Thursday, October 20, 2011

Occupy DC and the Fed

Marc Faber the Swiss fund manager and Gloom Boom & Doom editor spoke Tuesday about the Occupy Wall Street protests, blaming lobbyist and Washington for the current economic stagnation and characterizing Wall Street as a "minority" that is only "using the system."

He suggested protesters should instead go after the real culprits in Washington and "also occupy the Federal Reserve on the way."

Speaking in an interview with CNBC from Montreal, Faber blamed "Keynesians and US Democrats for their interventionist policies.

"There has been too much intervention in the Western World where the share of the total economy that goes to the government and is government sponsored has grown," he said.

"That essentially makes it very difficult for the Western World to grow substantially...I don't see how the Western World, including the US, Japan, and Western Europe can actually grow. They're going to stagnate," Faber predicted.

Stagnation, in turn, leads "people to ask questions and to go after minorities," he said.

"Wall Street is a minority, anyone else would have done the same, they use the system but they didn't create the system. The system was created by the lobbyists and by Washington. So they [the protesters] should actually go to Washington and also occupy the Federal Reserve on the way," Faber suggested.

The protesters say the Wall Street bank bailouts in 2008 left banks enjoying huge profits while average Americans suffered under high unemployment and job insecurity with little help from Washington. They contend that the richest 1% of Americans have amassed vast fortunes while being taxed at a lower rate than most people.

What America needs

Faber blamed an excessive regulatory environment in the US for curtailing initiatives by businesses, leading to a drop in net investments.

Businesses no longer employ and invest capital in the US, he said, preferring instead to invest in china or somewhere else in the world where the regulatory environment is more favorable.

"If you look at net investments in the US, it has gone down for the last 20 years, and it's now negative. In other words, basically the capital stock of America is not being replenished...althought it's being replenished somewhere else in the world. At the same time, the policies of the Keynesians have always encouraged spending," the renowned investor noted.

"We're not going to get out of a recession by saying spend, spend, spend. That is wrong!"

"The lack of saving is the problem of the United States."

In one of his most memorable recent rants, Faber then went to explain what the US [really] needs to do: "I tell you what the US needs. The US needs Lee Kwan Yew [Singapore's first Prime Minister] who stands in front of the US and tells them: Listen you lazy buggers, you have to tighten your belts, you have to save more, work more for lower salaries and only through that will we get out of the current dilemma, that essentially prevents the economy from growing."

Markets and the Dollar

Faber, who predicted the stock market crash in 1987, turned bearish shortly before the 2007-2009 bear market and called the March 2009 level a major low which is not going to be broken any time soon, expects market volatility to continue for a long period of time and sees global liquidity tightening.

He is quite positive about the Dollar because whenever global liquidity is tightening "it's bad for asset prices but good for the US Dollar as was the case in 2008."

Tyranny of the masses

In an interview with Tom Keene and Ken Prewitt on Bloomberg Surveillance on Thursday, Faber was asked about one of the themes in the current issue of the Gloom Boom & Doom Report regarding alleged widespread corruption in many US institutions, including the political and corporate systems.

"The problem with government is that the original intention of, especially a democracy, is very good," he started by saying.