ET Now: You have recently made a statement that gold is a must have in every individual investor's portfolio. What premise have you made that call on?
Basically we are in an environment where central banks are monetising debts and where the balance sheets of central banks are increasing, and this will continue, especially in the United States and Europe.
We are also in an environment where in the long run, a lot of sovereign debts will either not be paid or will have to be inflated away. So owning some physical gold is a prudent insurance. I am specifying here 'physical gold' because one wants to protect oneself as an investor for the potential of a systemic collapse of the financial system.
ET Now: The FII flows to the Indian markets have grossed 1 lakh crore mark. What explains the strong flow of funds to emerging markets like India?
In general, investors realise in the world that we are in a changing environment where emerging economies are becoming more important relative to the rest of the world. So we have to, from time to time, rebalance portfolios into emerging economies. Now I am not sure that I would necessarily buy the Indian market right here, but even if India only grows at 5% or 6%, it is still much better than no growth in Europe and hardly any growth in the United States.
ET Now: Some strategists are making a strong case that global crude oil price prices may weaken significantly from hereon. Do you agree with that forecast?
One hears all kinds of forecasts that oil prices will tumble and some are forecasting oil prices to go up substantially. There are all kinds of views. The fundamental fact is simply that not only for oil but for other commodities as well the production cost has risen very substantially. So I think that new oil will cost at least around $60-70 a barrel for the exploration and the capital investments.
Therefore, I do not think that oil has a huge downside risk, but we live in a volatile world. In July 2008 we were at $147 a barrel and within six months, we dropped to $32 a barrel in December 2008. I would not want to necessarily go short on oil for the simple reason that the situation in the Middle East is deteriorating at an accelerating pace.
ET Now: What about the Indian markets? Are they heading to newer highs at 15 or 16 times forward earnings that they are trading at and compared to the other emerging markets, how is India looking like, as a trade?
We don't have uniformed performance among emerging economies. You have the Chinese market, which is down from 6000 in 2007 to 2000, and you have markets like the Philippines, Indonesia, Thailand and Malaysia that have made new highs, and so it is not uniformed. In India, you do not have a particularly good macroeconomic background. On the other hand, corporations are doing reasonably well. So I have some investments in India.
ET Now: What is the significance of the fiscal cliff for emerging markets like India?
I do not believe there will be a fiscal cliff. What will happen is that there will be some cosmetic spending cuts which will amount to no spending cuts in reality. There will be some cosmetic tax increases that will touch really a minority and the irrelevance on a fiscal deficit that officially is running around $1.3 trillion, but if you added the unfunded liabilities that accrue every year, the fiscal deficit will be more likely above $5 trillion.
So even minor tax increases on the super rich will bring in annually a maximum of $5200 billion. So the total deficit, whatever they will agree upon, will have a meaningless impact and spending cuts will come back dated in 10 years time. So they will be quite irrelevant.
ET Now: Your view on emerging market currencies and the rupee in particular?
Marc Faber: If that is the case, I would argue that the dollar has a chance to actually appreciate, especially against emerging market currencies, but I have some reservations about this optimism. I think that natural gas and the increase in oil production in the US is just one plus factor for the US compared to many negative factors such as ObamaCare.