Marc Faber Gives Advice To Investors And Traders
Well-known investment adviser Marc Faber was in South Korea recently, where he took time out to speak to Lee Hyo-sik of the The Korea Times (South Korea) about his short- and long-term outlook for the global economy and markets, commodities, and currencies. From the Times website on July 1:
In an interview with The Korea Times, Marc Faber, better known as Dr. Doom for his negative views on the global economy, said that to hedge against rising inflationary risks, long-term investors should buy stocks and gold bars, rather than hold onto cash.
But he said for short-term equity investors, they should take a wait-and-see attitude for the time being as stock markets across the globe will likely undergo corrections in the near future after first-half rallies. Faber was here to attend the 3rd Annual Korea Institutional Investment Forum, organized by Hong Kong-based business magazine Asian Investor.
Faber projected the United States will go into hyperinflation similar to that of Zimbabwe, harshly criticizing the U.S. Federal Reserves for causing unnecessary inflationary pressure through its zero interest-rate and credit-easing policies.
“The U.S. central bank has structured and introduced policies without considering exponential credit growth and its consequences. I think the Federal Reserve is not independent and has become a mere political apparatus of the U.S. government. Keeping interest rates artificially low and printing money has and will cause an asset bubble,” Dr. Doom said.
People have been encouraged to borrow and speculate on stocks and other assets over the past year because they do not earn anything from putting money into bank deposits due to the record-low interest rate, he said. “It will again create an asset bubble and next time when it bursts, we will not be able to respond to it in the same manner as we can now.”
Since 2002, the U.S. has maintained the interest rate low to prop up the economy by prompting corporate investments and private consumption. But it created a real estate bubble, which led to the collapse of the U.S. subprime mortgage sector, bringing about the greatest financial market distress since the Great Depression in the 1930s.
“The United States will not raise interest rates for many years to come because it needs to pay off its huge debts. With higher interest, its borrowing costs will go up, putting a heavier financial burden on the U.S. government. It means the interest rate will remain low and the U.S. will not be able to narrow fiscal deficits for many years. In turn, too much money in the economy will raise costs of everything, including healthcare and education, giving rise to hyperinflation,” Faber said.
He added that U.S.-led hyperinflation will spread to the rest of the world, advising investors to put money into inflation-hedging assets, such as stocks and gold bars.
The editor of The Gloom Boom & Doom Report also had advice for traders. Lee Hyo-sik wrote:
But Faber prescribed different medicine for short-term investors, saying now is not a good time to buy stocks and commodities because the markets will undergo corrections in the second half of the year.
“Now, risks are too high, compared to expected returns. Investors should increase their cash positions. I would rather take a long vacation and wait until the market moves either upward or downward. Given a list of unfavorable factors, I bet on a market downturn. It won’t be too late for investors to act after the market sends visible signs of its direction,” he said.
Dr. Faber talked about hard assets as well. From the piece:
As for investors interested in commodities, the Swiss-born investment advisor said natural gas would be his best pick, adding crude oil prices will undergo corrections in the coming months. “Natural gas is cheap, compared to crude oil. I would buy natural gas. Oil was traded as low as $32 per barrel late last year but has jumped to $72.
From a pure demand and supply perspective, the demand from both advanced and emerging economies is not strong. But in the long-term, prices will be much higher than now,” he said.
The man who correctly called the 1987 U.S. stock market crash also discussed the dollar. While the greenback may remain strong in the short-term during a global economic recovery, Faber says:
I am bearish about the dollar in the long term. I think its value peaked in November 2008 at the height of the global credit crunch, but since then it has declined. I think the dollar will continue to head south, and along the way it will cause severe inflationary pressure.
Finally, Dr. Faber issued a warning to Western economies. He said:
From 2002 to 2007, Asia’s rapidly growing economies outperformed the U.S. but they have been hit hard by the ongoing economic slump because of their outward-oriented and export-dependent structure. But Asia will continue to outshine the West and I am bearish about the future of the Western world in the long term.
Source:
“Hyperinflation Looming Large”
Lee Hyo-sik
The Korea Times (South Korea), July 1, 2009
