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'Doctor Doom': US Treasuries now the 'mother of all bubbles'

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'Doctor Doom': US Treasuries now the 'mother of all bubbles'

The number of leading commentators warning on US treasuries continues to grow, with Marc Faber - author of the Gloom Boom and Doom Report - saying he would not put his money in them and that under President Obama he fears the US deficit problem will worsen.

Speaking on CNBC, Faber - known as 'Doctor Doom' -  said: 'Even the short term for treasuries is uncertain. If I look ten years ahead, where do I want my money? Certainly not in US treasuries.'

Faber's thoughts echo those of Barry Ritholtz, who earlier this week told Citywire that Treasuries resemble dot com stocks. Faber too, makes the link between the bond market of today and the tech stocks of the late nineties when asked whether foreign buyers will continue to keep the bond market afloat.

'In 1999-2000, foreigners also wanted to buy the Nasdaq, and what happened after that was a massive collapse,' he said. 'So I don't see foreign buying as a very intelligent leading indicator.'

Faber said he is 'not interested in buying an asset class that has been in a bull market for 19 years,' and would rather invest in farmland, agricultural commodities and gold.

On the same TV show, fellow perma-bear Peter Schiff of Euro Pacific Capital was even more forthright in his verdict on the US bond market.

'The bond market is the mother of all bubbles right now. When it bursts the losses will dwarf the combined lossess of the stockmarket bubble and the real estate bubble,' he said.

Both Schiff and Faber think Obama's government face an unenviable task.

'The problem is there is no way for the government to pay this money back, apart from through horrendous tax increases, which could never be accomplished,' Schiff said. 'Or else the government has to tell people on medicare or social security that they cannot get their cheques as the government is not able to pay its interest. And it is not just paying interest - it is also not being able to roll over short term debt; they will have to retire the principal. So there will be massive inflation.' 

Faber warns that under Obama's administration the situation could worsen.

'My biggest concern is that because of a weak economy, the budget and fiscal deficits will remain very high. With Mr Obama as President, there is a very good chance the deficit will go up and the government debt will expand and expand, until one day the interest payments on government debt will become unbearable.'

These are stong words from Schiff and Faber, but how much attention should investors pay to these notoriously gloomy commentators?

After all, some have argued that the crowded bond trade merely signifies a long term secular shift in investor behaviour, as heightened risk aversion causes them to back away from equities and into the supposedly safer haven of Treasuries. However, if Faber, Schiff and Ritholtz are right, could these investors merely be moving from the frying pan into the fire?

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