February 5, 2014
“It’s not just tapering that is putting pressure on markets,” Marc Faber warns in this brief clip. “Emerging economies have practically no growth and we have a slowdown in China that is more meaningful than strategists are willing to believe,” he adds and this is “causing a vicious circle to the downside” in inflated asset markets as most of the growth in the world over the last five years has come from emerging markets. Faber suggests Treasuries as a safe haven in the short-term; but is nervous of their value in the long-term as “debt is becoming burdensome on the system.”
“A lot of economic growth was driven by soaring asset prices”
“For the next three to six months probably they are a better place to be than equities,”
“I don’t like [10-year Treasurys] for the long-term because the maximum you can earn is something like 2.65 percent per annum for the next 10 years, but Treasurys are expected to rally because of economic weakness and a stock market decline. In the last few years at least there was a flight into quality – that is, a flight into Treasurys.”
On China and shadow banking defaults:
“China can handle it by printing money but it will again have unintended negative consequences… but the
problem is real… but it’s not just in China…”
Faber warned of the risks of the present global credit bubble and said another slowdown could follow on the back of rising consumer debt levels – which had previously helped to create growth.
“Total credit as a percent of the global economy is now 30 percent higher than it was at the start of the economic crisis in 2007, we have had rapidly escalating household debt especially in emerging economies and resource economies like Canada and Australia and we have come to a point where household debt has become burdensome on the system—that is, where an economic slowdown follows.”
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