INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor predicted the US fiscal deficit will remain very large and it will mean that over time the US dollar will lose its purchasing power, more money will have to be printed, and additional easy measures will have to take place.
Speaking in an interview with Insider Monkey during the recent Ira Sohn Conference, Faber blamed big government and Barack Obama for the current tumultuous period, characterizing the US President as "by far one of the worst Presidents the US has had" because "none of what he said he would do, mainly change, has actually occurred".
"The priority would be to essentially make the US competitive, but by pursuing expansionary fiscal policies that enlarge the government, you atrophied the private sector," he said.
"The private sector is hurt by too much government involvement, Faber added.
Asked about the next election cycle, Faber said he expected Obama to be reelected "because we have some kind of a tyranny of the masses."
"You have essentially more people getting handouts than large tax payers. And so they are huge voting bloc. Then you have the unions, also large voting bloc. And then you have the government officials. They don’t want to have cutbacks in government and be fired".
"It’s very difficult to cut entitlements. In other words, social security, Medicare, and Medicaid because nobody wants to do that. so essentially the fiscal deficit will stay very large and it will mean that over time the US dollar will lose its purchasing power, more money will have to be printed, more quantity of easy measures will have to take place, and so forth," he told Insider Monkey.
Where should investors be?
You shouldn’t own cash and government bonds but you should be in assets like real estate or equities or precious metals or in commodities, Faber advised.
"The more negative you are about the world and the geopolitical trends which will lead to war, the more likely it is that you will do better in equities than say in bonds and cash," he stressed.
In the latest edition of the Gloom Boom & Doom report, Faber reiterates his long-term view about gold and argues that the precious metal can only go higher because of negative real interest rates.
He thinks long-term investors should be exposed to gold because in either scenario they stand to gain....a deflationary collapse is unlikely to hurt gold because the Fed will simply debase the dollar to get nominal prices higher, ....on the other hand, ....if the Fed successfully inflates asset prices, inflation will be in the double-digits, which would be bullish for gold.
Faber recommends a gradual accumulation of gold despite market fluctuations.
He also reiterates his negative dollar view: A temporary bounce in the dollar would be met with more money printing by the Fed, limiting any sustainable gains. The only scenario where you could see a much higher dollar would be nothing short of a worldwide financial collapse, he writes.
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.