Tags: Faber | Markets | Serious | Setback

Marc Faber: Markets Setting Themselves Up for ‘Serious Setback’

Wednesday, 10 Oct 2012 08:20 AM

Markets have already priced in Federal Reserve stimulus measures and are now due for a sell-off, said economist Marc Faber, publisher of The Gloom Boom & Doom report.

The Fed has said it plans to buy $40 billion in mortgage-backed securities from banks every month until the economy and labor market improve, a monetary policy tool known as quantitative easing (QE).

The announcement marks the third time the Fed has rolled out QE measures to jolt the economy since the 2008 financial crisis, with the first round seeing the Fed snap up $1.7 trillion in mortgage securities and the second round seeing the Fed buy $600 billion in Treasury securities held by banks.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

Such policies weaken the dollar and pump up stock prices, and now that the Fed has ended the uncertainty by rolling out a third and open-ended round of QE3, expect stocks to fall amid a technical sell-off, especially since the European Central Bank (ECB) has announced similar measures.

“Basically, I think QE3, which I think is unlimited, and bond purchases by the ECB bailout of countries have been largely discounted by the market, and the markets have been weakening technically, so I believe that we may have here quite a serious setback,” Faber told CNBC.

Monetary policy is not what global economies and markets need right now, according to Faber.

Fiscal reforms that cut spending and pay down debts, often politically unpopular moves, would bring more lasting reform.

“We need less policies, not more policies,” Faber said.

“I would love to see everywhere in the world, certainly in the Western world, government expenditures and government bureaucrats cut by minimum 50 percent,” Faber added.

“That would turn me very bullish.”

While the first two rounds of QE were announced with a set of amount of assets to be purchased, this third round will go on until the Fed feels the labor market and the broader economy have improved.

A Reuters poll of economists finds the Fed will likely spend $600 billion before it feels the economy and labor market can stand on their own, though some experts felt the Fed won't target a specific unemployment rate or other metric.

"The Fed is not targeting a certain level of unemployment rate. Given that QE3 is tied to their prospects for the labor market, they will stop the program when they forecast sustainable and substantial improvement in the labor market," said Lewis Alexander, chief U.S. economist at Nomura Securities International in New York, according to Reuters.

Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans

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Markets have already priced in Federal Reserve stimulus measures and are now due for a sell-off, said economist Marc Faber, publisher of The Gloom, Boom and Doom report.
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2012-20-10
Wednesday, 10 Oct 2012 08:20 AM
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