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Marc Faber and Jim Rogers: Bullish on Gold, Bearish on U.S., Europe and Disagreements on China

December 07, 2011 | About:
There are just too many issues relating to the macroeconomic environment or the current financial situation these days. It ranges from the mortgage crisis in the U.S., the euro crisis within the European Union, to the spike in gold prices and the rise of China's economic power. There are many different views of different famous investors relating to several hot issues above. The recent popular argument is between Jim Rogers, the co-founder of the Quantum Fund with George Soros, with the beautiful track record of gaining more than 4,000% while the S&P rose only less than 50%, and Marc Faber, the author of monthly investment newsletter “The Gloom Boom & Doom report.” Currently, both are staying in Asia with Jim Rogers in Singapore and Faber in Chiang Mai, Thailand.

The two are both negative on the prospects of the U.S. economy and the stability of its recovery. Both have warned about the effects of monetary and fiscal policies on the U.S. economy, as the recent rally mainly based on the printed money. Rogers said that there has been Quantitative Easing 3, where the Fed was pumping more money into the system: “One reason the markets are holding up so well is that they are printing money as fast as they can.” He even commented that by forcing the rates down and keeping the economy on the flat line, it would cause another lost generation of investment. For Marc Faber, he said that the U.S. has survived on the continued expansion of borrowing to offset declining income in real terms, and the power to borrow is gone now. In his view, several people might think there would be the chance that the economic data will surprise on the upside but he thought it would be on the downside.

Jim Rogers, even considering himself as a terrible market timer, said: “I’m long commodities and currencies; I’m short emerging market stocks, U.S. technology stocks, and I’m short European stocks.” He’s famous for being bullish on commodities, agriculture products and especially gold for the long term. He prefers to hold gold and has been holding gold as an investment for years. “It has been correcting for the past three months so it is overdue for a stronger correction, but I have no idea by how much. It is very unusual for any asset to go up for 11 years in a row with no correction. I own gold and I am not selling my gold,” he said. He cited in his email with references to two great bull markets, one was the stock boom from 1983 to 1999 and the other was gold from 1971 to 1980. After the stock experienced the 1987 crash, it began to rally for another 12 years, returning around 725% from the low of the crash. In the gold market, after jumping six times from the pegged price of $35/ounce to $200 in 1971, it crashed by nearly 50% in 1974. When the gold price reached the low of $100, it advanced 7.5 times during next six years.

Faber predicted that gold would get some support over the near-to-medium term as he expects central banks in the U.S. and Europe to print out more money to prop up the economies. He commented that the recent rally showed no signs of “bubble” as central banks keep boosting the money supply that has helped spur bullion to the record. “When you buy gold, it’s an insurance against systematic failure and problems in the financial markets... Compared with the monetary based, compared to government debt, compared to the increase of wealth in the world, and compared to the increase in international reserves, the gold price today is low,” he said. He once said that the gold price might reach $10,000/ounce.

The two have totally opposite views on China’s economic future. Marc Faber agreed with the views of Jim Chanos on the negative outlook for China’s economy. He has told King World News: “Well if we define a bubble as a period of excessive growth and artificially low interest rates, then China had a huge bubble. Usually bubbles are not deflated by a soft landing, but by a hard landing and this concern me, actually, much more than European situation.”

And he cited very note-worthy sentence of Confucius: “Thou shall not invest in overcapacity.” As the demand for many commodities around the world is more than 50% from China, if China’s demand reverts or there were a crash, it would have a huge impact on commodity prices and commodity-producing countries such as Australia, Africa, the Middle East and Latin America. On the contrary, Jim Rogers told Marc Faber that he was wrong on China. In a recent CNBC interview, he commented: “Marc still does not understand China. There are going to be several hard landings in the next few years, but China’s will be less hard overall than others such as Greece, US., et al.” He thought that China economy might undergo some busts in some sectors but they would be offset by booms in other sectors.

About the author:

Anh Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


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