Marc Faber's latest news letter is dollar bullish, and says Europe is in worse shape than the US:


We have a certain fondness for Marc Faber: he knows financial history, he is refreshingly direct, not attached to conventional thinking, and has a record of generally good investment calls (and admits to his mistakes).

Reader Dean provided us his latest newsletter, plus a story covering recent interviews (no, Dean is not his PR agent, just a disciple). Some excerpts, first from the BusinessIntelligence article:Any proposal to rescue the US financial system will fail to avert a recession said Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor and publisher, now based in Thailand.

A stock rally in the event that a package is approved will be temporary and should be used as 'an opportunity' to sell, said Faber.

"The rejection of the package is good because it shows that some people in the US are still sane," Faber said... "A bailout will not buy the US a way out. The government is less powerful than markets in fixing this mess."

"Most of the investment community are focusing on the financial crisis," Faber told TV newswire last night.

"But what they should be focusing on is that earnings will continue to disappoint for a long time, and that global growth is going to go down substantially. Most economies already today are in recession."

Noting that the US Dollar should continue to find support as investors rush to try and re-pay their debts "I think gold will be a relatively good investment under any kind of scenario until the US government bans the ownership of Gold in the United States.

"They are very good at changing the rules of the game – now banning short sales .

"So yes – physical gold, you should own. Not derivatives with Citigroup, J.P.Morgan, UBS and investment banks, but physical and outside the US,And from his newsletter:I should add that, unlike what Mr. Paulson says, falling house prices are not the problem. It is the huge leverage that is the problem. If your house is 100% self-financed (no mortgage outstanding) a rise or a decline in the value of your house has no direct economic or financial impact. In short, my view is that the bail-out plan is not addressing the cause of the problem, which is excessive leverage. Moreover, it is unlikely to help struggling homeowners but is designed to encourage even more speculation by financial companies. Peter Boockvar of Millar Tabak is furthermore concerned that it will lead to further bailouts.

According to him,the Paulson bailout plan is a government bailout of the previously failed government bailout which was a bailout of the previously failed government bailout etc… Each bailout had its own unintended consequences which the next bailout tried to address. Greenspan bailed out the economy after the stock market bubble popped with 1% interest rates which sowed the seeds for thecredit bubble. In order to bail us out, Bernanke slashed interest rates to 2% and a dramatic rise in commodity prices ensued. When that bailout didn’t work, he instituted a bailout of the investment banks with the initiation of the TSLF and PDCF credit facilities for investment banks. That slowed down the deleveraging process as it gave the investment banks a false sense of security. I highlight Dick Fuld’s comments soon after it began where he said it takes the liquidity issue off the table. The lack of dramatic deleveraging brought us to last week’s panic in GS and MS, a failed LEH and a shotgun wedding for MER which led us to the Paulson bailout. The unintended consequence of this bailout will be a much lower US$ and selloff in the US bond market which will leave us with higher interest rates and higher mortgage rates throw’s the intentions of the Paulson plan out the window. Who will bailout this bailout”?'s a plan for Washington DC, tell the banks to stop paying dividends to their shareholders. I went back and looked at just 20 of the top banks, including GS, MS and MER and saw that they are paying out $40 Billion per year out in dividends. The lending rule of thumb is $1 of capital can service $10 of lending. That is $400 Billion in lending capacity that can get freed up. That is more than half of the Paulson bailout plan and it costs the taxpayer ZERO.Recently, a reader of this comment (I read all emails I receive), suggested that there is no logic in my call for a stronger US dollar. I think I have tried to demonstrate in earlier reports that in an environment of a relative shrinking global liquidity (declining US current account deficit) the US dollar should strengthen. However, I should also like to point out that in the world of investments logic should be used only very carefully....Markets can simply move in a direction that seems illogical to us.

Take as an example the correlation between US fiscal imbalances and the US dollar. According to Deutsche Bank, there have been two regimes of correlation between US fiscal balance and the dollar: negative -0.63 during 1973-1988 and positive +0.42 since 1988, thereby supporting both views that larger deficits can result in a weaker or a stronger dollar. Similarly, the US current account deficit exploded between 1981 and 1986 and the US dollar strengthened while after 1986 the current account deficit shrank and the dollar weakened....

But getting back to the US dollar, one reason it may perform relatively well is that although the financial news coming out of the US is horrible, financial conditions in Europe could be even worse. According to Daniel Gross, director of the Centre for European Policy Studies in Brussels,the crucial problem on this side of the Atlantic is that the largest European banks have become not only too big to fail, but also too big to be saved. For example, the total liabilities of Deutsche Bank (leverage ratio over 50!) amount to about €2,000bn (more than Fannie Mae) or more than 80 per cent of the gross domestic product of Germany. This is simply too much for the Bundesbank or even the German state, given that the German budget is bound by the rules of the European Union’s stability pact and the German government cannot order (unlike the US Treasury) its central bank to issue more currency. Similarly, the total liabilities of Barclays of around £1,300bn (leverage ratio 60!) are roughly equivalent to the GDP of the UK.....Concerning the US stock market we note that there are several indicators,which suggest that a bottom should be reached shortly or has already been reached.....So, whereas I find it hard to make a case for a strong bull market (new highs are almost out of the question) I could easily envision a powerful bear market rally beginning in October, which could propel the S&P 500 up between 10% and 15% and the extremely over-sold emerging markets by 20% or so.