Investments

Dr Marc Faber

The renowned expert on economies’ & markets’ downfall, Dr Marc Faber, has recently made his views on the state of the world economies known in an interview with CNBC and he is not all that optimistic either :

The new bank bailouts are not likely to work because they are run by the same people who prolonged the economic agony by throwing money at weak companies rather than allowing them to fail and encouraging the strong ones, Marc Faber, the publisher of the Gloom, Doom and Boom Report, told CNBC Monday.

Britain threw its troubled banks another multi-billion pound lifeline Monday by allowing them to insure against steep losses and guaranteeing their debt, while an adviser for U.S. President Elect Barack Obama said the rest of the TART money will be used to clean out bad assets from the financial system.

“The financial crisis has occurred because of government interventions,” Faber told “Squawk Box Europe.”

It is not all bad news, however, says the man who dislikes bail-out packages :

“The contractions actually serve to build for the future growth, because the weak competitors are eliminated. If you support the weak competitors you essentially penalize the strong competitors and therefore I am very much against these bailout packages.”

Not surprisingly Faber predicts a tough 2009 with a possibility that the second half could prove even worse than the first half and he seems not to share some of the optimism expressed by many experts that the world economies and markets are set for a recovery in the 2nd half of 2009 :

Investors counting on the fact that stock prices are very low for long-term growth should bear in mind the Japan lesson, where prices are virtually at the same level they were in 1981, Faber noted.

Commodities may be a better play as some time, when the global economy picks up, prices will rise because investment in new exploration or mining has all but stopped, he said.

“I have shares in Asia, mining stock, exploration companies, physical gold,” Faber said.

“As far as currencies are concerned, I think the dollar is a disastrous currency but the others are even worse. I am leaning more towards the view that the dollar could strengthen even more.”

Watch and listen to the entire interview here

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The US Dollar has had a turbulent year, first dropping to an all time low against the Euro in July only to surge to around the 1,20 level in October / November on the back of dropping equity markets, working as a safe haven for investors.

In recent days the Dollar has again dropped significantly in value against major currencies and especially the Yen & the Euro and the question is now what we can expect to see from the Dollar in 2009 with an ongoing credit crunch and crisis, wavering economies and lack on consumer demand in most sectors and countries ?

This post looks into some of the prevailing views on where the US Dollar is headed in 2009.

MarketWatch highlights the irony of the strong Dollar in the second half of 2008 which was based not on a strong US Economy but rather the fact that investors and governments alike fled into the Dollar as a safe haven and falling US interest rates too supported the increasing Dollar:

In 2008, the dollar did what most analysts expected it to do, but not for the reasons most had expected.

The U.S. economic recovery that many had predicted failed to materialize. Instead, the credit crunch morphed into a crisis, the slowdown turned into a full-blown recession, and U.S. interest rates went further down instead of up.

But the dollar still came roaring back to life in the second half, buoyed not by better U.S. fundamentals but by a mostly unexpected rush to safety.

The consequences of the dollar’s strength in the second half of 2008 will be seen throughout the first half of 2009. The prior strength of the dollar will eat into the profit margins of many U.S. companies that are doing business abroad,” said Kathy Lien, director of currency research at GFT in New York.

“This move is very well-justified and has a long way to run.” Standard Chartered is preparing to cut its dollar forecasts, Minikin said.

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Yesterday The Federal Reserve cut the main U.S. interest rate to as low as zero for the first time ever in an attempt to boost credit and try to end the financial crisis, causing the bond market to collapse and the stock markets to soar.

While this may be a blessing for those consumers looking to buy a house or a car, and hence a boost to the deflationary and slumping US economy, analysts are divided as to the long-term effect of this drastic move will have on consumer spending and the economy overall.

This post looks into some of the prevailing arguments surrounding the historic Fed cut.

MarketWatch quotes an economic team at Wells Fargo for being very optimistic about the cut:

This latest change in monetary policy strategy by the Fed has the potential to be highly effective in our view, and will better reduce the cost of borrowing for a vast majority of consumers and businesses,”

The same article also quotes Stephen Gallagher, Chief Economist of SocGen:

Bank confidence in its ability to finance itself today and in the future is an essential for making loans,”

Bloomberg quotes The Federal Open Market Committee for saying that:

“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said.

The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

According to Wlliam Poole, former president of the St. Louis Fed:

The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding,”

Associated Press quotes  an impressed Mark Zandi who feels that The Fed is ahead of the game this time:

The Fed has taken some very historic steps and for the first time since this crisis began, they have gotten ahead of expectations instead of trailing behind them,” said Mark Zandi, chief economist at Moody’s Economy.com.

The article, however, suggests that the crisis is not over and may go on for some time due to the depth of same:

Economists cautioned that even with the Fed’s bold moves it will take months for the economy to stabilize given that it is confronting the worst financial crisis since the Great Depression and a year-long recession that is already the longest in a quarter century.

The news on the economy is expected to get worse before it gets better. Businesses, which have already cut nearly 2 million jobs since January, keep laying off workers in the face of slumping demand.

And AP’s article concludes that at least when it comes to the US Government’s inflationary fears things are on the up:

The weak economy is helping to keep a lid on prices. The government reported Tuesday that consumer prices fell by a record 1.7 percent in November as gasoline and other energy prices continued to plunge. The Fed noted that “inflation pressures have diminished appreciably,” a development that gives the central bank maneuvering room to focus on boosting growth.

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