Gloom, Boom & Doom Report Editor and Publisher Marc Faber cautions investors not to worry about just when the Federal Reserve will begin hiking interest rates.
In fact, another quite different fate awaits investors – the central bank will have to launch yet another round of quantitative easing.
“Yes, I think so,”
Faber told CNBC when he was asked about even more central bank stimulus.
“Not only the U.S. Fed, but all the central banks are so deep in the mud that, in my view, they will continue to essentially buy assets.”
Faber's prediction came just hours before the International Monetary Fund urged the Federal Reserve to wait until the first half of 2016 to start raising short-term interest rates because the U.S. economy remains subpar.
In its
annual checkup of the U.S. economy released Thursday, the IMF said "the underpinnings for continued growth and job creation remain in place." But America's "momentum was sapped in recent months by a series of negative shocks," including a harsh winter and a strong dollar that hurts U.S. exports.
The IMF predicted the U.S. economy will grow 2.5 percent this year, down from its April forecast of 3.1 percent. The agency said the Fed should wait for more signs of improvement — specifically "greater signs" of wage or price inflation.
"The economy would be better off with a rate hike in early 2016," IMF Managing Director Christine Lagarde said.
And Faber depicts a very dark future, not only for the U.S., but the entire world.
"When I look at the whole financial sector … I feel like [I'm] on the Titanic," Faber said. "We're fighting about deck chairs, [meaning] which assets are performing best and we're fighting over the best tables in the ballroom, but I think it's best to find your safety boat and ladder because I think the financial sector will implode one day," the Swiss adviser and fund manager said.
"The prices have gone up so much that many cities in the U.S. and Europe are not affordable anymore. What people do is spend money, but they don't go out too often; they go out once a week or so."
He said the problem exists all over the globe.
"I don't see much of an economic improvement anywhere," Faber said.
So what is the average investor to do?
“I have advised my investors that you have to have diversification and you should hold around 25% in stocks, 25% in real estate,” he said.
“I just bought a 30 year Treasury bond because I think they're very oversold. And given my negative outlook for the economy, I think that the Treasury bond market may rally once again,” he said. “And I would also hold commodities, precious metals.”
Other experts warn that the central bank seeks to tread cautiously and not unhinge investors' nerves.
Barry Bannister, chief investment strategist at Stifel Nicolaus & Co., said investors need to consider the political dimensions of possible interest rate hikes by the Federal Reserve with the approach of the 2016 elections.
The central bank is walking a fine line between critics who may say the Fed isn’t raising rates fast enough and those who will argue that hikes were too steep and triggered a recession, he said.
“We expect the Fed to ‘get off zero’ with a 25-basis-point rate increase in third-quarter 2015 simply to defuse political criticism and avoid becoming a Progressive or Tea Party populist piñata in the 2016 election,” Bannister said in
a May 29 report obtained by Newsmax Finance.
In the Fed-as-piñata scenario, populists will argue the central bank needs greater supervision because its policies help to enrich Wall Street bankers while punishing workers and retirees, Bannister said. But the Fed must also do what it can to help the U.S. economy avoid a recession before Americans go to the polls in November 2016, he said.
“Given the nascent threat to its independence, we doubt the Fed wishes to cause (be blamed for) a recession in an election year,” according to Stifel's report. A recession may occur in 2017 if the Fed funds rate reaches 3 percent while inflation is near 1.5 percent, as measured by the
personal consumption expenditures price index, Bannister said.
“That puts the next recession in the first year of the first term of the next U.S. President,” he said, “quite possible in light of historical precedent.”
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