Tuesday, October 25, 2011

Marc Faber: Governments will “F— You All, that’s for Sure.”

By Dominique de Kevelioc de BailleulThe never-ending quotable publisher of the Gloom Boom Doom Report Marc Faber moves the setting of his recent spate of 'Faber Shockers' to London, where he warned his audience there that governments' response to the debt crisis of the West will be to “f—You All, that's for sure.”

The 65-year-old Swiss money manager, Thailand resident, collector of Mao memorabilia, and investor of farmland, including land particularly suitable for an unmentionable crop that, he once said, “makes you very happy,” told Americans on a CNBC video hookup to his location in Montreal for the Oct. 12 interview, “Listen you lazy bugger, you need to tighten your belts, you need to save more, you need to work more for lower salaries.” Faber, then, suggested American's need a strong leader like former Singaporean President Lee Kwan Yew—the man who institute public canning for a variety of crimes, as well as a ban on chewing gum because it ended up sticking onto the sidewalks.As an example of how fun and entertaining commentary of financial markets can truly be, Faber is a refreshing counter weight to the not-funny Paul Krugman and his legion of Quixotic lemmings.According to a Wall Street reporter covering the World Commodities Week conference in London, Faber said that Fed policy of negative real interest rates has encouraged consumerism in the U.S. as well as stacked credit surpluses with the U.S.'s major trading partner, China.  No kidding. 

But there's more—that critical conclusion, that was left out in the 'analysis' of Faber's thinking on the matter.“U.S. monetary policy focuses too much on boosting consumption,” The Journal wrote. “This is a short-term fix, but benefits often accrue elsewhere, namely in China, which provides the goods to feed American consumerism. The negative real interest rates and boost to Chinese incomes and investment also push up commodities prices, which then counteracts the stimulative effect for U.S. consumers by acting as a tax on income.”What's the implication here? It's China's fault for rising commodities prices? For those familiar with Marc Faber and his umpteenth explanation for the bulk of the cause of rising commodities prices has much less to do with China's consumption and has much more to do with U.S. policy (going as far back to NAFTA and GATT) of moving onto the next step of maintaining Dollar Hegemony through the policy adoption of imported goods from lower cost structure countries, especially Asian countries, to hide profligate monetary policy of the Fed. The flow of capital to the U.S., while the dollar was perceived as sound, now flows out as the props to the dollar collapse.This game is nothing new, and the Chinese know it. A case in point:As former Head of Princeton Economics Ltd. Martin Armstrong recently stated in a FinancialSense Newshour interview last week, the cause of the 1987 stock market crash was precipitated by the Plaza Accord—a G-5 meeting to coordinate a devaluation of the U.S. dollar against the Japanese yen and German mark, the currencies of the two major exporters to the U.S. at that time. The idea was that lowering the value of the U.S. dollar relative to the yen and mark would create more manufacturing jobs in the U.S. Instead, investors of U.S. dollar-denominated securities fled like a mob from a burning building, creating stresses on an already overstretched S&P to collapse.Armstrong explains today's flight from the dollar this way: Say “you had bought a lot of assets in Mexico, and Mexico stands up and says, 'by the way, we're going to devalue the Mexican peso by 50 percent next week.' Don't you think you'd shout and get out of there?” Back to the Journal article: “Mr. Faber calculates the world’s bill for oil went from $250 billion in 1998 to $2 trillion in 2006 before doubling again by 2008 as the Fed started cutting rates towards zero,” the Journal added, implying, again, that China's oil consumption (admittedly grown rapidly) is responsible for a nearly 10-fold increase in the price of oil since 1999. The flight from the world's premiere currency has taken refuge in gold, silver, commodities producing currencies, targeted equities markets and commodities—with the mother of all commodities, oil, the deepest and most liquid of all commodities markets as the preferred market for deep pockets heading the list of flight destinations.While the U.S. dollar began its fall from the USDX 120 level, following the stock market bubble pop of 2000, the proxy of a gold standard, you guessed it, oil, has negatively correlated the USDX ever since.Now that the Dollar Hegemony game is over, Faber knows it's time for the creator and enabler of the mess to “F—you all,” isn't it?  That little detail was left out of the Journal article.