What about oil?

In general, a nuclear meltdown or the accident that happened in the nuclear reactor, is mildly positive for oil, Faber said.

"I still think in a risk/reward view oil is a very attractive commodity," he noted.

The famed investor then reiterated his views on oil as first expressed in a CNBC interview last week.

"If you take a very optimistic view of the world namely a global economic recovery, demand in the Western World will pick up and demand in the Emerging World will continue to rise strongly, so from a very optimistic point of view you should be long oil," he said.

On the flip side, "if you take the ultra bearish scenario, like I do, where you think everything will collapse, that there will be World War III and collapsing countries in the middle East, then supplies will be curtailed and prices will go up".

"So, in either scenario, you are OK in oil, but if oil goes to US$200 a barrel, "it is likely that there will be an oil excess profit tax imposed by the US government," he warned.

In concluding remarks, Faber said: "Until very recently the Fed had very few critiques. They were very few people who criticized the Fed's policies under Mr. Greenspan and Mr. Bernanke. Over the last few months, a lot of critical comments have come up about the Fed and its money printing habit. If The S&P drops 20% all the critics will be silent and they will all applaud renewed money-printing, sadly."


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