Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

[shiny!]

http://www.cnbc.com/id/37747651

Another interview with Marc Faber. He's saying the manipulations by governments in the markets have disguised the clear market signals and pushed the final collapse to probably 5-10 years down the road. The US economy has probably bottomed. He can't find anything he feels good about investing in so he's just buying gold...

Opinions?

[hayekvindicated]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

http://www.cnbc.com/id/37747651

Another interview with Marc Faber. He's saying the manipulations by governments in the markets have disguised the clear market signals and pushed the final collapse to probably 5-10 years down the road. The US economy has probably bottomed. He can't find anything he feels good about investing in so he's just buying gold...

Opinions?

Im selling half of my gold holdings within the next month. I am going to use the money to buy more property in India.

I will hang on to the rest of my gold holdings. That should bring my cash level down to less then 1 percent. I hate holding on to cash for extended periods of time.

[mooncliff]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

"People who tell me about the big deflation in Japan, why don't they spend a day in Tokyo? It's still the most expensive city in the world," he added.

This seems strange to me.
Rents in Tokyo have in the last year dropped by 15 to 30 percent across the city. Our office moved to a better building across the street, and the rent dropped by half.
What does prices going down have to do with "it is the most expensive city in the world"?
"Deflation" is prices decreasing over time, and I would particularly measure it in number of hours say a minimum wage worker, at 1,000 yen per hour, would have to work to obtain goods or services over time. By that measure, there has been huge deflation over the last 20 years, and it is particularly noticeable in the last two years.
I had a sit down breakfast this morning at Denny's. It was about 750 yen (45 minutes of work for a minimum wage worker), including tax and tip. The coffee was free refills.
Since my compensation per hour has been stable over the last 15 years, I notice things like a big screen TV going from 6 weeks of work to 1 week of work, my rent going from 3 days of work to 2 days of work, food being stable, clothing dropping by half, etc.

About whether the US has bottomed, I'm not sure what a series of energy price shocks will do, and I think they are coming.

[ASH]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

Opinions?

My opinion is that the US Economy probably hasn't bottomed out, because the housing market hasn't bottomed, and there are recent signs that private sector employment is flagging again. Fundamentally, I don't believe that enough debt has been discharged for a bottom to be in. Additional fiscal stimulus and other interventions are likely, and as Faber suggests, as long as such interventions are active, they may maintain a false bottom. But it looks to me like Europe's scope to execute such intervention is very limited, and so I believe that a shock from Europe is assured. I think the US government has greater capacity to backstop the US Economy, and will do so as the 'recovery' starts to sputter and the shock from Europe hits. I even think that winning the 'least ugly' currency contest has increased and extended the US government's ability to support our economy with deficit spending. But that simply means we'll go down after Europe. I doubt that this is as much as 5 years away. Then it's probably either print-and-inflate or default-and-deflate.

I wonder what will happen in Asia and South America?

[WDCRob]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

My opinion is that the US Economy probably hasn't bottomed out, because the housing market hasn't bottomed, and there are recent signs that private sector employment is flagging again. Fundamentally, I don't believe that enough debt has been discharged for a bottom to be in. Additional fiscal stimulus and other interventions are likely, and as Faber suggests, as long as such interventions are active, they may maintain a false bottom. But it looks to me like Europe's scope to execute such intervention is very limited, and so I believe that a shock from Europe is assured. I think the US government has greater capacity to backstop the US Economy, and will do so as the 'recovery' starts to sputter and the shock from Europe hits. I even think that winning the 'least ugly' currency contest has increased and extended the US government's ability to support our economy with deficit spending. But that simply means we'll go down after Europe. I doubt that this is as much as 5 years away. Then it's probably either print-and-inflate or default-and-deflate.

I wonder what will happen in Asia and South America?

Any thoughts on how 'reflation' vs 'reigning in the deficit' plays out in the November elections?

It seems likely (to me at least) that the Dems are going to get whacked pretty good - possibly even losing the House. If that happens I can't see much in the way of additional reflation from the fiscal side. Which would leave the US in a lot of pain in 2011 and 2012 - especially if Europe (and by extension China) is suffering.

Do the 2012 elections become a referendum on austerity?

[gnk]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

Any thoughts on how 'reflation' vs 'reigning in the deficit' plays out in the November elections?

It seems likely (to me at least) that the Dems are going to get whacked pretty good - possibly even losing the House. If that happens I can't see much in the way of additional reflation from the fiscal side. Which would leave the US in a lot of pain in 2011 and 2012 - especially if Europe (and by extension China) is suffering.

Do the 2012 elections become a referendum on austerity?

I agree that the November elections can create a gridlocked gov't where the result is austerity by default. Little will get passed initially. How the politicians react to debt deflation is anyones' guess.

I view Faber's timeline as an "all things being equal" approach... However, black swans do exist, and appear at the most inopportune times. A crisis that we could handle 5 years ago, would be a crippling crisis today. A Mideast conflaguration, another Lehman Brothers, a defaulting sovereign, the emergence of a new gold-backed resource rich/manufacturing based trading block, etc... the list is long.

I'm guessing less than five years. But for Faber to assume up to 10 years of no major upheaval is extremely optimistic in my view.

[ASH]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

Any thoughts on how 'reflation' vs 'reigning in the deficit' plays out in the November elections?

It seems likely (to me at least) that the Dems are going to get whacked pretty good - possibly even losing the House. If that happens I can't see much in the way of additional reflation from the fiscal side. Which would leave the US in a lot of pain in 2011 and 2012 - especially if Europe (and by extension China) is suffering.

Do the 2012 elections become a referendum on austerity?

I largely agree. I'm thinking the November elections result in legislative paralysis, with no clear mandate for either fiscal austerity or continued massive stimulus. I expect the voice for fiscal austerity to get louder in the house, but not to become a commanding majority across the legislature.

The problem is what EJ said earlier: right policy, wrong time. (Or, as I would put it, there are no longer any good options.) I think it is likely that weakened concensus for fiscal stimulus will for a time result in less spending (I agree with gnk), but that the economy will falter as a result. My expectation is that frightened politicians will then forget all about austerity and extend peoples' unemployment benefits, and offer more tax credits, etc. Or maybe people will surprise me. But it seems to me that unless more of the debt is discharged and over-priced assets are allowed to reach a natural price level, the "temporary" stimulus measures have to become structural in order to halt further economic contraction... and obviously, we can't afford these measures to become structural because we can't pay for them.

[vinoveri]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

I think it is likely that weakened concensus for fiscal stimulus will for a time result in less spending (I agree with gnk), but that the economy will falter as a result. My expectation is that frightened politicians will then forget all about austerity and extend peoples' unemployment benefits, and offer more tax credits, etc. Or maybe people will surprise me. But it seems to me that unless more of the debt is discharged and over-priced assets are allowed to reach a natural price level, the "temporary" stimulus measures have to become structural in order to halt further economic contraction... and obviously, we can't afford these measures to become structural because we can't pay for them.

I see it playing out similarly. Any popular political push for "cutting deficits" will acquiesce as the economy stalls. With low reported CPI and long term bond yields at generational lows, I see no reason why borrowing and monetizing cannot increase. I don't see a majority of americans or even a significant minority standing on principle (e.g., of austrian or common sense economics). When cpi crosses above 5% and 10 year UST are yielding 10%, then the breaks are slammed on (Volcker), but absent inflation, no tightening, especially with regards to monetary policy. Once the Fed is satisfied with the relative solvency of the banking system, and to stimulate the economy, I bet they change their interest policy of reserves (i.e., cut it or even start charging banks for keeping excess reserves), and then we have rapid expansion credit/money (perhaps they are also waiting to do this until the groundwork for the next bubble.

[we_are_toast]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

I largely agree. I'm thinking the November elections result in legislative paralysis, with no clear mandate for either fiscal austerity or continued massive stimulus. I expect the voice for fiscal austerity to get louder in the house, but not to become a commanding majority across the legislature.

The problem is what EJ said earlier: right policy, wrong time. (Or, as I would put it, there are no longer any good options.) I think it is likely that weakened concensus for fiscal stimulus will for a time result in less spending (I agree with gnk), but that the economy will falter as a result. My expectation is that frightened politicians will then forget all about austerity and extend peoples' unemployment benefits, and offer more tax credits, etc. Or maybe people will surprise me. But it seems to me that unless more of the debt is discharged and over-priced assets are allowed to reach a natural price level, the "temporary" stimulus measures have to become structural in order to halt further economic contraction... and obviously, we can't afford these measures to become structural because we can't pay for them.

I agree with almost everyone above. Except; when the economy goes back into recession, the argument will be that is because of the deficit spending, and even more cuts will be made. Austerity in the U.S. will be a reduction of deficit spending, but nowhere near an elimination of deficit spending. As long as there is ANY deficit spending, the case will be made that the slowdown in growth is because of the deficit.

EJ maintains that deflation is impossible without a massive commitment of economic suicide by countries around the world. Seems to me the guns are locked and loaded and the aim is point blank.

[Jay]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

I agree that the November elections can create a gridlocked gov't where the result is austerity by default. Little will get passed initially. How the politicians react to debt deflation is anyones' guess.

You can always lock everyone in a room and threaten them with martial law. If the Fed feels it needs to inflate, it will find a way.

[gnk]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

You can always lock everyone in a room and threaten them with martial law. If the Fed feels it needs to inflate, it will find a way.

Good point - there is precedent for that.

[we_are_toast]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

You can always lock everyone in a room and threaten them with martial law. If the Fed feels it needs to inflate, it will find a way.

I would rephrase this to say; if the Fed has the political will to inflate, it will find a way. About the only bipartisan agreement in congress these days is to go after the Fed. Just a few short weeks ago there was a demand to audit the Fed. There was a reason why they were made so independent. With a new congress in November, Bernankie will be dragged before every committee in congress at any hint that he's trying some behind the scenes QE or recapitalization of any banks.

This is getting uglier by the day.

[ViC78]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

EJ maintains that deflation is impossible without a massive commitment of economic suicide by countries around the world. Seems to me the guns are locked and loaded and the aim is point blank.

Exactly, and this is the point which I hope EJ would address. I suppose that this uncertainty is the reason that the model portfolio holds T-bonds.

[bill]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

I would rephrase this to say; if the Fed has the political will to inflate, it will find a way. About the only bipartisan agreement in congress these days is to go after the Fed. Just a few short weeks ago there was a demand to audit the Fed. There was a reason why they were made so independent. With a new congress in November, Bernankie will be dragged before every committee in congress at any hint that he's trying some behind the scenes QE or recapitalization of any banks.

This is getting uglier by the day.

Powers will be granted before elections.
Start 2:50:00
http://www.c-span.org/Watch/Media/20...egulation.aspx

[lsa420]

Re: Marc Faber: U.S. Economy has bottomed out, final collapse in 5-10 years

Where does the government get all its money and resources from? Oh, that's right, it steals them from us. The less they steal, the better off we are.

This talk of austerity being a disaster when governments cut spending is absolutely ridiculous. We have 2 examples of the US dramatically cutting government spending after WWI and after WWII, and in both cases the economy took off and did very well, despite warnings from Keyensians of an impending depression. I doubt we have to worry about a huge reduction in spending or deficits anytime soon, however. We aren't that lucky.

Deflation or inflation.....are we (iTulip community) starting to get confused???? We have to pay the piper at some point for all of our printing.