Marc Faber on US Meddling: Middle East is a powder keg and it will go up in flames

In a recent CNBC interview, Dr. Marc Faber thinks of the possibility that a big fall in US stocks may prompt asset allocators to flow back into the badly beaten emerging markets given the assumption of the world has been "swimming in the pool of liquidity"

He says that “In the US, the cycle isn’t favourable” and thinks a rally in US Treasuries will happen due to the return of “off risk trade”

Dr Faber: Interest rates are no longer a tail-wind, a headwind, the earnings growth is not there, the emerging economies…shows no growth. Where are earnings going to come from?

[my impression is that the world is presently undergoing a periphery-to-core bubble bust process such that instead of a rotation, a steep fall in US stocks will exacerbate conditions in emerging markets. In other words, the “swimming pool of liquidity” has already been draining and will continue to shrink as losses continue to mount. This leaves little room for rotations. And the worsening of real economies will only exacerbate this. Yet if the convulsion in asset markets persists or even intensifies, then it would be intuitive to expect a global recession anytime between 2014-2015]

Dr. Faber views deteriorating events in the Middle East as enhancing market risks

Middle East is a powder keg and it will go up in flames because the western arrogance imperialistic powers they still meddle in the local affairs and supply all kind of people including Al Qaeda related parties with weapons. It is going to be a disaster. It is gonna spread from Syria and Egypt into Saudi Arabia into the Emirates eventually so forth and so on. We are going to have a huge mess

The message from Dr. Faber’s interview: Deteriorating global economic conditions plus increasing geopolitical risks are hardly “bullish” for risk assets, like equities.

While US treasuries may indeed rally amidst a risk off trade, I doubt if we will be seeing a replay of 2007-8. Instead I expect combination of 2007-2008 bubble bust dynamics along with a 1970s stagflation scenario.