Marc Faber on Inflation, Stock Markets, Gold, Real Estate and the End Game

by Mac Slavo
SHTF Plan
by Mac Slavo
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Gloom, Boom & Doom Report publisher Dr. Marc Faber joins Infowars' Alex Jones to discuss non-traditional investment strategies, global inflation, social response and repercussions, and the phases to expect as the crisis deepens.

(Full interview available below excerpt and commentary)

Faber on Inflation:

I think that inflation or the cost of living increases in the US and elsewhere is much higher than what the government is publishing. And, I think this is having a negative impact on consumption, because obviously the cost of necessities – insurance, taxes, food, energy – is going up very rapidly. My answer to all of this is, the worse the economic conditions will become, the worse the geopolitical conditions will become, the more Mr. Bernanke and his fellow Fed governors will print money.

Consumers in the US are getting broker by the day. As food and energy prices rise, consumers will be forced to adjust their spending habits. Paying 30% – 100% more for food at the grocery store means less money spent at movie theaters, electronic stores and restaurants. In turn, this spending adjustment in discretionary consumer spending means more people will lose their jobs, and so too will people in the industries that support those markets, for example, transportation companies. It simply cannot be any other way.

The solution from the financial masterminds in the White House and on Wall Street – no matter how jaded – is, was and will continue to be the printing of more money.

The real kicker is, that as more money is printed, goods will continue to rise, because most of that printed money ends up in speculative stock market and commodity investments, further driving up prices on essential goods. As those prices rise, there will not be an adjustment to wages – putting further pressure on consumer spending and job losses. It's a negative feedback loop that simply cannot be stopped, and the very actions we've been told are the solutions to our problems are actually contributing to, and further enabling, the crisis.

Faber on Stocks:

I'm not ultra-bearish on equities. I think they will now correct because the market is way over bought. And, so we can easily have a correction of 10% – 15%. As soon as the markets drops, say, 15%–20%, QE3 will come into play. And all that is favorable for silver and gold.

The first round of quantitative easing began around the time of the 2009 stock market lows. Marc Faber saw this coming in March of 2009, when he recommended to his subscribers to take positions in stocks. Faber knew that The Fed would pump as much money into the system as was necessary to change the perception about our economic malaise. In that respect, QE1 worked. Stocks (and commodities) saw significant gains. While a stock market crash may still be in the cards, the point that Dr. Faber makes about QE3 should not be taken lightly. The US government has already committed in excess of $30 trillion to resolve this crisis. Be assured that they will keep going if they find it necessary, regardless of the impact this will have on our national debt, the US dollar or the end consumer, who according to Fed chairman Ben Bernanke, is not experiencing any significant level of price inflation.

Faber on Precious Metals and Value:

All of that [money printing] is favorable for silver and gold. Now, the question is, is gold and silver expensive or is it cheap? In 1999 you could buy an ounce of gold for $252. Now it's $1400. Is it cheap or expensive?

In a money printing environment it's very difficult to decide what is expensive and what is cheap because the function of money to be a unit of account and a store of value has been lost through the money printing. My view would be, yeah, relative to 1999 the price of gold is expensive at $1400. But relative to the money-printing maybe not.

My advice to all your listeners is to gradually accumulate gold. Don't buy it on margin – just gradually accumulate month by month.

…

I think the US government is bankrupt. They will not default on the debt. They will just print money. Not to own gold and silver is to trust Mr. Bernanke. Now go and look at his speeches, and then you tell me whether you rather trust gold or Mr. Bernanke.

Nominally, gold has surpassed its record highs of the early 1980's (and silver is well on it's way). In real terms, adjusted for inflation, gold would have to hit roughly $2300 per ounce to have the same "value" as what it had in the 1980's. When QE2 was announced in 2010, the price of gold shot up relative to not just the dollar, but all global currencies. One can surmise that QE3 would have a similar effect. Add to that the strife around the world and the panic buying that ensues in insolvent nations like Greece, where the street value of gold during their 2010 riots was 50% higher than the listed exchange values, and you can see the direction that precious metals are headed.

From a preparedness standpoint, gold should be a part of any complete emergency and disaster plan. As we've mentioned in the past, and Dr. Faber suggested in this interview, accumulate gold over time. You don't have to invest all of your finances in precious metals – but acquiring a little bit every month wouldn't be a bad idea. The strategy of dollar-cost-averaging let's you balance out your overall "buy" price in the event of volatility where prices drop or rise rapidly.

With gold, you don't have to worry about your US dollars, because you are, in effect, your own central bank.

Faber On Real Estate:

I think another avenue is to own farmland. I think that real estate prices in the US have come down – OK, they may go down another 10% – but relatively to other countries and internationally, after having declined, if you can find a house you like, it may not be a bad time to buy a house in the US. It may not go up in value, but it may preserve its value.

…

I know quite a few extremely well to do people who have second thoughts about life in big cities and security in big cities if the unrest in the middle east were to also spread to developed countries. And they also know that we might have problems with modern warfare that would include cyber war, or switching off of the electricity or biological warfare – terrorism – that would touch the big cities. So, they want to be safe. They buy islands and they buy farmland in the middle of nowhere.

We've suggested in the past that real estate has not yet hit bottom – and we maintain this position. We could see housing collapse another 30% from here, perhaps even more. However, the decision to purchase a home at this point comes down to value.

If you are looking to flip properties as a business like many did leading up to the real estate detonation, you'll be hard pressed to generate significant revenue. But if you have other intentions and goals, it might not be a bad time to consider purchasing.

Farmland, for example, is a real estate asset that produces commodities. Unlike a suburban home with no real possibility for production unless you're willing to do the work, farmland allows a family to generate their own food, as well as their own energy – essentially eliminating the necessity of the ‘grid' on which most people depend. Not only that, but outside of major cities you've got an extra layer of security in the event of war, economic collapse or other disaster.

Additionally, if the US dollar continues to be debased, which it will given historic trends, we can expect interest rates on homes to start rising – significantly. In the 1980's rates exceeded 15% in some cases. The following example demonstrates why it might not be a bad time to buy now if you expect interest rates to rise:

via Mortgage Calculator

Home Price: $200,000
Current Rate: About 5%
Monthly Payment: $1073.00
Total Payments Over 30 Years: $386,500

or, waiting until rates rise and prices decline 30%:

Home Price: $140,000
Rate: 10%
Monthly Payment: $1228.00
Total Payment over 30 Years: $442,000

Unless you plan on paying in cash after the next leg down in real estate, it may be to your benefit to buy now and lock in a decent interest rate, even if you expect a massive decline in prices. Additionally, you may end up paying less simply because of inflation and (hopefully) a future wage adjustment or earnings increase.

Faber on The End Game:

We are in the end game, but we are currently in a crack-up boom. A crack-up boom is when you postpone a recession through money printing and credit growth. The credit growth is not created in the private sector – but it's much worse – it's in the government sector. The government is the most unproductive sector in economic life.

So, this crack-up boom will end very badly.

But, before it ends badly, we'll have money printing, very high inflation, and when everything fails the US will go to war. They are already in war, but they'll increase it.

Our economic policies dictate that no other end result can come of it. While Dr. Faber gives the "end of the end game" a time frame of roughly seven to ten years, there are many variables in play, any of which can set the whole powder keg off at any given time.

As was suggested in If You Believe It Or Not, It Doesn’t Matter, it is possible that we are already on an accelerated path to a collapse of the world as we have come to know it.

Listen to Marc Faber and Alex Jones (February 21, 2011):

Hat tip European American and Truth is Liberty

Reprinted from SHTF Plan.

February 25, 2011

Mac Slavo [send him mail] is a small business owner and independent investor.

Copyright © 2011 Mac Slavo

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