Marc Faber envisages a dead cat bounce economy where the economy will not return to peak economic levels seen in 2018-2019 for a long time.
Marc Faber, dubbed doctor doom, is known for his contrarian views and unorthodox investing style.
So Marc Faber envisages a dead cat bounce economy is yet another opposing view, bearing in mind the consensus is that the rolling out of vaccines will open up economies, releasing pent-up demand which will spur on a post-pandemic recovery.
“Marc Faber envisages a dead cat bounce economy where the economy will not return to peak economic levels seen in 2018-2019 for a long time”
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Using the analogy of a tennis ball dropping from the fifth floor, then bouncing to the first or second floor as a comparison is how Faber envisages a dead cat bounce economy playing out. “When I say that the economy will not come back for a long time, by that I mean years” said Marc Faber.
Marc Faber envisages a dead cat bounce economy is a view not in lock step with unprecedented fiscal and monetary stimulus
So, a Democratic blue wave has removed the threat of political gridlock, which means both houses can live up to their promise of trillions in extra pandemic relief spending.
Furthermore, the Fed’s current $150 billion purchases of mortgage-backed securities continues unabated.
Despite this unprecedented stimulus Marc Faber envisages a dead cat bounce economy going forward
Printing money in the short run will be positive for the economy but in the long, it will have very negative consequences, explained Marc Faber.
Marc Faber noted that from statistics we can see 1913, a century ago, most European and US governments spent less than 12 percent of government spending on the economy. Today government spending represents about 50 percent of the economy, explained Marc Faber. “US government spending represents about 42 to 43 percent of the total economy” said Marc Faber.
“When I say that the economy will not come back for a long time, by that I mean years”
Marc Faber envisages a dead cat bounce economy where the economy is more publicly orientated and driven by public spending
“What that means is that the public sector is not very productive” said Marc Faber.
Governments’ large fiscal deficits together with massive trillions of dollars of monetary easing are retarding economic growth and equally feeding a larger public sector, which is burdensome on the economy explained Marc Faber.
“Socialism and communism is a disaster for economic freedom, it is a disaster for growth, and it will lower the standard of living for everybody” said Marc Faber.
Marc Faber envisages a dead cat bounce economy where central banks are trapped doing quantitative easing QE to infinity
“The Fed finances government expenditure which finances state intervention, then the state hands out money” said Marc Faber. “When they embarked on QE1 I said it would be QE infinity because it is very difficult to exit” he added.
The 900 billion USD relief package which entails a $600 stimulus check to everyone of working age, is a short relief, it won’t even cover a month of basic cost of living expenses. Marc Faber notes that the state will need to initiate another program.
“when interest rates go up, which may happen sooner than later then interest payments on the government debt will be very burdensome” – Marc Faber
The cost of servicing ballooning public deficit is another reason why Marc Faber envisages a dead cat bounce economy going forward
“Deficits don’t matter when interest rates are kept artificial at zero, but when interest rates go up, which may happen sooner than later then interest payments on the government debt will be very burdensome” said Marc Faber.
But that is not happening, B0E is setting up negative rates talks. Moreover, the Fed is unlikely to hike rates for the foreseeable future. I believe if there is any real inflation, due to monetary debasement, it will be under reported through new accounting measures. In a few words, with the US national debt clock pointing to $27.7 trillion the Fed is unlikely to want to raise rates and make its best customer, the US government, insolvent.
So, it is savers and bond investors who will burden the real inflation rate as the funds they hold in cash deposit accounts, or in the case of bondholders, the cash they will receive when the bond or treasury note matures ends up depreciated away due to currency debasement.
“I remember when I started to work in the ’70s there were a few billionaires in the world” – Marc Faber
Marc Faber envisages a dead cat bounce economy which could end in hyperinflation
Marc Faber noted that Geman hyperinflation increases the concentration in industries and polarizes wealth. In other words, wealth inequality increases dramatically, which creates social unrest. “We know from the current demonstrations that it increases social tensions. This type of tensions can create a revolution,” he said.
In a piece entitled, Marc Faber speaks frankly back in September 2020 we quoted the Swiss investor saying, “because of the Fed policies a group of people has done very well, the billionaires, they have increased their wealth significantly since the crisis started in March”.
“I remember when I started to work in the ’70s there were a few billionaires in the world, John Paul Getti, the Rockefeller family in 1980 there were seven billionaires and now we have something like 3000 billionaires” he added.
Marc Faber believes that Asian households have larger saving rates than US and European households.
“China has a big saving rate and when there is a crisis, they don’t have to rely 100% on the government” said Marc Faber. Asians are willing to assume personal responsibility, but we in the western world have become a nanny state, where everyone is a victim of somebody. With that attitude, you invite someone to lead you. Eventually, you end with a Servile State” said Marc Faber.
Marc Faber recommends diversification holding some money in stocks, real estate, bonds, and precious metals. He also recommends diversifying in these asset classes.
So, within the asset class, you need to diversify, so with stock that could mean diversifying in industries sectors, and geographically.
He also recommends exposure to Chinese companies, holding some gold and real estate.