Thursday, September 29, 2016

They are going to print money until the system collapses

When I think of central banks, I think of alchemists. They were trying to mix all kinds of powders and chemicals to produce essentially gold. And they all failed. The central banks are just mixing water, in other words, paper money and the results cannot be a favorable outcome in the long run.

It's possible that suddenly inflationary pressures will be there, that central banks should then act but they cannot because the system is so over-leveraged.

Now with this low interest rates and negative interest rates, Pension funds, even in these beautiful years of returns, 2009 to today, they have become less funded, they have become more underfunded. With interest rates at zero and this low, their portion that's in bonds is never going to meet the expected returns of 7.5 percent. It's physically not possible.

They are going to continue to print money and the Fed's balance sheet and the other central banks' balance sheets will continue to grow until the whole system collapses and then you and I in gold assets will be better off than in paper assets.

Wednesday, September 28, 2016

Marc Faber gives his probabilities on various topics, assets

Probability that the U.S. will go into a recession by 2020

Marc Faber: 100% probability. We are in a lengthy expansion already, far above the average expansion in the 20th century. We have a lot of imbalances, in my view a recession is inevitable. But unlike central banks, I do not regard a recession as negative. It's like the human body, an economy also needs a resting period occasionally to adjust. A recession is not something that has to be avoided at all costs.

The European Union will break up by 2020

Marc Faber: 80%. Economically, the EU would probably will break up. But it's also a political issue as there may be lot of political obstacles to complete a split from the EU. Whether they can really split from the EU is not entirely clear.Some countries like Austria or France would like to split from the EU, but if they could do it in practice is not entirely clear to me. 

Gold price will hit 5000 per ounce by 2020

Marc Faber: I think 60% probability but I hate to put in a price. My projection is that it will go up against the loss of the purchasing power of paper money. If someone says to me I dont trust the markets anymore I want to be 100% in cash. I'd tell him which cash and how do you keep your cash. In a bank deposit ? You know there is a risk the bank could go bankrupt. So for someone to be 100% in cash is very risky.

The Chinese currency RMB will depreciate 10% from current level against U.S. dollar before 2017

Marc Faber: 20%. I dont assign a high probability because unlike other people, I'm not that bullish about the U.S. dollar. I don't see anything much great about the U.S. economy. On the contrary, China is still a competitive country even if wages have gone up substantially. I don't see a necessity for China to devalue.

World War III before 2025

Marc Faber: Under Hillary Clinton, 80%. Under Donald Trump the probability of World War III is low... 20%. The neocons led by the Bush family are pro-Hillary, because they know they can manipulate her, they have made a deal with her, in which she does her social agenda in the U.S. while the neocons take over foreign policy. As such, the people in Asia are more likely to become harsher towards China.

In Ukraine, for example, if Hillary's administration starts a conflict there, the Chinese will react because China now has the power. Nowadays, an aircraft carrier is a sitting duck ready to be shot down.

A Mars colony before 2050

A: Even if people can live on Mars, I don't think there will be an economy any time soon. Maybe some people will go on a holiday there, I dont know. The cost of travelling there will be very high.

Tuesday, September 27, 2016

Assets: Long vs Short

Would Dr Faber go Long or Short ?

The Federal Reserve: Short
The European Central bank: Short
The People's bank of China: Short
USD: Short
Euro: Short
RMB: Short
Japanese Yuan: Short
Thai Baht: Long
Gold: Long
Oil: Long
Steel: Short
Natural Gas: Long
Soybeans: Long
Windmills: Short
Solar power: Short
New York Property: Short
Silicon Valley Property: Short
London Property: Short
Beijing Property: Short
Hong Kong Property: Long
Shopping malls in China: Long
Facebook: Short
Apple: Short
Tesla: Short
Uber: Short
Amazon: Short
Tencent: Long
Alibaba: Long
S&P500 Index: Short
The Hang Seng Index: Long
The Shanghai Composite Index: Long
Hedge funds: Depends
Planet Earth's Environment: Short
Containing climate change: Short
World peace: Short
Terrorist attacks: Long
Social unrest: Long
Donald Trump: Long
Hillary Clinton: Short

Monday, September 26, 2016

They could abolish the Cash system next

Most assets by traditional valuations are overpriced. Now are they overpriced compared to zero interest rates or negative interest rates? If you take the 10-year German bonds or the 10-year Swiss bonds or the 10-year Japanese bonds, you have no or negative yield. But you can buy equities that give you a dividend yield of 2 percent or more. Then you say stocks compared to negative interest rates are a bargain.

But they are not cheap by traditional valuation methods. However, I think it’s dangerous for someone to say: “We all agree that it will end badly, so we keep 100 percent of our money in cash.” First, you have to decide which cash.

Number two, we don’t know what the time frame until it ends badly is. And in an extreme money-printing environment, the Dow Jones Industrial Average can go to 100,000.

It may likely not go up against precious metals, but it can go up in nominal terms endlessly. It’s not going to help the typical household. I have seen many hyper-inflating economies, and in each case, the standard of living of average people declined.

That will be the case. If I were interventionist—which I’m not, and I do not support the interventionist—if I were a central banker and I said to myself the right policy now is to increase the negativity of interest rates, we go from 0.5 percent negative to 5 percent negative.

In this particular instance, the people and companies take the money out of the financial system and store it in cash in a vault.

The measure to implement negative 5 percent is not going to work very well, so one way to make it work is to abolish cash. You can still hoard real estate, food, cigarettes, and precious metals, but you can’t hold cash anymore. So that is likely to happen, in my view, if they go all the way.

Thursday, September 22, 2016

Taxing the rich has strong voting appeal

We already have large deficits but no deficit is large enough for the interventionist, so they will boost fiscal spending. They will finance deficits by issuing government debt, which the central banks will monetize. The Treasury will issue debt, and then the Fed will buy all these debts. Of course, that will not end well, but it will postpone the problem for a while.

Then they will find some academics who will blame wealth inequality on the evil capitalists who made so much money out of asset bubbles.

They will blame the economic woes on these people. To some extent this is true. But the rich people did not create the inflated asset values; it was the central banks, by slashing interest rates to zero and negative interest rates in many countries.

First, you create mispricings through artificially low rates and negative interest rates and you boost the income and wealth of the super-rich. It’s at best the 0.1 percent that really benefit from asset inflation, at the cost of all the people that have no assets and so you have this rising wealth inequality. So we have to tax the rich people and tax them more.

Taking money from the rich is appealing if you go to voters, and you say to them, “Look, the reason the economy is doing so badly, it’s because of the rich people, the billionaires. We have to take 20 percent away from them and give it to you.” You can be sure that everybody will vote for that because the wealthy are a minority. This is what happens after monetary policies completely fail.

Some well-connected people will hide their wealth but a lot of people won’t. Even if they take 50 percent from the richest, it’s not going to help. The next step will be to take money from less wealthy people; the interventionists will go all the way.