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00:00RECENT CAR SALES AND THE SLOWING DOWN OF CREDIT GROWTH. AND IN PARTICULAR THE DI SMAL PERFORMANCE OF COMMODITIES AND LSO OF -- ALSO OF EQUITIES LAST YEAR. IF YOU TALK ABOUT DOOM AND GLOOM FOR 2016, I HAVE TO POINT OUT IN THAT IN 2015, WITH THE EXCEPTION OF PEOPLE THAT HELD BITS C OIN, THE PERFORMANCE OF ALL ASSET CLASSES HAS BEEN POOR. IN THE U.S. STOCK MARKET INDICES HAVE HELD UP RELATIVELY WELL BECAUSE THEY ARE DRIVEN BY 20 STOCKS. THE MAJORITY OF STOCKS IS ALREADY DOWN 20% OR MORE. SO, I THINK THE FED HAS CREATED AN ENVIRONMENT BY INFLATING PRICES WHERE FUTURE RETURNS ON ASSETS WHETHER IT'S BONDS OR STOCKS OR REAL ESTATE WILL BE POORER. FRANCINE: GIVEN WHAT YOU SAID, FIRST OF ALL CAN THE FED AFFORD TO HIKE RATES ANYMORE THIS YEAR? AND WHAT'S YOUR OUTLOOK FOR STOCKS AND BONDS FOR THE NEXT 12 MONTHS? MARC: I THINK MS. YELLEN WILL GO INTO THE FINANCIAL HISTORY BOOKS -- FOR HAVING WAITED TO INCREASE RATES SINCE 2010, 2011, WHEN THEY SHOULD HAVE DONE IT. UNTIL RIGHT BEFORE A RECESSION IN THE U.S. IN DECEMBER 2015. I THINK THAT WILL BE THE BEST FAILURE OF MONETARY POLICIES BY THE MONETARY AUTHORITIES IN RECENT HISTORY. FRANCINE: WHERE DO YOU SEE THE 10-YEAR TREASURY BY THE END OF THE YEAR? AND WHAT DO YOU SEE TREASURIES DOING? MARC: WHEN YOU TALK ABOUT GLOOM AND DOOM, THIS IS ONE SECTOR THAT I THINK -- OFFERS INVESTORS SOME POTENTIAL. 10 AND 30 YEARS TREASURY BONDS BECAUSE OF THE ECONOMY IS AS WEAK AS I THINK IT WILL BE, THEN INTEREST RATES ARE MORE LIKELY TO COME DOWN THAN GOING OUT. NUMBER TWO, YOUR PREVIOUS PERSON THAT WAS INTERVIEWED, HE SAID GOVERNMENT BONDS ARE A GOOD SHO RT. WELL, WE HAVE TO DISTINGUISH THE SPREADS BETWEEN 10-YEAR U.S. TREASURIES AND 10-YEAR GERMAN BUNDS IS AT THE WIDEST IT HAS BEEN IN RECENT YEARS. SO, I THINK IF SOMEONE WANTED TO REALLY DO SOMETHING, HE SHOULD GO LONG 10-YEAR U.S. TREASURIES AS SHORT BUNDS. FRANCINE: WHERE DO YOU SEE THE S & P 500, COME DECEMBER 2016? MARC: I THINK IT WILL BE LOWER THAN IT IS TODAY. FRANCINE: HOW CONCERNED ARE YOU -- THAT'S THE U.S. YOU ARE EXPECTING SOME KIND OF CORRECTION IN U.S. MARKETS. MARC: WORRY. I BELIEVE THE STOCK MARKET IN THE U.S. PEAKED OUT LAST MAY ON THE S & P 2000 134. AND THAT WILL GO DOWN 20% TO 40% FROM THAT LEVEL. FRANCINE: WHAT IS YOUR TAKE ON CHINA? WE SAW A LOT OF VOLATILITY OVER THE LAST THREE DAYS. IS THERE A DISCONNECT BETWEEN THE MARKETS AND THE FUNDAMENTALS OF THE ECONOMY? MARC: WELL, THERE IS A DISCONNECT BETWEEN REAL ECONOMIC ACTIVITY IN THE WORLD AND ASSET PRICES. MOST EVERYWHERE WITH A FEW EXCEPTIONS WHERE MARKETS HAVE ADJUSTED SIGNIFICANTLY ON THE DOWNSIDE, BUT IN GENERAL, MARKETS ASSET PRICES ARE HIGH AND ECONOMIC ACTIVITY IN REAL TERMS IS VERY POOR. IN CHINA IT WAS EVIDENT ALREADY FOR TWO YEARS THAT THE ECONOMY WAS SLOWING DOWN. BUT THE ETERNALLY OPTIMISTIC FUNDS MANAGERS THAT ESSENTIALLY HAVE TO ADVERTISE THEIR PRODUCTS TO MAKE MONEY, THEY OF COURSE REMAIN BULLISH OF THE CHINESE ECONOMY. THIS IS SOMETHING I WILL NEVER UNDERSTAND THAT PEOPLE PAY ATTENTION TO THE STATISTICS THAT THE CHINESE GOVERNMENT PUBLISHES. WHEN OTHER STATISTICS ARE MUCH MORE RELIABLE. IMPORT AND EXPORT FIGURES OUT OF TAIWAN TO CHINA, THEY POINTED OUT TO A MEANINGFUL SLOWDOWN ALREADY FOR ONE AND A HALF YEARS. COMMODITY PRICES POINTED OUT A MEANINGFUL SLOWDOWN. YES? FRANCINE: YOU ARE NOT SEEING A HARD LANDING, RIGHT? A MEANINGFUL SLOWDOWN IS DIFFERENT TO A HARD LANDING. SO, A LOT OF VOLATILITY ON MARKETS AND HOW MUCH WILL THE YUAN BE CORRECTED BY? MARC: I THINK WE HAD A HARD LANDING IN THE STOCK MARKET ALREADY. AND WE HAD A HARD LANDING IN COMMODITIES. WE MIGHT HAVE A HARD LANDING IN THE ECONOMY. WE HAVE A COLOSSAL CREDIT BUBBLE IN CHINA. AND HOW IT WILL UNWIND WE DON'T KNOW. IT MAY HAPPEN THROUGH SIGNIFICANT WEAKNESS IN THE RENMINBI. ALTHOUGH IT IS NOT SURE. IT COULD ALSO HAPPEN THROUGH SIGNIFICANT WEAKNESS IN THE ECONOMY. AND SOME SECTORS OF THE ECONOMY IN CHINA LIKE STEEL PRODUCTION, THEY ARE TO HAVE EXPERIENCED HARD LANDING. MY SENSE, I WOULD RATHER BE OVERLY CAUTIOUS ON CHINA THAN OVERLY OPTIMISTIC. FRANCINE: MARC, WE HAVE ALSO SEEN LIKE TODAY WE HAVE SEEN THE SPREAD BETWEEN THE OFFSHORE AND THE ONSHORE YUAN WIDEN. AT WHAT POINT DOES A BECOME PROBLEMATIC FOR CHINESE LEADERS? MARC: WELL, IT MAY NOT BE THAT PROBLEMATIC BECAUSE THEY COULD ESSENTIALLY LET THE YUAN FLOAT DOWN. WHETHER THAT WOULD HELP THE ECONOMY MUCH IS DEBATABLE BECAUSE IN THE CASE OF JAPAN IT HASN'T HELPED AT ALL. IN THE CASE OF EUROPE, IT HASN'T REALLY HELPS. SO, THIS CURRENCY DEVALUATIONS HAVE RELATIVELY MINOR IMPACT ON REAL ECONOMIC ACTIVITY. BUT THIS IS AN OPTION CHINA HAS. THEY CAN ALSO PRINT MONEY. THEY CAN BUY ASSETS, SUPPORT THE STOCK MARKET. CENTRAL BANKS AND GOVERNMENTS CAN MANIPULATE MARKETS ESSENTIALLY ALMOST ENDLESSLY UNTIL THE FINAL COLLAPSE OCCURS. BUT WHETHER THE COLLAPSE OCCURS THROUGH THE CURRENCY OR THROUGH ASSET PRICES OR A CREDIT INFLATION IS NOT CLEAR AT THIS POINT. FRANCINE: RIGHT. LET'S TAKE A STEP BACK. YOU ARE PESSIMISTIC, CAUTIOUS ON CHINA. YOU SAY THE U.S. IS IN RECESSION. IS THERE A BRIGHT SPOT IN 2016, OR SHOULD WE WORRY A LOT MORE THAN WE ARE AT THE MOMENT? MARC: I THINK THAT INVESTORS OVERLOOK THE FACT THAT WE HAVE BEEN IN A COLOSSAL ASSET INFLATION PERIOD SINCE 1981. WHEN GOVERNMENT BOND YIELDS IN THE U.S., THE 10-YEAR'S PEAKED OUT CLOSE TO 16%. SINCE THEN BONDS HAVE RALLY, STOCKS HAVE RALLY, REAL ESTATE HAS RAL LIED GLOBALLY, AND WE HAVE AN EXPLOSION OF CREDIT IN THE WORLD. AND WE HAVE HAD A DECELERATING REAL ECONOMIC ACTIVITY. ACCELERATING PRODUCTIVITY GROWTH. SO, WE HAVE THIS ASSET BUBBLE. AND I THINK THE NEXT THING THAT WILL HAPPEN IS THAT ALL THE ASSET MARKETS LIKE THE TITANIC WILL CRASH. [LAUGHS] IT WON'T MATTER WHETHER YOU OWN A PICASSO, IT'S ALL GOING TO GO DOWN. FRANCINE: YOU ARE PRETTY JOVIAL FOR SOMEONE WHO IS PREDICTING A HUGE CORRECTION ON THE MARKETS. ARE WE TALKING A 20% CORRECTION? WHEN YOU'RE TALKING ABOUT THE TITANIC, YOU ARE SUGGESTING IT COULD FALL BY HALF. MARC: COULD BE. BUT MANY MARKETS IN DOLLAR TERMS HAVE ALL DECLINED BY 50%. AND CURRENCIES HAVE BEEN VERY WEAK AGAINST THE U.S. DOLLAR. THIS YEAR, 2016, EVERYBODY IS BULLISH ABOUT THE U.S. DOLLAR, BUT I DON'T SEE ANY REASON WHY THE U.S. DOLLAR SHOULD BE VERY STRONG. MAYBE SOMEONE CAN ARGUE IT IS IN A BETTER POSITION THAN OTHER COUNTRIES, BUT OTHER COUNTRIES HAVE NOW VALUATIONS, MORE REASONABLE. YOU HAVE TO CHOOSE. YOU CAN BUY EMERGING MARKETS THAT HAVE UNDERPERFORMED THE U.S. SINCE 2011 OR THE U.S. AND THE TIME HORIZON IS 10 YEARS, THEN I WOULD SAY I WOULD BUY AMERICAN MARKETS. I HAVE A DO THINK IT IS TOO EARLY. I WOULD RATHER BE IN EMERGING MARKETS THAN IN THE U.S. I WOULD ALSO OWNS SOME GOLD AND GOLD SHARES. THIS IS THE ASSET CLASS THAT IS VERY VERY PRICED AND WHERE I COULD SEE A DOUBLING OF PRICES EASILY WITH A LIMITED DOWNSIDE RISK. FRANCINE: ALL RIGHT. MARC, ON THAT NOTE, I'M AFRAID WE ARE RUNNING OUT OF TIME THAT I COULD TALK TO YOU FOR THE WHOLE DAY. YOU'LL HAVE TO COME BACK. FROM THAILAND, MARC FAB ER THE AUTHOR OF THE " BOOM, GLOOM AND DOOM REPORT." THE MEETINGS FROM THE DECEMBER FED MEETING WILL BE RELEASED AT 7:00 U.K. TIME. BLOOMBERG'S ECONOMIC EDITOR MICHAEL MCKEE JOINS US FROM NEW YORK. WHAT IS THE MAIN THING WE HOPE TO LEARN? MICHAEL: IT IS NOT SO MUCH ABOUT

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Marc Faber: We Have Colossal Credit Bubble in China

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