To discuss the global markets volatility and more Bloomberg TV India caught up with Marc Faber, Editor and Publisher, Gloom Boom and Doom Report.
It has been an intensely volatile start this year. How are markets looking like? Do you feel the risk-off scenario that was building in all of January and even most part of February is now starting to ease?
I think that we had weaknesses in equity market for a long time. In fact, most emerging markets peaked out around 2011 and expressed in US dollars, some actually peaked out in 2006. And then, after 2011, commodities were weak, emerging markets were weak but the US market continued to be strong until about a year ago.
A year ago, the market in the US started to move sideways but, beneath the surface, if you look at the average stock in the NYSE, it is already down 25 per cent. What kept the market up were Facebook, Amazon, Netflix, Google and may be another 20 shares. These shares now have been coming down. Many stocks are actually showing signs of bottoming out. So, it is actually quite complex. It is not as simple as that you can just look at the index and say it is weak or it is strong. Some stocks now are bottoming out and others still have significant downside risk.
Have monetary policy tools now run their course globally? It is too much attention on central banks. Japan has embarked on a negative rate regime. ECB is talking stimulus. How do you see some of this playing out?
It is the view among most central bankers that you cut the interest rate and the economy will respond positively. But that is far from certain.
First of all, interest rates provide savers income. So, if you have zero interest rate the savers, the insurance industry, pension funds are being hurt. That should be very clear.
Number two, if I came to you and say: Look, interest rates are going to go below zero and on your deposits you don’t get money any more, the reaction of you would be to spend more. But, it could also be that you would save more because say on a million dollar before you got an interest of 10 per cent and now that you get nothing and that lowering of interest rate has actually led in the case of Denmark, Sweden, Switzerland and Finland to actually higher savings rate.
In other words, people feel insecure. The household scratches its head and says what is happening? I am not getting any money in my retirement and so I have to save more. So, the view that lower interest rates stimulate growth is very questionable.
Do you see Fed changing its course?
The recent economic indicators around the worldare all weakening. In the US, they are down close to 7 per cent. After not having increasing rate since 2008, Yellen increased the rates before the recession. That is an achievement.