Money printing leads to higher asset prices and makes it harder for most people to afford

The Federal Reserve, each time there was a problem they flooded the system with liquidity, starting essentially with LTCM crisis in 1998, the Dot-Com crash after March 2000 and the Housing bubble after 2006. 

So I suppose that they would again try to support asset prices. As you know one of the problems of this expansion which by historical standards very moderate in terms of momentum and it hasn't really trickled down to large segments of the population. 

One of the problem is that because of the expansionary monetary policies and asset purchases, numerous assets are not affordable by the majority of the people. So if the Fed decides to print money to support asset markets, the impact may be negative on the economy because the prices would start to rise. 

Gold and Silver miners sector is deflated

Marc Faber with Jackie of CNBC

If you look at a broad number of asset prices - Bonds, Equities, Real Estate, Art Prices, Collectibles, Commodities, in general the prices are elevated. Ofcourse yes I am aware that Gold has corrected but in general asset prices are higher than they were Ten years ago. 

Real income in the United States for households are down, in other words prices have gone up more than wages. 

Now the only asset class that relatively and absolutely depressed are Gold mining shares and Silver mining shares. Even large Mining groups such as Barrick and Newmont mining have tumbled and at distressed levels. And as a contrarian or as a value investor you would have to say, these are not momentum stocks and they are building a base. Here I find some reasonably good values compared to other asset classes. 

People who work in financial sector tend to support central bank policies

It is common for people in the financial sector to be central bank cheerleaders who applaud Keynesian interventions with fiscal measures (as long as they don’t involve increasing taxes on the affluent members of society) and, in particular, with monetary policies as long as these are expansionary and lift financial asset prices. 

Central banks intentionally creating bubbles in markets

There are many reasons the Western economies are slowing down. One is government spending. Between 1870 and 1910, nowhere in Europe or in the U.S. was it above 15% of the economy. Now, U.S. government spending, including states and municipalities, is at around 40% of gross domestic product (GDP). In France, government spending is 57% of GDP. 

The larger the government becomes, the less economic growth there will be. So Dr. Greenspan and I agree on the problem, but who financed all these entitlements? I believe the central banks with their artificially low interest rates are deliberately creating bubbles even though in a bubble, the majority loses, and the minority makes a lot of money. 

Marc Faber says Japanese money printing has helped global stock markets

Two years ago, I was of the view that it would be healthy for the market to have a 20 percent correction and that's what I've expected. And many stocks have actually had 20 percent corrections over the last two years. But as I said, a limited number of stocks have driven up the indices. Now of course the indices significantly higher, let me remind you ... in three years, we've almost doubled. If you really believe that in the next few years, every three years the market will double, then go and buy shares because I don't believe that.






Marc Faber on the Japanese Yen and how its weakness has helped stock markets around the world. Marc also talks about dangers of the markets, and the potential for inflation in the future.

Bond yields are un-attractive compared to the past

Frequently, banks will charge you more in fees than you make in interest. 

Ten-year government bond yields in Europe are even lower than in the U.S. In Switzerland, 0.46% is the maximum you’ll earn every year for the next 10 years if you hold such bonds to maturity. 

Today’s investors won’t enjoy the effects of compounding that I enjoyed, having started my career in 1970 when yields were 6%, on their way to 15%.

Japan running a ponzi scheme

Well I think they’re [Japan] engaged in a Ponzi scheme in the sense that all the government bonds that the Treasury issues are being bought by the Bank of Japan.

I think the good news is – for Japan is that most countries are engaged in a Ponzi scheme and it will not end well. But as Carlo Ponzi proved, it can take a long time until the whole system collapses.

Current investing opportunities could be the following

Prices for corn, wheat, soybeans, palm oil, and so forth have collapsed by 50%. Palm-oil prices are closely correlated with soybean prices. Palm-oil-plantation companies also have lost a lot of value, and some look attractive. There’s IOI in Malaysia and Wilmar International. The stocks are depressed. IOI has a 4% dividend yield in a relatively strong currency, the Malaysian ringgit. Wilmar yields 2%. That’s more than the bond yield in Singapore.

India also offers opportunity. Its stock market is up 30% this year in dollar terms. It could rally another 15% next year.

Government unwilling to embrace new ideas

According to Lucy Kellaway, the higher people climbed within an organization the “dimmer” they were becoming. In my opinion, whether people “get dimmer the higher they went in the organization” depends very much on the culture and compensation packages of the organization. In dynamic organizations, which offer challenging opportunities and significant rewards, good people tend to stay on.

Kellaway also suggests that, “It may not be true that the partners are miles dimmer than the graduates” but that, “It is just that the two can’t talk to each other, and so are blind to each other’s strengths.”

My friends and I are all very happy when younger people with different skill sets than we have, teach us how to improve our efficiency with new methods and procedures, and new ideas and technologies. In the fund management industry, it is important to employ younger people who know more about social media, mobile phone applications, and electronic games than we do. So, overall I am not all that negative about corporations’ ability to take advantage of young people’s new skills and blending them with the experience and the knowledge of the employees who have been with the organization for a long time in order to progress and continuously adapt to changes.  

But, where I am more skeptical about the willingness of organizations to endorse new ideas and employ people with completely different perspective is in the academia and at central banks. 

In particular at central banks and in economics today, the Keynesian teaching are so entrenched that any other economic thought such as Austrian Economics is immediately dismissed as “a brain worm that has infected large swathes of our financial industry and general public.” 



VIA Gloomboomdoom Monthly Market Commentary November 2014 Issue

Children in China, Russia, East Europe to have a higher living standard than their parents

The good news is that in the countries that opened up after the breakdown of socialist economies in China, the Soviet Union, and Eastern Europe, and in India, the current generation will earn much more than its parents, and have a better standard of living.

via Barrons