Dr. Marc Faber Says A Global Bust Is Likely To Happen

Here are some lates comments from Dr. Marc Faber.

• There were also some speakers who thought that the Asian financial crisis in 1997-1998 made many Asian companies become conservative investors and borrowers, but that the United States failed to follow its own prescriptions for Asia, which then had also suffered from too much leveraging in the property market. It was also clear that the subprime-mortgage crisis was brought about by too much liquidity, easy credit and inadequate government regulation.
  
  A few were brave enough to recommend what sectors to invest in, but cautioned investors to look at valuations on a per-stock basis instead of per country and industry. One fund manger even managed to pick out a few choice stocks in the Philippine market that could offer earnings opportunities once their share prices drop to desired levels.
  
  Most of the fund managers tried to end the conference on a more hopeful or optimistic note, with some even predicting that the world will probably be in a better place by 2010.
  
  What really happened?
  
  Speaking on the subprime-market meltdown, Dr. Marc Faber of the Hong Kong-based Marc Faber Ltd. put the blame squarely on the US Federal Reserve for its loose monetary policy. The Fed had cut its overnight rates from 2001 to 2007, “which led to strong money supply growth and strong credit growth….Seventy percent went to housing real-estate investment. Between 2000-2007 home prices then rose steadily and went way above the trend.” From 6 percent at the beginning of 2001 the Fed funds rate was slashed gradually, finally reaching 1.5 percent this month as the Fed moved to stimulate the sluggish economy.
  
  Further, Stephen Weiss, senior vice president of Income Research and Management, said the US banks basically didn’t do their homework in checking the credit background of their borrowers, many of whom would probably not meet lending standards under the normal circumstances. The banks then sold the mortgage bonds—which were given high ratings by credit-ratings agencies—despite the low quality of the borrowers.
  
  “The credit crisis is very serious. The Fed can cut rates and pursue even more expansionary monetary policies. Also, fiscal measures can be expanded further. However, in the current conditions such policy measures will increase the rate of inflation and accelerate the depreciation of the US dollar,” added Faber.
  
  A $700-billion bailout package was recently approved by the US Congress enabling the Department of Treasury to take over troubled lending institutions. Over the weekend President Bush and G-20 finance ministers resolved to unite to combat the spreading credit crisis.
  
  “Regardless of policies followed by the US government and its agencies, the consumer is in recession and the recession will deepen. Trade and current-account deficits will shrink further and diminish international liquidity. The shrinkage of global liquidity is bad for asset prices, including commodities. Also, deleveraging is occurring among financial intermediaries. This is extremely negative for an economy addicted to credit growth.
  
  “We had an unprecedented global economic boom. A global bust is likely to happen,” was Faber’s prognosis.

Source: http://businessmirror.com.ph/index.php?option=com_content&view=article&id=288:opportunities-amid-the-global-crisis&catid=34:perspective

In that same article, it was absolutely great to see the following passage!

• US didn’t learn from Asian crisis
  
  During the panel discussion on the “Fixed Income Markets Outlook,” William Thomson, chairman of Private Capital Ltd., a Hong Kong-based wealth management company and adviser to the London-based Axiom hedge-fund group, said the subprime-credit mess in the US “almost mirrors the [Asian financial] crisis in 1997 where greed and crony capitalism and the absent of regulation” were the norm. He added that the Americans “forgot their lectures to Asian economies a decade ago,” when the regional economy crashed as the property market burst and currencies collapsed.
  
  After the Asian financial crisis, it took only four to five years for the region’s economies to recover because its residents have a high savings rate reaching 30 percent to 40 percent of total gross domestic product. (The exception is the Philippines, with a historically low savings rate.)
  
  So he expressed uncertainty for the outlook for the West because the “OECD [Organization for Economic Cooperation and Development] savings rate is quite low,” with the US in particular, at only 14 percent to 15 percent of its GDP. “That’s only a third of the Asian savings rate so it [the US] has a bigger hill to climb. The recession will not be an easy one to get out of.”