Thursday, September 10, 2009

Marc Faber Foresees Inflation

What lies in store for the American economy? Inflation or deflation? The financial world has been debating this question for a while now.

Famous investor Marc Faber spoke publicly on Wednesday (9/9/09) and reiterated his opinion that the U.S.'s extremely high deficit, near-zero interest rates and the Federal Reserve's quantitative easing policy will combine to spur inflation in the future.

Faber predicted the current stock market rally last October, when he advised his readers to invest in stocks again. Apparently Faber is still quite bullish on stocks but not because he has much faith in a recovery or in the current state of the economy. Quite the opposite, actually.

“Money printing will be unprecedented because the deficit will need to be financed,” Faber said. “The weaker the economy, the more the stock market will go up because the money that is being printed will go into” speculative assets.

The bold emphasis was added by me. I'm in complete agreement with Faber on this point. I argued that the stock market is not at all an accurate barometer of the nation's economic health in two of my previous posts (Nouriel Roubini and the Future of the Stock Market and Desperate Investors Embrace Risky Moves).

“If the dollar is weak, there is a very good chance that equity prices could rise quite substantially,” Faber said. A weaker dollar is “good for asset prices.”

Faber also recommended investing in precious metals and raw materials as a hedge against a weakening dollar.

Faber also challenged the idea that we're in the midst of the beginning of a recovery, pointing out the continuing weakness in consumption.

Read the entire article at Bloomberg news by clicking here: Faber Says ‘High’ U.S. Deficit Will Spur Inflation (Update1)

Note: I am not an investment adviser and this is not intended to be taken as investment advice.

So, whats your take? Whats the U.S. economy in store for? Inflation? Deflation? Is Faber right or wrong? Why? Make your case here.

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