Dr.Marc Faber slams Fed moves! Fed's Cut Not Justified, Creates Problems, Faber Says
- Aug. 20 (Bloomberg) -- The U.S. Federal Reserve's cut of the interest rate it charges banks was ``not justified'' and will create more problems, investor Marc Faber said.
In an effort to restore confidence in the wake of a credit crunch sparked by U.S. subprime mortgage losses, the Fed reduced the discount rate to 5.75 percent from 6.25 percent on Aug. 17. That was the first cut between scheduled meetings since 2001.
``I think it's an intervention into the marketplace that is not justified,'' said Faber, in an interview from Danang, Vietnam today. Injecting more money into the system will ``create an additional set of problems at a later date.''
Faber, founder and managing director of Hong Kong-based investment advisory company Marc Faber Ltd., correctly predicted the U.S. stock market crash in 1987. He also advised investors to buy gold in 2001, which has since more than doubled.
Global stock markets rallied as the Fed's move eased concern a rout in the U.S. mortgage market will spread and dry up access to capital. The global equities sell-off had erased more than $5.5 trillion of market value from a July 23 peak, according to data compiled by Bloomberg.
Asian stocks jumped the most in a year today, while U.S. shares posted their biggest gain in four years on Aug. 17 and Europe's Dow Jones Stoxx 600 Index was up 2.4 percent within 15 minutes of the Fed's announcement that it was taking action.
`Prepared to Act'
``The rate cut was pretty effective in curtailing panic in the markets which have no direct link to the subprime loan problem,'' said Masayuki Kubota, who helps oversee $2.1 billion in assets at Daiwa SB Investments Ltd. in Tokyo. ``Global growth won't be hampered by the subprime issue.''
The Fed left its benchmark fund rate target for overnight loans between banks unchanged at 5.25 percent.
In the statement, the Fed committee said it is ``prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.'' Policy makers, who last held a scheduled meeting on Aug. 7, convene on Sept. 18.
Should the Standard and Poor's 500 Index drop below 1,400 the Fed is likely to reduce the overnight lending rate, Faber said. If the S&P rises above 1,500 it won't cut the rate, he said. The S&P 500 climbed 2.5 percent to 1,445.94 on Aug. 17. Still, it's down 6.9 percent from a record close set on July 19.
S&P 500 futures expiring in September rose 4.6 to 1,454.5 as of 11:42 a.m. in London.
No Dollar Collapse
``They're driven by asset markets, their policies, which is a mistake in the first place,'' said Faber, publisher of the monthly newsletter the Gloom, Boom & Doom Report. The housing problems arose in the first place ``because of easy monetary policies.''
Faber said that the dollar isn't likely to ``collapse'' as money flows to U.S. currency and yen assets.
``I believe that U.S assets, while they will not make a new high, they will outperform assets in emerging markets for a while,'' he said. ``There's a capital outflow from emerging markets into the U.S. and into the yen.''
Here's a good news artice to read about an example of an impact of the global liquidity crisis. National Bank defends move to shelter clients
- “We've accounted today for $2-billion of the $35-billion. . . I think it would be fair to find out where the other $33-billion is being held.”
The short-term paper, sold as a good place to park cash at a premium return, has run into a major liquidity crisis in the current global credit squeeze, especially a variety sold by so-called third-party, or non-bank issuers, which currently accounts for about $35-billion of the approximately $120-billion Canadian ABCP market.
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