Marc Faber explains how money printing divides societies and tests investors
Posted on 06 March 2012 with 5 comments from readers
The central banks of the world can counter a depression by printing money and know the quantity of money printed but they cannot predict where that money will go. Inflation increases the gap between the rich and poor, and makes life very tough for investors.
This is the broad thesis that legendary investor Dr Marc Faber presented at the Hedge Funds World conference in Dubai this morning. He went so far as to blame social and political phenomena like the Arab Spring on the divisive effect of inflation produced by money printing.
Money printing side-effects
Higher food and energy prices are directly linked to the central bank policies to counter the global financial crisis, he said. This is arguably the root cause of the Arab Spring protests, revolutions and civil wars and so the divisive impact is clear.
Poorer sections of society spend a far greater portion of their wealth on food and energy than the rich and so feel a disproportionate impact when these prices go up. They don’t like it and rebel against the established order.
Apart from underlining the importance of looking after the basic welfare of populations the world’s fifth wisest investor in a Bloomberg poll also had some thoughts on what this means for investors.
Basically increased volatility is unavoidable as money can flow quickly into any asset class. However, Dr Faber thought commodities like oil and precious metals would be big winners because the increased supply of money would chase the limited supplies of these commodities.
‘Equities will be OK, bonds less so,’ he added. ‘I don’t know when bonds will cease to be a good investment but it will happen. Yields on bonds are negative after inflation’. Dr Faber recalled how Mexican equities had held their value in a period of massive currency devaluation.
Golden asset
On gold Dr Faber asked his audience of 400 people, mainly investment professionals who had more than five per cent of their assets in gold and only a handful raised their hands. ‘How can gold be in a bubble if so few have bought it?’ he asked. ‘Where is the parabolic price spike like the Nasdaq in 1999?’
China is the culprit for rising oil demand with consumption up from three million barrels per day in 1996 to nine million barrels per day. That is a price pressure quite apart from the ongoing tensions with Iran and money printing.
Basically real assets and that includes equities will rise with inflation, it is those on fixed incomes and that includes bondholders who suffer. Currencies lose their value. Things are re-priced to accommodate inflation but some things do better than others.
It was a bravura performance from a conference favorite, and there is an exclusive follow-up video interview with ArabianMoney to come on this channel.
5 Comments posted by readers:
In 1999 Chinese purchased a few hundred thousand new private cars. Last year the figure was something like 15 million. Guess where the price of oil is going? (Unless the world goes into a global depression.)
The Spanish are getting tired of taking orders from Berlin, according to an article in the Telegraph. And Sarkozy is way behind in the polls.
But the rumor is, that the USA is doing great. It won’t be for long, if gasoline goes above $4 per gallon nationally for more than a few months. Even some trader on CNBC was complaining that it cost him $98 to fill up his SUV. Those guys aren’t low income. He said you need to put the credit card in more than once, if you go over $100? If true (I always pay cash and NEVER get much below 3/4 full, so I don’t know.) people will start to notice that fast.
Why would hedge funds agree to take a hit on their Greek bonds? I would take a chance at total loss, with the possibility of collecting on my credit default swaps, before I would agree to losing 75% of my money. Screw em. You are not going to steal MY money to help out some bank. But that is just me. I worked a lot harder for my money than many of those fat cats who got it from daddy. I can still remember building tire storage racks inside a small warehouse during the tropical New Orleans summer. The small room only had one door for air circulation. It got a little warm and smoky in there, standing on angle iron holding a welding electrode for 8 hours. That was a summer JOB. I can still remember how surprised I was when I heard someone call my name as I had just finished cutting some steel with a torch. I instantly recognized his voice, despite not being able to see him, as a fellow I hadn’t seen in about 4 years. You never forget a voice. That surprised me. He was Harold Winstell. I think he is working up in the New York area. I should probably try to tell him hello on the web, and find out if that is really the fellow I hung out with at Brother Martin High School, bach in the 60’s. He had a very cool 1966 Chevy Impala with the 327. It replaced his 55 Chevy, a true classic.
I love the Romney quote about $368,000 that he got from giving some speeches “not being a lot of money”. It shows you how out of touch the really rich are with those that they rule. You think any of his friends ever held a welding electrode in 98 degree heat? Dug a ditch? Put on a roof? Painted a house? Screwed on a tire in a factory? Look for that quote during the campaigne.
Classic stuff from the great man.
Excellent reportage – please report more from this conference.
@ Bill
‘out of touch’? …on a different planet more like!
good comments…i personally think that greece would be better off out of the euro, allowing a argentine/icelandic receovery….being frozen out of these markets isnt such a bad thing!
as for the politicians, well, what have they EVER done for ANYONE….
ps. china has more multi millionaires in its parliament than the US….now that is food for thought when it comes to future global policy….
Amen. To the previous quote.
I would say they are not out of touch, but more brazen to tell you about the difference between you and them. Soon it will be like the dark ages .. The rulers will be thought of as gods that can do no wrong and we owe them our all and lucky to be alive.
1923 Gold takes in Germany 89.000.000.000.000, but no bubble in gold, only in paper money.