Will the result of 2009 be hyperinflation?
*Barron's, by Lauren R. Rublin, January 10, 2009:
"There is no such thing as good public policy, certainly not in the
U.S. The current crisis was produced largely by policy measures that
led to the formation of Fannie Mae and Freddie Mac, and later the
repeal of the Glass-Steagall Act, which had prohibited banks from
owning brokers. It all led to increased leverage. Fed policy has been a
disaster. Instead of smoothing markets, it has increased volatility. By
cutting interest rates the Fed created bubbles -- in housing, in
commodities. Now that the federal-funds rate has been slashed just
about to zero, you're not getting anything for your money when you
deposit it in the banking system and buy Treasury bills. There is no
such thing as investment; everybody becomes a trader.
With a few exceptions, the U.S. doesn't produce anything. It is a
consumption-led economy. When the economy expands, the U.S. imports
from other countries, such as China, which increase industrial
production and capital spending. From 2002 to 2007 the markets of
emerging economies outperformed the U.S. But when the economy slowed in
2008, it was a catastrophe for these economies. They immediately cut
spending and production, which affected demand for commodities. Last
year, emerging markets were hit much harder than the U.S.
Cohen: The P/E ratio of the Chinese market was more than 50 times
earnings at the end of 2007, so the issue isn't only fundamental demand
but relative valuation.
Faber: I'm aware of that. I recommended shorting Chinese stocks last
year. It would be best at this point for the U.S. to have 10% less
consumption. It would make people save again and follow Christian
principles of frugality and humility. I doubt it will happen, but it
would be good for the U.S.
We've had history lessons, and now, religion lessons. What does any of
this mean for 2009?
Faber: The U.S. economy fell off a cliff between October and December,
and will stabilize at a lower level of activity. Some indicators may
look better than expected, which will justify the present rally. Stocks
already are up 25%. If they go up 50% from the Nov. 21 low of 741 on
the S&P, you'll have the S&P at around 1,100. Afterward,
reality will set in and in real terms the market will go much lower for
much longer.
Around the world, governments are throwing money at the system to
revitalize debt growth. When an economy is credit-addicted and debt
growth slows, it is a catastrophe. With the Fed buying up everything
and boosting the federal deficit, hyperinflation will be the result
down the line."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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