The Battle Of The Dr. Doom's

Posted by Bull Bear Trader | 8/12/2009 03:40:00 PM | , , , | 0 comments »

The battle of the Dr. Doom's on CNBC (CNBC Video), between Marc Faber and Nouriel Roubini, was uneventful, but did provide some interesting comments. While Dr. Roubini views are pretty well known, even if he is currently a little less pessimistic, Dr. Faber's views may not be as well known, and are worth mentioning. Some observations from the Faber portion of the interview include the following:

  • There was a bull market in assets from 2002-2007, along with a weak dollar. In 2008, we had the opposite - a strong dollar, with all assets going down except for bonds. Now, in 2009, assets have rallied, especially in emerging markets as the dollar has weakened.
  • For the next couple of months we should see the dollar recover as assets correct downward.
  • The dollar will strengthen not because the U.S. economy is the best, but because it is the least cyclical. As the dollar strengthens, global liquidity will tighten.
  • As liquidity tightens, growth will begin to disappoint, and emerging markets will become vulnerable, especially after being a favorite of momentum investors who may flee the trade.
  • Nonetheless, even with slower economic growth, markets may still go up given that there are a number of worldwide central bankers who are nothing more than money printers and continue to feel the need to intervene when prices go down (except for crude oil).
  • To exit this cycle, we may still need a crisis to cause us to fully change behavior and clean the system. Therefore, a total breakdown of the system is likely ahead of us (even if 1, 5, or 10 years away) since we have not let those who caused the problems fail. We cannot continue to provide bailouts that do not help the average person.
  • Nonetheless, the Fed and other central bankers will most likely leave rates too low for too long, as household deficits continue to increase.
  • Finally, when asked what would have happen if central banks would not have stepped in to stop the credit and market collapse, Faber believes that the market would have dropped more, but the system would be healthier, in part because the debt load on taxpayers would be less.