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Dr. Doom Speaks - An Interview with Mark Faber

March 13, 2008
stockroyalty.com

stockroyalty.com

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With a moniker like Dr. Doom, you know Mark Faber is going to be bearish. Faber made a name for himself by predicting the crash in 1987.

The Swiss born, pony-tailed prognosticator makes his home in Shanghai, Vietnam, and has his office in Hong Kong. In Hong Kong, he headed up the Asian division for the erstwhile Drexel Burnham Lambert. Now, Faber has a newsletter, the Doom Gloom and Boom Report, and is a member of Barron’s Roundtable of famous investors.

Faber leaves no stone unturned when speaking of the global economy. He weaves between history, the economy, politics, and every other event know to mankind. To summarize his feelings, he is bearish on developed markets and bullish on emerging markets and commodities. The fun thing about interviewing Faber is that he has an opinion on everything and is not afraid to speak his mind on anything global.

Faber’s biggest concern is that the Fed has been printing too much money. This leads to inflation, which is evidenced by our declining dollar. He points out that our stock market has increased in the last few years, but relative to gold or in Euros, it has declined. He is also bearish on art and what he calls “worthless collectibles”, meaning antique cars and other investments of that nature. When asked what the U.S. should do about this, he states that all of the governors of the Federal Reserve should resign. He also says that buying long term bonds is a big mistake. Faber recommends buying one bond and framing the certificate. Then, show it to your grandchildren some day to illustrate the point of what happened to the dollar and interest rates.

Like most people, Faber points out that Wall Street helped create the subprime mess. He points out that Wall Street managed to pay itself a record bonuses in 2007, despite shareholder’s losing 50% of their assets. America’s home mortgages outstanding equates to over 60% of GDP. This is at record levels and is one of the highest proportions in the world, only after the Netherlands. Faber predicted that the housing market would go down back in 2005—not bad timing.

Assets can decrease in price in two ways. The first is as the stock market did in the 1929 crash. The second way is in absolute terms, which is what we have scene in the past few years. U.S. assets have decreased in value relative to other assets around the world.

He is also down on the British pound and the London real estate market. He has suggested shorting the pound (against the yen) and also compares the price per meter of London real estate to other markets.

Faber feels that Japan is slowing due to its aging demographics but that it is a very wealthy society. The citizens are savers and the corporations are well diversified across the globe. He compares Japan to Switzerland in that they are mature economies but do well in that they are very well diversified. He has recommended the yen versus the dollar in the recent past.

For developing economies, he says that we are in a paradigm shift. He is bullish, long term, on Russia, China, Cambodia, Vietnam, and the Ukraine. Short term, he sees that these markets are overbought and due for a correction. The only emerging market that is doing poorly, Faber points out is the money printing Zimbabwe. He says that maybe Bernanke should go there and become a college professor. As an aside, Faber remarked that America is a great place because people are free to speak their mind, which he certainly does.

In regards to oil, and commodities, Faber thinks that the emerging markets will continue buying to build infrastructure. In the short term, he feels that commodities are overbought too. Faber sits on the board of Canadian based Ivanhoe Mines (IVH). He says that if precious metals fall by 30%, buy more. He suggested not buying precious metal futures on margin but buying hard assets.

When speaking to the Chartered Financial Analyst Society in Los Angeles, he recommended that the analysts give up financial careers and learn how to drive tractors, as food prices go up and farms become valuable. He sees the financial markets continuing to unwind and grains to rise. Faber showed a chart in which gold has appreciated by a large amount and wheat had hardly gone up, relative to other assets. Real assets like farms, Faber feels, should do well in an inflationary environment. Food only makes up about 10% of the CPI, yet most households spend closer to 20% of their income on food. This means that the true value of inflation is understated. The whole concept of Consumer Price Index (CPI), has been constructed deceptively, and does not reflect how people have to spend their money in the U. S.

As a Westerner who has lived in Hong Kong since the 1970s and can speak the language, Faber has a unique view on China. He compares Germany’s rise in the early part of the twentieth century as a threat to the power of the day, England. He sees that China is on the rise but has no military ambition. Faber feels that the policy of Bush and Rice has forced Russia and China into each other’s arms--something once unthinkable. He posed the question of how America would feel if China had bases in Canada or Mexico like the U.S. has bases all over Asia.

When asked about the Middle East, he wonders if the booming economies are for real. He says that when cities start building tall buildings, something bad happens. The Middle East goes through boom and bust cycles. In the 1970s, it was hot. In the 1980s, it went bust. Faber feels that the market there is more stable than it used to be but still depends on the cyclical price of oil.

So what can an investor take away from all of this? Basically, Faber feels that the American markets will continue to do poorly and after a correction, foreign currencies and commodities are where to put your life savings.

To hear the interview for $5, go to www.stockroyalty.com

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Comments

danielw
Danielw - 6 years ago


Shanghai is not in Vietnam but in China. In any case, Faber lives in Thailand (or did the last time I checked).

While true that Faber did call for the real estate market in the US to decline in 2005 that was hardly the first time. He was bearish on housing in the US and the dollar long, long before they started to decline. Not exactly the good timing that you say. Ditto for his 1987 call on the US markets to crash. If you predict a crash long enough, you'll be proven right.

Anyway, I recommend Faber's book Tomorrow's Gold, and the Riverside Conversations he did with Jim Rogers are awesome.

But from someone who has followed him for a long time, I find that he's worth listening to more for what he's bullish on. He's made good macro, long-term calls on the precious metals, and commodities, as well as different emerging markets. His short-term calls within that general theme have been off many times but that comes with the territory of making predictions (!).
kbodawala
Kbodawala - 6 years ago
I have thought that there would be a deterioration in asset prices across the board in developed nations for sometime now. My reasons were based on demographic trends more then anything. As the baby boomers of the developed world ecomomies retire and exit the workforce they will leave a void in productivity. In essence I am arguing less workers mean less product which leads to lower supply and with demand at constant rates prices are pushed up higher. The effects of inflation on financial assets are well known. Bonds lose, stocks are mixed but mostly down(depends on the underlying firms competitive position). Real assets however such as farms and income generating properties should fare better as inflation pass thrus are higher on these assets, plus if they are mortgaged the cost of fixed financing becomes less over time. So I am arguing that since developed ecomomies will regress their currencies and assets based in those currencies will to be under pressure. My secular views on demographics have led me to seek out nations with younger populations with high overal literacy rates and low population growth. I have zoned in on India even tho their population growth is troubling and their literacy levels are still relatively low. I also have been interested in Irish assets for the long haul. I think that Ireland with its low population growth and high levels of education and young population remains a very attractive area to invest. Even tho Irish assets are denominated in Euros and I expect the Euro to fall I think Ireland as awhole is a compelling investment as it is a play on the aging mainland of Europe. Those shortfalls in productivity will need to be made up and Ireland will play an important role in providing a source of educated labor, so too will India for that matter. This my main reason for being a long term bull on these two countries.

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