The video of David Faber and Marc Faber drew some interesting comments about all the parties involved in the video clip. One response was so well-written, that I thought it deserved it’s own space than to be relegated to the Comment section. I give it to you below in its entirety and unedited. — MM
By John Del Vecchio, CFA
The problem with a lot of people on CNBC is that they are preconditioned to think stocks go up, along with professors that write books about stocks over the long-term.
In reality, many of the individual stocks that comprise an index, under-perform the index over time. In the Russell 3000, it is nearly 2/3 of the stocks, with 20% falling 75% or more. The statistics for the S&P 500 are horrible in this regard.
Imagine it were 1979 and I told you that in 30 years GM, Kodak, Polaroid, Xerox, Bethlehem Steel, General Electric, etc would either be bankrupt, bailed out by the government, trading for less than it was in 1969 or with their competitive advantage seriously eroded. You would throw me right out of your office. But, that’s exactly what happened to those companies.
Stocks have had long periods of doing nothing. 1929-54, 1966-82, 2000-10. Individual stocks are relics. People lose quite a bit in real terms during flat markets.
We can have a deflationary bust, the USD can rise, Gold can rise, and stocks can fall. The notion that this is a typical post-war recession is absurd. After the war, everyone else was destroyed. It was an unfair competitive advantage that no longer exists.
You had a massive debt bubble, only a small fraction of which was wiped out in 2008. The U.S. then printed to offset the deflationary pressures, but the money never went anywhere. There is no bank multiplier. What small business can get a loan?!?!
Average workweek hours are down. Unemployment is really around 17%. There is tons of excess capacity out there. ALT-A and option ARMS are starting to reset. How can there be inflation?
If people think the USD is worthless, then what is the EUR worth? Their problems are far worse.
The USD can rally because it’s the funding currency for carry trades. When the @##$% hits the fan, those shorts will be covered and the USD will be bought. But what no one talks about is that not only is the USD the funding currency for carry trades, it is also the reserve currency of the world. So, you’ll have even added buying pressure in a crisis.
When the Yen was the funding currency there was a massive rally when the crisis hit. But, it was not also the reserve currency.
Gold is an asset class like anything else. It will have periods were it performs well and periods when it does not. My opinion is that now it is being viewed as a currency as opposed to a commodity to protect against inflation, which means it can go much higher than people think.
And, notice how the analyst poo-pooed gold but clearly has no problem being paid in dollars which has lost 90% of its value since 1913.
CNBC has it all wrong. I wouldn’t buy U.S. stocks with counterfeit money.
Eidtor’s Note: I wrote an article called Pain Spotting about John Del Vecchio for Trader Monthly.