Marc Faber: Go Long The Dollar, But Occupy The Federal Reserve

Marc Faber, asset manager at the Gloom, Doom & Boom Report, popped in at CNBC (Clip Below) on Oct. 11 while visiting in Montreal, Canada (He is usually based in Thailand.)

Faber expects volatility to continue (not necessarily means a downside to the markets), but dollar should be a long trade as whenever there's a bubble, e.g. tech bubble, housing bubble, stocks bubble, and commodities bubble, usually after the bubble bursts, there typically will be a 10-15 years of volatility before markets settle down to reignite an uptrend.

"Despite the fact that the [European Central Bank] and the European government will flood the market with liquidity to bail themselves out, global liquidity is tightening.....Whenever global liquidity is tightening it is bad for asset prices but good for the U.S. dollar, as was the case in 2008."

He thinks there had been far too many "interventions" by the Western governments, where the total share of the economy that's government owned or sponsored have grown tremendously,.  Add to that, the high levels of debt, it is almost impossible for the developed countries including Japan, the U.S. and Western Europe to grow.  

When the economy stagnates over a long period of time, people ("the 99%) seeking answers start to go after the "top 1%" minority like Wall Street, which took advantage of the system for profits.  However, it was Washington and the lobbyists who created the system to begin with.  So from that perspective, Occupy Wall Street should move to DC and Occupy the Federal Reserve on the way, Faber laments.

His solution for the U.S. economy - Flat tax on everybody "would be a good measure", and reducing the restrictive regulatory environment to encourage business to start investing again.  Moreover, the lack of savings is the biggest problem of the U.S.  Essentially, the U.S. will have to work more, and get paid less to get out of this mess.

EconMatters Commentary 

Dollar, despite the Federal Reserve's continuous QEs and twist, is still holing up well attesting to the dangerous state of the world's finance and economy.  So in the near term, dollar could be still king, but with a high degree of uncertainty longer term, depending on how the Euro, the closest competing currency, will come out from this seemingly ever expanding EU sovereign debt crisis.

As to the economic and fiscal state of the U.S., we are not as pessimistic as Faber, but have written many times that the U.S. has many structural issues in the labor market, and the vital decisions of the country are  and will be made based on politics, and by politicians who can't walk the talk.  If the U.S. does not start to make some fundamental changes, it could eventually prove Faber right.  

Towards the end of the interview, Faber made reference to Lee Kuan Yew, the first Prime Minister of the Republic of Singapore for three decades.  Lee Kuan Yew retired in May 2011, but has remained one of the most influential political figures in South-East Asia.

In the three decades during Lee's tenure as PM, the country has been transformed from a developing economy to one that's the most developed in Asia.  However, the "Singapore Model" is based partly on a socialistic structure (e.g., single political party, state planning, and state-owned enterprises).

As to the current economic and fiscal state of the U.S., we are not as pessimistic as Faber, but have written many times that America has many structural issues within the labor market and too many of the country's vital decisions are and will be made based on politics and by politicians who can't walk the talk.  If the country does not start to make some fundamental changes, it could prove Faber right.  

Dr. Doom Roubini, in an interview with Business Day less than a month ago, also noted Singapore could be one country that he was not averse to state involvement in the economy and held up Singapore as an economy that might be shielded from global shocks.

So we find it quite interesting that as a result of the global financial crisis, more and more Western economists are now moving towards socialism, while the more socialist countries such as China are becoming more capitalistic.  Could this be the New World Order underway? .

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MOODY'S: Federal Budget Cuts Could Paralyze State And Local Governments

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Moody's affirmed its negative credit outlook for state and municipal credits Monday, citing revenue losses as Washington looks to reduce the federal deficit.

"The determination of both political parties to reduce project federal budget deficits is certain to result in reduced funding for federal programs run by the states," Moody's said in a report, obtained by Reuters. "Given the numerous challenges facing the local government sector, we believe that rating downgrades will continue to outpace upgrades until we begin to see meaningful economic growth and recovery of property values."

Although tax revenues have increased slightly, they have not risen enough to replace the loss of federal stimulus funding, the statement said. The ratings agency added that state and local governments also face pressure from ballooning Medicaid costs and public pension liabilities.

The problem is worse for local governments that are suffering from the loss of state aid, while still struggling to recover from the housing slump. Municipalities largely rely on revenue from property taxes, which have declined for two consecutive quarters. 

This raises concerns that states may have to bail out troubled local governments, Moody's said, although bond defaults and municipal bankruptcies will likely remain rare.

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Seeking To Avoid Federal Shutdown, House GOP Introduces Funding Bill

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House Republicans introduced a bill late Wednesday to fund the government through the middle of November — saying they want to remove the threat of a government shutdown.

The temporary resolution is necessary because Congress has yet to act on most budget bills — with the House leaving six of 12 unfinished, and the Senate acting on just one. It sets spending for fiscal year 2012 at $1.043 trillion — the maximum amount allowed under the August debt ceiling bill.

If a new funding bill is not passed by October 1, the beginning of the 2012 fiscal year, then much of the federal government would be without the funds to stay open. The GOP proposal would reduce spending by just over 1.4 percent over the current year.

The measure includes $3.65 billion in disaster relief — $1 billion for immediate needs to pay for hurricane, flood, and tornado relief from the current fiscal year after, and the rest for 2012.

The House is hoping to vote on the bill by the end of the week.

Speaker of the House John Boehner said in a statement that the continuing resolution would decrease uncertainty for businesses – and thereby create jobs.

"The first priority for both parties in today’s economy must be removing government barriers to private-sector job growth. By preventing a government shutdown and once again cutting spending below last year’s levels, this bill gives Congress more time to complete work on legislation that stops the Washington spending binge and provides more certainty for job creators. It also ensures those Americans impacted by natural disasters get the assistance they need in a way that’s best for families and taxpayers. This is a straightforward bill that keeps our focus on creating jobs and cutting spending, and eliminates the uncertainty caused by the specter of a government shutdown. It deserves swift passage in both the House and Senate."

Neither Senate Democrats nor the White House had immediate comment on the proposal Wednesday night.

View the full bill here:

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Google Paying $500 Million To Settle Federal Investigation Over Illegal Ads (GOOG)

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Google is going to pay $500 million to settle an investigation with the federal government over illegal ads, the New York Times reports.

Google was displaying ads from illegal online pharmacies that don't require subscriptions, or sell illegal drugs, the Times says. Advertising these companies is against the law. Google says it's trying its best to stop the pharmacies from advertising.

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