Dr Doom's gloomy predictions
Marc Faber's nickname is Dr Doom, and his investment letter is called the Gloom Boom Doom report. He sells advice about where to invest to wealthy people, companies and institutions. He is, in the lingo of the financial zoo, a bear. He's bearish about Europe and bearish about China, and he thinks that gold is one of the safest places to put your money. His latest report is titled "The End Game has Begun."
Business Daily's Lesley Curwen spoke to him at his base in Chiang Mai in northern Thailand and asked him why he feels the way he does.
The full transcript is below.
Marc Faber: I am very negative about the world, because I think that what caused the crisis in 2008 was excessive credit growth, excessive leverage in the system, and now the private sector is deleveraging, but governments are printing money, and through huge fiscal deficits are creating even more debt growth. So in other words, what killed the economy is now being applied to revive the economy, and I think this will lead to a disaster. But if you think it through and you believe in the disaster scenario I'm envisioning, then you will be better off in equities and in commodities than in government bonds and cash.
Lesley Curwen: So, what do you think is going to happen in 2011?
Marc Faber: Well, I feel that if the stock market in the US declines 10% or 20%, we would have QE3, in other words more money printing.
Lesley Curwen: You are talking about quantitative easing, QE?
Marc Faber: Yes, correct. We would have quantitative easing three and that will again boost stock prices, but not necessarily the economy of the man on the street.
Lesley Curwen: Now, you have talked a lot about gold and are suggesting that actually it's a good bet to invest in at the moment, why do you feel that?
Marc Faber: Well, I wrote first about gold in 1998 when it was below $300 and then the low was at $252 an ounce in '99, and since then, I have been advising people to accumulate some gold. So, right now, obviously the price has gone up and we had the 10 year bull market, so I am a bit more cautious. But in general, because of the money printing I was referring to earlier, I don't think that there are any sound currencies anymore, paper currencies, and that the only sound currencies are hard currencies like gold, silver, platinum and palladium.
Lesley Curwen: But, gold doesn't do anything, is it? It doesn't add to the economy. It doesn't employ people. It doesn't accumulate wealth except on paper.
Marc Faber: Cash at 0% doesn't accumulate wealth either. The moment central banks implement monetary policies where they keep interest rates negative in real terms, in other words interest rates are lower than the rate of cost of living increases, then it is very difficult to value anything. The only thing I can say is, Mr Ben Bernanke, Chairman of the Federal Reserve, and other central banks, they can print an unlimited quantity of money, but you cannot print gold. Gold is limited by its annual supply of around 2,500 tonnes annually. So it is not that gold is going up, it is that the paper value of money, the purchasing power of money is going down vis-à-vis a unit of account, which is gold.
Lesley Curwen: What is your view about China? In the past, you have said you think it might be about to crash.
Marc Faber: Well, I think in the case of China, we have clearly a bubble, if we define a bubble as an economy where credit growth is very strong and where interest rates are artificially low. But, will it burst tomorrow, in three months or in three years, who knows?
Lesley Curwen: But isn't the argument that if you hold investments in China long-term, at some point this huge potential of this country with its massive workforce and its government will to succeed, is going to win out in the end?
Marc Faber: Yes, that maybe the case, but I think for the average investor, rather than to invest in Chinese companies and stocks where the accounting is frequently very untransparent and questionable, if you really believe in China, then you buy oil or you buy industrial commodities or you buy the Australian or the Canadian dollar, or the Australian stock market. I mean there are better ways to play China than necessarily to invest in China.
Lesley Curwen: Why? How are those connected?
Marc Faber: Well, if there is very strong growth in China, then obviously the demand for commodities goes up and because we have some supply constraints, then the prices of commodities go up and the resource produces benefit.
Lesley Curwen: Let me ask you about the eurozone. What do you expect to happen to the eurozone in 2011?
Marc Faber: Well, I think the euro will survive, but as is the case in the US, the ECB is expanding its balance sheet, and that hates to see the balance sheet because the quality of the bonds they own must be of very poor quality and so, we will have to muddle through. But, in general, I believe some weaker countries or weaker members of the EU like Spain, Portugal, Greece eventually will default.