Faber on liquidity, the Yen, and Gold

This is a must play video interview with Marc Faber.

Summary

• "Markets obviously peak out when everything looks best and bottom out when things look horrible"
• "In this sense we have the goldilocks outlook and things look fantastic. This is precisely the climate in which stocks can make a longer term high and start to decline"
• "At every market peak.. you have excess liquidity. At the present time a very significant part of what people call excess liquidity comes actually from the American current account deficit". That 800 billion dollars flows around the world and boosts economic activity.
  
• "Credit standards are now tightening. That leaves the consumer in the United states vulnerable ... and consumption in the US will hardly grow this year, which means the trade deficit in the US will not expand therefore international liquidity while still plentiful will not grow at an accelerating rate ... therefore markets may come off quite a bit more than the typical portfolio manager now expects"
• "We can easily have a correction of 10-15% on the S&P ... followed by a summer rebound but I doubt that we will make new highs as the economy deteriorates towards the end of the year that will get another big selloff in equity markets around the world"
  
• India and China can easily drop 30-40% before they become buying opportunities.
  
• Prefers Japanese Equities over other markets on an relative performance basis
  
• The Yen is very undervalued
• The moment other markets weaken, carry trade money will flow back to Japan and strengthen the Yen
  
• Prefers agricultural commodities like cotton and sugar over industrial commodities
• Likes gold on a pullback of 5-10% but always holds some gold
• "The gold bull market will end when there will be lines of people in front of gold shops buying gold because they want to move out of cash... when they really become afraid that paper money loses all its value."
• "I don't by gold for jewelry purposes, I buy it as cash, as a currency whose supply is very limited"
• "Certainly you don't want to [store] any gold in the United states because if I am right and the price of gold goes up as much as I think it will, I would imagine that at time in the US they will expropriate gold"
• Everywhere else money supply is growing rapidly, in the US, Europe,and all major countries. "Debt growth is very strong".

That was a great interview. Play it.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/