Swiss investor Marc Faber has just released his latest issue of the Gloom, Boom, and Doom Report where he discussed his outlook for the stock market, gold, emerging markets, and other financial topics. Here are a few highlights from the report:
1. Equity Markets–The markets may be giddy about stocks hitting new highs, but contrarian investor Marc Faber is having nothing of this. He is concerned that stocks will fall sharply in May and that the recent breakout in stocks will prove to be trap for the bulls. The markets are due for a correction and the technicals point to a weak market. In particular, Faber points to the decline in new 52 week highs as evidence of an unhealthy internal market. Right now, Faber would stay away from cyclicals, tech stocks, and banks. If you have to own stocks make sure it is something safe like consumer staples (MO, JNJ, PEP, KO, etc).
2. Gold & Silver—Still likes gold as a long-term investment and recommends dollar cost averaging every month regardless of the price. However, when it comes to silver, Faber is more cautious, noting the recent run-up in the price. He expects a 20%+ correction in the metals complex because the inflation trade has become too crowded.
3. Commodities–Dr Copper is issuing a warning to investors. While the S&P 500 has made a new high, copper failed to do so (non-confirmation). This is a significant development because Dr Copper and the SP 500 have a very high correlation. This signal, along with the large declines in other commodities such as sugar and cotton, leads Faber to believe that stocks could follow commodities lower (in the short-term)
4. Buy Housing–While Faber thinks the US housing market has another 10% to fall, he would be a buyer because of attractive valuations. Faber compares the price of US housing to gold and concludes that housing has not been this cheap since the early 1980′s. But do not think there will be a quick recovery–there won’t be. The main point about housing is that it is a good inflation hedge and will likely keep its purchasing power of the next 10 years. In a serious inflation environment, Faber would rather own housing than paper dollars.
5. More QE Guaranteed–In Faber’s opinion, QE 3 is a near certainty. The US will be running trillion dollar budget deficits for the next 10 years. There is no way they can finance all of this through bond issuance. The Fed will have to at least partially monetize this to keep interest rates low.
Showing posts with label marc Faber. Show all posts
Showing posts with label marc Faber. Show all posts
Wednesday, August 3, 2011
Monday, July 18, 2011
Financial Sense Newshour
In the deflationist scenario, you don’t want to be in US govt. bonds & cash. In that scenario, the fiscal deficit would deteriorate greatly. If the Dow went below 1000, we would be in a total economic collapse where tax revenues would fall off a cliff. So even in the deflationist scenario you don’t want to be in the long end of the government bond market.
In the 50s and 60s, people were more free. Now, we have police states in the West, where restrictions are rather onerous. Also, back in the 50s & 60s, the Bretton Woods System restricted the potential for severe inflation.
‘What is money?’ is a big question. Generally speaking, it’s a medium of exchange, a store of value and a unit of account. Gold is a much better store of value than the dollar. As a unit of account, the dollar is poor. Has the US really been growing at 3% per annum?
The standard of living for the average US household has gone down over the past 20 years. Relative to the rest of the World, the peak of US prosperity occurred in the 1950s. It’s very difficult to measure economic growth and prosperity.
The Emerging Markets used to be way behind the US. Now, the infrastructure in the Emerging Markets is way better than in the US. The US have grossly underinvested in infrastructure.
The US has survived on the continued expansion of borrowing to offset declining income in real terms. Now the power to borrow is gone.
Europeans & Americans are generally complaining about onerous regulations.
On the one hand you have money printing & expansionary fiscal policies. On the other, you have more and more regulation. The small businessman, who can’t employ an army of lawyers and accountants have no appetite to hire. They say that the more tax they pay, the more the government will harass them!
In Asia, there exists the opposite scenario: There is relative economic freedom insofar as you don’t criticise the government. A great quality of the US is that you can pretty much say what you want.
The likelihood of a hyperinflation has increased. If you go back to Jan 2011, would you have thought that the Middle East would blow up as it has? Would you have thought that the NATO countries would go to war against an idiot in Libya? He’s just one of many idiots, if you go after a country like Libya, you may as well go against 180 countries in the world!
The Western press is focussed on how to ‘contain’ China. One way is to control oil in the middle east; for then they can switch on the tap, or close it. The Allies have gone to the Middle East to attempt to gain control of the Oil. But this costs a lot! They’re not in a position to finance the war unless they print money. So we’re likely to see higher inflation.
Bernanke has some knowledge about economic contraction & expansion in a closed system. But he has no clue about the international system!
The more the US will print money, the more the dollar will depreciate against gold, silver, platinum & palladium.
Bernanke is a typical academic. He knows about everything in theory, but no clue about the real world.
A bubble occurs after several years of price increases. At the tail end of the trend, you get an annual appreciation that almost goes vertically. This hasn’t happened in the gold market.
Most people have sold their gold according to Marc Faber’s feedback from his subscribers at gloomboomdoom.com
Marc Faber was at a popular resource conference recently. He asked how many people had more than 5% invested in gold and only about 5 in 400 raised their hands!
If Marc Faber had to have one asset over the next 10 years, he would own gold (for maintenance of purchasing power) or equities (for profits).
It’s important to diversify your assets geographically. Political changes can completely wipe you out if you keep it all in one country.
It’s extremely difficult to get a bank account overseas if you’re an American. Officially there is a free foreign exchange market, but unofficially there are foreign exchange controls.
Easy monetary policies create greed & bubbles. One of the symptoms is fraud & embezzlement. Fannie Mae & Freddie Mac were frauds.
Money Printing in the US has produced bubbles elsewhere in the world.
Do what the Jews do! Marc Faber’s jewish friends have lots of gold and silver. Marc Faber has around 20% in gold & silver & mining stocks.
All this being said, we should note that a correction can occur!!!
In the previous gold bubble, everyone watched gold all day and all night! We don’t have a heavy euphoria yet.
America is a great place with great people. It’s only the Government that’s awful!
In the 50s and 60s, people were more free. Now, we have police states in the West, where restrictions are rather onerous. Also, back in the 50s & 60s, the Bretton Woods System restricted the potential for severe inflation.
‘What is money?’ is a big question. Generally speaking, it’s a medium of exchange, a store of value and a unit of account. Gold is a much better store of value than the dollar. As a unit of account, the dollar is poor. Has the US really been growing at 3% per annum?
The standard of living for the average US household has gone down over the past 20 years. Relative to the rest of the World, the peak of US prosperity occurred in the 1950s. It’s very difficult to measure economic growth and prosperity.
The Emerging Markets used to be way behind the US. Now, the infrastructure in the Emerging Markets is way better than in the US. The US have grossly underinvested in infrastructure.
The US has survived on the continued expansion of borrowing to offset declining income in real terms. Now the power to borrow is gone.
Europeans & Americans are generally complaining about onerous regulations.
On the one hand you have money printing & expansionary fiscal policies. On the other, you have more and more regulation. The small businessman, who can’t employ an army of lawyers and accountants have no appetite to hire. They say that the more tax they pay, the more the government will harass them!
In Asia, there exists the opposite scenario: There is relative economic freedom insofar as you don’t criticise the government. A great quality of the US is that you can pretty much say what you want.
The likelihood of a hyperinflation has increased. If you go back to Jan 2011, would you have thought that the Middle East would blow up as it has? Would you have thought that the NATO countries would go to war against an idiot in Libya? He’s just one of many idiots, if you go after a country like Libya, you may as well go against 180 countries in the world!
The Western press is focussed on how to ‘contain’ China. One way is to control oil in the middle east; for then they can switch on the tap, or close it. The Allies have gone to the Middle East to attempt to gain control of the Oil. But this costs a lot! They’re not in a position to finance the war unless they print money. So we’re likely to see higher inflation.
Bernanke has some knowledge about economic contraction & expansion in a closed system. But he has no clue about the international system!
The more the US will print money, the more the dollar will depreciate against gold, silver, platinum & palladium.
Bernanke is a typical academic. He knows about everything in theory, but no clue about the real world.
A bubble occurs after several years of price increases. At the tail end of the trend, you get an annual appreciation that almost goes vertically. This hasn’t happened in the gold market.
Most people have sold their gold according to Marc Faber’s feedback from his subscribers at gloomboomdoom.com
Marc Faber was at a popular resource conference recently. He asked how many people had more than 5% invested in gold and only about 5 in 400 raised their hands!
If Marc Faber had to have one asset over the next 10 years, he would own gold (for maintenance of purchasing power) or equities (for profits).
It’s important to diversify your assets geographically. Political changes can completely wipe you out if you keep it all in one country.
It’s extremely difficult to get a bank account overseas if you’re an American. Officially there is a free foreign exchange market, but unofficially there are foreign exchange controls.
Easy monetary policies create greed & bubbles. One of the symptoms is fraud & embezzlement. Fannie Mae & Freddie Mac were frauds.
Money Printing in the US has produced bubbles elsewhere in the world.
Do what the Jews do! Marc Faber’s jewish friends have lots of gold and silver. Marc Faber has around 20% in gold & silver & mining stocks.
All this being said, we should note that a correction can occur!!!
In the previous gold bubble, everyone watched gold all day and all night! We don’t have a heavy euphoria yet.
America is a great place with great people. It’s only the Government that’s awful!
Friday, July 15, 2011
Marc Faber again, I started to get crazy about Marc again.
The Daily Bell is pleased to present an exclusive interview with Dr. Marc Faber.
Introduction: Dr. Marc Faber was born in Zurich, Switzerland. He went to school in Geneva and Zurich and finished high school with the Matura. He studied Economics at the University of Zurich and, at the age of 24, obtained a Ph.D in Economics magna cum laude. Between 1970 and 1978, Dr. Faber worked for White Weld & Company Limited in New York, Zurich and Hong Kong. Since 1973, he has lived in Hong Kong. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK) Ltd. In June 1990, he set up his own business, MARC FABER LIMITED, which acts as an investment advisor, fund manager and broker/dealer. Dr. Faber publishes a widely read monthly investment newsletter THE GLOOM, BOOM & DOOM report which highlights unusual investment opportunities. A regular speaker at various investment seminars, Dr. Faber is well known for his "contrarian" investment approach. He is also associated with a variety of funds.
Daily Bell: Thank you for sitting down with us today. Please give us some background. Where were you born? Where did you grow up?
Marc Faber: I grew up in Geneva and Zurich.
Daily Bell: You obtained, at the age of 24, a Ph.D. degree in Economics, magna cum laude. What drove you to accomplish such a feat?
Marc Faber: Well, I passed all my classes not because I was particularly bright but because you have to study what is most important to the work you are interested in doing. I also studied economics, and in those days you didn't have to study more than four years, so I was able to finish relatively early.
Daily Bell: For a while, you worked for the famous White Weld & Company Limited that caused the paper crunch.
Marc Faber: I started with White Weld in 1970 and then in 1978 they were taken over by Merrill Lynch and then I worked for Drexel Burnham.
Daily Bell: You worked in New York City, Zürich and Hong Kong. What was that like?
Marc Faber: In the early 70s, New York was the leading financial center. When I moved to Asia in 1973, Asia was still very poor. Countries like Taiwan, South Korea and Singapore had very poor infrastructure and were still essentially run by "Dictators.". I felt, based on the experience and the rise of Japan in the 50s and 60s, that other countries in Asia were going to grow very rapidly, so I stayed on, mostly in Hong Kong and throughout Asia.
Daily Bell: You moved to Hong Kong in 1973, and became a managing director at Drexel Burnham Lambert Ltd. Hong Kong. You were there throughout. Did Drexel get a bad rap? What about Mike Milken? What do you think of Drexel these days?
Marc Faber: Well I think Mike Milken was a financial genius. I have great admiration for him and his ability to work under enormous pressure. At the end, he had lawsuits, he was defending himself; Drexel Burnham had lawsuits and he was still trading bonds every day. He had unusual abilities to function under very heavy pressure but, obviously, the firm and his department did a few things that were not entirely above the board. I wouldn't think, when looking at what has happened in the last few years, he deserved to go to jail. There are many people that committed far larger financial fraud, or at least contributed to irregularities, that have never gone to jail in the last few years or up to this day. The penalty was disproportionate.
Daily Bell: In 1990 you set up your own business, Marc Faber Limited, now in Thailand. Why there?
Marc Faber: I moved to Thailand in 2000. I still keep an office in Hong Kong.
Daily Bell: Who gave you the title "Doctor Doom?"
Marc Faber: Well, I had predicted the 1987 crash and then it happened and then I was predicting in '88 and '89, the crash of Japan. The first person who gave me the name was Nury Vittachi. He was a journalist at the South China Post and an author of several books; he also had a very popular column in the Post, called "Lai See."
Daily Bell: A book written by Nury Vittachi was entitled Doctor Doom - Riding the Millennial Storm - Marc Faber's Path to Profit in the Financial Crisis. Do you still work with Vittachi? What was the book about?
Marc Faber: The book is a personal account of my life in Hong Kong in the 1980's, but I believe it was published in the early '90's.
Daily Bell: Your company, Marc Faber Limited, acts as an investment advisor, concentrating on value investments. Are there lots of value investments today? Would you elaborate on your investing philosophy?
Marc Faber: Well I think when we talk about value, there is value in the purchase of certain assets if they are depressed and neglected. I also suppose there is value in selling short if assets are way above what I would call an equilibrium price or way above the trend line price. So, value can be interpreted in many different ways. You cannot be too rigid. I don't think there is a clear-cut definition of what value is and each analyst has to decide for himself where he finds value.
In general, value will emerge when things look bad for a corporation or a country or an industry, because market prices will fluctuate more than the fundamentals. In other words, if you look at the price of gold and you look at gold shares, the gold shares will be more volatile than the gold price. Or look at the price of real estate; the price of real-estate related companies will overshoot and undershoot. Some unusual opportunities eventually arise, either on the short or on the long side.
Daily Bell: You also act as a fund manager to private wealthy clients. What do you recommend to them? Why do they come to you?
Marc Faber: The clients I have now, I have had for 20 years. I haven't taken new clients for 12 years. They come to me because they recognize that I have a slightly different investment strategy than most portfolio managers or funds managers. They are remunerated according to whether they beat the index or not. So, if the index is up 20% and the fund manager is up 22%, he's done a good job. Or if the index is down 30% and he's down only 29%, he's done a good job. My clients are different. They want to see a return every year, even if the return is modest.
Daily Bell: Your current – if eccentric – tag-line is: "buy a $100 US bond and frame it to teach your children about inflation by watching the US bond value diminish to almost nothing over the next 20 years." Why are you negative about US Treasuries?
Marc Faber: We have to distinguish the short term and the long term. I think about two months ago, I turned quite positive for US Treasuries. But obviously long term, at less than 3% yield on a ten year US Treasury, I don't see any value. I think that interest rates in time will be much higher because the fiscal deficit will stay very elevated or even increase and that will impair the ability of the government to pay the interest. If the ability to pay the interest is impaired, there's only one way out and that is for them to print money, and so eventually you will get higher interest rates.
Daily Bell: What caused the crash of 1987? Was it caused by a currency agreement between the Reagan White House and Japan? Please tell us about that.
Marc Faber: Well I am not sure what caused the crash but the market started to go down in August '87. The market had become immensely over bought and there was a lot of speculation and investor sentiment played on one side – the bullish side. So I think a correction was easy to predict and that the crash would happen. As I said, it was an accidental thing, but I had predicted it and then it happened one week later. In other cases, like the NASDAQ or the Japanese market crash, it took longer.
Daily Bell: You predicted the rise of oil, precious metals, other commodities, emerging markets and especially China in your book Tomorrow's Gold: Asia's Age of Discovery. How did you know?
Marc Faber: Basically, commodities move in long-term cycles and they had peaked out in 1980. After 1980, they had been in a downtrend, including oil and industrial commodities. When the incremental demand from China kicked in, it was an easy call to say, "eventually commodities will go up," given a 20-year bear market and they were extremely inexpensive compared to NASDAQ stocks.
Daily Bell: You also correctly predicted the slide of the U.S. dollar since 2002.
Marc Faber: The US has essentially one advantage and that is they issue their governments debt in US dollars. In other words, they have no mismatch of assets and liabilities. So, that's imperative to printing money. When you read the notes and the speeches from Mr. Bernanke, it's very clear that he would rather take the weaker dollar, than to have domestic style deflation. So, I think that there are several factors that point to a declining dollar, but I have to say the other currencies are not much better. I would also say the purchasing power of the Euro has gone down, along with the purchasing power of the Swiss franc, which has also dropped when we measure what kind of basket of goods we can buy in Switzerland today compared to 10 years ago.
Daily Bell: You said at one point there were no value investments left except for farmland and real estate in some emerging markets. Do you still believe this?
Marc Faber: I think that I was lucky because I kind of predicted the 2008 financial crisis; it took a while until it happened and I was worried about it for a number of years. If someone today would receive a billion dollars, it will be quite difficult to make a lot of money in the next 10 years. I am not saying if he puts the whole billion in gold, maybe gold will go up or if he puts the whole billion in silver, silver will go up. It would be quite risky for an investor to put the billion in one asset. Even if he diversifies, I don't think he will make a lot of money.
I think we had the collapse of the financial system in 2008; the failed institutions and failed system were bailed out by government. Ultimately governments will fail. The US and Europe will print money, and when everything fails, they'll go to war and then we have the complete collapse.
Daily Bell: You said in 2007 there was going to be a crash, but you also said US equities were only moderately overvalued. Would you tell us more about that?
Marc Faber: The market based on price earnings was not incredibly over valued. What concerned me was the over-valuation in real estate and in financial stocks. The overall market wasn't selling at 80 times earnings, like Japan in '89 or the NASDAQ in March 2000. From that point of view, there wasn't a tremendous over-valuation. What was happening in 2008 was that there was an earnings collapse in the financial sector.
The financial sector accounted at the peak in 2007 for over 40% of S&P earnings and obviously the S&P earnings collapsed. 2008 was not really a financial crisis and we have come out of it. In 2007, there wasn't a huge over-valuation, but there was a concentration of money in the financial sector.
Daily Bell: Do you still expect hyperinflation?
Marc Faber: In my view, the debt level, especially in the US, if we include the unfunded liabilities of Medicare, Medicaid, Social Security and these entitlement programs, is beyond repair. And this will necessitate printing more money. Also, in my view, there is no real political will to address the issues, because who ever would cut entitlements, will not be re-elected. So we have a tyranny of the masses.
Daily Bell: Did you miss the stock market rally of the last two years?
Marc Faber: No, as I said, I felt positive in March 2009. Starting about a year ago, I became more cautious. Since February of this year, I am kind of concerned that the market is building something more significant than just a short downturn correction. This is a distribution phase and for the market to make a new high, above the recent high, will be difficult.
Daily Bell: What has been your position on gold and silver? Do you expect the purchasing power of either or both to go higher?
Marc Faber: Well I basically focus more on gold than silver, although I am on the board of a company, Sprott Inc., that is identified with a very bullish view of silver. I prefer gold. My view is, yes, I have been positive for gold for the past 10 or 12 years and I could make a case that gold today is cheaper than it was in 1999 when it was at $252. Cheaper in the sense that if I compare gold to international reserves or to the increase in the credit markets in the world, I don't think it's expensive. And yes, I think it will go higher or, expressed differently, that paper currencies will go lower against the value of gold. But this will be an irregular process, and along with this move into US Treasuries and away from risky assets, I wouldn't be surprised if the price of gold went down $200. It's not necessarily a prediction, it just wouldn't surprise me.
Daily Bell: Tell us about your report. Why you named it what you did and how people can get it.
Marc Faber: I have two reports, the written, printed report called the Gloom, Boom and Doom report, which is relatively detailed and focuses on monetary issues. Then I have a website report which is sent out by email and people can inquire about it on the website, www.gloomboomdoom.com.
Daily Bell: Here is a famous quote: "The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part." Is this really true?
Marc Faber: Well, actually beer is now mostly owned by foreign companies. In reality, America still has a very large manufacturing base and we shouldn't underestimate that; there are some very good companies in America. At the moment, it's meant as a joke. But it is true that the problem of America is consumerism. By encouraging this leverage on the consumer level, particularly in the housing market and on credit cards, which is the worst, America has lent to a consumer economy and an economy that doesn't spend enough on investment.
Investments are infrastructure expenditures. They are expenditures for education, research and development, and plants and equipment. A lot of money has been channeled into wasteful government administrations. The smaller a government is, the more dynamic the economy will be and the larger the government is, the more stagnant the economy will become.
There are exceptions to this rule. The Nordic countries of Norway, Sweden, Finland and Denmark, have very large governments but I suppose in small countries, you can run the country like a country club where people essentially develop solidarity and say OK, we pay high taxes – but we have very good health care; OK, we pay high taxes but we have very good schools for our children. So let's say in Norway and Finland you don't need to send your children to private schools, but in America it would be difficult to send your children to government schools because essentially they are inefficient.
Daily Bell: You serve as director or advisor of a number of investment funds that focus on emerging and frontier markets, including Leopard Capital's Leopard Cambodia Fund and Leopard Sri Lanka Fund. You seem to believe a lot in emerging markets. True?
Marc Faber: Yes. I think the world is in a gigantic transition. The growth will be in new economies, countries like India and China. This trend I think, will be with us for a very long time. It will be a contributing factor to geopolitical tensions because obviously the West will not be very happy to see its super power status diminish relative to the rest of the world.
Daily Bell: Would you say you are an Austrian when it comes to economics?
Marc Faber: Yes, but I think we can't be overly dogmatic in economics because certain things may work for one system and other things may not work in another system and so forth. Economics is a very complex system and is essentially human life and the behavior of humans. So to build one theory around it is probably wrong. Sure I am leaning more to the Austrian school, particularly when it comes to debt cycles. But I have sympathy for the Keynesian approach if, and this is a big question, IF it is implemented properly.
In other words, the business cycles will lead to excursions of prosperity and during these excursions into prosperity the system should build up reserves. Then when the excursion in depressions occurs below the trend line, use these reserves. But the problem with Keynesian economics has been that in the excursions into depression the reserves were always used but were never accumulated in the periods of prosperity, and so you build up larger and larger government debt and print more money; that is the problem. It's the problem of democracy.
Daily Bell: What do you think of Ludwig von Mises?
Marc Faber: I have a high regard for all the Austrian economists, but I also have a high regard for other economists. They made many contributions to the understanding of economics. I have little understanding when it comes to Ben Bernanke because he disregards the entire importance of credit and is obsessive about credit growth. Also Alan Greenspan, I mean, credit expanded much more rapidly in the past 30 years. This is not sustainable. Maybe for 10 years, but not in the long run. That they completely disregard the danger of leverage will always remain a mystery to me.
Daily Bell: Is there a cartel of wealthy banking families that runs the world? Are they located in the City of London? Do they by any chance seek one world government?
Marc Faber: I don't know. I think there are some very important banking dynasties for sure. People sometimes refer to them as the Rothschilds and that they have benefitted from wars – so I am not sure I would want a one-world government. When I compare my life today to the life I had in the 50s and 60s, we have much less freedom. Everything is regulated as the governments have become like a cancer; they keep expanding and regulating and dictating everything. In my opinion, this creates not a very favorable environment in the Western world.
Daily Bell: Is the EU going to collapse? Just the euro?
Marc Faber: This is a political question and it will depend on the political will. The euro in my opinion will weaken against the US dollar in the next couple of months and along with the dollar it will weaken against the price of gold in the long run.
Daily Bell: Is the dollar finished as the world's reserve currency?
Marc Faber: It's not finished as the world's reserve currency; it will continue to exist for a while. But obviously there will be competition and there will be currencies people trust more than the US dollar. I think the US dollar has lost prestige. When I think of the 50s or 60s, the US dollar was worth a lot of money and people trusted the US dollar and also the United States. At that time, it was by far the leading economy in the world; that prestige will continue to be eroded.
Daily Bell: What will take its place?
Marc Faber: That I don't know, but I think in Asia we will have currencies that will be important. I don't think we can have united currencies the way we have the Euro because there are numerous political disagreements from the expansion of the influence of China. Obviously, the Chinese currency will be an important currency in Asia.
Daily Bell: Do you have any thoughts on Real Bills? How about free banking?
Marc Faber: I think the idea that you have different banks issuing their own currencies is not a bad idea. The bank that has a very conservative balance sheet will have a strong paper currency and the ones with a weak balance sheet will have a weak currency. There is some merit between having competition this way, and we have that with currency issued by different governments. Some are more desirable than others, like Canadian dollars, Australian dollars, the Swiss Franc ... but that hasn't always been the case. In the US, because of the political process, I have my reservations, I think it's already too late.
Daily Bell: Are you hopeful about the world's economic future in the long term?
Marc Faber: I suppose the world will always develop but that we will always have periods where we have wars and tremendous wealth destruction, or where we have plague and where the population shrinks. I am optimistic about certain issues and pessimistic about others.
Daily Bell: What are you working on now?
Marc Faber: Every month I am writing my report, so I am always working on something. But I am not working on anything new or writing any books because I don't have the time. I will again in the future.
Daily Bell: Thank you for your time and a very interesting interview.
Daily Bell After Thoughts
This was a lot of fun. You have to read the interview closely, but if you do, you may start to sense a kind of musical quality in the way Dr. Marc Faber responds. Ask him a question and you get back free-form jazz riff, complete with prices, dates and macro- and micro-elaborations.
To be Dr. Marc. Faber is to have a head that is constantly processing data, comparing it to other data and putting it into a larger context. You can hear it if you listen. He's like Charlie Parker – "The Bird" – the great alto-saxophone composer. Ask Marc Faber a question and the answer just pours out of him. He may have an eidetic memory – remembering virtually everything about every day, at least as it relates to finance. He sure remembers a lot, specific prices, etc.
Interviewing him, one is reminded again that there are few accidents when it comes to achievement over time. People who have success, especially when it comes to investing, are usually pretty smart. That's not say there aren't plenty of fund managers who ride the market up and then all the way back down, but Faber has been doing what he does for decades and is still in business. He hasn't had the crutch of a big financial firm to support him. For the most part, he's done it on his own.
We found several quotes of his to be most thought provoking. The first one was this: "We had the collapse of the financial system in 2008; the failed institutions and failed system were bailed out by government. Ultimately governments will fail. The US and Europe will print money, and when everything fails, they'll go to war and then we have the complete collapse."
We surely agree!. We've written over and over that the dollar-reserve financial system basically died in 2008. The Federal Reserve and other central banks have by now apparently handed out tens of trillions in low-interest loans and outright "investments."
In fact, we've estimated that this financial "crisis" will eventually result in an aggregate of US$100 trillion being injected into the West's "free-market" economies by central banks and fiscally, too, before this current episode of fiat money insanity trickles to a close. Invest US$100 trillion into ANYTHING and you are basically re-setting the system, whatever it may be. You are showing, by your actions, that it doesn't exist anymore.
The ramifications are endless. Europe is collapsing. UK and America may be next. Unlike Dr. Faber, we expect China to collapse as well. Doesn't matter about the region or the cycle. China's financial system is Western – actually worse than Western. We don't believe you can trust a single Chinese number at this point. They're building empty cities and ghost highways throughout that vast country.
China is an inflationary accident ready to happen. We'll be surprised if the landing is soft. If it IS hard, like a bowling ball, it will knock down a lot of other economies as well. Europe is already teetering. America is on the brink. Japan is savaged. Imagine what a crash in China will do to Western economies.
If China does crash, or even if it doesn't, the US dollar reserve system is pretty much finished. Something else is in the air. Something else is destined to take its place. The "crisis" shows no sign of receding in our view; in fact, doubtless there will be more financial stimuli as time goes on. None of it will be any more effective than what has gone before.
The only solution, as Dr. Faber says (and as we regularly write), is war. And war is what we are starting to get. There will be more of it. Nothing else will suffice. The elites are desperate to retain their seat at the head of the table. Let chaos reign.
This brings us to the other quote we found interesting. Dr. Faber seems positive about John Maynard Keynes, a Fabian Socialist and Bloomsbury member who believed that the implementation of economic leveling was to take place via trickery in order to maintain the current system with its elite beneficences.
We differ. As believers in free-market thinking, we can't conceive that government interventions into the marketplace EVER result in anything good. In fact, this latest crisis shows once again that Keynes' approaches are basically bunkum. It is impossible for bureaucrats to save up currency in the "good" times to anticipate the bad ones. It's like asking a heroin addict to build up a stash in anticipation of scarcity. Won't happen.
But let us not quibble. We return to our fundamental observation that, like a great musician, Dr. Faber does what he does because he CAN – perhaps unconsciously. He makes market calls within a week of their occurrence. He turns a profit when others do not. He talks at one point about sensing where the market is headed. This is certain kind of talent. Investing as an art form.
It's interesting to listen to. Read between the lines and you may come to the conclusion as we did, that he's holding back in a few places. A smart guy. Success, no accident.
Reprinted with permission from The Daily Bell.
Introduction: Dr. Marc Faber was born in Zurich, Switzerland. He went to school in Geneva and Zurich and finished high school with the Matura. He studied Economics at the University of Zurich and, at the age of 24, obtained a Ph.D in Economics magna cum laude. Between 1970 and 1978, Dr. Faber worked for White Weld & Company Limited in New York, Zurich and Hong Kong. Since 1973, he has lived in Hong Kong. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK) Ltd. In June 1990, he set up his own business, MARC FABER LIMITED, which acts as an investment advisor, fund manager and broker/dealer. Dr. Faber publishes a widely read monthly investment newsletter THE GLOOM, BOOM & DOOM report which highlights unusual investment opportunities. A regular speaker at various investment seminars, Dr. Faber is well known for his "contrarian" investment approach. He is also associated with a variety of funds.
Daily Bell: Thank you for sitting down with us today. Please give us some background. Where were you born? Where did you grow up?
Marc Faber: I grew up in Geneva and Zurich.
Daily Bell: You obtained, at the age of 24, a Ph.D. degree in Economics, magna cum laude. What drove you to accomplish such a feat?
Marc Faber: Well, I passed all my classes not because I was particularly bright but because you have to study what is most important to the work you are interested in doing. I also studied economics, and in those days you didn't have to study more than four years, so I was able to finish relatively early.
Daily Bell: For a while, you worked for the famous White Weld & Company Limited that caused the paper crunch.
Marc Faber: I started with White Weld in 1970 and then in 1978 they were taken over by Merrill Lynch and then I worked for Drexel Burnham.
Daily Bell: You worked in New York City, Zürich and Hong Kong. What was that like?
Marc Faber: In the early 70s, New York was the leading financial center. When I moved to Asia in 1973, Asia was still very poor. Countries like Taiwan, South Korea and Singapore had very poor infrastructure and were still essentially run by "Dictators.". I felt, based on the experience and the rise of Japan in the 50s and 60s, that other countries in Asia were going to grow very rapidly, so I stayed on, mostly in Hong Kong and throughout Asia.
Daily Bell: You moved to Hong Kong in 1973, and became a managing director at Drexel Burnham Lambert Ltd. Hong Kong. You were there throughout. Did Drexel get a bad rap? What about Mike Milken? What do you think of Drexel these days?
Marc Faber: Well I think Mike Milken was a financial genius. I have great admiration for him and his ability to work under enormous pressure. At the end, he had lawsuits, he was defending himself; Drexel Burnham had lawsuits and he was still trading bonds every day. He had unusual abilities to function under very heavy pressure but, obviously, the firm and his department did a few things that were not entirely above the board. I wouldn't think, when looking at what has happened in the last few years, he deserved to go to jail. There are many people that committed far larger financial fraud, or at least contributed to irregularities, that have never gone to jail in the last few years or up to this day. The penalty was disproportionate.
Daily Bell: In 1990 you set up your own business, Marc Faber Limited, now in Thailand. Why there?
Marc Faber: I moved to Thailand in 2000. I still keep an office in Hong Kong.
Daily Bell: Who gave you the title "Doctor Doom?"
Marc Faber: Well, I had predicted the 1987 crash and then it happened and then I was predicting in '88 and '89, the crash of Japan. The first person who gave me the name was Nury Vittachi. He was a journalist at the South China Post and an author of several books; he also had a very popular column in the Post, called "Lai See."
Daily Bell: A book written by Nury Vittachi was entitled Doctor Doom - Riding the Millennial Storm - Marc Faber's Path to Profit in the Financial Crisis. Do you still work with Vittachi? What was the book about?
Marc Faber: The book is a personal account of my life in Hong Kong in the 1980's, but I believe it was published in the early '90's.
Daily Bell: Your company, Marc Faber Limited, acts as an investment advisor, concentrating on value investments. Are there lots of value investments today? Would you elaborate on your investing philosophy?
Marc Faber: Well I think when we talk about value, there is value in the purchase of certain assets if they are depressed and neglected. I also suppose there is value in selling short if assets are way above what I would call an equilibrium price or way above the trend line price. So, value can be interpreted in many different ways. You cannot be too rigid. I don't think there is a clear-cut definition of what value is and each analyst has to decide for himself where he finds value.
In general, value will emerge when things look bad for a corporation or a country or an industry, because market prices will fluctuate more than the fundamentals. In other words, if you look at the price of gold and you look at gold shares, the gold shares will be more volatile than the gold price. Or look at the price of real estate; the price of real-estate related companies will overshoot and undershoot. Some unusual opportunities eventually arise, either on the short or on the long side.
Daily Bell: You also act as a fund manager to private wealthy clients. What do you recommend to them? Why do they come to you?
Marc Faber: The clients I have now, I have had for 20 years. I haven't taken new clients for 12 years. They come to me because they recognize that I have a slightly different investment strategy than most portfolio managers or funds managers. They are remunerated according to whether they beat the index or not. So, if the index is up 20% and the fund manager is up 22%, he's done a good job. Or if the index is down 30% and he's down only 29%, he's done a good job. My clients are different. They want to see a return every year, even if the return is modest.
Daily Bell: Your current – if eccentric – tag-line is: "buy a $100 US bond and frame it to teach your children about inflation by watching the US bond value diminish to almost nothing over the next 20 years." Why are you negative about US Treasuries?
Marc Faber: We have to distinguish the short term and the long term. I think about two months ago, I turned quite positive for US Treasuries. But obviously long term, at less than 3% yield on a ten year US Treasury, I don't see any value. I think that interest rates in time will be much higher because the fiscal deficit will stay very elevated or even increase and that will impair the ability of the government to pay the interest. If the ability to pay the interest is impaired, there's only one way out and that is for them to print money, and so eventually you will get higher interest rates.
Daily Bell: What caused the crash of 1987? Was it caused by a currency agreement between the Reagan White House and Japan? Please tell us about that.
Marc Faber: Well I am not sure what caused the crash but the market started to go down in August '87. The market had become immensely over bought and there was a lot of speculation and investor sentiment played on one side – the bullish side. So I think a correction was easy to predict and that the crash would happen. As I said, it was an accidental thing, but I had predicted it and then it happened one week later. In other cases, like the NASDAQ or the Japanese market crash, it took longer.
Daily Bell: You predicted the rise of oil, precious metals, other commodities, emerging markets and especially China in your book Tomorrow's Gold: Asia's Age of Discovery. How did you know?
Marc Faber: Basically, commodities move in long-term cycles and they had peaked out in 1980. After 1980, they had been in a downtrend, including oil and industrial commodities. When the incremental demand from China kicked in, it was an easy call to say, "eventually commodities will go up," given a 20-year bear market and they were extremely inexpensive compared to NASDAQ stocks.
Daily Bell: You also correctly predicted the slide of the U.S. dollar since 2002.
Marc Faber: The US has essentially one advantage and that is they issue their governments debt in US dollars. In other words, they have no mismatch of assets and liabilities. So, that's imperative to printing money. When you read the notes and the speeches from Mr. Bernanke, it's very clear that he would rather take the weaker dollar, than to have domestic style deflation. So, I think that there are several factors that point to a declining dollar, but I have to say the other currencies are not much better. I would also say the purchasing power of the Euro has gone down, along with the purchasing power of the Swiss franc, which has also dropped when we measure what kind of basket of goods we can buy in Switzerland today compared to 10 years ago.
Daily Bell: You said at one point there were no value investments left except for farmland and real estate in some emerging markets. Do you still believe this?
Marc Faber: I think that I was lucky because I kind of predicted the 2008 financial crisis; it took a while until it happened and I was worried about it for a number of years. If someone today would receive a billion dollars, it will be quite difficult to make a lot of money in the next 10 years. I am not saying if he puts the whole billion in gold, maybe gold will go up or if he puts the whole billion in silver, silver will go up. It would be quite risky for an investor to put the billion in one asset. Even if he diversifies, I don't think he will make a lot of money.
I think we had the collapse of the financial system in 2008; the failed institutions and failed system were bailed out by government. Ultimately governments will fail. The US and Europe will print money, and when everything fails, they'll go to war and then we have the complete collapse.
Daily Bell: You said in 2007 there was going to be a crash, but you also said US equities were only moderately overvalued. Would you tell us more about that?
Marc Faber: The market based on price earnings was not incredibly over valued. What concerned me was the over-valuation in real estate and in financial stocks. The overall market wasn't selling at 80 times earnings, like Japan in '89 or the NASDAQ in March 2000. From that point of view, there wasn't a tremendous over-valuation. What was happening in 2008 was that there was an earnings collapse in the financial sector.
The financial sector accounted at the peak in 2007 for over 40% of S&P earnings and obviously the S&P earnings collapsed. 2008 was not really a financial crisis and we have come out of it. In 2007, there wasn't a huge over-valuation, but there was a concentration of money in the financial sector.
Daily Bell: Do you still expect hyperinflation?
Marc Faber: In my view, the debt level, especially in the US, if we include the unfunded liabilities of Medicare, Medicaid, Social Security and these entitlement programs, is beyond repair. And this will necessitate printing more money. Also, in my view, there is no real political will to address the issues, because who ever would cut entitlements, will not be re-elected. So we have a tyranny of the masses.
Daily Bell: Did you miss the stock market rally of the last two years?
Marc Faber: No, as I said, I felt positive in March 2009. Starting about a year ago, I became more cautious. Since February of this year, I am kind of concerned that the market is building something more significant than just a short downturn correction. This is a distribution phase and for the market to make a new high, above the recent high, will be difficult.
Daily Bell: What has been your position on gold and silver? Do you expect the purchasing power of either or both to go higher?
Marc Faber: Well I basically focus more on gold than silver, although I am on the board of a company, Sprott Inc., that is identified with a very bullish view of silver. I prefer gold. My view is, yes, I have been positive for gold for the past 10 or 12 years and I could make a case that gold today is cheaper than it was in 1999 when it was at $252. Cheaper in the sense that if I compare gold to international reserves or to the increase in the credit markets in the world, I don't think it's expensive. And yes, I think it will go higher or, expressed differently, that paper currencies will go lower against the value of gold. But this will be an irregular process, and along with this move into US Treasuries and away from risky assets, I wouldn't be surprised if the price of gold went down $200. It's not necessarily a prediction, it just wouldn't surprise me.
Daily Bell: Tell us about your report. Why you named it what you did and how people can get it.
Marc Faber: I have two reports, the written, printed report called the Gloom, Boom and Doom report, which is relatively detailed and focuses on monetary issues. Then I have a website report which is sent out by email and people can inquire about it on the website, www.gloomboomdoom.com.
Daily Bell: Here is a famous quote: "The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part." Is this really true?
Marc Faber: Well, actually beer is now mostly owned by foreign companies. In reality, America still has a very large manufacturing base and we shouldn't underestimate that; there are some very good companies in America. At the moment, it's meant as a joke. But it is true that the problem of America is consumerism. By encouraging this leverage on the consumer level, particularly in the housing market and on credit cards, which is the worst, America has lent to a consumer economy and an economy that doesn't spend enough on investment.
Investments are infrastructure expenditures. They are expenditures for education, research and development, and plants and equipment. A lot of money has been channeled into wasteful government administrations. The smaller a government is, the more dynamic the economy will be and the larger the government is, the more stagnant the economy will become.
There are exceptions to this rule. The Nordic countries of Norway, Sweden, Finland and Denmark, have very large governments but I suppose in small countries, you can run the country like a country club where people essentially develop solidarity and say OK, we pay high taxes – but we have very good health care; OK, we pay high taxes but we have very good schools for our children. So let's say in Norway and Finland you don't need to send your children to private schools, but in America it would be difficult to send your children to government schools because essentially they are inefficient.
Daily Bell: You serve as director or advisor of a number of investment funds that focus on emerging and frontier markets, including Leopard Capital's Leopard Cambodia Fund and Leopard Sri Lanka Fund. You seem to believe a lot in emerging markets. True?
Marc Faber: Yes. I think the world is in a gigantic transition. The growth will be in new economies, countries like India and China. This trend I think, will be with us for a very long time. It will be a contributing factor to geopolitical tensions because obviously the West will not be very happy to see its super power status diminish relative to the rest of the world.
Daily Bell: Would you say you are an Austrian when it comes to economics?
Marc Faber: Yes, but I think we can't be overly dogmatic in economics because certain things may work for one system and other things may not work in another system and so forth. Economics is a very complex system and is essentially human life and the behavior of humans. So to build one theory around it is probably wrong. Sure I am leaning more to the Austrian school, particularly when it comes to debt cycles. But I have sympathy for the Keynesian approach if, and this is a big question, IF it is implemented properly.
In other words, the business cycles will lead to excursions of prosperity and during these excursions into prosperity the system should build up reserves. Then when the excursion in depressions occurs below the trend line, use these reserves. But the problem with Keynesian economics has been that in the excursions into depression the reserves were always used but were never accumulated in the periods of prosperity, and so you build up larger and larger government debt and print more money; that is the problem. It's the problem of democracy.
Daily Bell: What do you think of Ludwig von Mises?
Marc Faber: I have a high regard for all the Austrian economists, but I also have a high regard for other economists. They made many contributions to the understanding of economics. I have little understanding when it comes to Ben Bernanke because he disregards the entire importance of credit and is obsessive about credit growth. Also Alan Greenspan, I mean, credit expanded much more rapidly in the past 30 years. This is not sustainable. Maybe for 10 years, but not in the long run. That they completely disregard the danger of leverage will always remain a mystery to me.
Daily Bell: Is there a cartel of wealthy banking families that runs the world? Are they located in the City of London? Do they by any chance seek one world government?
Marc Faber: I don't know. I think there are some very important banking dynasties for sure. People sometimes refer to them as the Rothschilds and that they have benefitted from wars – so I am not sure I would want a one-world government. When I compare my life today to the life I had in the 50s and 60s, we have much less freedom. Everything is regulated as the governments have become like a cancer; they keep expanding and regulating and dictating everything. In my opinion, this creates not a very favorable environment in the Western world.
Daily Bell: Is the EU going to collapse? Just the euro?
Marc Faber: This is a political question and it will depend on the political will. The euro in my opinion will weaken against the US dollar in the next couple of months and along with the dollar it will weaken against the price of gold in the long run.
Daily Bell: Is the dollar finished as the world's reserve currency?
Marc Faber: It's not finished as the world's reserve currency; it will continue to exist for a while. But obviously there will be competition and there will be currencies people trust more than the US dollar. I think the US dollar has lost prestige. When I think of the 50s or 60s, the US dollar was worth a lot of money and people trusted the US dollar and also the United States. At that time, it was by far the leading economy in the world; that prestige will continue to be eroded.
Daily Bell: What will take its place?
Marc Faber: That I don't know, but I think in Asia we will have currencies that will be important. I don't think we can have united currencies the way we have the Euro because there are numerous political disagreements from the expansion of the influence of China. Obviously, the Chinese currency will be an important currency in Asia.
Daily Bell: Do you have any thoughts on Real Bills? How about free banking?
Marc Faber: I think the idea that you have different banks issuing their own currencies is not a bad idea. The bank that has a very conservative balance sheet will have a strong paper currency and the ones with a weak balance sheet will have a weak currency. There is some merit between having competition this way, and we have that with currency issued by different governments. Some are more desirable than others, like Canadian dollars, Australian dollars, the Swiss Franc ... but that hasn't always been the case. In the US, because of the political process, I have my reservations, I think it's already too late.
Daily Bell: Are you hopeful about the world's economic future in the long term?
Marc Faber: I suppose the world will always develop but that we will always have periods where we have wars and tremendous wealth destruction, or where we have plague and where the population shrinks. I am optimistic about certain issues and pessimistic about others.
Daily Bell: What are you working on now?
Marc Faber: Every month I am writing my report, so I am always working on something. But I am not working on anything new or writing any books because I don't have the time. I will again in the future.
Daily Bell: Thank you for your time and a very interesting interview.
Daily Bell After Thoughts
This was a lot of fun. You have to read the interview closely, but if you do, you may start to sense a kind of musical quality in the way Dr. Marc Faber responds. Ask him a question and you get back free-form jazz riff, complete with prices, dates and macro- and micro-elaborations.
To be Dr. Marc. Faber is to have a head that is constantly processing data, comparing it to other data and putting it into a larger context. You can hear it if you listen. He's like Charlie Parker – "The Bird" – the great alto-saxophone composer. Ask Marc Faber a question and the answer just pours out of him. He may have an eidetic memory – remembering virtually everything about every day, at least as it relates to finance. He sure remembers a lot, specific prices, etc.
Interviewing him, one is reminded again that there are few accidents when it comes to achievement over time. People who have success, especially when it comes to investing, are usually pretty smart. That's not say there aren't plenty of fund managers who ride the market up and then all the way back down, but Faber has been doing what he does for decades and is still in business. He hasn't had the crutch of a big financial firm to support him. For the most part, he's done it on his own.
We found several quotes of his to be most thought provoking. The first one was this: "We had the collapse of the financial system in 2008; the failed institutions and failed system were bailed out by government. Ultimately governments will fail. The US and Europe will print money, and when everything fails, they'll go to war and then we have the complete collapse."
We surely agree!. We've written over and over that the dollar-reserve financial system basically died in 2008. The Federal Reserve and other central banks have by now apparently handed out tens of trillions in low-interest loans and outright "investments."
In fact, we've estimated that this financial "crisis" will eventually result in an aggregate of US$100 trillion being injected into the West's "free-market" economies by central banks and fiscally, too, before this current episode of fiat money insanity trickles to a close. Invest US$100 trillion into ANYTHING and you are basically re-setting the system, whatever it may be. You are showing, by your actions, that it doesn't exist anymore.
The ramifications are endless. Europe is collapsing. UK and America may be next. Unlike Dr. Faber, we expect China to collapse as well. Doesn't matter about the region or the cycle. China's financial system is Western – actually worse than Western. We don't believe you can trust a single Chinese number at this point. They're building empty cities and ghost highways throughout that vast country.
China is an inflationary accident ready to happen. We'll be surprised if the landing is soft. If it IS hard, like a bowling ball, it will knock down a lot of other economies as well. Europe is already teetering. America is on the brink. Japan is savaged. Imagine what a crash in China will do to Western economies.
If China does crash, or even if it doesn't, the US dollar reserve system is pretty much finished. Something else is in the air. Something else is destined to take its place. The "crisis" shows no sign of receding in our view; in fact, doubtless there will be more financial stimuli as time goes on. None of it will be any more effective than what has gone before.
The only solution, as Dr. Faber says (and as we regularly write), is war. And war is what we are starting to get. There will be more of it. Nothing else will suffice. The elites are desperate to retain their seat at the head of the table. Let chaos reign.
This brings us to the other quote we found interesting. Dr. Faber seems positive about John Maynard Keynes, a Fabian Socialist and Bloomsbury member who believed that the implementation of economic leveling was to take place via trickery in order to maintain the current system with its elite beneficences.
We differ. As believers in free-market thinking, we can't conceive that government interventions into the marketplace EVER result in anything good. In fact, this latest crisis shows once again that Keynes' approaches are basically bunkum. It is impossible for bureaucrats to save up currency in the "good" times to anticipate the bad ones. It's like asking a heroin addict to build up a stash in anticipation of scarcity. Won't happen.
But let us not quibble. We return to our fundamental observation that, like a great musician, Dr. Faber does what he does because he CAN – perhaps unconsciously. He makes market calls within a week of their occurrence. He turns a profit when others do not. He talks at one point about sensing where the market is headed. This is certain kind of talent. Investing as an art form.
It's interesting to listen to. Read between the lines and you may come to the conclusion as we did, that he's holding back in a few places. A smart guy. Success, no accident.
Reprinted with permission from The Daily Bell.
Thursday, July 14, 2011
Buying US Debt 'Mind Boggling"
It is mind boggling that people would consider buying 10-year U.S. Treasurys with yields trading at around 3 percent, said Marc Faber, the author of the closely-watched Gloom, Boom and Doom report in an interview with CNBC on Thursday.
“I don’t think the U.S. will default in terms of not paying the interest on its debt. They will though default via a falling dollar [.DXY 75.26 0.05 (+0.07%) ] as Bernanke begins printing more money,” Faber said.
His comments follow statements by Ben Bernanke on Wednesday in which the Federal Reserve chairman indicated he would consider more extraordinary measures if U.S. economic conditions get worse.
On Wednesday, Moody’s [MCO 36.28 -0.37 (-1.01%) ] warned it could downgrade America’s credit rating as talks over the debt ceiling became increasingly acrimonious on Capitol Hill.
“They will get an agreement or fiddle around with the debt ceiling,” Faber said.
“I disagree with the bond bulls that are basing their case on a deflationary environment. In such an outcome tax revenues would collapse and stocks would fall heavily.”
Faber predicted that 1,370 was the high for the S&P 500 index in 2011 and told CNBC that if stocks fall another 10 percent or 20 percent from here, another round of quantitative easing is inevitable.
“The risk is not to hold gold. Whilst there is the potential for 10 percent downside in the short term over the next five to ten years the gains will be big. Or put another way, the purchasing power of paper money will fall," Faber said.
“Cash is very risky asset except in times of major market corrections,” he added
“I don’t think the U.S. will default in terms of not paying the interest on its debt. They will though default via a falling dollar [.DXY 75.26 0.05 (+0.07%) ] as Bernanke begins printing more money,” Faber said.
His comments follow statements by Ben Bernanke on Wednesday in which the Federal Reserve chairman indicated he would consider more extraordinary measures if U.S. economic conditions get worse.
On Wednesday, Moody’s [MCO 36.28 -0.37 (-1.01%) ] warned it could downgrade America’s credit rating as talks over the debt ceiling became increasingly acrimonious on Capitol Hill.
“They will get an agreement or fiddle around with the debt ceiling,” Faber said.
“I disagree with the bond bulls that are basing their case on a deflationary environment. In such an outcome tax revenues would collapse and stocks would fall heavily.”
Faber predicted that 1,370 was the high for the S&P 500 index in 2011 and told CNBC that if stocks fall another 10 percent or 20 percent from here, another round of quantitative easing is inevitable.
“The risk is not to hold gold. Whilst there is the potential for 10 percent downside in the short term over the next five to ten years the gains will be big. Or put another way, the purchasing power of paper money will fall," Faber said.
“Cash is very risky asset except in times of major market corrections,” he added
Wednesday, June 29, 2011
Alarm bells! Faber says Sep-Oct to be rough for markets
It is not yet a time to rejoice on the rally that the market is seeing. Experts feel that this is a pure relief rally and will lose steam soon. Global cues too indicate a week economy.
Marc Faber, Editor and Publisher, The Gloom, Boom & Doom Report, is cautious on global markets. In an interview to CNBC-TV18, he warned that markets are likely to see a rough period in Sep-Oct.
Weakening of commodities prices reflects global slowdown and Faber said that it is poised for further downfall. The only relief, however, according to him, is that oil prices is unlikely to collapse. “Brent can correct to USD 80-85/bbl,” he suggested.
Below is the transcript of his interview with CNBC-TV18's Udayan Mukherjee. Also watch the accompanying video.
Q: We have seen some strength in the global markets despite weak economic data over the last fortnight from the US, what would you put that down to?
A: Basically there is apprehension about holding cash, particular in money market funds. So, some money is moving out of money market funds into treasury bills (T-Bills), treasury notes (T-Notes), treasury bonds (T-Bonds), and also in equities. Secondly, the market became very oversold about a week ago on a near-term basis. On a longer-term basis, the market is not oversold. But near-term the market was very oversold and sentiment had turned rather negative. So, a rebound is only natural.
Q: Do you expect the rebound to have legs going into July? Could it be a more substantial rebound?
A: Usually what happens in the market, we have to seasonal strength in January then weakness in February, then strength in March-April and then weakness in May-June and then again a summer rally in July until early August. So, we are moving into seasonally strong period. But unlike many strategists, I don’t think we are going to make a new high. I think the S&P or the overall market in the US will close 2011 at about this level or lower not higher as every strategist is predicting. I think we have seen the highs for this year, let us put it this way.
Q: In this pullback, how much would you give the S&P?
A: I think we can rally to around 1,330 on the S&P now, but not make a new high above the 1,370 highs, which we saw in May. And then, in my view, we would be going down to maybe 1,150 on the S&P.
Q: Do you think after the early part of August once again we run into rough weather leading up to the September-October period?
A: Yes. I think the second half of August, September-October will be rough months.
Q: How do you expect the dollar to move in the near-term then, if that is your prognosis for equities?
A: I think the dollar has begun to strengthen somewhat. The strength may continue. But it continued to be weak against the Swiss Franc. The Swiss Franc is essentially the only kind of very strong currency at the present time. Overall, I would expect the dollar to strength, particularly against the euro.
Q: In India, the market has bounced back because crude corrected last week or early this week very sharply to USD 102 on the Brent, do you expect crude to correct more substantially? Is it breaking down in your eyes?
A: I think all commodities are weakening at the present time, which essentially reflect a significant slow down in the global economy. We will weaken further, in my opinion, until about the end of December. I do not think that oil will collapse. I think we may go down to around USD 80-85 per barrel or so and then have further strengthening in the years ahead.
Q: USD 80-85 on Brent or on WTI?
A: On Brent.
Q: What about the Greece situation? Do you think the markets have priced it in, the upmove of the last one week or do you expect a post Greek resolution rally in the western markets?
A: I think the market in the last two days has already rallied in anticipation of a bailout. The problem is not really Greece or the size of Greece, but it is the contagion that could arise from a crisis in Greece. The problem is also that US mutual money market funds have about an exposure of about USD 800 billion to European Banks. Admittedly mostly to high quality banks like German Banks, French banks. But the point is the system collapses, if the bailout does not take place. So, I think the bailout will come and on the bailout news the market will essentially start to retrace lower again or at least it has been discounted.
Q: How are emerging market equities looking to you? Given your view on the western markets as you detailed it, how do emerging markets equities look?
A: Emerging market equities don’t look good technically. I think they may underperform the US for a while.
Q: Does that include India?
A: Yes.
Q: How much downside do you seein the Indian markets from here?
A: I think the market will head lower along with other markets in the world. As I said we can have a rally into July, August and then a further weakness in the fall. And then probably bottom-out somewhere in late October-November.
Marc Faber, Editor and Publisher, The Gloom, Boom & Doom Report, is cautious on global markets. In an interview to CNBC-TV18, he warned that markets are likely to see a rough period in Sep-Oct.
Weakening of commodities prices reflects global slowdown and Faber said that it is poised for further downfall. The only relief, however, according to him, is that oil prices is unlikely to collapse. “Brent can correct to USD 80-85/bbl,” he suggested.
Below is the transcript of his interview with CNBC-TV18's Udayan Mukherjee. Also watch the accompanying video.
Q: We have seen some strength in the global markets despite weak economic data over the last fortnight from the US, what would you put that down to?
A: Basically there is apprehension about holding cash, particular in money market funds. So, some money is moving out of money market funds into treasury bills (T-Bills), treasury notes (T-Notes), treasury bonds (T-Bonds), and also in equities. Secondly, the market became very oversold about a week ago on a near-term basis. On a longer-term basis, the market is not oversold. But near-term the market was very oversold and sentiment had turned rather negative. So, a rebound is only natural.
Q: Do you expect the rebound to have legs going into July? Could it be a more substantial rebound?
A: Usually what happens in the market, we have to seasonal strength in January then weakness in February, then strength in March-April and then weakness in May-June and then again a summer rally in July until early August. So, we are moving into seasonally strong period. But unlike many strategists, I don’t think we are going to make a new high. I think the S&P or the overall market in the US will close 2011 at about this level or lower not higher as every strategist is predicting. I think we have seen the highs for this year, let us put it this way.
Q: In this pullback, how much would you give the S&P?
A: I think we can rally to around 1,330 on the S&P now, but not make a new high above the 1,370 highs, which we saw in May. And then, in my view, we would be going down to maybe 1,150 on the S&P.
Q: Do you think after the early part of August once again we run into rough weather leading up to the September-October period?
A: Yes. I think the second half of August, September-October will be rough months.
Q: How do you expect the dollar to move in the near-term then, if that is your prognosis for equities?
A: I think the dollar has begun to strengthen somewhat. The strength may continue. But it continued to be weak against the Swiss Franc. The Swiss Franc is essentially the only kind of very strong currency at the present time. Overall, I would expect the dollar to strength, particularly against the euro.
Q: In India, the market has bounced back because crude corrected last week or early this week very sharply to USD 102 on the Brent, do you expect crude to correct more substantially? Is it breaking down in your eyes?
A: I think all commodities are weakening at the present time, which essentially reflect a significant slow down in the global economy. We will weaken further, in my opinion, until about the end of December. I do not think that oil will collapse. I think we may go down to around USD 80-85 per barrel or so and then have further strengthening in the years ahead.
Q: USD 80-85 on Brent or on WTI?
A: On Brent.
Q: What about the Greece situation? Do you think the markets have priced it in, the upmove of the last one week or do you expect a post Greek resolution rally in the western markets?
A: I think the market in the last two days has already rallied in anticipation of a bailout. The problem is not really Greece or the size of Greece, but it is the contagion that could arise from a crisis in Greece. The problem is also that US mutual money market funds have about an exposure of about USD 800 billion to European Banks. Admittedly mostly to high quality banks like German Banks, French banks. But the point is the system collapses, if the bailout does not take place. So, I think the bailout will come and on the bailout news the market will essentially start to retrace lower again or at least it has been discounted.
Q: How are emerging market equities looking to you? Given your view on the western markets as you detailed it, how do emerging markets equities look?
A: Emerging market equities don’t look good technically. I think they may underperform the US for a while.
Q: Does that include India?
A: Yes.
Q: How much downside do you seein the Indian markets from here?
A: I think the market will head lower along with other markets in the world. As I said we can have a rally into July, August and then a further weakness in the fall. And then probably bottom-out somewhere in late October-November.
Wednesday, May 18, 2011
Marc Faber’s May Outlook: Beware the False Breakout in Stocks
Swiss investor Marc Faber has just released his latest issue of the Gloom, Boom, and Doom Report where he discussed his outlook for the stock market, gold, emerging markets, and other financial topics. Here are a few highlights from the report:
1. Equity Markets–The markets may be giddy about stocks hitting new highs, but contrarian investor Marc Faber is having nothing of this. He is concerned that stocks will fall sharply in May and that the recent breakout in stocks will prove to be trap for the bulls. The markets are due for a correction and the technicals point to a weak market. In particular, Faber points to the decline in new 52 week highs as evidence of an unhealthy internal market. Right now, Faber would stay away from cyclicals, tech stocks, and banks. If you have to own stocks make sure it is something safe like consumer staples (MO, JNJ, PEP, KO, etc).
2. Gold & Silver—Still likes gold as a long-term investment and recommends dollar cost averaging every month regardless of the price. However, when it comes to silver, Faber is more cautious, noting the recent run-up in the price. He expects a 20%+ correction in the metals complex because the inflation trade has become too crowded.
3. Commodities–Dr Copper is issuing a warning to investors. While the S&P 500 has made a new high, copper failed to do so (non-confirmation). This is a significant development because Dr Copper and the SP 500 have a very high correlation. This signal, along with the large declines in other commodities such as sugar and cotton, leads Faber to believe that stocks could follow commodities lower (in the short-term)
4. Buy Housing–While Faber thinks the US housing market has another 10% to fall, he would be a buyer because of attractive valuations. Faber compares the price of US housing to gold and concludes that housing has not been this cheap since the early 1980′s. But do not think there will be a quick recovery–there won’t be. The main point about housing is that it is a good inflation hedge and will likely keep its purchasing power of the next 10 years. In a serious inflation environment, Faber would rather own housing than paper dollars.
5. More QE Guaranteed–In Faber’s opinion, QE 3 is a near certainty. The US will be running trillion dollar budget deficits for the next 10 years. There is no way they can finance all of this through bond issuance. The Fed will have to at least partially monetize this to keep interest rates low.
1. Equity Markets–The markets may be giddy about stocks hitting new highs, but contrarian investor Marc Faber is having nothing of this. He is concerned that stocks will fall sharply in May and that the recent breakout in stocks will prove to be trap for the bulls. The markets are due for a correction and the technicals point to a weak market. In particular, Faber points to the decline in new 52 week highs as evidence of an unhealthy internal market. Right now, Faber would stay away from cyclicals, tech stocks, and banks. If you have to own stocks make sure it is something safe like consumer staples (MO, JNJ, PEP, KO, etc).
2. Gold & Silver—Still likes gold as a long-term investment and recommends dollar cost averaging every month regardless of the price. However, when it comes to silver, Faber is more cautious, noting the recent run-up in the price. He expects a 20%+ correction in the metals complex because the inflation trade has become too crowded.
3. Commodities–Dr Copper is issuing a warning to investors. While the S&P 500 has made a new high, copper failed to do so (non-confirmation). This is a significant development because Dr Copper and the SP 500 have a very high correlation. This signal, along with the large declines in other commodities such as sugar and cotton, leads Faber to believe that stocks could follow commodities lower (in the short-term)
4. Buy Housing–While Faber thinks the US housing market has another 10% to fall, he would be a buyer because of attractive valuations. Faber compares the price of US housing to gold and concludes that housing has not been this cheap since the early 1980′s. But do not think there will be a quick recovery–there won’t be. The main point about housing is that it is a good inflation hedge and will likely keep its purchasing power of the next 10 years. In a serious inflation environment, Faber would rather own housing than paper dollars.
5. More QE Guaranteed–In Faber’s opinion, QE 3 is a near certainty. The US will be running trillion dollar budget deficits for the next 10 years. There is no way they can finance all of this through bond issuance. The Fed will have to at least partially monetize this to keep interest rates low.
Marc Faber QE18
Marc Faber provided his latest views on the markets and global economy this morning in light of the nuclear crisis in Japan.
In a CNBC interview, the editor of The Gloom, Boom & Doom report made a bevy of predictions – which included many more rounds of quantitative easing (up to QE18), and eventually World War III.
Highlights from his comments included:
- the damage from the Japanese crisis will necessitate very heavy spending to rebuild infrastructure, and “that will be somewhat inflationary for the Japanese economy.”
- may be beneficial for equities in Japan
- negative for JGBs (Japanese government bonds)
- situation is “very negative for the yen in the long run”
- sees this as a “turning point for the yen”
- crisis is a “huge financial burden on a government that is already indebted”
- “I think it’s healthy that the markets start to focus on something else than what Mr. Bernanke is telling the press all the time.”
- “And then QE3 will come, QE4, QE5, QE6, QE7, whatever you want. The money printer will continue to print, that I’m sure.”
- “Mr. Bernanke doesn’t know much about the global economy, but he watches the S&P every day.”
- “I would fully expect more quantitative easing. There’s nothing else they (the Federal Reserve) can do actually.”
- mild economic recovery in the U.S. is ongoing, but the outlook for U.S. employment is not particularly good
- Oil is very attractive from a risk/reward point of view
- his macroeconomic forecast is an “ultra-bearish scenario” where “everything will collapse and that there will be World War III, and collapsing countries in the middle east, and then the supply will be curtailed and prices will go up.
- he corrected his earlier statement on further rounds of QE, saying that he meant up to QE18, not just QE8
- “until very recently the Fed has had very few critics. Very few people criticized the Fed’s policies under Mr. Greenspan and Mr. Bernanke. Over the last few months a lot of critical comments have come up about the Fed and its money printing habit, but I beg you, the S&P drops 20%, all the critics will be silenced, and they will all applaud renewed money printing. Sadly, sadly.”
- he did not specifically mention gold in this interview, but considering he has been bullish on the yellow metal for much of the past decade and sees so many additional rounds of QE ahead, he likely remains quite positive on gold.
In a CNBC interview, the editor of The Gloom, Boom & Doom report made a bevy of predictions – which included many more rounds of quantitative easing (up to QE18), and eventually World War III.
Highlights from his comments included:
- the damage from the Japanese crisis will necessitate very heavy spending to rebuild infrastructure, and “that will be somewhat inflationary for the Japanese economy.”
- may be beneficial for equities in Japan
- negative for JGBs (Japanese government bonds)
- situation is “very negative for the yen in the long run”
- sees this as a “turning point for the yen”
- crisis is a “huge financial burden on a government that is already indebted”
- “I think it’s healthy that the markets start to focus on something else than what Mr. Bernanke is telling the press all the time.”
- “And then QE3 will come, QE4, QE5, QE6, QE7, whatever you want. The money printer will continue to print, that I’m sure.”
- “Mr. Bernanke doesn’t know much about the global economy, but he watches the S&P every day.”
- “I would fully expect more quantitative easing. There’s nothing else they (the Federal Reserve) can do actually.”
- mild economic recovery in the U.S. is ongoing, but the outlook for U.S. employment is not particularly good
- Oil is very attractive from a risk/reward point of view
- his macroeconomic forecast is an “ultra-bearish scenario” where “everything will collapse and that there will be World War III, and collapsing countries in the middle east, and then the supply will be curtailed and prices will go up.
- he corrected his earlier statement on further rounds of QE, saying that he meant up to QE18, not just QE8
- “until very recently the Fed has had very few critics. Very few people criticized the Fed’s policies under Mr. Greenspan and Mr. Bernanke. Over the last few months a lot of critical comments have come up about the Fed and its money printing habit, but I beg you, the S&P drops 20%, all the critics will be silenced, and they will all applaud renewed money printing. Sadly, sadly.”
- he did not specifically mention gold in this interview, but considering he has been bullish on the yellow metal for much of the past decade and sees so many additional rounds of QE ahead, he likely remains quite positive on gold.
Saturday, February 19, 2011
Marc Faber still expects Stock Market Correction
After his Jan. 26 statement, “Treasuries are the best place to be for the next 10 days,” Marc Faber, editor of the Gloom, Boom & Doom Report, reiterates his forecast for a correction for the U.S. equities market and a decline for emerging markets equities of a much larger magnitude.
A growing number of investors follow Dr. Faber because of his likewise growing reputation for not only predicting global markets with more accuracy than other market analysts but also for his colorful and crowd-pleasing drubbing and debunking the “liars” at the U.S. Fed. In short, Faber has become a iconic folk hero who speaks to power through truth, while navigating the financial waters for investors as his bread and butter trade.
Following his bold prediction of a strong rally for stocks during the nail-biting hysterics of the March 2009 equities meltdown, Faber now predicts that the nearly two-year long rally is overdue for a 10% correction for U.S. equities, while emerging markets could experience a much deeper sell off soon of as much as 30%.
Faber’s thesis is predicated on the fact that “the U.S. economy has performed so well over the past 18 months since the March 2009 lows,” while emerging stock markets of Asia have already priced in much of its economic recovery.
He also points to Asia’s accelerating inflation rate in food and energy prices as a hindrance to its population’s relatively low purchasing power parity with the U.S.
“My concern is this: We have money printing around the world—in particular, in the U.S.–and that has led to very high food inflation and inflation in energy prices,” Faber told CNBC’s Becky Quick on Jan. 19.
“And in low-income countries like China, India, Vietnam, and so forth, energy and food account for a much larger portion of personal disposable income than in the United States,” he explained.
In the past, Faber has repeatedly said that inflation is a unfair tax on the poor anywhere in the world, but can be devastating to populations in countries such as China, India and Vietnam where per capita purchasing power parity equates to $7,400, $3,400 and $3,100, respectively, compared with approximately $47,000 per American.
Faber routinely blames central bankers (headed by the U.S. Fed) for inflation of money supplies and the pass through effects of higher prices in food and energy as a predictable result of central bank “money printing.” More money spent on food and energy, he says, impacts discretionary spending in Asia more than it impacts American and European spending.
Moreover, Faber anticipates that central banks in emerging economies to tighten monetary policy to ward off threats of population uprisings in protest of the higher cost of living as already witnessed in Tunisia and Egypt. The other option available to Asian central banks is to do nothing and allow inflation to continue, he said.
“Both [alternatives] are not particular good for equities.”
“I believe that the U.S. and Europe have a better chance than the emerging markets that have become—I wouldn’t say necessarily have become expensive—but certainly not great values anymore.”
However, in the longer term, Faber likes emerging economies over developed ones in the many years to come as debtor nations struggle with overall burdensome debt levels. He suggests investors wanting exposure to China, India and Southeast Asian countries of Thailand, Malaysia, Vietnam and Indonesia could find good entry points following his forecast correction.
A growing number of investors follow Dr. Faber because of his likewise growing reputation for not only predicting global markets with more accuracy than other market analysts but also for his colorful and crowd-pleasing drubbing and debunking the “liars” at the U.S. Fed. In short, Faber has become a iconic folk hero who speaks to power through truth, while navigating the financial waters for investors as his bread and butter trade.
Following his bold prediction of a strong rally for stocks during the nail-biting hysterics of the March 2009 equities meltdown, Faber now predicts that the nearly two-year long rally is overdue for a 10% correction for U.S. equities, while emerging markets could experience a much deeper sell off soon of as much as 30%.
Faber’s thesis is predicated on the fact that “the U.S. economy has performed so well over the past 18 months since the March 2009 lows,” while emerging stock markets of Asia have already priced in much of its economic recovery.
He also points to Asia’s accelerating inflation rate in food and energy prices as a hindrance to its population’s relatively low purchasing power parity with the U.S.
“My concern is this: We have money printing around the world—in particular, in the U.S.–and that has led to very high food inflation and inflation in energy prices,” Faber told CNBC’s Becky Quick on Jan. 19.
“And in low-income countries like China, India, Vietnam, and so forth, energy and food account for a much larger portion of personal disposable income than in the United States,” he explained.
In the past, Faber has repeatedly said that inflation is a unfair tax on the poor anywhere in the world, but can be devastating to populations in countries such as China, India and Vietnam where per capita purchasing power parity equates to $7,400, $3,400 and $3,100, respectively, compared with approximately $47,000 per American.
Faber routinely blames central bankers (headed by the U.S. Fed) for inflation of money supplies and the pass through effects of higher prices in food and energy as a predictable result of central bank “money printing.” More money spent on food and energy, he says, impacts discretionary spending in Asia more than it impacts American and European spending.
Moreover, Faber anticipates that central banks in emerging economies to tighten monetary policy to ward off threats of population uprisings in protest of the higher cost of living as already witnessed in Tunisia and Egypt. The other option available to Asian central banks is to do nothing and allow inflation to continue, he said.
“Both [alternatives] are not particular good for equities.”
“I believe that the U.S. and Europe have a better chance than the emerging markets that have become—I wouldn’t say necessarily have become expensive—but certainly not great values anymore.”
However, in the longer term, Faber likes emerging economies over developed ones in the many years to come as debtor nations struggle with overall burdensome debt levels. He suggests investors wanting exposure to China, India and Southeast Asian countries of Thailand, Malaysia, Vietnam and Indonesia could find good entry points following his forecast correction.
Wednesday, February 2, 2011
Bernanke, BLS Lie About Inflation: Dr. Doom Faber
In its latest release, the Bureau of Labor Statistics said the consumer price index (CPI) increased 0.5 percent in December, while the latest figures in for the euro zone show the inflation rate rose to 2.4 percent in January.
“I guarantee you … the annual cost of living increases are more than 5 percent, and the Bureau of Labor Statistics is lying,” Faber told CNBC at the Russia Forum in Moscow.
“Mr Bernanke is a liar; inflation is much higher than what they publish. I would imagine for most households it’s between five and eight percent per annum in the United States and in Western European countries maybe a little bit lower but also around four and five percent per annum,” he said.
In addtion, Faber said high food prices, which have sparked political unrest in Egypt, would next cause turmoil in Pakistan.
“You may not have the problem in Saudi Arabia and the Emirates because there the governments can heavily subsidize food if they want to, but I’m particularly worried that what has happened in Egypt will happen in Pakistan,” he said.
Asked whether Pakistan would indeed see an Egypt-style uprising, he said: “I think that will be the case.”
“I think Egypt is a reminder to people that politics and social events and geopolitics have a meaningful impact on asset markets,” Faber said, adding that what the world was currently witnessing was “a wake up call where the US outperforms emerging markets for a while.”
“That doesn’t mean that the US goes up. It just may go down less than the others,” he said.
Turning to the global economic recovery, Faber said the West was bottoming out and recovering, which meant the global economy looked “OK” for the next six months.
But “we’re all doomed in the long run,” he said.
“We have to realize it’s an artificial recovery driven by ultra-expansionary, monetary policies and also ultra-expansionary fiscal policies.
In other words, the deficits of governments are huge and that will lead down the road to renewed problems,” he said.
“I guarantee you … the annual cost of living increases are more than 5 percent, and the Bureau of Labor Statistics is lying,” Faber told CNBC at the Russia Forum in Moscow.
“Mr Bernanke is a liar; inflation is much higher than what they publish. I would imagine for most households it’s between five and eight percent per annum in the United States and in Western European countries maybe a little bit lower but also around four and five percent per annum,” he said.
In addtion, Faber said high food prices, which have sparked political unrest in Egypt, would next cause turmoil in Pakistan.
“You may not have the problem in Saudi Arabia and the Emirates because there the governments can heavily subsidize food if they want to, but I’m particularly worried that what has happened in Egypt will happen in Pakistan,” he said.
Asked whether Pakistan would indeed see an Egypt-style uprising, he said: “I think that will be the case.”
“I think Egypt is a reminder to people that politics and social events and geopolitics have a meaningful impact on asset markets,” Faber said, adding that what the world was currently witnessing was “a wake up call where the US outperforms emerging markets for a while.”
“That doesn’t mean that the US goes up. It just may go down less than the others,” he said.
Turning to the global economic recovery, Faber said the West was bottoming out and recovering, which meant the global economy looked “OK” for the next six months.
But “we’re all doomed in the long run,” he said.
“We have to realize it’s an artificial recovery driven by ultra-expansionary, monetary policies and also ultra-expansionary fiscal policies.
In other words, the deficits of governments are huge and that will lead down the road to renewed problems,” he said.
Monday, December 6, 2010
Equity is a buy here, by Marc Faber
Equity Markets--Last month, Faber was somewhat cautious on US stocks, saying that sentiment was overly bullish and vulnerable to a correction. So far, we have seen a slight decline in stocks as the QE euphoria fades and worries mount in the PIIGS. Faber thinks the correction could continue as things in Europe worsen. However, he does not expect the market to fall below the 1010-1050 range on the S&P 500 because of the Bernanke. Of all the developed markets, Faber likes Japan the most. He thinks a declining yen will help Japanese equities. Furthermore, Japan is under owned by institutions.
Emerging Markets--Those who are investing in emerging markets are late to the party. The market has mostly priced emerging markets to perfection, which makes further gains difficult. Faber favors frontier markets (especially those levered to natural resources) whose valuations are more favorable. Faber even likes developed markets (US, Europe, Japan) more than he likes emerging markets right now.
Gold & Silver--Faber still likes gold and continues to accumulate ounces, but he says a correction to $1200 would not surprise him. Gold bull market remains intact as the majority of individual investors and institutions remain under invested.
Bonds--Continues to hate US government bonds.The risk versus reward is not favorable as Faber does not believe bond yields will make new lows. However, he does like Russian and Central Asian corporate bonds, even though he expects interest rates to rise in the future.
Currencies--Euro is going down against the dollar and will likely fall further because of the EU debt crisis. Generally, a higher dollar leads to lower stock prices. Long-term the dollar will weaken but for now it continues to benefit as the world reserve currency.
Overall, Faber expects world equity markets to remain well supported in the medium-longer term because people have nowhere else to put their money. Once bond yields start to rise, all of those people who piled into bonds will redeploy funds into equities. Also, all of those people sitting in cash are getting tired of zero percent returns and equities make the most sense.
There you have it: Faber's outlook for December. Good luck trading!
Emerging Markets--Those who are investing in emerging markets are late to the party. The market has mostly priced emerging markets to perfection, which makes further gains difficult. Faber favors frontier markets (especially those levered to natural resources) whose valuations are more favorable. Faber even likes developed markets (US, Europe, Japan) more than he likes emerging markets right now.
Gold & Silver--Faber still likes gold and continues to accumulate ounces, but he says a correction to $1200 would not surprise him. Gold bull market remains intact as the majority of individual investors and institutions remain under invested.
Bonds--Continues to hate US government bonds.The risk versus reward is not favorable as Faber does not believe bond yields will make new lows. However, he does like Russian and Central Asian corporate bonds, even though he expects interest rates to rise in the future.
Currencies--Euro is going down against the dollar and will likely fall further because of the EU debt crisis. Generally, a higher dollar leads to lower stock prices. Long-term the dollar will weaken but for now it continues to benefit as the world reserve currency.
Overall, Faber expects world equity markets to remain well supported in the medium-longer term because people have nowhere else to put their money. Once bond yields start to rise, all of those people who piled into bonds will redeploy funds into equities. Also, all of those people sitting in cash are getting tired of zero percent returns and equities make the most sense.
There you have it: Faber's outlook for December. Good luck trading!
Tuesday, November 16, 2010
Marc Faber: The Developing World Should Be Thanking Bernanke, Not Yelling At Him
Notes: I received many emails asking why I like Marc Faber so much. as he is so dark, so bearish, so crazy. I agree he is but he is also extremely talented. As a prime bear, the first thing Marc says is always the same: I am ultra bearish on everything. It is the same as we say: in the end, we all die. To read Marc, you should skip all bearish comments and only pick his action calls, which 90% are mid term correct. He has been calling for bond to dip for a while and I do agree it's going down hill.
Marc Faber spoke to CNBC this morning about U.S. monetary policy decisions and the threat of an emerging markets bubble. He was joined by Frank Berlarge of Multilateral Partners Global Advisory Group.
0:30 Faber: The cause of the crisis is excessive monetary growth leading to excessive debt growth to the NASDAQ bubble to the housing bubble to over consumption in the U.S. A symptom of overconsumption is a trade deficit, which then exports production overseas.
1:20 Faber: The developing world should send a thank-you note to Mr. Bernanke.
Frank Berlarge of Multilateral Partners Global Advisory Group talks about the importance of foreign inflows to the U.S….
3:35 Faber:A dream to think the U.S. can double its exports in the manufacturing sector, but the U.S. can export more in the agricultural sector.
Berlarge then argues that the U.S. can grow its exports; doesn't see a doubling without tax policy.
5:15 Faber: Criticism from emerging economies towards the Fed is all about worries over bubbles forming "too much of a good thing." When those currencies deflate, people jump in, and asset prices surge. The excess liquidity is running into emerging economies and precious metals.
Berlarge talks about how we're not going to be get out of this mess without inflation, and Bernanke is acting as a janitor, cleaning up the mess. The threat is to the banking industry, and that's why he's trying to prop up housing markets.
Marc Faber spoke to CNBC this morning about U.S. monetary policy decisions and the threat of an emerging markets bubble. He was joined by Frank Berlarge of Multilateral Partners Global Advisory Group.
0:30 Faber: The cause of the crisis is excessive monetary growth leading to excessive debt growth to the NASDAQ bubble to the housing bubble to over consumption in the U.S. A symptom of overconsumption is a trade deficit, which then exports production overseas.
1:20 Faber: The developing world should send a thank-you note to Mr. Bernanke.
Frank Berlarge of Multilateral Partners Global Advisory Group talks about the importance of foreign inflows to the U.S….
3:35 Faber:A dream to think the U.S. can double its exports in the manufacturing sector, but the U.S. can export more in the agricultural sector.
Berlarge then argues that the U.S. can grow its exports; doesn't see a doubling without tax policy.
5:15 Faber: Criticism from emerging economies towards the Fed is all about worries over bubbles forming "too much of a good thing." When those currencies deflate, people jump in, and asset prices surge. The excess liquidity is running into emerging economies and precious metals.
Berlarge talks about how we're not going to be get out of this mess without inflation, and Bernanke is acting as a janitor, cleaning up the mess. The threat is to the banking industry, and that's why he's trying to prop up housing markets.
Monday, November 1, 2010
Marc Faber: Fed's QE2 Could Trigger Market Correction
Marc Faber, publisher of the Gloom, Boom & Doom report, discusses the potential impact of further quantitative easing (QE2) by the U.S. Federal Reserve in a Bloomberg interview on Oct. 36 (clip below).
Correction Triggered by QE2?
Faber sees Democrats--"sadly enough"--would get a shot at still retaining the majority, which would mean the monetary and fiscal policy will most likely stay on its current course.
Equity has done well in September and October months; however, Faber thinks the markets are stretched in the inflation trade, and weak dollar, high commodity and precious metal prices, along with high equity valuations, all suggest a correction is overdue.
Now, with QE2 being largely priced in, anything less than $1 trillion from the Fed would disappoint the markets and may trigger a correction in U.S. stocks, which could result in more quantitative easing.
But the correction should provide a buying opportunity for investors leading to an up cycle, instead of another bear market.
Equity Better for the Next Decade
Looking at investing for the next ten years, equities-- emerging economies in particular, would be a relatively better place to invest than U.S. government bonds, and cash. However, Faber advises against financial, auto, and aircraft. He's been in the high tech sector and likes Microsoft (MSFT).
Precious Metals Due for Pullback
Faber is currently recommending agriculture commodities, and the accumulation of precious metals. On precious metals, he thinks they are overdue for "some kind of correction" by year end, and expects the next leg up in 2011.
Dollar Near An Inflection Point
Faber says the dollar is oversold, while in contrast, some of the foreign currencies such as Yen and Franc are overbought. So, an inflection point could be near for a short-term dollar rally which could temporarily push down asset prices.
He warns investors to be very careful about shorting dollar and long assets as the trade has become quite crowded.
Expect a Strong Pullback of Chinese Economy
Although not quite gloom and doom, Faber does expect a "strong pullback" on the Chinese economy due to its many imbalances.
According to Faber, the 0.25% interest rate hike effective Oct. 20 by the PBoC is "meaningless," because of skyrocketing property prices, and the cost of living inflation has gone up much more than the official figure.
He notes food prices have seen high inflation, and because of low GDP per capita where food would account for a high percentage of total expenditure, Faber estimates that the typical consumer inflation rate in countries like China, India, and Vietnam should be around 8 to 18 percent per year.
My Take on China Inflation
The inflation rate in China was last reported at 3.60 percent in September of 2010, climbing at the fastest pace in two years. However, there is some hidden rampant inflation such as 50% on apparel, 20% on food, as reported by BusinessWeek.
Many analysts as well as academics also question how China could have such a relatively moderate inflation rate given its double-digit growth and upward pressure on wages. Michael Pettis, a finance professor at Peking University, for example, estimates that "Inflation could well be 6 percent now for most people in China."
There's also another indicator--growth of money supply--which has a proven strong correlation with inflation. China's money supply, M1 and M2, has expanded by 56 percent and 53 percent respectively over the past two years. Currently, with the various tightening measures, both money supply figures are still growing at an annual rate of about 20 percent, based on Bloomberg data.
Furthermore, the continuing massive rural-to-urban migration will likely keep pushing up rents and food prices, just to name two of the many categories, and wages are expected to rise around 8 percent this year.
As consumer inflation is typically a lagging indicator, China may experience continuing higher CPI. That means Beijing is facing an increasingly difficult task of containing inflation, while maintaining sufficient growth to prevent a mass civil unrest. As such, there will likely be more tightening, which would put the markets on a few roller coaster rides in the next two years or so.
Nevertheless, since Chinese policymakers are keeping a close inflation watch, and are already taking actions (which is the key), I believe China is heading towards more sustainable growth. And if China is "on a treadmill to hell" as Jim Chanos says, you can bet that the United States will be dragged along for the ride as well.
Correction Triggered by QE2?
Faber sees Democrats--"sadly enough"--would get a shot at still retaining the majority, which would mean the monetary and fiscal policy will most likely stay on its current course.
Equity has done well in September and October months; however, Faber thinks the markets are stretched in the inflation trade, and weak dollar, high commodity and precious metal prices, along with high equity valuations, all suggest a correction is overdue.
Now, with QE2 being largely priced in, anything less than $1 trillion from the Fed would disappoint the markets and may trigger a correction in U.S. stocks, which could result in more quantitative easing.
But the correction should provide a buying opportunity for investors leading to an up cycle, instead of another bear market.
Equity Better for the Next Decade
Looking at investing for the next ten years, equities-- emerging economies in particular, would be a relatively better place to invest than U.S. government bonds, and cash. However, Faber advises against financial, auto, and aircraft. He's been in the high tech sector and likes Microsoft (MSFT).
Precious Metals Due for Pullback
Faber is currently recommending agriculture commodities, and the accumulation of precious metals. On precious metals, he thinks they are overdue for "some kind of correction" by year end, and expects the next leg up in 2011.
Dollar Near An Inflection Point
Faber says the dollar is oversold, while in contrast, some of the foreign currencies such as Yen and Franc are overbought. So, an inflection point could be near for a short-term dollar rally which could temporarily push down asset prices.
He warns investors to be very careful about shorting dollar and long assets as the trade has become quite crowded.
Expect a Strong Pullback of Chinese Economy
Although not quite gloom and doom, Faber does expect a "strong pullback" on the Chinese economy due to its many imbalances.
According to Faber, the 0.25% interest rate hike effective Oct. 20 by the PBoC is "meaningless," because of skyrocketing property prices, and the cost of living inflation has gone up much more than the official figure.
He notes food prices have seen high inflation, and because of low GDP per capita where food would account for a high percentage of total expenditure, Faber estimates that the typical consumer inflation rate in countries like China, India, and Vietnam should be around 8 to 18 percent per year.
My Take on China Inflation
The inflation rate in China was last reported at 3.60 percent in September of 2010, climbing at the fastest pace in two years. However, there is some hidden rampant inflation such as 50% on apparel, 20% on food, as reported by BusinessWeek.
Many analysts as well as academics also question how China could have such a relatively moderate inflation rate given its double-digit growth and upward pressure on wages. Michael Pettis, a finance professor at Peking University, for example, estimates that "Inflation could well be 6 percent now for most people in China."
There's also another indicator--growth of money supply--which has a proven strong correlation with inflation. China's money supply, M1 and M2, has expanded by 56 percent and 53 percent respectively over the past two years. Currently, with the various tightening measures, both money supply figures are still growing at an annual rate of about 20 percent, based on Bloomberg data.
Furthermore, the continuing massive rural-to-urban migration will likely keep pushing up rents and food prices, just to name two of the many categories, and wages are expected to rise around 8 percent this year.
As consumer inflation is typically a lagging indicator, China may experience continuing higher CPI. That means Beijing is facing an increasingly difficult task of containing inflation, while maintaining sufficient growth to prevent a mass civil unrest. As such, there will likely be more tightening, which would put the markets on a few roller coaster rides in the next two years or so.
Nevertheless, since Chinese policymakers are keeping a close inflation watch, and are already taking actions (which is the key), I believe China is heading towards more sustainable growth. And if China is "on a treadmill to hell" as Jim Chanos says, you can bet that the United States will be dragged along for the ride as well.
Wednesday, October 27, 2010
5 Questions With Marc Faber
Q: What's the best investment you've ever made?
A: Usually when faced with this question people will think of investments in monetary terms. However, in our lives, our best investments are probably the ones you cannot measure the way a portfolio manager will measure his "performance".
These investments relate to education, culture, job satisfaction, eagerness to learn, and happiness through philosophy, religion, self-improvement, compassion, love, a harmonious family, friendships, readiness to do good deeds etc.
I do know some of the world's richest people. In monetary terms, they all performed very well. In terms of a fulfilling life, I am less sure.
When it comes to money, the best investments were probably the ones I did not make.
Q: How about the worst investment decision and how did it end up?
A: My worst investment decisions so far is to lend money to friends. So far, it has all came to zero.
Shorting the Nasdaq in 1998 was also a disaster, and it will remain, in my life as an investment advisor and fund manager, a very black spot. The damage was considerable.
Q. Do you think markets are becoming increasingly risky for individual investors?
A: No, but they are likely to remain extremely volatile for a long time and the key will be to preserve your capital given the people we have at the U.S. Federal Reserve, whose intention is to debase the value of paper money.
Q: What were some of the key lessons learnt during the Asian Financial Crisis?
A: Prior to the Asian Crisis, I was extremely bearish. But the severity of the crisis surprised even me.
Q: Who / what has been the biggest influence in your life?
A: The Austrian School of Economics, my history teacher, Buddha, and my best friend - Marc Faber.
A: Usually when faced with this question people will think of investments in monetary terms. However, in our lives, our best investments are probably the ones you cannot measure the way a portfolio manager will measure his "performance".
These investments relate to education, culture, job satisfaction, eagerness to learn, and happiness through philosophy, religion, self-improvement, compassion, love, a harmonious family, friendships, readiness to do good deeds etc.
I do know some of the world's richest people. In monetary terms, they all performed very well. In terms of a fulfilling life, I am less sure.
When it comes to money, the best investments were probably the ones I did not make.
Q: How about the worst investment decision and how did it end up?
A: My worst investment decisions so far is to lend money to friends. So far, it has all came to zero.
Shorting the Nasdaq in 1998 was also a disaster, and it will remain, in my life as an investment advisor and fund manager, a very black spot. The damage was considerable.
Q. Do you think markets are becoming increasingly risky for individual investors?
A: No, but they are likely to remain extremely volatile for a long time and the key will be to preserve your capital given the people we have at the U.S. Federal Reserve, whose intention is to debase the value of paper money.
Q: What were some of the key lessons learnt during the Asian Financial Crisis?
A: Prior to the Asian Crisis, I was extremely bearish. But the severity of the crisis surprised even me.
Q: Who / what has been the biggest influence in your life?
A: The Austrian School of Economics, my history teacher, Buddha, and my best friend - Marc Faber.
Tuesday, February 10, 2009
Marc Faber Sees High Inflation, Banana Republic In Store For U.S.
The US risks being hit by Zimbabwe-style hyperinflation and there are signs that the world’s biggest economy risks turning into a banana republic, Marc Faber, author of the Gloom, Doom & Boom report, told CNBC’s “Asia Squawk Box.”
“In the US, we have a totally new school, and it’s called the Zimbabwe school,” Faber said. “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.”
The government’s increased intervention in the economy is likely to slow down economic growth because history shows that every time the private sector shrinks to make way for the government sector, the economy suffers, he said.
Asked whether the US risked being faced with 200 percent inflation, Faber answered: “Well, not yet. Not yet. But I think eventually. If I look at government debt in the US, and debt in general, I think the only way they will not default physically on their debt is to inflate.”
Dr. Faber, who is often called “Dr. Doom” by the media, believes that the United States is on the path to becoming a “banana republic.” From the CNBC piece:
The Federal Reserve’s policy of printing money and the government’s intervention in the economy might undermine the US’s economic and political clout, Faber warned.
“Well, I wrote two years ago a report entitled ‘Is America becoming a banana republic?’ And there are some features that characterize banana republics-totalitarian states, very strong government intervention into the economy, and the polarization of wealth,” he said.
“And we have all these trends occurring in the US. We are not yet there. And in theory it could be reversed, but I doubt it will be,” Faber added.
“In the US, we have a totally new school, and it’s called the Zimbabwe school,” Faber said. “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.”
The government’s increased intervention in the economy is likely to slow down economic growth because history shows that every time the private sector shrinks to make way for the government sector, the economy suffers, he said.
Asked whether the US risked being faced with 200 percent inflation, Faber answered: “Well, not yet. Not yet. But I think eventually. If I look at government debt in the US, and debt in general, I think the only way they will not default physically on their debt is to inflate.”
Dr. Faber, who is often called “Dr. Doom” by the media, believes that the United States is on the path to becoming a “banana republic.” From the CNBC piece:
The Federal Reserve’s policy of printing money and the government’s intervention in the economy might undermine the US’s economic and political clout, Faber warned.
“Well, I wrote two years ago a report entitled ‘Is America becoming a banana republic?’ And there are some features that characterize banana republics-totalitarian states, very strong government intervention into the economy, and the polarization of wealth,” he said.
“And we have all these trends occurring in the US. We are not yet there. And in theory it could be reversed, but I doubt it will be,” Faber added.
Wednesday, January 21, 2009
Wednesday, January 7, 2009
Marc Faber Jan. 07, 2009
This morning, Marc Faber, managing director of Marc Faber Ltd. and publisher of the monthly investment newsletter The Gloom Boom & Doom Report talked with Bloomberg’s Carol Massar, Erik Schatzker, and Ellen Braitman about the outlook for industrial commodities and gold prices, as well as government intervention in the economy, his outlook for the financial markets, and his investment strategy for technology stocks. Notable excerpts from the exchange included:
2009 Outlook
Well, economically it will be very bad. We have a contracting economy, globally, everywhere. And, I mean, not mildly contracting, but falling off a cliff. However, after this fall off of a cliff, the news in the next 3 months could look somewhat better than expected. In other words, there could be some rebound from the lows in economic activity.
U.S. Economic “Stimulus” Proposals
Well, it may help a little bit, temporarily. But in the long run, it’s a disaster. Any government intervention into the economy is basically bad, in particular, an intervention that is designed to support prices. The Federal Reserve, and the Treasury, both actually want to support asset prices. Most cartels that have been designed to support prices eventually broke down and prices collapsed.
Industrial Commodities
Gold is now very expensive compared to industrial commodities. Actually, it’s at the highest level in 30 years or more. And so right now, as of today, I would rather buy a basket of oversold industrial commodities.
Crude Oil
I would say, the long-term demand for oil is there. The supply won’t be there. So, long-term, I think the price will be much higher than it is today.
World War III
Everybody talks about monetary and fiscal policies, but nobody talks about the worsening geopolitical situation in the world. I think World War III has already begun.
FREE VIDEO: How to connect the market dots in 2009
Blue Chip Companies
I think in every industry, the leading companies emerging from the crisis, whenever the economy recovers, will be very strong.
Asian Stocks
If someone has no money in Asia, now you can buy top-quality companies at reasonable PE’s.
BRIC (Brazil, Russia, India, China) Stocks
Prices are now down to attractive levels as an entry-point, as a trading opportunity, like the metal stocks I mentioned. So, I think I would buy these BRIC countries for a rebound, looking for a rebound of around 30% from the present level.
Long-Term Outlook
Well, I’m very bearish long-term because I think that Treasury bond yields will go up a lot, and the trade of 2009 is to short U.S. government bonds- big time… I think it will take 5 years until the world recovers.
2009 Outlook
Well, economically it will be very bad. We have a contracting economy, globally, everywhere. And, I mean, not mildly contracting, but falling off a cliff. However, after this fall off of a cliff, the news in the next 3 months could look somewhat better than expected. In other words, there could be some rebound from the lows in economic activity.
U.S. Economic “Stimulus” Proposals
Well, it may help a little bit, temporarily. But in the long run, it’s a disaster. Any government intervention into the economy is basically bad, in particular, an intervention that is designed to support prices. The Federal Reserve, and the Treasury, both actually want to support asset prices. Most cartels that have been designed to support prices eventually broke down and prices collapsed.
Industrial Commodities
Gold is now very expensive compared to industrial commodities. Actually, it’s at the highest level in 30 years or more. And so right now, as of today, I would rather buy a basket of oversold industrial commodities.
Crude Oil
I would say, the long-term demand for oil is there. The supply won’t be there. So, long-term, I think the price will be much higher than it is today.
World War III
Everybody talks about monetary and fiscal policies, but nobody talks about the worsening geopolitical situation in the world. I think World War III has already begun.
FREE VIDEO: How to connect the market dots in 2009
Blue Chip Companies
I think in every industry, the leading companies emerging from the crisis, whenever the economy recovers, will be very strong.
Asian Stocks
If someone has no money in Asia, now you can buy top-quality companies at reasonable PE’s.
BRIC (Brazil, Russia, India, China) Stocks
Prices are now down to attractive levels as an entry-point, as a trading opportunity, like the metal stocks I mentioned. So, I think I would buy these BRIC countries for a rebound, looking for a rebound of around 30% from the present level.
Long-Term Outlook
Well, I’m very bearish long-term because I think that Treasury bond yields will go up a lot, and the trade of 2009 is to short U.S. government bonds- big time… I think it will take 5 years until the world recovers.
Wednesday, December 24, 2008
Tuesday, December 23, 2008
Marc Faber on Dec. 23th, 2008
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vh4CZyP0iSKg.asf
Friday, November 21, 2008
Marc Faber Nov. 20 2009
Well, I think we have reached extreme points in the sense that asset markets are, by and large terribly oversold, whether these are gold mining shares, or commodities, or equities. On the other hand, we have an overbought U.S. dollar and overbought U.S. Treasury bonds. So I think that volatility will continue. But what you could get within the next 3 months is a very strong rebound in asset markets, in equities, and a sell-off in bonds, and eventually a selloff in the dollar.
http://www.cnbc.com/id/27835292/
http://www.cnbc.com/id/27835292/
Tuesday, October 21, 2008
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