Marc Faber Discusses China’s Colossal Credit Bubble
Marc Faber was live from Monaco this morning commenting on the current state of the markets with CNBC’s Louisa Bojesen.
When asked by the host whether concerns regarding the Chinese system are legitimate since they are such good savers, Faber responded, “I completely disagree with this, I think China, if you look at the expansion of credit as a percentage of the economy, had a colossal, not a small, a colossal credit bubble and there are lots of poor credits in the system, because all kinds of companies, instead of manufacturing…they resorted to financial transactions.” Faber further added, “in other words they borrow at low rates from the state banks and then they lend it out to questionable borrowers.”
“As a result of this I believe the Chinese economy will disappoint very badly, and I have maintained for a long time the Chinese economy does not grow at 7.8 or 7.9 percent at the present time, but more likely just at four percent,” Faber explained.
Faber said that near-term markets (bonds, equities, gold) are oversold and they can rebound for the next 10 days, or even one month, but new highs in emerging markets stock and high yield bonds are out of the question.
The interview continued (available below) with Faber commenting on the longer term risks for investors, his view of the Federal Reserve’s manipulations and credibility, the growth prospects and impact of emerging economies on the developed markets, what he would buy now for a trade, his outlook for interest rates and the longer term potential of emerging markets.
Earlier this month, the publisher of The Gloom, Boom and Doom Report said big cap growth stocks had likely peaked out and if someone put a gun to his head and said he had to be long or short, he would take the short side [link].