Marc Faber, Editor of the Gloom, Boom & Doom Report, spoke with Bloomberg Television's Stephanie Ruhle, Joe Weisenthal and Scarlet Fu about the U.S. economy, financial markets and the Greek debt crisis.
Describing the situation in Greece, Faber said: "My sense is that they will come to some kind of an agreement in the last minute. But I don't think that's any positive because Greece is basically bankrupt. The debt should be written down by 50 percent or more. However, I have this to say. I don't believe that stocks are going down because of Greece. I believe that the market has been weakening internally for a long time."
When asked what kind of investor will profit the most off the weakness brought on by the Greek debt crisis, Faber said: "The investors who are in cash, they benefit the most, because asset prices have gone down substantially in the last couple of weeks. In the case of China within two weeks the market is down 20 percent. The bond market has given up all the gains since the beginning of the year, and there are losses in bonds...And the big losers are people who just vote on the advice of some media into stock months ago."
*Faber Sees Some Kind Of Greece Agreement At Last Minute
*Markets Going Down Aren't Due To Greece
*Have Been Weakness In Markets For Some Time
*Investors Who Are In Cash To Benefit The Most
*Still Likes Precious Metals
*Says Chinese Economy Has Weakened Substantially
*China Stock Market Down 20%, Likely 20% More To Go
*Doubts Fed Will Boost Interest Rates This Year
*Sees Economy 'Badly Disappointing' Within 6 Months
STEPHANIE RUHLE: For more reaction on the evolving situation in Greece, I want to bring in Marc Faber. He's the editor of the "Gloom, Boom and Doom Report." He joins us now over the phone. Marc, give us your assessment. What is the Greek situation really like right now?
MARC FABER.: Well my sense is that they will come to some kind of an agreement in the last minute. But I don't think that's any positive because Greece is basically bankrupt. The debt should be written down by 50 percent or more. However, I have this to say. I don't believe that stocks are going down because of Greece.
I believe that the market has been weakening internally for a long time. On Friday there were almost 200 new 12-month lows on the New York Stock Exchange. The Chinese stock market, the Shanghai index is now down 20 percent from the highs. So Greece is a side play, but it's used by people as an excuse to sell stock.
JOE WIESENTHAL: Marc, should people in Europe feel confident that what's happening in Greece stays in Greece, or do you think we could see contagion spread and similar concerns re-arise in Spain and Italy?
FABER: Well I think a lot of Europeans don't like the EU, and the bureaucrats in Brussels. They hate them because the bureaucrats in Brussels are like the IMF and the World Bank, basically a corrupt organization that do not pay taxes, but then impose taxes on other people and so forth. And I strongly believe that the typical European would prefer not to have or be a member of the EU.
SCARLET FU: Marc, I want to get your perspective on who and by what, I mean, what kind of investor is going to profit the most off this weakness that we're seeing this morning brought on by the Greek debt crisis, brought on by the negative headlines on Puerto Rico, brought on by the selloff in China, what kind of investor?
FABER: I will tell you precisely. The investors who are in cash, they benefit the most, because asset prices have gone down substantially in the last couple of weeks. In the case of China within two weeks the market is down 20 percent. The bond market has given up all the gains since the beginning of the year, and there are losses in bonds.
So people who are in cash, they are not totally wrong. And the big losers are people who just vote on the advice of some media into stock months ago. They are the big losers because many stocks -- Micron is down 46 percent from its high earlier this year. There are many stocks that have lost a lot of money.
WIESENTHAL: Marc, besides cash, is there anything else that you like right now?
FABER: Yes. I like my Bloomberg terminal.
RUHLE: I like that.
WIESENTHAL: And perfect answer.
FABER: No. I still like the price of metals. They may still come under some pressure, who knows, but in general the debt, the world is indebted and the debt burden is so high that there won't be any substantial economic growth. Now Japan with Abenomics, they just reported for May that the industrial production was down two percent. So money printing doesn't solve all the problems.
FU: Money printing doesn't solve all the problems. Yet China is trying to do what it can to bolster its economy. We heard about the interest rate cut, the surprise cut over the weekend. What is your interpretation of that move? Was it aimed at keeping the rally going? Was it aimed at addressing a liquidity shortage?
FABER: My sense is that the Chinese economy has weakened very substantially. The stock market went up from a year ago by more than 100 percent. I have maintained that the market would correct at least 40 percent. I think we are down 20 percent. I think another 20 percent is likely. But longer term, as you know, the U.S. since 1800s to today have so many recessions, and the Civil Wars and World Wars and so forth, and was still growing.
I'm still reasonably optimistic that the Chinese economy after a slump will come out okay. But they need to lessen in terms of borrowing less, in terms of reducing debt and leverage, as do all the other countries too. But you understand, following the 2008 crisis the central banks allowed governments to borrow even more because of their artificial low interest rates. So basically, global debt as a percent of global GDP is up 30 percent from the 2007 level.
FU: Right, right, right. Well --
FABER: It's not going to end well. That's for sure. Whether Greece is the catalyst, who knows. But definitely the markets are reacting on the downside, and largely because corporate earnings will disappoint. First of all, wages are going up. They will squeeze corporate profits.
Number two, interest rates won't go much lower. So as they don't go any lower it also squeezes corporate profits. And number three, the most important economy for emerging markets was China. And China is now growing at maximum three percent to four percent per annum.
FU: Three to four percent, according to Marc Faber. So given all of that, Marc, do we presume that the Federal Reserve is unable to move ahead with its September timetable for an interest rate increase?
FABER: It's my view the Fed under its (INAUDIBLE) Mrs. Yellen will not increase interest rates for a very long time. And if they do it will be by an eighth or a quarter percent just to see what the market reaction is. But I personally doubt she will do it this year. They'll find an excuse not to do it.
RUHLE: But should they? I mean what are the unintended consequences of keeping rates where they are? If the U.S. economy is doing well, shouldn't we focus on that, or shouldn't she, excuse me.
FABER: Do you really think that the U.S. economy is doing well? I -- that's not my impression. I think the typical household is squeezed very badly. I was recently in a limousine, and then we talked about this and that. And the limousine driver told me his health care premium was -- and I mean the insurance premium this year will go up 39 percent. So I believe that actually most households are struggling, but they're borrowing again. Most households in the U.S. have no savings. I believe that the U.S. economy will badly disappoint within six months.
RUHLE: Marc, you just carry an umbrella all day, every day, just always rains in Marc's town. Marc, thank you so much for joining us this morning, the one and only Marc Faber. He's the editor of the "Gloom --
FABER: Actually in Thailand we have a shortage of rain. We have a cloud.
RUHLE: Well, Marc, I love when you join us, and Marc Faber. He's the Executive Editor of "Gloom, Boom and Doom Report" and, Joe, no one better in the house than you.
**For more on Greece and the biggest news in financial markets, 'What'd You Miss?' featuring Joe Weisenthal and Alix Steel debuts today at 4:00 pm ET. Watch on Bloomberg Television or on livestream here: www.bloomberg.com/live