Marc Faber: China Currency Tactics ‘Completely Meaningless’
Friday, 14 Aug 2015 07:52 AM
The always entertaining and informative Marc Faber, editor and publisher of the Gloom, Doom, & Boom Report, questioned, as this writer has, why there is so much fuss over a relatively modest devaluation of China’s yuan.”You have to look at the Chinese currency in the context of all other currencies,” Faber told CNBC. He pointed out that over the last several years it has appreciated against the dollar, which in turn has been appreciating.”The 2 or 3 percent devaluation of the yuan [against the U.S. dollar] is completely meaningless,” Faber said. “The Chinese yuan has appreciated by 80 percent over the past two years against the yen,” he said.”Don’t forget the People’s Bank of China has said that they will have now a currency that will reflect more market forces. And that means that if the market forces are against the currency, then the currency will go down,” Faber added.
The yuan has, for the past nine months, led a weakening in Asian currencies coincident with the weakening of the Chinese economy in the areas of car sales and industrial commodities.
Faber called the Chinese economy “much weaker than the consensus believes.”
He questioned whether China is growing at more than 2 percent, and he asked rhetorically, “Have you ever seen a government that doesn’t lie? I haven’t.”
He cited the inflation figures reported by the U.S. and added that the high end of the U.S. economy in New York, Newport Beach, and Palo Alto (he might have mentioned Washington) are doing well, “but the median household is suffering by continuous, still-heavy debts, and from affordability. The problem with supporting asset markets, as the Fed and other central banks are doing, is that most people who finish universities can’t afford to buy these goods,” and they’re living with their parents.
In the next clip Faber warned, as Raoul Pal has this week, that U.S. companies dependant on China on the order of 35 percent of sales, such as United Technologies (UTX) and General Motors (GM), will slump in the second half of this year, and he pointed to slumps among German luxury car manufacturers.
He concludes that liquidity is tightening globally, as reflected in the strengthening of the dollar. When the interviewer suggested this situation will worsen when the Fed tightens rates, Faber responded that this policy “is not written in stone.” He asserted that the Fed encouraged China to let the yuan weaken and that any Fed action will be a symbolic one-quarter percent.
Keith Fitz-Gerald, chief investment strategist at MoneyMorning.com, agrees with Faber and charges that “China did Yellen’s dirty work for her,” took “the luxury of a rate hike” off the table, and postponed it until at least the first quarter of 2016.
This writer and other critics of the Fed have held that it was never going to raise rates in the face of opposition from Wall Street and the IMF and the onset of an election year. Faber also questioned reports that retail sales are strong as “not the message you get from retailers.”
For those seeking something positive from Faber, he predicts that there will be problems for poor bond credits and Treasurys “will do quite well.”
Fitz-Gerald called Treasurys “the best looking horse in the glue factory” as Faber expressed astonishment that French, Italian, and Spanish government bonds are yielding less than U.S. Treasurys: “I think that is quite remarkable.”
Finally, Fast Money’s Guy Adami credits Brian Kelly for predicting that U.S. stocks will eventually react negatively to the fall in oil prices. Dan Nathan agreed and predicted that new lows will occur “in a really nasty fashion,” and he asked about “the knock-on effects in other risk assets.”
Adami went on to question, as experts at a conference did last spring, the sustainability of consumer spending. This writer would add that it is time to ask where the vulnerabilities are in energy credits and whether this market is headed for a 1980s-style bailout.
At that time investors protested, as they would later do with housing, that they didn’t know prices could go down.