At a time when US stock markets continue to trade at elevated levels as a consequence of “Helicopter” Ben Bernanke’s ZIRP & QE policies, one man, the popular writer of the Gloom Boom & Doom newsletter – Marc Faber is a contrarian bear on US equities and, like us, prefers fishing in Europe, emerging markets and the gold miners. Over the last 20 years he has predicted bubbles in the markets with remarkable precision and so is, by virtue of his track record alone, worth listening to.
Faber is a contrarian by nature, and he is a successful investor and fund manager, one that completed his PhD at the age of 24. Doctor Doom as many like to call him, recently gave an interview to Barron’s where he expressed his views on the world’s current economic situation, on monetary policy and about gold. He is bearish on high-end assets, which include not only stocks but also art and real estate. He believes a bubble is forming around these assets and attributes it to the FED and its never-ending low interest rate policies. In his view monetary policy is and has been wrong and it is skewing asset classes in a way that will ultimately end in a river of tears.
Let’s look into his views on some particular subjects.
On Money Printing
Faber believes that flooding the system with money doesn’t help to increase economic activity and just contributes to enlarging the wealth gap between the richest and the rest of the populace. Indeed, it is only the wealthiest who are benefitting from the QE & ZIRP policies and thus a bubble is being created in high-end assets.
The financial and real asset sectors of the economy have dislocated and a bubble has formed. Indeed, when in London personally yesterday, I was utterly gobsmacked to see almost every 2 or 3 bed flat and home priced in the millions in zones 1 and 2. It is as if a million squid is just pocket change these days.
The FED is quite simple making the same mistakes that it has in the past. Faber believes the housing bubble which burst in 2008 was the consequence of the 1% interest rate policy that followed the 2000 tech crash. He also believes the high-end asset bubble currently forming is the result of QE infinity the FED is unfolding.
In the fourth year of an economic expansion, interest rates shouldn’t be anywhere near zero, let alone quantitative easing continuing. Stocks, bonds, art, wine, jewellery and luxury real estate are out of sync with the rest of the market.
On China
Faber believes a credit bubble has been forming in China for a number of years now and that the central bank may engage in money printing policies in the future as a reaction to Japan’s Abenomics. He also doesn’t believe the reported Chinese growth at 7.7% for the first quarter of the year. Put bluntly, he believes the figures are being massaged/manipulated, Exports data coming from China doesn’t match with import data from other countries and which means something is wrong. Countries like Thailand, Indonesia, Malaysia, and Singapore are cooling a little and which is more compatible with a 4% real growth rate in China.
On Europe
While the S&P 500 has doubled from its 2009 lows, many European markets are still near their lows or at least have risen much less than the US market has. Faber believes these markets are out of sync and which make European shares attractive relative to the US. Even though being traditionally more of an emerging market investor, Faber states he currently owns European shares. He pointed opportunities in European telecom stocks including France Telecom, Telecom Italia, Telefonica, Portugal Telecom, and on some other shares including GDF Suez, EDP Portugal, Novartis, and Veolia Environment.
On Gold
Gold has corrected around 30% from its 2011 peak, but that’s nothing to be fearful about. After a 12-year bull run, a retracement of some of these gains was only to be expected and his has not stopped Faber from still holding 25% of his portfolio in gold. When the asset bubble bursts, financial assets will be particularly vulnerable and “Gold is easier to carry than a Lamborghini” he was quoted as saying! Faber is also very bullish in resources stocks, as we are.
Conclusion
It’s pretty clear that Faber will not be on “Helicopter” Ben Bernanke’s Xmas card list, such a vocal opponent of the FED Chairman and his current monetary policy he is but, we have sympathy at SBM with Faber’s view, as relayed in our guide below and in which we explore the impact of the FED’s policies in creating perpetual asset bubbles (click the image for your free guide).
Faber is staying away from US stocks and he in fact says that he’s tempted to short the S&P 500 and Russell 2000 indices but suspects that the FED would accelerate its money printing in case the market drops 20%. He is bullish on emerging markets, pointing to Laos, Myanmar, Cambodia, and Vietnam as good investment opportunities. He also believes the Nikkei may correct a little more after then near 100% rise since the start of the year but considers the 2012 lows as having been generational, and that the Nikkei won’t return to such levels anytime soon – pretty much aligned with us. We’d prefer to be in the company of Faber than Caawky and Piper!!!