Marc Faber, edit of the Gloom Boom and Doom report, appears on CNBC Asia on February 5, 2009.
Faber On the US Market:
Basically, if I look at markets around the world, it’s very clear that the US market is not particulary cheap. Especially if you take the Dow Jones in real terms, inflation adjusted.
If the DJIA being at 8000 right now is ‘too high’ then we should expect to see further corrections in the market. While we might see a rebound in the short-term, I forecast a near collapse of the DJIA to around 6000 – 6500, and S&P 500 to around 600. This is based roughly on future P/E’s of the companies in the indexes and valuing the indexes at 15 times Price/Earnings.
On Asia:
In the case of Asia, we have many market that are, in the case of Japan at 30 years low, Korea is at the level it was in ’88. If you look at dividend yields in Asia compared to the bond yields, it’s about 3 times higher. Even though we will have dividend cuts for sure, I think that as a shareholder, you begin to be paid for waiting.
We’ve fallen so hard for commodities and emerging markets, we could easily have a 30% rebound here.
This closely echoes the investment strategies of Peter Schiff and Jim Rogers, who both recommend Asia because of low-cost or significantly cheaper investments.
On Buy/Hold:
I don’t think there is a huge downside risk. I think there is upside potential.
You’re going to have huge volatility in this environment of ultra low interest rates.
On government intervention:
The global economy won’t heal anytime soon, especially given the government interventions. I think in my opinion that will prolong the crisis.
On why an upswing is coming:
We’ve fallen dramatically and markets have become oversold. The global economy fell off a cliff between September and January. The news has been universally very bad.
On bad news you’re going to reach a temporary bottom. We have this tremendous downside momentum. Now the news will remain bad, but not quite as bad as over the last 3 months.
No the goldilocks crowd, that is always around us will never give up. They will say, now, see, the globally economy is improving, let’s buy.
I believe the market participants that are always bullish because they have been conditioned to be bullish over the last 25 years, they will push markets up.
If we see a bounce in the markets, the obvious play will be to short-sell the DJIA, S&P and NASDAQ. I’d recommend taking a look at Ultra Short ETFs from Powershares. There is simply no way you are going to see a full swing economic recovery this year. So a bounce to 9000 – 10,500 is a signal to SELL, SELL, SELL!
Commodites:
I think the commodity markets reflect demand in supply. Obviously that’s why they totally collapsed, and as you may remember it was my view last year that in the second half of 2008 they would implode. So we went up too much because of monetary policies.
Now commodities are at such a low level that a lot of supply simply won’t come on stream. So, if you believe that there will be an economic recovery in the world, whenever that happens, commodity prices will go ballistic.
Commodities are essentially at their low.
Raw materials will be the only investments that will have minimal risk in this economy for the next few years. Agriculture commodities, Agriculture producers, mining companies and energy will hold excellent money making potential in the near future. And when the goldilocks crowd gets on board, we are going to see an explosive bubble develop in commodities, making early investments very profitable.
Inflation and the Dollar:
We have the Austrian school — the school of rational expectations, monetary schools. And in the U.S., we have a totally new school, and it’s called the Zimbabwae school. And it’s founded by one of the great leaders of this world, Mr. Robert Mugabe. He has managed to totally impoverish his own country. And that is the monetary policy the U.S. is pursuing. If something is going wrong, print. If it doesn’t get fixed print more. If it then goes even worse, print more.
On Hyperinflation:
Not yet. but eventually. If I look at government debt in the US and debt in general, I think the only way to not default physically on the debt is to inflate. In the long run you will get higher inflation rates than we have now. The problem being that I don’t see how the FED will ever again increase interest rates to a level that will be real [returns]. So eventually we will get inflation.
We may be in a period of deflation right now, but eventually, this has to turn around. There is always the possibility of a 5 – 10 year deflationary period, but I don’t see how this is plausible with nearly $8 Trillion in newly printed money hitting the markets in the near term. Inflation, in one form or another, is coming.
Will America be a Third world country:
I wrote a report 2 years titled ‘Is America Going to Become a Banana Republic’.
We are not yet there, and in theory, it could be reversed. But I doubt it will be.
This is why they call him Dr. Doom. It seems that Marc Faber and Gerald Celente are on the same page when it comes to the coming collapse of America as we know it.
Part 1 of 2:
http://www.cnbc.com/id/15840232?video=1023077934
Part 2 of 2 (Scroll down the article to the SECOND video for part 2 — sorry but it is not available in ‘youtube’ form just yet):
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