Rate Cuts Won’t Stem Slide in Equities: Marc Faber
Artificially low interest rates will make matters worse 9 October 2008
Investor Marc Faber said that a series of coordinated interest rate cuts by central banks including the Federal Reserve to ease the economic effects of the global financial crisis won’t halt a worldwide slide in equities.
‘Artificially low interest rates’ that encouraged consumers and banks to take on more debt were the main cause of the credit market turmoil that caused the failure of Bear Stearns Cos and Lehman Brothers Holdings Inc, according to Mr Faber, who predicted the 1987 stock market crash. ‘The slashing of interest rates will not help very much,’ Mr Faber, who manages US$300 million, said in an interview here.
‘They may cushion somewhat the decline but make matters worse. Had central banks around the world kept interest rates that encourage saving, we won’t have these problems today.’
Mr Faber, publisher of the Gloom, Boom & Doom report, told investors to sell US stocks a week before 1987’s so-called Black Monday crash, according to his website, and recommended buying gold at the start of its six-year rally.
The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden’s Riksbank each cut their benchmark rates by half a percentage point in a bid to unfreeze global credit markets.
The deepening credit crisis caused a worldwide sell-off in stocks that has dragged the MSCI World Index down by 35 per cent this year. The Bank of Japan, which did not participate in the rate cuts, said that it supported the action. Switzerland also took part. Separately, China’s central bank lowered its key one-year lending rate by 0.27 percentage point.
The International Monetary Fund said that the global economy is heading for a recession in 2009 and increased its estimate of losses from the financial crisis to US$1.4 trillion. -- Bloomberg
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Rate Cuts Won’t Stem Slide in Equities: Marc Faber
Artificially low interest rates will make matters worse
9 October 2008
Investor Marc Faber said that a series of coordinated interest rate cuts by central banks including the Federal Reserve to ease the economic effects of the global financial crisis won’t halt a worldwide slide in equities.
‘Artificially low interest rates’ that encouraged consumers and banks to take on more debt were the main cause of the credit market turmoil that caused the failure of Bear Stearns Cos and Lehman Brothers Holdings Inc, according to Mr Faber, who predicted the 1987 stock market crash. ‘The slashing of interest rates will not help very much,’ Mr Faber, who manages US$300 million, said in an interview here.
‘They may cushion somewhat the decline but make matters worse. Had central banks around the world kept interest rates that encourage saving, we won’t have these problems today.’
Mr Faber, publisher of the Gloom, Boom & Doom report, told investors to sell US stocks a week before 1987’s so-called Black Monday crash, according to his website, and recommended buying gold at the start of its six-year rally.
The Federal Reserve, European Central Bank, Bank of England, Bank of Canada and Sweden’s Riksbank each cut their benchmark rates by half a percentage point in a bid to unfreeze global credit markets.
The deepening credit crisis caused a worldwide sell-off in stocks that has dragged the MSCI World Index down by 35 per cent this year. The Bank of Japan, which did not participate in the rate cuts, said that it supported the action. Switzerland also took part. Separately, China’s central bank lowered its key one-year lending rate by 0.27 percentage point.
The International Monetary Fund said that the global economy is heading for a recession in 2009 and increased its estimate of losses from the financial crisis to US$1.4 trillion. -- Bloomberg
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