Faber: In his own words

I think that the slowdown in the Chinese economy – and believe me, the Chinese economy did not grow in the second quarter by 7.8% - in my view, maximum 3% - and we have very precise statistics.

The two countries where the exports were predominantly China-geared – Taiwan and South Korea and where the statistics are more reliable than what the Chinese announced in GDP growth, these countries have negative export growth on a year-on-year bases in the last month in June. If these countries have declining exports, it tells you something about the Chinese economy.

We have other reliable statistics like gaming revenues in Macau and so forth. The overall revenues are still up but the junkit turnover is down. These are middle men who bring the gamblers to Macau. Their growth rate has slowed down, luxury consumption has slowed down and electricity consumption is basically flat. Steel and cement production is up maximum 2-4% year-on year and so we have some reliable statistics.

Macdonalds just reported that their sales in Asia year-on-year is down more than 1%. Believe me if in a growth region, where markets are not yet saturated and where shops like MacDonalds are like prestige things for families to go and where their sales are down believe me – something is not quite right. I can see it with my own eyes. I don’t think that in Asia at the present time there is any economic growth.

ON US GROWTH

EB: What is your outlook for US growth?

MF: In the US,  growth has slowed down and it is insignificant in my opinion. The growth is insignificant. The statistics are published by governments and government agencies. I don’t believe that the US economy is growing much at the present time.

The way that GDP is calculated is that you put in some figures about sales and production and then you deduct the inflation rate which they calculate. But if you took unofficial costs of living increases, then I would guess that there is no growth because rents nationwide, for residential rates, the rates have gone up by 9%. Insurance premiums are going up and healthcare rates are going up and if you look at employment it is a distaster.

In the meantime, the government is essentially throwing $1.3 billion at the economy annually through the budget deficit and through the household deficit. Without these payments by the government, I think there would actually be actually negative economic growth.

FABER ON CURRENT AND FUTURE ASSET BUBBLES

EB: With more monetary easing by central banks around the world – where do you think valuation will be skewed? Which stock markets are going to be most prone to ‘bubble-like’ characteristics?

MF: Given that given that zero interest rates are in the US in nominal terms and if I take say a more realistic view of cost of living increases. Last week, NY taxi prices went up 19%. If I consider that, I think that US stocks may for the time-being actually rally but I have doubts that they will rally above the highs at 1422 we saw in April of this year on the S&P.