Marc Faber

Marc Faber says “The situation in India is a situation where the fiscal deficit is essentially very high and obviously the government debt is increasing. The rating agencies do their ratings. I don’t pay much attention to. But obviously although they have a time lag, they probably are in the right direction in terms of downgrading India,” he elaborates.

Below is an edited transcript of his interview on CNBC-TV. Also watch the accompanying video.

Q: What have you made of this change in stance from S&P? Do you think it represents a big negative for India or an affirmation of the situation?

A: I think it was natural that it would happen. I think further downgrades will occur.

Q: At this point, S&P is talking about a one in three possibility of an actual downgrade coming through. What to your mind is the probability of that for India at this point? What usually follows in terms of a change in flows or sharp outflow situation following a potential downgrade?

A: The situation in India is a situation where the fiscal deficit is essentially very high and obviously the government debt is increasing. The rating agencies do their ratings. I don’t pay much attention to that. But obviously although they have a time lag, they probably are in the right direction in terms of downgrading India.

Q: Would you say the second half is going to be more challenging?

A: I think this doesn’t have a large impact on the stock market. Infact it could be actually be mildly positive. But I think the markets position in the world, in other words, stock markets position is not very favourable at the present time. We have many markets that are rolling over.

We have had essentially the S&P making a new high in early April at 1,422. But most of the other markets in the world didn’t exceed the May 2011 highs. So, if you would build an advance/decline line of all stock markets in the world, it would be in a downtrend. And I think that the markets for the next one-two months will be going lower.

Q: You keep a very careful eye on currency markets as well. How have you read the developments over there with particular reference to how much depreciation the Indian rupee has seen and whether on that account you are worried about further weakness?

A: I think that over time the rupee will weaken further. That would be my view now. Whether the weakness comes right away or with some delay, but I think there is a real chance that the rupee will be weak and possibly weaker than investors anticipate. A very weak rupee would be mildly positive for equities. I think they would adjust on the upside because equities are kind of a hedged against the currency devaluation. But in general as I mentioned I think that equity markets are trending lower at the present time.

Q: How much downside risk do you see present for equity markets generally?

A: I think that from the recovery highs, in early May, we could easily see a 20% decline.

 

On Saturday, economist Marc Faber appeared on CNBC to his give his outlook for the stock market.

Faber was particularly bearish, stating that the US market was facing a significant correction ahead.

The action on Monday appeared to validate Faber’s statements, as the poor jobs report on Friday may lead to the major indices losing roughly 1%. European markets remain closed for the holiday. When European markets reopen, it could trigger further losses for US equity investors if Spanish bond yields continue to move higher.

Faber cited a weakening of the US economy and poor fundamentals as his reason for becoming bearish. Still, Faber did not suggest actively shorting the market, as he believed that more money printing could likely keep stocks from tumbling too significantly.

Faber is widely known as being a gold bull, but believes that the price of the yellow metal could fall further in coming months.

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It may just be a sign of the times or could suggest something more sinister, but whatever the reasoning, doom is making a comeback. I mean, how else can you explain the fact that there is currently not one – but two – different shows dedicated to building doomsday survival bunkers on TV? Add in a smattering of apocalyptic forecasting, the Mayan Prophecy, some Iranian nuclear threats, and a some solar flare phobia, and suddenly “Dr. Gloom, Boom & Doom” is looking rather mainstream.

Of course I am referring to the newsletter written by noted Swiss economist Marc Faber, but when compared to the end-of-the-world scenarios of his fellow doomers, Faber’s outlook seems modest. After all, he’s only talking about money.

Even so, when you read his predictions like a “sudden, violent wealth destruction” on the magnitude of 50%, you tend to pay attention. And just like a good doctor should, Faber has written a prescription for survival which we discuss in the attached video.

Atop the list is his belief that investors should, generally speaking, “reduce their exposure to equities” and at least wait for a better entry point.

“Where investors were overly negative last year, they are now overly optimistic about the prospects for the U.S. economy,” Faber says, pointing to the ”huge bull run” we have had since 2009. “I think the (stock) market is very overbought.”

At the same time, Faber has modified his advocacy for gold a bit, in the face of a six-month, 15% slump. While he still supports gold’s long term opportunity, he feels the precious metal is “still in correction phase” and that “individual investors should gradually accumulate gold” because of the outlook for continued money printing by the Fed and other central banks around the world.

Speaking of the world, Faber is also tweaking his ”bias” for the outsized growth potential of Emerging markets (EEM) which he says were “very oversold last September and since then have become overbought.”

His advice to investors is ”to hold some cash, hold some precious metals, hold some equities, and hold some real estate,” he says, adding that “if one asset class or the other declines substantially move money into that asset class.”

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With each passing day of declines, the “Ben to the Rescue” cries are growing stronger. I mean, a full week has gone by now since Wall Street’s ease-addicts originally got stiffed and came up empty handed from the Fed minutes, and nothing has been done yet? Then comes the March jobs data disaster Friday, followed by more selling Monday and still no sight of the Bernanke helicopter, swooping in to save the rall..er I mean, save the day.

But fear not ease-addicts, it’s coming. Even opponents of the Fed’s reflationary efforts, like Marc Faber, editor & publisher of The Gloom, Boom & Doom Report, are certain of it, saying Bernanke would look foolish if he just caved in now.

“I wouldn’t want to be in his shoes but if I were in his shoes I would wait for the markets to sell-off to get some sympathy for implementing QE3,” Faber says. “It’s politically not very easy to implement QE3 now.”

At least if you want to maintain even a shred of indepedence it isn’t easy. But Faber says this Fed Chairman is too concerned with investor expectations, and too cavelier about damaging the dollar.

“If you’re the head of a central bank, the number-one priority is to safeguard the integrity of money,” Faber argues, refering to the currency’s unique and critcal role as “the unit of account, the store of value and the means of exchange.”

As much as the Fed’s dual mandate of promoting full employment and stable prices has received its share of debate, Faber thinks Bernanke’s performance on the money issue is worse.

“I dont think Bernanke has fulfilled these obligations,” he states.

As for higher rates, Faber says the market will do the Fed’s work long before there’s any official tightening in late 2014.

“It could happen this year or next year,” he says, but “one day rates will be much higher than they are at the present.”

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Marc Faber, the fund manager who publishes “The Gloom, Boom & Doom Report,” is warning of “massive wealth destruction” sometime “down the line,” citing unresolved financial excess accumulated globally over the past few decades.

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Over the years, followers of the Swiss economist Marc Faber have come to expect the unconventional, or at least the unpopular, when it comes to contrarian themes and investment ideas within his publication The Gloom, Boom & Doom Report. That is why his latest tome titled “The Most Important Thing in Investments is to Hear What is Not Discussed!” is so striking.

“I think investors should start to think what investments will go down the least when there is massive wealth destruction,” Faber says in the attached video clip from his office in Thailand. “I happen to believe that home prices in the south of the U.S., in Arizona, Georgia, Nevada and so fourth, are relatively inexpensive compared to other asset prices.”

It needs to be said that Faber is not calling the bottom in housing, nor is he touting homebuilder stocks (NYSEArca:XHB), as he had done in November, since he thinks their doubling since then, and recent declines, have moved them into a corrective phase. “Nationalism will emerge. Healthier countries will not see fit to spend their hard earned money to bail out their less responsible neighbors.”

See the full “Breakout” interview below:

 

Marc Faber: Where To Hide Your Gold (GLD, SLV, IAU, SGOL, PHYS)Jim Rogers vs Marc Faber: Faber Cautious On China; Rogers Bullish On All Commodities (FXI, FXP, GLD, SLV, EEM)Buy Gold “Right Away” Says Marc Faber (GLD, SLV, GDX, IAU, AGQ, UGL)Marc Faber Likes U.S. Real Estate & Concubine Tenants (EWJ, THD, IYR, EWZ, FXI, EWA)Marc Faber: Brace For “Massive Wealth Destruction” (GLD, SLV, UUP, IAU, UGL, SGOL, DZZ, UDN)VNQ, XHB

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American investors are notorious for staying close to home with their money. The most you can expect the majority of U.S. investors to do is to pick American stocks that have worldwide exposure. That’s one reason the Dow Jones Industrial Average (INDEX: ^DJI  ) is so popular: With so many of its component companies expanding internationally to try to take advantage of faster-growing markets overseas, you can essentially get global exposure even with a pure U.S. stock portfolio.

But if you rely solely on U.S. stocks, you’ll miss out on a world of other opportunities. So this article is the first of a series looking at popular indexes in other countries to try to find promising stocks you might otherwise miss. Today, let’s look at Great Britain and its FTSE 100 (INDEX: ^FTSE  ) index.

Getting to know the FTSE
Although the FTSE has more stocks than the Dow, the way the FTSE is weighted means that a similarly small number of its components have an inordinate amount of influence. Just the top 10 stocks in the index by market cap account for nearly half of the index’s value. Still, because the FTSE uses market-cap weighting, it doesn’t have some of the complications that the Dow’s price-weighted calculations create.

Like the Dow, the FTSE is fairly well balanced across sectors. In fact, one way in which the FTSE outdoes the Dow is by including utility stocks in the index, rather than exiling them to a separately tracked metric. Still, the two largest sectors in the FTSE are oil and gas stocks and financials, with consumer goods coming in a close third.

What’s working in Britain?
Looking at the top 10 stocks in the FTSE, you’ll find clear winners and losers. On the gaining side are the more defensive names GlaxoSmithKline and British American Tobacco, both of which are up 20% or more over the past year. Glaxo is dealing with the same challenges that U.S. pharmaceutical companies are facing, as it tries to keep a healthy pipeline of new drugs in development to replace existing blockbusters that are approach their patent expiration dates. Meanwhile, British American has many of the same benefits as Philip Morris International, as it taps markets outside the U.S. that have favorably tolerant regulatory environments.

On the downside, however, are the big mining companies Rio Tinto (NYSE: RIO  ) and BHP Billiton. Both of those companies have seen huge growth in past years, but more recently, concerns about a slowing global economy and specifically weaker activity in China have led to a substantial correction in the shares.

Meanwhile, stuck in the middle are a variety of companies. Notorious oil giant BP (NYSE: BP  ) makes up almost 6% of the FTSE despite the big hit it took following the Gulf of Mexico oil spill. Shares have held their ground in the past year, but the overhang of tens of billions of dollars in paid and potential damages has put a lid on the company’s growth. In telecom, Vodafone (Nasdaq: VOD  ) has benefited greatly from its stake in the Verizon Wireless joint venture and also has a big presence in emerging markets around the world. But trouble closer to home has shareholders nervous about its European business and the impact that continued economic uncertainty could have on Vodafone’s overall finances.

Can the FTSE beat the Dow?
Over the past five years, the Dow has performed better than the FTSE on a price basis. But the FTSE has a higher overall dividend yield, with one FTSE-tracking ETF yield well over 3%, compared with around 2% for the Dow. So on a total return basis, the disparity isn’t as great as it may appear at first glance.

It’s clear that British markets trade more in line with exchanges on the Continent than the U.S. stock market does, so what could lead to future FTSE outperformance would be a better-than-expected recovery in Europe. With expectations extremely low, betting on the FTSE to rebound could be an idea worth looking at more seriously, especially if conditions in Europe’s weaker economies begin to stabilize.

Adding international stocks to your portfolio is just one way to build a smart long-term investing plan. Get more tips by looking at The Motley Fool’s special report on retirement, which also includes the names of three promising stock picks for long-term investors. Get your free report today before it’s gone forever.

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Marc Faber thinks people should keep gold holdings outside the reach of potential confiscators.

Central bankers will print money at any sign of a credit contraction or drop in economic activity.  Money printing, Faber said, is a strong reason behind rising oil prices, slowing economic activity especially in those countries that import it.  The virtuous circle of money printing, higher oil prices, slower economic activity and more printing won’t stop, according to him.  Moreover, Faber speculates that, at some point, the money printing must stop and the financial system will become a catastrophe.

“Nationalism will emerge. Healthier countries will not see fit to spend their hard earned money to bail out their less responsible neighbors.”

As the system begins to savage financial institutions in the U.S. and Europe, too many investors will experience what customers of MF Global experienced late last year.  In response, these investors will most likely then turn to gold.  But, in doing so, they will also come under threat of confiscation by governments desperate to save the system.

“As you know, we had MF Global.  What did the clients get?  Less than what they had at the company,” Faber told Martenson.  “And I think eventually the financial system will be an MF Global, where you don’t get your money back from the banks and the investment banks and from the mutual funds and so forth and so on.  And so I think everybody has to think to himself: how do I protect myself against the Black Swan event?”

In the past, several Fed Governors have suggested that the Fed should unwind, or at the least, level its balance sheet at the first sign of accelerating consumer price inflation.  Faber said that any talk along those lines by the Fed should not be taken seriously.  According to him, no matter what the Fed says, it cannot reverse the credit-based Ponzi scheme without collapsing the system.

“I think the money printing will go on, unless the Fed would come up and say,  we’re no long going to print any money; the monetary base will remain steady,” said Faber.  “And even in that case I wouldn’t believe them.”

Martenson, who lost his $50 “placeholder” account with MF Global, asked Faber to speak on the subject of safe gold storage.

“Where is anything safe?  I mean, I think in a safe deposit box is relatively safe, but maybe not in a safe deposit box in the U.S.,” said Faber.  “If you look at the MF Global case, it seems—I don’t know for sure—but it seems some people got their money, but not others.  This is a very disturbing thing to happen in the financial system.  And when I see  this, I think we have to be very prudent, so I would hold a safe deposit box outside the U.S..

“Now the question is: how is it to hold a safe deposit box with a bank if the bank closes down.  And this happens,” Faber continued.  “You can also hold safe deposit boxes in duty-free stores, warehouses at airports around the  world. In Switzerland we have them; in Singapore we have them, and so  forth.  So that’s a possibility.”

Since the start of the financial crisis in 2008, Faber has said that, because the global economy is credit addicted, more and more investors over time will move into gold and equities as a means of preserving capital.  But there will come a day when central bankers cannot sell further debt issuance to rollover the  ever-increasing mountain of debt.  That’s when governments will turn to gold and seek to acquire it by any means, including confiscation.

“One day there will be a credit collapse, but I think we aren’t yet  there. Before it happens they’re going to print,” Faber told Financial Sense Newshour’s Jim Puplava in early December.  “And when printing as it has done in the last 12 years in the U.S. leads to discontent populations, because when you print money then only a few players in the economy that benefit, not the majority of households.

“Populist political leaders vying for votes from the masses will opt to score  easy points with the 90 percent have-nots at the expense of the haves, with draconian taxes on assets such as gold and silver held by the haves, not just through taxes on capital gains, but maybe even through a wealth tax on the holdings.

“This is what the tyranny of the masses can do,” he said. 

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By Ed Bace, CFA

Marc Faber, editor of “The Gloom, Boom and Doom Report,” kicked off the CFA Institute Middle East Investment Conference by quoting Ernest Hemingway who said, “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring permanent ruin.” On this downcast note, Faber attacked short-term Keynesian spending and reviewed the implications for investors of the accelerating shift of world economic and political power from the developed countries to the developing world.

Central bank action to cut interest rates, whilst intended to boost consumption and hence economic growth, has had unintended and severely negative consequences. Faber argued that “dollar bills dumped by helicopters” all over the US have not been channeled into housing, as hoped, but into other more speculative asset classes, particularly commodities such as precious metals and oil. He added that expansionist monetary policies have contributed to higher financial and economic volatility, in addition to inflation. Since greater money supply does not flow evenly across sectors, this gives rise to asset bubbles, which are not easy to identify.

For Faber, at the start of any bubble, “promoters have the vision, and investors have the money.” But the reverse occurs as the bubble bursts: the promoters end up with the money, while most people lose out. Current negative real interest rates, which make cash a safe, but poorly-returning investment, penalize savers, and encourage them to speculate. But Faber asked, “Is deflation such a bad thing?” During deflationary periods in the nineteenth century, real per capita income apparently increased faster than it does now.

Faber also noted that excessive debt always contributes to risk. For example highly leveraged US developers became insolvent when the housing bubble burst, in contrast to their more conservative Hong Kong counterparts who managed to remain solvent. Borrowing has increased just to maintain a standard of living. In 1980, US debt/GDP stood at 140%. Now it is approaching 400%, if unfunded liabilities such as social security and Medicare are taken into account. As a result, adjusted US government debt now exceeds $15 trillion, and continues to rise. US spending is up, but taxes are down. Faber contended that the vast majority of tax revenue goes to mandatory expenditures such as medical care, social security and interest expense rather than to capital formation. Given these imbalances Faber is unsurprised that the quality of US government bonds has been called into question.

By slashing interest rates, governments have also contributed to higher commodity prices, especially oil prices, according to Faber. Any intended boost to consumption is undone by higher energy prices which act as an additional tax on the consumer.

Adding that the G7’s exports continue to decline, Faber contrasted this with climbing developing world exports, resulting in rapidly growing reserves among emerging economies. These reserves will be spent on scarce resources such as precious metals and other commodities. Faber believes that oil demand among the emerging economies now exceeds that of the developed world. China is increasingly absorbing the world’s resources to feed its growth. It is positioning itself carefully as a global economic and political power, assiduously dominating shipping lanes, forging alliances with neighboring states, and investing heavily, so much so that Faber argues China has now got its own domestic credit bubble. Faber sees parallel scenarios being played out in India, Southeast Asia and Latin America. The growing economic power of these nations will inevitably lead to further geopolitical tensions where the MENA region is a potential powder keg.

So how should investors play this situation? Faber states that diversification is key alongside low leverage. His recommendations are as follows: cash and bonds are not hugely attractive, given negative real interest rates, but equity-like corporate bonds could form 25% of a portfolio. Another 25% could be made up of stocks, especially in emerging markets, with a further 25% in precious metals (which tend to be severely underweighted in a typical pension fund). Real estate in certain areas (such as Asia) could make up the remainder. He added that US house prices are looking decidedly cheap.

Faber closed his speech by emphasizing that the crucial question over the next decade is not “where will my returns be highest?” but “where will I lose the least money?” In fact, he believes that losses of 50% should be considered as a relative success. He advised that an investment in remote farmland could pay off, as growing social tensions could make urban life intolerable. In his view the welfare state has evolved from the many helping the few to the few helping the many and that the inevitable crash, or “rebooting the computer,” will simply have to be endured. Whether this crisis occurs soon, as further credit expansion is voluntarily abandoned, or occurs later, as the currency system meets final and total catastrophe, Faber cannot predict.

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Marc Faber’s latest thoughts are making the rounds including in this blog post from the WSJ. Faber thinks inflation will erode the assets of the wealthiest among us. More interesting was Faber’s idea of a sort of everyone into the bunker portfolio. Per the WSJ, Faber likes farmland, entire islands, real estate in New Zealand, Canada and Australia, foreign stocks, precious metals held in other countries, diamonds, stamps, art and defense stocks.