A Quote by Marc Faber
You have to say that we are again in a massive financial bubble in bonds, in equities, in [other] asset prices that have gone up dramatically.
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There is no doubt that the Fed's large-scale asset purchases have caused major increases in a number of asset prices in the economy. This is especially true of mortgage backed securities and corporate bonds, and quite possibly of equities as well. For those people and institutions holding those things, the run up in prices has been a wealth bonanza.
It's quite clear that stocks are cheaper than bonds. I can't imagine anybody having bonds in their portfolio when they can own equities, a diversified group of equities. But people do because they, the lack of confidence. But that's what makes for the attractive prices. If they had their confidence back, they wouldn't be selling at these prices. And believe me, it will come back over time.
When I look at asset prices; real estate, bonds, equities, vintage cars… I think that gold is actually one of the few assets that is relatively cheap, relatively inexpensive.
When they say inflation is bad, deflation is good, what they mean is, more money for us 1% is good; we're all for asset price inflation, we're all for housing prices going up, and we're all for our stock and bonds prices going up. We're just against you workers getting more income.
I don't particularly like equities, but I think equities are a better space to be in than bonds.
The problem is that you're creating a system of bubble finance where interest rates are so low that people can speculate. An asset value goes up. You put it up as collateral. You borrow against it. You buy more of the asset. You then take the rising asset. You borrow against it again. This is the nature of what's going on in the world. This isn't an excess of real savings. This is an excess of artificial credit that's being fueled by all the central banks.
Prices are going up. Unemployment is continue to go up. And we have not had the necessary correction for the financial bubble created by our Federal Reserve system.
Prices are going up. Unemployment continues to go up. And we have not had the necessary correction for the financial bubble created by our Federal Reserve system.
We believe that people moving their portfolios to an overweight in bonds will be disappointed over the long-term and will significantly underperform an asset allocation that over-weights equities.
It is an unfortunate fact that great and foolish excess can come into prices of common stocks in the aggregate. They are valued partly like bonds, based on roughly rational projections of use value in producing future cash. But they are also valued partly like Rembrandt paintings, purchased mostly because their prices have gone up, so far.
I think we have a bubble in the US in government bonds, because of the quantitative easing and the negative real interest rates, and to some extent, that increases asset values across the board, including in startups.
If you let interest rates be freed, be set by the free market, they would rise dramatically. There would be a lot of broken furniture on Wall Street. It needs to be broken. The back of the speculative bubble would be broken and we could slowly heal the financial system. That's what I think we need to do but it's never going to happen because there's trillions of asset values dependent on the Fed continuing to suppress, repress interest rates and shovel $85 billion a month of liquidity into the market.
We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs and price stability.
Equities are boring; bonds are disgusting.
The period of financial distress is a gradual decline after the peak of a speculative bubble that precedes the final and massive panic and crash, driven by the insiders having exited but the sucker outsiders hanging on hoping for a revivial, but finally giving up in the final collapse.
We live in a very risky world and investors should not get "carried away" with excessive allocations to equities, or for that matter, real estate. As always asset allocation and low cost and broad diversification will be essential in earning one's fair share of whatever returns our financial markets are generous enough to bestow upon us.
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