Marc Faber is Right Again! Bernanke learns from Mugabe
The prediction by Marc Faber that the prospect of easy money from the Fed would lift stocks and commodities has been spot on! Commodities, gold and silver, stocks and anything that trades in U.S dollars soared yesterday.
The second half of Faber’s prediction that stocks and commodities will undergo a sell off before the month of November is out is still in limbo.
Faber has repeatedly warned the bears that market valuations may not be of any consequence if the Fed prints enough money to support lofty valuations. However, in an environment where many analysts can make a strong case for cheap S&P valuations, it appears Faber was assured of his prediction.
According to technicians, a break above the April 26 intraday high of 11,258.01 is very bullish for stocks. Yesterday’s rally cut through this level like a hot knife through butter. Further buying is expected following the breakout.
The inflation trade is on!
Abbey Joseph Cohen’s target for 1,250 and 1,300 range for the S&P doesn’t seem so far out after all. Maybe Cohen subscribes to Faber’s Gloom, Boom, Doom Report for some hints to the market’s likely direction and timing. She could use it.
And if there’s any doubt of Faber’s suggestion that money printing to affect higher stock prices is one of the goals of the Fed by deploying QE2, just read a statement by Fed chairman Ben Bernanke regarding the FOMC’s objectives following the deployment of QE1:
“Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
And the stock market could just be starting to roar higher. Faber says that the more the Fed prints money the higher stocks will climb. After all, we have the Zimbabwe model to point to if stocks show signs of faltering in the future.
From Business Weekly, published Oct. 22, 2008:
“While markets across the world have been crashing, the Zimbabwe Stock Exchange has being seeing record gains as citizens turn to equities to protect their money from the country’s hyperinflation.
“The benchmark Industrial Index soared 257% on Tuesday up from a previous one-day record of 241% on Monday with some companies seeing share prices increase by up to 3,500%.”
Faber expects a Von Mises “crack up boom” phase in the markets next year when we could see further record commodities prices, higher equities prices, and a significant loss in confidence in the U.S. dollar.
But if Bernanke doesn’t get his way and asset prices begin to slump again, we can expect more money printing from the Fed, says Faber, who also said in May that no one should fear a crash in the S&P because “Zimbabwe’s Mugabe is Ben Bernanke’s mentor.”
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