Faber And Einhorn on Inflation and Gold

In the previous post on Peter Schiff, some of the commenters suggested diversifying out of the US dollar and economy and instead investing in natural resource rich countries like Canada and Australia. One person who supports this theory is Marc Faber. He thinks there’s a strong possibility that the US might see 200% inflation. Right now he says its reversible “in theory”, but he’s confident that we’ll follow Zimbabwe down the road of Mugabe economics and devaluation of the dollar (which will be bullish for gold!).

“In the US, we have a totally new school, and it’s called the Zimbabwe school. And it’s founded by one of the great leaders of this world, Mr Robert Mugabe, that has managed to totally impoverish his own country. And that is the monetary policy the US is pursuing.”

Faber also thinks that US government bonds should have junk bond status!

Another person who’s bullish on gold (and therefore by default, bearish on the dollar) is David Einhorn of Greenlight Capital, who correctly predicted the fall of Lehman and other financial companies. In his recent newsletter to his shareholders, he was almost apologetic about investing in gold mining stocks right now.

We never thought we would ever buy gold or gold stocks. David’s grandfather Benjamin was a goldbug… And it was a lousy investment. Being a patient investor is one thing. Being ‘wrong’ for three decades is quite another.

To everyone’s dismay, we believe that some of Grandpa Ben’s predictions are playing out. Our current chairman of the Federal Reserve, Ben Bernanke, is an ‘inflationist.’ … The size of the Fed’s balance sheet is exploding and the currency is being debased… Our instinct is that gold will do good either way; deflation will lead to further steps to debase the currency, while inflation speaks for itself. We have bought gold, calls on gold, an index of gold mining stocks (GDX) and calls on higher long-term U.S. interest rates.

You can read his entire shareholder letter here. It’s informative and very easy to read.

[Note: I’m bullish on gold and own GDX.]

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