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Marc Faber: We Have a New Gold Standard
Published: Thursday, 18 Mar 2010 | 5:53 AM ET
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By:
Antonia Oprita
Web Producer, CNBC.com
The markets have created their own gold standard because of uncertainties regarding other asset classes, Marc Faber, author of "The Gloom, Boom and Doom Report," told CNBC Thursday.
AP
"I think we already have now a gold standard … created by the market place," Faber told "Squawk Box Europe."
"We have the (exchange traded funds) that have proliferated and we have more and more physical buying of gold," he said.
Between 2001 and 2008, gold outperformed bonds and stocks, but starting with 2009 stocks outperformed, which means investors must own gold because generally retail investors cannot move in and out of different assets like institutional investors, Faber said.
For the next six months, the global economy will look better, particularly compared with March 2009 when the downturn was at its worst, he said, adding that he would buy oil and mining companies, especially
Exxon [XOM 67.36
0.79 (+1.19%)
] ,
Chevron [CVX 74.67
0.69 (+0.93%)
] and
Schlumberger [SLB 66.60
1.08 (+1.65%)
] .
"I think that the oil price would rather go up than down. I think oil stocks would perform rather well, by the way also mining companies," Faber said.
Investors should have a minimum of 50 percent of their money in emerging economies because these are growing much faster than the developed world, he recommended.
Treasurys to Yield 10-20%
An extreme bubble in US Treasurys has been deflated for the moment and yields are likely to rise sharply over the next years, Faber told CNBC.com separately.
"I still think that Treasurys are overpriced," Faber said.
Yields on 10-year US Treasurys are likely to rise to between 10 and 20 percent over the next 5 to 10 years because of inflation and oversupply, he said.
Money-printing is just another way for governments to silently default on their debt Faber wrote in the latest "Gloom, Boom & Doom Report."
When a company or a government actually default on their payment obligations, the process is relatively fair because lenders get just 30, 60 or 80 cents a dollar for the money they lent, Faber wrote.
"But if a government decides to default through money printing, the burden of the default isn't shared equally," he wrote.
"Defaulting through money printing means the repayment of the creditors occurs in a currency whose purchasing power was severely curtailed through the money-printing process," Faber explained.
He said rising cost of living, a depreciating currency against other currencies or against precious metals and commodities are common symptoms of a loss in the purchasing power of a currency.
In an environment of inflation, cash and government bonds are "poison" although the current rally in stocks is partially caused by low interest rates, Faber told "Squawk Box Europe."
Investors should avoid bonds and cash over the next 10 years and choose stocks instead, he said, but warned that printing money will lead to an economic collapse in the end.
"Before we have the final collapse that will be a deflationary collapse, we will have more and more money printing."
"I think interest rates forever in the US will be at zero, by zero I mean below the rate of inflation," Faber predicted.
"It will result in a lot of inflation but inflation has a lot of different symptoms."
The financial sector, especially firms that know how to move money quickly between various asset classes, stand to gain from the increasing volatility, Faber said.
"In periods of money printing and debasing of currencies, wealth becomes concentrated in the Goldman Sachses
[GS 176.64
0.45 (+0.26%)
] of the world because they can move money quickly," he said.
There is a danger that US public debt will grow so much that "the government will need to print money just to pay the interest on the government debt," Faber wrote.
Interest payments on the US government debt could rise to between 35 percent and 50 percent of tax revenues within 10 years, from the current 13 percent of tax revenues, he also wrote.
Greece Must Be Bailed Out
In Europe, the situation is different, he told CNBC.com.
"Greece cannot print money, the US can," Faber noted. "If Greece wished to default through nonpayment of their internal debt they could devalue and exit the EU," he said.
Under EU legislation, European Union members with the exception of Britain and Denmark must all adopt the euro as their currency and those already in the euro zone cannot leave the monetary union.
But German chancellor Angela Merkel called for a change of the EU legislation to allow the expulsion of a country from the euro zone if it breaches fiscal rules repeatedly, signaling a willingness of European politicians to change the rules of the game.
"If Greece stays in, it has to be bailed out," Faber said.
"I don't regard the euro as a specifically better currency than the dollar," he also said.
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