INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor says it is a big error to print money because it rarely flows into the assets central banks aim to boost. He says more people have already sold their gold than have increased their positions and he doesn’t think gold is in a bubble.
Speaking from Mexico City to Matt Miller and Carol Massar on Bloomberg Television's "Street Smart" on Wednesday ahead of a speech titled "When everything else fails, policy makers can always be sure of immortality by making spectacular errors" Faber said: "A big error is to print money. I think it doesn't help in the long run. It can give a temporary boost to economic activity but it doesn't lead to sustained economic growth."
"In fact it creates a mispricing of assets and goods & services and has negative implications on the pricing mechanism," he added
Printing money is the easy part of it, knowing where it will flow to is trickier he noted, adding that money printing in the US hasn't flown into the assets the Federal Reserve wants to boost, namely housing. Instead it created other bubbles overseas and in commodities.
Does he expect further easing?
"For sure there will be QE3, but not right away", Faber said, suggesting the Fed would like to see a correction of up to 20% in equities and then" to have an excuse for QE3".
"My view is there will be QE3, QE4, QE5, QE6......until QE26, until the whole system breaks down," he said
Faber, who turned bearish shortly before the 2007-2009 bear market, says QE2 is fully discounted in the markets. He expects some seasonal strength in April, perhaps a new high, but then we will have a more "significant setback in May, June".
What would be the impact of the Fed stopping QE2 today on the market?
The market will go down, however "the market is designed to go up and down. That is the purpose of having a market economy," he said.
He went on noting that the marginal impact of printing money diminishes, "so every times you need to print more money to push the markets higher".
Faber said the US economy is already out of control and he sees a need for every interest group in the US to make sacrifices.
In the latest edition of the Gloom Boom & Doom report he writes: A level-headed, knowledgeable, and intelligent American friend of mine (she has been buying gold for years) recently observed that, “Only when the American people insist that sound business practices and moral standards be brought back will we be able to give the people of this country a future.” Unfortunately, I believe that the ongoing moral decay among US politicians and the business elite, the irresponsible fiscal and monetary policies, the decline in educational standards and infrastructure, the trade and current account deficit, the weak US dollar, and the heavy- handed and ambiguous meddling in foreign affairs by US officials, are all pieces in a puzzle, which when assembled reads: Failed State.
Where would he suggest investors put their money at this point?
In general terms, Faber recommends real estate, equities, commodities and precious metals.
"An investor should have at least 25%-30% in precious metals," he suggested as he doesn't think the Fed will increase rates to a positive real rate.
Faber also warned precious metals could correct but remain poised to go much higher in the long run and suggested buying the dips.
"I think they [Precious Metals] could also correct," because the breakout in gold above the November-January high is not convincing, "but in the long run with Bernanke at the Fed and Mr. Obama maybe another six years at the White House, gold will go substantially higher," he said.
The price of spot gold for immediate delivery ended March at a new monthly-close record of US$1,439 per ounce at the London Fix.
Thursday saw the Spot Gold Price in Dollars complete its 9th quarterly gain in succession – the longest run since 1979 according to Bloomberg data.
Faber said the number of people owning gold is much lower than many believe.
"Calm down about everybody being long precious metals" he told the Bloomberg anchors. More people have already sold their gold than have increased their position.
"I don't think gold is in a bubble," he stressed.
In fact, "gold is very cheap in comparison to the money and the credit that has been created and in comparison to the size of financial assets in the world," Faber added.
The price of gold slumped 1.4% lunchtime Friday in London, falling back from its highest-ever monthly close as the Dollar jumped on news of stronger-than-expected US jobs hiring in March.
"What we have to see now is how gold fares in an environment of rising interest rates, where holding a non-yielding asset goes against you," reckons RBS commodity strategist Nick Moore, speaking to Reuters.
Note: Dr Marc Faber was born in Zurich, Switzerland. He went to school in Geneva and Zurich and finished high school with the Matura. He studied Economics at the University of Zurich and, at the age of 24, obtained a PhD in Economics. Between 1970 and 1978, Dr Faber worked for White Weld & Co in New York, Zurich and Hong Kong.
Since 1973, he has lived in Asia. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK). In June 1990, he set up his own business which acts as an investment advisor and fund manager.
In 2000 Faber decided to spend more time writing his newsletters as well as growing his advisory business. He moved back to his home in Chiang Mai, Thailand, maintaining only a small administrative office in Hong Kong.
Dr Faber publishes a widely read monthly investment newsletter 'The Gloom Boom & Doom Report' which highlights unusual investment opportunities, and is the author of several books.