Sunday, March 31, 2013

There are only a few big picture guys we admire and love listening to. And Marc Faber aka Dr Doom is certainly one of them. Thus, every time he discusses something significant, we like to be all ears. So, what's going through the mind of Dr Doom these days? Well, true to his moniker, he is certainly not upbeat about the goings on in the global economy. In fact, in a recent interview he seems to have outdone even himself in terms of bearishness.

Mr Faber is of the view all that we are doing is creating bubbles, bubbles and more bubbles. And when this will come to an end, we will have a systemic crisis so big that it will be difficult to hide even in gold. Sounds pretty scary, isn't it? If you listen to the man's logic, you walk away convinced that things are certainly as scary as he is making it out to be.

He opines that printing money is nothing but an act of creating bogus money. Thus, as with bogus money, the money printed by US Fed and other central bankers does not spread evenly in the economy. It first reaches those officials and executives that are closest to this newly created money. And in this case it would be finance sector guys like brokers, insurance companies, fund managers etc.

Flush with funds, these people then go about scooping up assets like stocks and other commodities on the cheap. This is perhaps the reason why stocks are touching record highs and inflation is getting out of hand even without the economy improving. And what happens to the remaining majority of the population i.e. the people that are not first in line to receive the funds from central banks? Well, by the time the money reaches them, prices of assets and other goods and services are already up, forcing them to dip into their savings or take up more debt.

The rich on the other hand, the ones that get their hands on the money the earliest, keep playing the game of passing the parcel. They keep moving in and out of assets and in the process, creating bubbles that don't really rest on strong fundamentals.

It's obvious, isn't it? If one is earning a pretty handsome return on one's capital by selling it to the greater fool, why would someone bother setting up a plant and employ people. Besides, with interest rates at record lows, it makes more sense to invest in capital than hire labour. All of this further exacerbates problems in the economy, culminating into a systemic crisis Mr Faber is so worried about.

Thus, if there are bubbles in every asset class imaginable, how can even gold escape the painful result of these bubbles getting burst. Our only hope then are those assets and currencies that are the safest and are capable of getting away with minimum damage.