Thursday, October 8, 2009

Marc Faber on CNBC India

Before I get to the Marc Faber videos - I have received a form of this question a few times in either email or comments section so I thought I'd rehash it very briefly. Basically it is : why is there this inverse relationship between the US dollar and stock markets.

I am going to give the simplistic answer, speaking within a vacuum. The real world is much more complicated but it really boils down to simple economics.

There are X many US dollars in the world
We are increasing the number of these dollars to "stimulate"

There are Y stock certificates (or ounces of gold, or whatever you wish) in the world

So as the supply of X increases (as each dollar is "printed", it devalues all the other existing dollars slightly) it chases a relatively fixed number of Y stock certificates.

As a greater number of X chases a relatively fixed amount of Y, the price of Y increases. Economics 101. Which is why there has been this relationship between a dropping dollar and rising prices in assets. The Fed is sending more dollars out into the world to fight the good fight; they are wishing those dollars would go into the real economy - but end demand by Americans is just not there for those dollars. They are not needed; Americans are already up to their eye balls in debt. This was literally displayed in yesterday's credit report. So those dollars being filtered, via our financial leadership, into stock certificates and other such things. You will see the result of the Fed's largess in massive trading profits in next week's results of our largest banks. Remember, America is run for our financial oligarchy now.

What I describe above is NOMINAL inflation of assets... speaking of Faber he talked about that in May. [May 15, 2009: Faber - This was a Central Bank Printing Press Rally] The difference between "nominal" and "real" is a different conversation. But put in its simplest form the US can print XX trillion more dollars if it wished. Your house would increase in value by twice (or thrice?!); the stock market would rally 500% from here. You'd feel great! We'd hear how the stock market is showing us everything is wonderful in Cramerica. People would go back to daytrading homes. But are you better off? If so every country would simply print as much money as possible and hand it to their citizens; we'd all have billions in our bank account and soon we'd be in the Weimar Republic or Zimbabwe.

Again, this is a very simplistic example taken in a vacuum but it really all goes down to basic supply and demand. I think the rally in gold/silver has a lot more to do with the dollar devaluation explained above than "real" inflation.


We have a new interview with Marc Faber - he and Jim Rogers seem to be agreeing a lot the past few years, but if you follow both gentleman I believe the best course is using Rogers for very long term strategy, and Faber for shorter term tactical views. But they both end up in the same place in the long run - we're dooming ourselves. If the above example I posted does not make sense, it's worth your time to watch his video with CNBC India.

Also I think Faber's interview from August might of been the best Faber interview I've ever seen - he lays it out in a fashion that should be told to the American people. [Sep 3, 2009: Marc Faber August 2009]

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

Copyright @2012