Faber And Einhorn on Inflation and Gold
In the previous post on Peter Schiff, some of the commenters suggested diversifying out of the US dollar and economy and instead investing in natural resource rich countries like Canada and Australia. One person who supports this theory is Marc Faber. He thinks there’s a strong possibility that the US might see 200% inflation. Right now he says its reversible “in theory”, but he’s confident that we’ll follow Zimbabwe down the road of Mugabe economics and devaluation of the dollar (which will be bullish for gold!).
“In the US, we have a totally new school, and it’s called the Zimbabwe school. And it’s founded by one of the great leaders of this world, Mr Robert Mugabe, that has managed to totally impoverish his own country. And that is the monetary policy the US is pursuing.”
Faber also thinks that US government bonds should have junk bond status!
Another person who’s bullish on gold (and therefore by default, bearish on the dollar) is David Einhorn of Greenlight Capital, who correctly predicted the fall of Lehman and other financial companies. In his recent newsletter to his shareholders, he was almost apologetic about investing in gold mining stocks right now.
We never thought we would ever buy gold or gold stocks. David’s grandfather Benjamin was a goldbug… And it was a lousy investment. Being a patient investor is one thing. Being ‘wrong’ for three decades is quite another.
To everyone’s dismay, we believe that some of Grandpa Ben’s predictions are playing out. Our current chairman of the Federal Reserve, Ben Bernanke, is an ‘inflationist.’ … The size of the Fed’s balance sheet is exploding and the currency is being debased… Our instinct is that gold will do good either way; deflation will lead to further steps to debase the currency, while inflation speaks for itself. We have bought gold, calls on gold, an index of gold mining stocks (GDX) and calls on higher long-term U.S. interest rates.
You can read his entire shareholder letter here. It’s informative and very easy to read.
[Note: I'm bullish on gold and own GDX.]
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February 7th, 2009 at 9:49 pm
Do you know how Einhorn bought ‘calls on higher long term interest rates’?
I know you can buy TBT or even calls on TBT, but it seems like there must be a better way.
February 11th, 2009 at 6:23 pm
I don’t think the US is going to become Zimbabwe, the rest of the world wouldn’t let that happen (which is not to say they’re going to save the US) and the US wouldn’t let that happen. After all, at least for now, the US is still the “rulemaker” and “rulebreaker” for the world economy.
But numbers I have read about (and posted about too) recently were that real inflation in the US over the last 6 months is already at 2000%. I feel that as soon as the markets come back, it’s going to be a whole new crisis, just in the other direction.
And then there’s the demographic tsunami beginning in 2012…
February 12th, 2009 at 6:41 am
2000% current real inflation? I would like to see those numbers. Obviously, the reported inflation is too low, but 2000%?
February 12th, 2009 at 6:56 am
actual inflation for 2008 in usa was 150% what is the increase in money suuply, which was 150% in 2008, this year its gona be much higher, therefore 2000% is realistic if you think about it.
February 12th, 2009 at 8:23 am
It’s not really realistic, as that doesn’t show up in the prices of goods. Groceries, cars, video games, books, etc. none of these have gone up that much…and gas has even come down. I’m not arguing that there wasn’t high inflation or that increased money supply won’t create higher inflation, just that 2000% is way off base for 2008.
February 12th, 2009 at 2:24 pm
I agree 200% is way off base it would have shown up in multiple outlets and sales and there is nothing of the sort.
February 14th, 2009 at 1:38 am
Funny how people can still talk deflation and inflation at the same time…
I guess we’ve already got 200% (or more!) inflation in ‘Federal Bailout Bills Per Annum’
February 16th, 2009 at 7:30 pm
We aren’t at junk bond status yet, lets hope we never get there
. Pretty ridiculous thing to say really.
I’m not completely against getting some of my US dollars into gold though.