Marc Faber on Financial Markets and the Economy

Below is a wide-ranging interview with Marc Faber on four videos on CNBC TV18 in India in which he explains his views on inflation, currencies, commodities, stocks and more, all courtesy of Edward Harrison at Credit Writedowns.

Asset-based economy. In general, he thinks we are in an inflationary environment, whereas I think deleveraging is secular and means any inflation is only cyclical. But he shares my belief that zero interest rates induce money balances to move into consumption or into higher-yielding assets. He believes this is a boon over the medium term (if not the short or long term) for financial assets, whether they be stocks, bonds, commodities, real estate or art. And it is something that will continue, he says. Faber believes Bernanke will be loath to raise rates aggressively given his prior statements and writings.

Currencies. Faber takes the view, with which I agree, that the Fed’s easy money policies after 1998 flooded the global economy, especially emerging economies, with liquidity. This has led to asset bubbles. Hong Kong residential real estate is one example he cites. As a result, Faber thinks the U.S. dollar is no longer overvalued at present levels. A snapback rally for the dollar resulting from oversold levels would be bearish for asset markets. But, longer term, Faber thinks the dollar is weak.

Equities. There has been a huge rally everywhere. He says he is not a buyer at these levels. However, as central banks are going to continue to print money, stocks could continue higher - but he would not bet on a blow-off rally from these levels.

Commodities. Faber thinks zero-rate levels make it extremely difficult to value anything. He poses the question: which would you rather own - the “U.S. dollar at zero interest rates or a ton of gold or a ton of copper or a ton of crude oil?” Of course, commodities are supply constrained, whereas dollars are not, so there is a justification for buying them. But, he anticipates the commodity hoarding by China is about to end and that is bearish for industrial commodities as well as precious metals. As with other commodities, he thinks the huge run-up in oil could induce a setback. Long run, he is an oil bull because of limited supply.

Financial Crisis. He is disturbed by the fact that a crisis caused by excessive debt growth, especially as a result of Federal Reserve policy, has been allowed to pass with the same players in control. He says enjoy the ride for now. Longer term, this necessarily means the same bad policies will follow, which will lead to a system-wide financial collapse.

India. Faber is bullish longer term. Short term, there could be a correction. India is one of the best-protected countries because of less vulnerability to the export sector. He also believes the Reserve Bank of India has one of the best monetary policies in the world - supervising the financial system closely, relatively tight, and mindful not just of core inflation but also of other price levels like asset prices.

Part 1:

Part 2: Part 3: Part 4:

Source: Credit Writedowns, October 4, 2009.

Comments

[pacalis:]

"He poses the question: which would you rather own - the “U.S. dollar at zero interest rates or a ton of gold or a ton of copper or a ton of crude oil?”

Ton of gold obviously.

Oct 07 03:12 PM

[conceptwizard:]

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America's trading partners have been left to cope with the impact of Washington's control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. "The Russians will eventually bring in the rouble to the basket of currencies," a prominent Hong Kong broker told The Independent. "The Brits are stuck in the middle and will come into the euro. They have no choice because they won't be able to use the US dollar."

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.

"These plans will change the face of international financial transactions," one Chinese banker said. "America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate."

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invaded Iraq.

Oct 07 05:40 PM

[Faisal Humayun:]

Dr. Marc Faber is one economist who has really realistic views on the Economy and different asset classes.

I would agree with his views on inflation (in this inflation/deflation debate). So in the near term deflation like scenario might be a possibility but inflation is surely going to be high in the next 3-5 years.

Another thing that Marc Faber always points out is that if an individual is experiencing inflation or deflation (according to his baskets of good and services). The answer for almost everyone is that we are experiencing inflation. Be it education cost, health care cost...everything is going up not down.

Oct 08 04:57 AM

[dieuwer:]

I would warn reader about statements Marc Faber SUPPOSEDLY makes in public. If you read his newsletter (subscription) you will get to know what the REALLY THINKS. All the other stuff is fake.

Oct 08 08:36 AM

[mbkelly75:]

I do not always agree with Marc Faber, but find him worth listening to, if only so I can make a good trade that he disagrees with. I have profited in the past by going contrary to him and expect to do it again.
Thank you for the article and links.

Oct 08 12:27 PM

[smarttogether:]

dieuwer,
Your comment should have some supporting examples. Can you provide any?

Oct 08 05:05 PM

[dieuwer:]

CNBC:

"But, he anticipates the commodity hoarding by China is about to end and that is bearish for industrial commodities as well as precious metals."

NEWSLETTER:

"People don’t seem to be talking about gold much on CNBC (aside from the coin commercials), another sign that a big move one way or the other could catch most people unaware.” I agree, some big moves in asset markets are coming and I lean toward the view
that gold will break out on the upside."


On Oct 08 05:05 PM smarttogether wrote:

> dieuwer,
> Your comment should have some supporting examples. Can you provide
> any?

Oct 08 05:36 PM

[dieuwer:]

CNBC:
"There has been a huge rally everywhere. He says he is not a buyer at these levels. "

NEWSLETTER:
"For equities, my favorite investment destination remains Asia, and I continue to find inexpensive equities around the region...,
Recently I also invested or increased positions in Thai Beverage..."

On Oct 08 05:05 PM smarttogether wrote:

> dieuwer,
> Your comment should have some supporting examples. Can you provide
> any?

Oct 08 05:39 PM

[Gold Bug:]

America will go bust Marc Faber on reserve currency and dollar Bloomberg 14 Oct 2009
Watch here :
marcfaberchannel.blogs...

Oct 17 03:16 PM