In late February, Euro Pacific President Peter Schiff interviewed the eminent economist Marc Faber by telephone from his office in Hong Kong. Ordinarily, we’d hesitate to bring you this potent of a cocktail of doomsayers. It’s just too depressing.
But the Dow broke 8,000 today. Donna Karan is selling $600 designer jeans. Cramer says the depression is over. RIM trounced expectation. So you’re probably well-fortified to take a strong dose of inflationary depression medicine.
The two bears discuss everything from the ineffectiveness of stimulus, to Asia’s prospects to the proper allocation of investment assets now. (Hint: 10 per cent in gold.) Click here to read the entire thing.
The gloomiest part by far comes at the very end:
Schiff: If you had to leave one message with our readers to take away from all this, what would that be? What would be the big takeaway for them?
Faver: We live now in an environment of very, very high volatility, because on the one hand you have the private sector that has tightened lending conditions, and wealth has been destroyed, and households will save more and be more prudent financially than they’ve been; in other words, credit or liquidity is tightening.
Then on the other hand you have these clowns in government that think that they can solve any problem. As Mr. Geithner said recently, “we know how to fix the problems.” Well if he knew so well how to fix the problems, why did he let the problems happen in the first place? He was the New York Fed Chairman when the conditions were created! And Mr. Bernanke was the Fed Chairman since, I think, 2005, and he was the architect of this ultra-expansionary monetary policy. They have no credibility at all, and in my opinion they’re going to make matters worse. And the worse the economic conditions will become, the more Mr. Bernanke will throw money at the system; and that will lead to huge volatility in the market. You can have rebounds in individual stocks, and in whole markets, of 30 per cent in one month, then they can drop 20 per cent in a month; don’t forget, between November and the end of the December, the 30-year Treasury ran at 20 per cent; and from its peak at the end of December it dropped 20 per cent.
There is huge volatility and the same will happen in equities. And that’s why I think it’s very difficult to make long-term predictions. When you have a perfect free-market, it’s difficult to predict the future. But when you have a market that is disturbed by government manipulations and money-printing, it’s impossible to make any predictions.