Marc Faber on the coming US dollar crisis
Posted on 26 September 2009 with no comments from readersWhile I certainly disagree with Dr Marc Faber on the immediate outlook for stocks, as he is far too bullish after a historically huge rally in what continues to be the worst trade and financial crisis since the 1930s, his long-term perspective is another thing.
He sees an inflationary crisis in a few years time leading to a collapse of the US dollar. The total collapse will come in the US currency and then there will be a new currency and a new global financial system.
Governments from Russia to China are buying gold and silver to prepare for a systemic dollar crisis but can only do so slowly to avoid precipitating an immediate crisis. Individuals can and should move more quickly.
Gold and silver are alternative currencies in this scenario that will hold their value and appreciate significantly as paper currencies get burnt. You can not burn gold and silver.
How long before individuals decide to exit stocks and enter precious metals? Surely it is already happening, and actually a dollar crisis could be days and not years away.
The steps should be a stock market correction and dollar rally, followed by a dollar fall and ramp up in precious metal prices. Another stimulus package would follow and that would revive stocks a little until inflation pressures increase and gold buying grows again.
But the time to begin transferring wealth into gold and silver is ongoing. You should have started almost a decade ago, and then you would already be up 400 per cent. Stocks have of course delivered a negative return over that timeframe.
To be fair to Marc Faber he has been recommending gold for almost a decade now, and I only started at $455 an ounce.
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As MoneyWeek regular, Pali International’s James Ferguson, points out in this week’s Roundtable cover story: Just how long can this rally go on?, a rising market feeds off itself.
People see the market going up, and they start to believe that it contains genuine information. After all, if the market’s efficient and the market’s always right, then if it’s rising, an economic recovery must be just around the corner. And if a recovery is just around the corner, you want to be buying stocks. So investors buy stocks, driving the market up even further.
Of course, then they see the market rocketing, and assume that this means the recovery is going to be even stronger than anyone expects. Which means you should be buying even more stocks. After all, who are you to question the market?
But eventually the market reaches a point where it’s supremely vulnerable to disappointment, and investors start to expect some sort of genuine economic recovery. And when they’re disappointed, we’re likely to see all sort of assets take a tumble, stocks, oil, and even gold – at least in the short-term.
In any case, we’ve been saying for a while that the crude oil price is more likely to see the $40-$50 region before it sees $100 again…
The National Association of Realtors (NAR) in the US reported that sales of existing homes fell by 2.7% in August, having risen for four months in a row. The worse-than-expected news has been largely blamed for yesterday’s stock market falls on both sides of the Atlantic.
You wouldn’t think that such a relatively minor bump would be enough to take the wind out of the market’s sails. But there are a few reasons why investors might feel a bit skittish at the moment. For one, we’re not through the traditionally wobbly autumn patch yet – September can be a sticky month for markets, but October’s often pretty grim too.
For another thing, anyone who’s been invested since March must be starting to get a bit concerned about locking in some of those profits now. You often hear about the psychological pain of those still sitting on the sidelines – the fabled ‘wall of money’ argument. But it’s easy to forget the flipside – the money that’s already in the market and is now sitting on a 50%-odd gain. Those investors are feeling a different sort of psychological pain – should they take the money off the table now before it’s too late, or let it ride?
Watch the 6 minute long CNBC (USA) video “Future of the Dollar.” The date is Friday Sept. 25, 2009 5:41 AM [06:32] if you are interested in the secret future Federal Reserve plan for the dollar. It is kind of shocking. I am surprised that CNBC didn’t ‘lose’ that video! We will see if they can pull off their gradual 50% devaluation plan. My guess is no.