“There is nothing safe anymore, because the money-printing distorts all asset prices,” is the uncomfortable response Marc Faber gives to Thai TV during this interview when asked for investment ideas. Faber explains how we got here “massive money-printing and ZIRP creates a huge pool of liquidity that does not flow evenly,” as it washes from Nasdaq stocks to real estate to emerging markets and so on. Each time, “the bubble inflates and then is deflated as the capital (liquidity) floods out.” The Fed, based on the doubling of interest rates since they began QE3 “has lost control of the bond market,” Faber warns; adding that while he expects some “cosmetic tapering,” the Fed members and other neo-Keynesian clowns will react to a “weakening US and global economy,” and we will be a $150 billion QE by the end of next year, as the world is held hostage to US monetary policy.
The interview is interspersed with Thai translation but is well worth the time (starting at 1:25):
How did we get here (1:25):
“What we’ve had in the world is a crisis in 2008 that was caused by excessive leverage and excessive debt brought about by excessively low interest rates.
For the last 4 years the Fed Funds rate has been essentially at zero and we have massive money printing – monetary inflation. This creates a huge pool of liquidity.
The problem is that this liquidity will not flow evenly. It can flow first into NASDAQ stocks until March 2000, then in the US housing market, then in commodities, and gold, and then in emerging markets
You have one bubble after the other. The bubble goes up and then is deflated when the capital (liquidity) moves out. That is the problem of money-printing by central banks.”
On China (3:25)
“For the global economy, what happens in China is more important than what happens in the US.”
On the Fed’s Failure (3:43)
“QE3 and QE4 – the Fed’s bond purchase program – began in September 2012. The goal of the Fed was to lower long-term interest rates… but they have gone up! The Fed has already lost control over long-term interest rates.”
So we should do moar!!! (06:10)
Rates have doubled since QE3 began. It is annoying the way the Fed thinks. Some Fed members believe the Fed didn’t buy enough. (they buy $85 a month – almost the entire issuance of the US government).
On The Taper (07:10)
They will probably announce some cosmetic tapering – not much…
The Fed has no clue (07:25)
They have no clue, the Fed academics are clueless (they have never worked in a real business)… but what they will do is: they will cut asset purchases by $10-20 bllion but they will say “depending on economic and market conditions, we will reassess”… in a year’s time they will buy $150 billion…
On The US Economy (08:10)
“The economy in the US is weakening.. and the global economy is weakening”
On Neo-Keynesian clowns (10:00)
“I know some of these clowns at the Federal Reserve, they think the Fed didn’t do enough. The other clowns – the so-called Neo-Keynesians (which he describes a turbo-charged Keynesianism) think the deficits should not be $1 trillion but $5 trillion”
On the world held hostage (11:40)
If you are a relatively small country within the global economy. you are held hostage to US monetary policy.
If the Fed has zero interest rates, it means depositors get practically zero interest rates. If the Thai central bank (or any other) would increase interest rates (conscious of speculation in real estate and stocks for instance) to cool down the speculation… but if they do that, the foreigners will pile in to the Thai Baht because they get maybe 4%; the Baht soars in value… which is not a bad thing in and of itself – but the Thai businessmen will cry “we cannot export”
On what investments are safe (14:45)
Gold, government bonds in the short-term (though long-term no because the US government is bankrupt, but they can postpone the problem for now)
“There is nothing safe anymore, because the money-printing distorts all asset prices,”
On Inflation (15:30),
“I don’t look at government statistics because all governments around the world lie.”