Inflation to Cause Stocks to Outperform Cash, Bonds, Faber Says

By Sapna Maheshwari

Sept. 23 (Bloomberg) -- Inflation caused by the Federal Reserve’s efforts to prop up the U.S. economy will cause stocks to outperform cash and bond investments, Marc Faber said.

Money pumped into the economy by central bankers will push the Standard & Poor’s 500 Index as high as 1,250 in a year, Faber, the publisher of the Gloom, Boom & Doom report, said yesterday in an interview with Bloomberg Television. The U.S. government and the Fed have spent, lent or committed more than $12 trillion to revive the economy and credit markets, a program he predicted in a February interview would have “dire consequences” in the long term.

“Where there is inflation in the system as defined by money supply growth and credit growth, you have currency weakness,” Faber said yesterday. “Stocks can easily go higher. If you print the money, they can go anywhere.”

Faber recommended buying U.S. stocks in October, before the S&P 500 plunged 31 percent through March and then staged the steepest rally in more than 70 years. The index is up 8.8 percent since his October comments. It gained 0.7 percent yesterday to 1,071.66, extending its advance since March 9 to 58 percent.

Consumer prices rose 0.4 percent in August, following no change in July, underscoring the Fed’s view that inflation will be contained as it keeps the key interest rate between a record low of zero and 0.25 percentage point. The Federal Open Market Committee will keep its rate target unchanged at its meeting that concludes today, according to a Bloomberg survey of 98 economists.

‘Like Never Before’

The government “will print like never before,” which will reduce foreign investments in the U.S. and weaken the dollar further, Faber said. The Dollar Index, which tracks the U.S. currency against those of six major trading partners, has fallen 6.5 percent this year. It appreciated 6 percent in 2008.

Faber recommends purchasing stocks in drug companies such as Johnson & Johnson, saying it will gain from an aging population, and in oil companies, which he called inexpensive. An index of oil and gas stocks on the S&P 500 has fallen 12 percent this year.

“If you have a problem that arose as a result of excessive credit growth and debt levels in the system, you can’t solve that by piling up even more debt,” he said.

To contact the reporter on this story: Sapna Maheshwari in New York at smaheshwar11@bloomberg.net.