Faber: U.S. Inflation to Approach Zimbabwe Level
May 28th, 2009Via: Bloomberg:
The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.
Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.
“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”
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So, Kevin, with this in mind, any speculation on what the currency play would be?
I don’t know.
I assumed that much more chaos would have crept into the system when the Fed started buying the unsellable bonds a couple of months ago. Instead, the dollar has just been in a sharp, but orderly decline.
While I don’t know if it’s the right way of going, I can tell you how we’re allocated, which, of course, is not a recommendation to buy, sell or hold any financial instrument, blah blah.
It’s NZ$ in cash, not leveraged, physical gold, DBA (food ETF) and USO (oil ETF) and just enough US$ in a brokerage account to hedge stuff via options if I think it’s necessary. Gold has been critical to allowing me to sleep while holding so much NZ$. During the NZ$’s big selloff, I was very happy with how gold performed and pretty much ignored what was happening to the currency. Gold behaved “by the book” in NZ$, soaring to record highs.
I don’t like any of the currencies. First of all, they’re all fiat confetti currencies. Second of all, the whole reality is tied to the flawed logic of the dollar. So it’s a tough ask to make picks here. Someone referred to trying to pick a currency to stick with as akin to trying to select a beauty pageant winner in a leper colony. Man, that sounds about right to me.
A lot of smart people think China, but China is screwed in so many ways, never mind the fact that they were stupid enough to buy 1+ trillion dollars worth of U.S. bonds… Yeah, it’s tough for me to see how that’s going to work out well for them.
Japan? No natural resources. First current account deficit in 13 years. I dunno.
However, the way Japan conducts its international relations is very smart and geared toward addressing their total lack of resources. In short, Japan buys friends rather than pointing guns at people. The culture in Japan is geared toward total subservience and personal sacrifice to the keiretsu organizations that have run the place since people were killing each other with swords there. If you don’t know what keiretsu means, look into it. It’s fascenating, it seems like an anachronism, but there it is. Today. Right now. Japan is always at war. It just looks like international trade now.
The U.S. and Britain are in deep, deep shit. This is why I’ve been maintaining that we’re going to see some kind of wildcard, system changing event in the financial system. Some kind of IMF SDR thing or fewer national currencies and more regional currencies. The U.S. is a system scale Lehman Brothers now. I don’t see how we emerge from this with the current system intact.
Oil seems like a much better play than anything else right now. (Wait for whacked out overbought oscilators to unwind, though!)
Unfortunately, I don’t know of a good buy-and-hold strategy for dealing with it. USO is not a good way because traders figured out how to game it during the recent contango situation, which resulted in the fund getting very diluted. So, oil’s recent huge gains are not being reflected in USO; it’s rising with oil, but much slower than it should be. That sucks for me because because I loaded up in a series of falling knife situations that have worked very well, but should have works a lot better.
Anyway, I’m not going to buy oil futures because that involves more leverage than I’m willing to deal with.
There must be a better fund out there, but I’m sticking with USO for now.
Thanks for the comprehensive reply. I was stumped about the currencies, and I guess there was a reason for that. Commodities it is, then.
thanks for your thoughts, Kevin.
re: keiretsu, yeah they have had a huge influence but it is becoming much more diluted. i think Japan’s position is often dimissed as untenable because of the lack of petroleum/natural gas/coal/metal ores. but as you say, that means they have to be smart about what they do have. and one of the things they do have is a lot of very advanced manufacturing technologies and critical-component industries. the govt ministries and companies are always getting together to plan how to keep ahead of the game. whether it’s to do with securing resources or staying at the top of the manufacturing pyramid. the quarterly profit pressure/reward is not the same as the Anglophone economies.