Marc Faber: Economic Times Interview Part 3

ET Now: The Indian central bank has cut rates. Can monetary easing help kick-start the economy?

Marc Faber: Basically what the lower interest rates in India might do is to weaken the rupee, and obviously then if the rupee weakens, we might have some inflationary pressures like in other countries. In India, the rate of inflation is vastly understated. So in real terms, probably economic growth is rather slow.


ET Now: But one of the concerns for India has been the large current account deficit which is due to higher imports of both gold and crude. What is your sense on these two commodities? Can gold correct more? Should investors be using this weakness to buy?

Marc Faber: I do not know. I would not use this weakness to buy. I rather think that India has numerous problems. One is the fiscal deficit. One is the current account deficit and the combination of the two argues in the long run for a weaker currency.


|ET Now: What are you expecting from the FOMC meet? Will it be more like a no-event or they are likely to acknowledge the better data flow and hence hey will start making a base for pulling out the QE3 plug?

Marc Faber: I do not expect any plan to exit anything at the Federal Reserve. I rather think that they might plan to extend QE3 for further time because one of the goals was to essentially reduce the asset purchases when unemployment drops to 6.5%. That may be far away.

Economic TImes Interview Part 2

Continued with Economic Times Interview:


ET Now: So what is the bigger risk to the risk-on rally? Will it be China or credit bubble in Japan or a real estate bubble in Asian markets?

Marc Faber: The risk for me globally is really European banks and financial institutions and a market that is already quite high. We are not at the 2009 lows. Many markets have gone up 100 per cent. Thailand is up almost 4 times from the 2009 lows. So we have very extended markets. Many countries in Asia have an asset bubble in real estate and we have the Chinese economy which, I believe, is growing at present at a much slower rate than what the official statistics would suggest.


ET Now: So what is your view on India? Can it get back to 6-7% growth rates, thanks to reforms the Indian government has taken?

Marc Faber: The Indian economy will grow in the long term more modestly than expected. Now can there be years when it only grows at 3% or where there is no growth at all or can there be years when it grows at 7%? Yes, it is possible, but for long term, I think that the Indian economy, by the way also China, will slow down.

Emerging markets depends on China

Marc Faber interview with Economic Times of India


ET Now: Experts do expect the US to clock 4% GDP growth this year and it is trading near record highs. Do you see this factor limit a lot of fund flows to emerging markets?

Marc Faber: For emerging markets, the crucial issue is only China. If the Chinese economy blows down meaningfully or even goes into recession, which is a possibility, then obviously all resource producers of the world will be badly affected. If the economy slows down, obviously the demand would decline and commodity prices would come down and bring about a more hostile environment for the resource producers. I do not pay so much attention to the US or the European economies with respect to emerging markets. The key is really China.

China could have recession in certain sectors

I think the Chinese economy has slowed down a lot...but they will not miss their 7.5 percent target, they will announce it, but the reality will be much lower. If you look at the statistics that are more reliable like Korean, Japanese or Taiwanese exports... then export figures from China don't add up entirely," he said.

The economy in China will slow down and we may even have in certain sectors a recession... The question is about the future. I think China will still grow but there will be bumps along the road and political issues," he added

China export numbers overperformed market expectations

China's recent strong export numbers, which blew past market expectations.

China's export data for February showed a 21.8 percent year on year spike, in contrast to analyst expectations of 10.1 percent. However, the reliability of this data has been questioned due to its inconsistency with neighboring countries' data including South Korea and Taiwan, among other things.

Faber said he expected China's economic growth to be much lower in reality, and even hinted towards a recession in some sectors of the economy.

Buy something that is depressed

Faber has been calling for gold to outperform stocks, but acknowledges that the yellow metal has been in a correction. "I'd rather buy something that is relatively depressed than something that is relatively high," he said.

But while Faber expects a correction for equities, he still owns some stocks. "The equities I own, I bought in 2008 and 2009 in Asia," he said. "The Philippines, Indonesia, Thailand, where I have most of my holdings, are up four or five times since then."

Faber added, "I'm not short stocks. But I'm very worried about it."

Nasty sell off waiting

The stock market's run will result in either a 20 percent correction or a more nasty sell off at some point this year, Marc Faber, publisher of the Gloom Boom and Doom report, told CNBC's "Closing Bell" on Thursday.

Faber pointed out that it's been almost exactly four years since the stock market bottomed out. "We're up very substantially, I think investors who today rush into stocks should be reminded of that," he said.

He sees two possible scenarios. Either a 20 percent correction for stocks and then a move higher, or a scenario that is similar to 1987 or 2000 when stocks rise strongly early in the year only to drop sharply.

March 2013 Gloom Boom Doom- Asset deflation worries

The March 2013 Monthly Market Commentary (MMC) was published on the MMC subscribers only section and emailed on 1-Mar-2013.

"I do not believe in a deflationary Collapse but I am afraid of it"

I worry about the time when the current asset inflation will give way to a serious asset deflation, which will inevitably happen sometime in the future. As an observer of markets I am, therefore, concerned that the decline in gold prices could be telling us that we are about to enter a period of asset deflation.

I should like to make two points very clear. I am not sure when the asset deflation will start. Most likely, different asset classes will deflate at different times and with different intensity. The second point I wanted to make is the following. In a deflationary environment (whenever it will happen), financial assets (stocks, government and corporate bonds especially high yield bonds) would likely be the most vulnerable assets. In fact, in a deflationary collapse, I would envision money to flow into a sound currency and move out of “funny” paper monies. Therefore, I continue recommending the gradual accumulation of physical gold.

Similarly, most societies die because of their ill-conceived fiscal and monetary policies, and not because of their economic problems.