and now what is he doing? not doom, not boom but not gloom either.
---------------------------------

http://www.bloomberg.com/apps/news?pid= ... Tc97yfiuPc


Inflation to Cause Stocks to Outperform Cash, Bonds, Faber Says

By Sapna Maheshwari

Sept. 23 (Bloomberg) -- Inflation caused by the Federal Reserve’s efforts to prop up the U.S. economy will cause stocks to outperform cash and bond investments, Marc Faber said.

Money pumped into the economy by central bankers will push the Standard & Poor’s 500 Index as high as 1,250 in a year, Faber, the publisher of the Gloom, Boom & Doom report, said yesterday in an interview with Bloomberg Television. The U.S. government and the Fed have spent, lent or committed more than $12 trillion to revive the economy and credit markets, a program he predicted in a February interview would have “dire consequences” in the long term.

“Where there is inflation in the system as defined by money supply growth and credit growth, you have currency weakness,” Faber said yesterday. “Stocks can easily go higher. If you print the money, they can go anywhere.”

Faber recommended buying U.S. stocks in October, before the S&P 500 plunged 31 percent through March and then staged the steepest rally in more than 70 years. The index is up 8.8 percent since his October comments. It gained 0.7 percent yesterday to 1,071.66, extending its advance since March 9 to 58 percent.

Consumer prices rose 0.4 percent in August, following no change in July, underscoring the Fed’s view that inflation will be contained as it keeps the key interest rate between a record low of zero and 0.25 percentage point. The Federal Open Market Committee will keep its rate target unchanged at its meeting that concludes today, according to a Bloomberg survey of 98 economists.

The government “will print like never before,” which will reduce foreign investments in the U.S. and weaken the dollar further, Faber said. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, has fallen 6.5 percent this year. It appreciated 6 percent in 2008.

Faber recommends purchasing stocks in drug companies such as Johnson & Johnson, saying it will gain from an aging population, and in oil companies, which he called inexpensive. An index of oil and gas stocks on the S&P 500 has fallen 12 percent this year.

“If you have a problem that arose as a result of excessive credit growth and debt levels in the system, you can’t solve that by piling up even more debt,” he said.
.

more from the man-----------

When Currencies Crash By Dr. Marc Faber ; Chiang Mai, Thailand

The US is dedicated to debasing its currency. Are you ready?

There is a risk in holding cash in an environment of asset price inflation - a condition that usually occurs when governments create large fiscal deficits and inflate the money supply. The practice is endemic to banana republics and declining empires...and it is happening in the US at this very moment.

The global recession and financial crisis have refocused attention on government stimulus packages. These packages typically emphasize spending, predicated on the view that the expenditure 'multipliers' are greater than one - so that gross domestic product expands by more than government spending itself. Stimulus packages typically also feature tax reductions, designed partly to boost consumer demand (by raising disposable income) and partly to stimulate work effort, production and investment (by lowering rates).

The existing empirical evidence on the response of real gross domestic product to added government spending and tax changes is thin... But the evidence is quite strong that these policy responses usually trigger inflation.

I suppose that even someone without any common sense might understand that a "strong currency" over longer periods of time reflects a high degree of prosperity and economic success, whereas a chronically weak currency is symptomatic of economic imbalances, such as a lack of competitiveness or overconsumption, arising usually from excessive supply of money and credit.

I would also suppose that even if someone never travels overseas, he would understand that if the US dollar loses 50% of its value against all the other world currencies (everything else being equal), it means the US is 50% poorer relative to the rest of the world. (Now, this is not entirely correct, since the US has overseas assets that would appreciate in value in USD terms).

Moreover, stock price movements become extremely volatile and erratic in countries with a depreciating currency. In the long run, the depreciation of the currency will usually more than eliminate the gains in local currency terms. So, whereas in 2007 both the Dow Jones and the S&P 500 exceeded their previous highs reached in 2000 in US dollar terms, these indices failed to make new highs in Euro terms. In addition, whereas the US economy expanded in US dollar terms between 2001 and 2007, in Euro terms it actually contracted!

Even with the S&P 500 having shot up since the beginning of the year by over 25%, it has merely kept pace with the price of gold. And during the last 10 years, the S&P has lagged behind the official US inflation rate...while lagging VERY far behind both the euro and gold. Sine the end of 1999, the S&P 500 has delivered a total return after inflation of about MINUS 25%.

Unfortunately, the US is not the only country that is busily debasing its currency. "Everyone" is doing it. Because of the current collective debasement of all paper currencies by central bankers, I believe that precious metals and mining companies will maintain their purchasing power.

In the 1980s the US dollar was a very strong paper currency compared to the Mexican Peso. Today, there is no paper currency that is as strong relative to the US dollar as the US dollar was relative to the Peso in the 1980s! The only "currencies" that have a chance of becoming as strong against the US dollar as the US dollar was against the Peso between 1979 and 1988 are precious metals such as gold, silver, platinum, and palladium.

Also, I should add that precious metals could appreciate even if the US dollar miraculously recovered strongly against foreign currencies for an extended period of time. Such dollar strength would probably be a symptom of some horrible economic or political problems around the world, which could be friendly to precious metals.

Central bankers and pundits seem to believe that they have averted the second Great Depression, while ignoring the fact that more and more debt produces less and less GDP and fewer and fewer jobs.

For now, though, the low ten-year bond yield is the lifeline from which all support flows. Much of the investment universe holds together because money can still be had for cheap - not by the volition of a cooperative private sector, rather induced by a US government that simply distributes money for free. Such an ill-conceived idea could only have been born in the test tube of a central banker.

Private lenders comprehend the difficulty of making profits when being forced to lend for nothing, so the government increasingly finds itself to be the interest-free lender of last resort.

Ultimately, if central bankers continue this process for long enough, it is the dollar, and any currency or economy still pegged to it, that could eventually crash. Therefore, we investors find ourselves in the precarious position of having to maintain sufficient liquidity, but not too much in case the real value of these liquid reserves is wiped out by politicians and central bankers gone mad.

The following is an excerpt from the November edition of Dr. Faber’s monthly newsletter, The Gloom, Doom & Boom Report.

I think there may be a window of opportunity left in frontier markets. Let me explain. In last month’s report, I noted that we should think of the US as a “huge money-printing machine that produces an unlimited quantity of dollars”.

Most of these dollars flow to the corporate sector, wealthy individuals, and financial institutions. A large proportion of these dollars is then transferred to emerging economies through the US trade deficit and investment flows, where it boosts those economies’ economic activity and increases wealth relative to the US. I also warned that potentially spectacular bubbles could develop in emerging stock markets, as well as in selected hard assets (i.e. in precious metals, art prices, and prestigious properties). I am now beginning to think that even more spectacular bubbles could develop in frontier markets. How so?

I mentioned that the US transfers dollars to emerging economies through its trade deficit and investment flows. Emerging economies are then faced with the decision of what to do about the dollar inflows. If they let the currency appreciate, a temporary loss of competitiveness may result. (This is not my view, however.) If they do nothing, spectacular asset bubbles can occur that are accompanied by high consumer price increases. In either case, the price level (especially of assets) in traditional emerging economies initially increases compared to the level in frontier markets. What happens next?

International investors, sovereign funds, and wealthy individuals who live in more advanced neighboring emerging economies become aware of the huge differences in price (for everything, including all kinds of assets and services) between their own economy and that of the frontier region. As an example, wealthy Hong Kong, Singaporean, Korean, Taiwanese, and Japanese businessmen and investors (and their sovereign funds) won’t fail to recognize the enormous difference between real estate prices in their own relatively advanced economies and those in countries such as Cambodia, Vietnam, Myanmar, Mongolia, and Laos.

Now let us go back to the huge money-printing machine in the US, which transfers economic activity (including employment) and wealth to foreign countries.

First, US dollars flow to the countries with the highest current account surpluses and, as explained earlier, push these countries’ asset prices up either through appreciation of the currency or through high domestic price increases – or a combination of the two. In a second instance, this “additional liquidity”, which created enormous wealth in Asia, will flow to the least developed countries. I believe that in this context, Vietnam is currently an attractive investment destination.

I was recently in Vietnam and, as on previous visits since 1989, I was immensely impressed by the dynamism of its population and the ongoing economic growth. This is not to say that Vietnam is problem free (witness the struggle between the reformists and the hard liners in the government, the large trade deficit, high inflation of between 12% and 15%, a weakening currency, etc.), but for the first time in years the valuation of the equity market has become compelling.

Other stock markets that have failed to participate meaningfully in the global “asset reflation” since early 2009 include those in the Middle East, about which I have written before.

Obviously, as in the case of investments in Russia and Central Asia, the performance of the Middle Eastern markets will depend largely on stable or rising oil prices. However, oil and oil-related equities have begun to show favorable relative strength based on several technical indicators, which gives me some comfort when making these recommendations. Stable or rising oil prices should also have a positive impact on US oil stocks, and on Canadian oil stocks that have exposure to oil sands.

For investors the problem is the following: The symptoms of monetary inflation will show up somewhere: either in wages or in corporate profits (as was the case recently) or in consumer, commodity, art, real estate, stock and bond prices - or in the appreciation of currencies. But somewhere monetary inflation will manifest itself. Moreover, the viciousness of monetary inflation is that its symptoms will not show up evenly and simultaneously but they will shift from one sector or region to another and lead to extreme economic and financial volatility. This is particularly true in an environment of negative real interest rates, which punish over time cash holders and therefore, increases the propensity to speculate.

The challenge for investors in 2012 will be to move their funds into inflating assets and avoid deflating assets.

the lead para from Faber's latest report ..... though he is only 25% invested in equities.