Sorry Tom, I am reporting the link you provided on MB thread back to you again. This thread is to chronicle the follies of the Feds and US treasury.
afr.com.au
---------------Dr Doom: gold, Murdoch, Soros
By Tony Boyd
Dr Marc Faber is the Hong Kong-based contrarian also known as Dr Doom. He writes a monthly newsletter called the Gloom, Boom and Doom report for 900 institutions and wealthy private individuals including some of Australia's better known multi-millionaires. Here he talks to Tony Boyd about his latest views.
On the gold price
Let's assume for one reason or another the psychology in the world changes in favour of an inflationary psychology or for whatever reason people say they want to own gold.
With the world's population of 6 billion people, if each person buys one gram of gold each worth about $13 that would be about 6,000 tons of gold when there is an annual supply of 2,500 tons. The swing factor will be dramatic.
On gold and central banks
I am prepared to bet with anyone in Australia that the central banks, which today are selling gold at less than $US300 an ounce, will go back and buy it at more than $US1,000 a ounce in a few years' time.
I am convinced it's going to be that way because I think eventually the power will be taken away from the central banks and the world will go back to some kind of financial system that has automatic built-in stabilisers.
The gold standard had some faults but the whole industrial revolution and the tremendous growth in the world that occurred between 1800 and 1930 occurred under a gold standard, so you cannot dismiss the fact that the gold standard had some merits.
On a soaring gold price
I think the gold price will go up so dramatically that governments will introduce excessive profit taxes on producers or, worse, expropriate them altogether.
If the gold price moves from say $US280 at the present time to $US400, gold shares will go up by up to 200 per cent, easily. So you have more leverage in gold shares, but if the gold price goes to more than $US1,000 then I would worry about excess profit taxes.
On central bankers
The whole world believes that the central bankers are so smart they can steer the world economy forward and backwards. Nobody can steer any market.
The markets are more powerful than people. It's a paradox in my opinion that at a time when everyone knows the planned economies have failed that there is so much faith in central bankers. I think central bankers will bring the system to the brink. Capitalism thrives on failures and success; you reward success and you punish failure. Low interest rates are preserving what's rotten in the capitalist system. If you take the bankruptcies out of the system you never get the creative destruction which is so important to rejuvenate the capitalist system.
On the US bond market sell off
Never before have foreigners purchased as many securities as a percentage of the economy in the last few years.
But in the first three months of this year, the Japanese have been net sellers of US Treasuries and their purchases of stocks has also slowed down. The Japanese think that the yen will no longer weaken much against the US dollar and secondly the key to the sharemarket in Japan, paradoxically is a weak bond market.
On Japan
The American snake oil economists like Paul Krugman say Japan should print money like water but that would weaken the yen and the Japanese would go and buy foreign assets. What you need is a stable yen. Low interest rates in Japan are not helping that country clean out its mess and establish an economic recovery.
On the Asian recovery
Exports are flat to down and foreign direct investment is falling because of the overcapacity in Asia.
In China capacity utilisation is 50 per cent. The over capacity has intensified because of the collapse in domestic demand. The high leverage in Asia is a drag on economic growth. It will take a decade for some of these Asian economies to return to pre-crisis growth levels.
On Asian stocks
Financial markets do not necessarily reflect what is happening in the real economy.
You can make 200 to 500 per cent returns in emerging markets even though their economies are in decline. Investors have so far concentrated on the big stock market capitalisation issues and they are now fully priced.
I think now the opportunities are in the second line stocks in Asia because they have not moved much.
On the US dollar and Wall St
I think in the US we are dealing with a dollar that is high and a market that is in the twilight zone, cloud cuckoo land. The trade deficit in March will be a record.
On China's economy
I am fairly sure that sooner or later they will devalue. The last time they devalued by 55 per cent in 1994. This time I expect they will devalue by no more than 20 per cent. I don't believe the economic growth figures from China. Instead of 7 or 8 per cent I think its growing at 4 or 5 per cent, but if you exclude the Potemkin villages it's more like minus 2 per cent to plus 2 per cent.
On Robert Rubin
Rubin's bail-out of Mexico in 1995 made the Asian crisis much worse. If that rescue had not happened investors would not have financed the short term borrowings of Asian countries. There would not have been the huge rally in Brady bonds and Russian sovereign debt.
On Asian real estate
When the property bubble burst in Australia in the early 1990s, properties became very cheap and you could buy buildings for less than their construction cost.
But that clearing out process has not happened in Asia. In the late 1980s in Argentina you could buy a luxury condominium for $US100,000. You can buy a luxury condominium in Copocabana in Brazil now for $US150,000 but in Thailand a luxury condominium in Bangkok costs $US450,000 and in Hong Kong a luxury condominium still costs $US3 to $US4 million.
So there is not the total destruction of wealth that is conducive to economic recovery.
On the internet
Don't overestimate the advantage of the internet. US internet companies are worth $US460 billion but they still make losses. IBM has $US6 billion in net profits. The whole hardware computer industry earns maybe $US15 billion. In America the most watched websites on the internet are porno and garbage, so forget the idea that it will make people more intelligent.
Oh, and it's still quicker to book a plane and theatre tickets using a telephone.
On hedge funds
They are not so powerful. Julian Robertson and George Soros are no more powerful than Bankers Trust and the Treasury division of Exxon.
Everybody is a hedge fund. Kerry Packer is a hedge fund and so is Rupert Murdoch. Hedge funds are a symptom of the problem and the problem is the credit system.
On loose credit
If you want to blame someone for the leverage of hedge funds then blame the central banks, the Treasuries, futures exchanges...
From 1950 to the early 80s we had controlled capitalism. Today we have a let loose capitalism with too little controls that has led to excesses in many fields. I call it capitalism overdrive and it is being powered by loose credit. |
