INTERVIEW OF MARC FABER AND JIMI ROGERS... JW notes
By Jim Puplava of Financial Sense
Sept 8, 2003
(I will not distinguish much between Faber and Rogers, since consistent views)
Evidence is that price inflation is on the rise, despite reports, all anecdotes point up
Cost of services are up, education, entertainment, postage, insurance
Hedonics smooth out the economic statistics, done by Bureau Labor Statistics
We have deflation and inflation at same time, economy is a composition of sectors
Some price inflation like with hard assets, esp residential real estate
Clear price deflation in mfg goods, consumer electronics, big China effect
Some price reduction is not deflation, but natural product cycle development
After new innovation, and initial product introduction, economy of scale kicks in
Monetization and monetary expansion never ceased or slowed in recent years
Asset price growth is symptom of rising money supply
(*) Central Banks cannot control where new money is directed
We have had absolutely mad credit extension recently
Debt growth is now 8x faster than GDP growth benefit !!!
Investment and speculative flows have resulted in exported inflation since 1980
Faber: Major downtrend for USDollar in next two years
Commodities like gold cannot increase in supply as fast as the dollar
Perception that USEconomy is growing now, but primarily driven by financial assets
Rogers: multiyear USDollar bear should be expected
Fed resolves by easing rates, with big credit expansion since 1980
Faber: trade gap of 5% of GDP likely not to decrease, but probably rise
Fed will inject more new liquidity
Financial markets will have to react to higher price inflation later on
Japan bond yields have moved from 0.5% to 1.5%, US yields from 3.2% to 4.5%
We are in the midst of a bond revolt right now
Faber: expect higher interest rates in 2004
US has lost its ability and willingness to save, moral and intellectual chasm
The wise among the population see the potential for big speculative gains
Faber: never never inflate the entire system, leads to disaster, destroys society
Faber: this is a suicidal monetary policy, monetization has never worked in history
Federal deficits will produce higher interest rates in delayed fashion
War effort, police adventure, exercise in domination bring heavy costs
Massive upside price inflation is in the pipeline, masked by doctored statistics
US is a debtor nation, with debts exceeding the rest of the world combined
A 1929 style of deflation is out of the question right now
However, deflation systemically is possible, but in terms of gold money terms
US parallels to 1980 decade in South America, which saw hyperinflation
US has serious foreign dependence on capital, mfg, energy (a dangerous situation)
Coming is a standard of living deterioration, wealth loss
Strong price inflation should lead eventually to capital and currency exchange controls
US$, Euro, Yen, Yuan, Gold are the main currencies (commercial or reserves)
But only gold cannot be increased in supply indefinitely
Chinese Economy now has balanced trade
Chinese surplus with US, but deficit with Japan and Middle East nations for oil
USDollar will depreciate badly versus hard assets
There are no longer ANY sound currencies
Worldwide central banks are printing money, leading to economic destruction
In time expect decaying societies, eventually war, and social breakdown
Faber: Chinese Yuan is the most sound currency in the world today
Big phenomenon now is relationship between Chinese Yuan and Asian currencies
An integration is underway among the Asian trading block
China has large US$ reserves and gold reserves
If Asia forms the ACU (Asian Currency Unit), then watch Yuan be valued 30% higher
China is fast becoming the workshop and service center of the world
Numerous levels of available workforce, with 600 million hoping to enter cities
US GDP is $11T, China is $1T, but China is larger in terms of unit sales
China is now approx 40-60% the size of the US GDP in volume terms
China imports steel now, but has large demand for commodities
China is in the genesis stage
Commodities will be strong for gold, silver, oil, natural gas
Bull market in next 10 years in commodities requires change in investor mindset
Commodities will be eventually sponsored, promoted, subsidized by financial institutions
Public will come to the scene later, only then plan on exit strategy, but no rush
2002-2003 represented a milestone for Commodity Research Bureau index
indicates a bull market for commodities that should last at least 10 years
Faber: expect a time soon for $100 crude oil, gold at a multiple of $350
Even more everyday items like coffee will see sharp rise in price within 5 years
Stocks could rise, but a falling US$ means stocks will fall in real value
Commodities require time to develop, find a mine, find oil pool, find land
Mine properties are delayed by environmental regulations and obstacles
Takes time to drill, foster budgets, capitalize equipment
Great difficulty to develop non-ferrous and precious metal mining
The last 20 years brought about a lack of productive capacity for commodities
Commodity inventories have been systematically whittled down
Russia is stripping and dumping materials on the markets, widespread theft
Russia’s get-rich quick mentality has built no new productive capacity
With monetary expansion, lack of capacity, commodities will go thru roof in price
Mining industry operating at 95% capacity utilization
A struggle is underway with oil, with depletion peak somewhere around 2006-2008
Saudi Arabia has the potential to blow up as a regime, threatening oil supply
Ride the longterm bull market in commodities for many years
Avoid the herd where high price premiums are paid
Avoid publicity and promotions, which now are mainstream stocks
There will be upcoming commodity mutual funds, but none yet
Rogers Index fund, mining stocks, oil & gas stocks are good ideas
Promising nations are Russia, Brazil, Indonesia, Thailand, Canada, Australia
Rising commodity prices mean rising production costs, very bad for stocks
Own gold in a deposit bank box outside the USA, which will execute seizures |
