Tuesday, September 2, 2008 0 comments ++[ CLICK TO COMMENT ]++

Bloomberg Interview with Marc Faber

Bloomberg interviewed Marc Faber and you can check out the video here... No specific stock picks and mostly just macro views... Here is a quick recap of the main points:

  • Thailand: He was reporting from Thailand, which is facing a political crisis right now. Faber correctly points out that the right-wing "democratic" party, People's Alliance for Democracy, is actually seeking to destroy a democratic system and replace part of it with a more authoratarian system. Instead of the population electing the government representatives, the "democratic" party wants them to be appointed--totally going against a key democratic principle. Anyone following politics will know this by now but this just goes to show how party labels often have nothing to do with what they represent. Anyway, Faber says Thailand has positive food production but the economy is not dynamic. He says that although Thai shares are cheap, investors are likely to face dissapointment.
  • SWFs (Sovereign Wealth Funds): Marc Faber says that some SWFs, which are viewed as overflowing with cash, are mirages. He says that the Middle East is in a bubble, with everyone trying to outdo each other and build the tallest buildings, and even the tallest flagpoles :) If oil drops, the Middle Eastern SWFs won't be as cash-rich as they seem. As for the Asian SWFs, he points out that surpluses are already projected to plumment almost 50%. The implication of all this, in my opinion, is that if American or European firms need to raise more capital, they are going to have a really difficult time. One other hope for capital is private equity but I personally believe that they are in another big bubble (I'm actually surprised that the PE bubble hasn't burst.)
  • Recessions galore: Faber says that Thailand, USA, and Europe are all in recession even though government indicators don't say so (yet?). He mentions that he travels extensively and business is down almost everywhere he goes. As for me, I don't really care much about the recession debate because I'm confident that the world will go into a big slowdown, recession or not. My concern is over the severity of it. Most of the beaten-down sectors that I have been looking at--financials and consumer discretionary foremost--are already pricing in a recession; only those looking at energy or materials (and maybe tech) will not see the market pricing in a recession.
  • Airlines: Faber says he made a bullish call on American Airlines (AMR) a few months ago (the stock is up 100% in the last month). This is a good example of why I do not consider Marc Faber to be a value investor. He says that he hates American Airlines but one shouldn't rely on personal feelings, and if the price is low enough, it can rebound. He actually says that the long-term prospects are very poor so this is simply an investment made on a bearish oil call. Value investors would never make a macro bet on a contrarian opportunity--especially if you are certain that the long-term prospects are bad.
  • US Consumption to Decline: He sees US consumption declining but says this will not hurt USA because it isn't a manufacturer or producer of anything these days. Instead, he sees it hurting emerging markets. In my opinion, this is one of the reasons that US$ can easily strengthen even though long-term macro looks very bad for USA.
  • Bearish on commodities: Like others, Marc Faber doesn't necessarily have good timing but he nailed the bearish commodity call early this year. I mentioned in my blog entry that this is important because Faber isn't just a typical investor. No. He was a commodity superbull. Him and Jim Rogers have been bullish on commodities for more than 5 years. So for him to be bearish was a big sign in my eyes (note: Jim Rogers still seems to be long-term bullish.) Faber thinks oil will likely decline in the near future and thinks commodities may have topped out. But he doesn't know if this is a short-term top or a long-term one. He mentions that the CRB index went up 3.5x in the 70's but it has gone up 3.37x in the recent bull market. I guess you need to form your own opinion. I personally became bearish on the commodity complex last year and made a bearish bet on the TSX inverse ETF (TSX: HXD). It has been a poor bet so far but it remains to be seen.

I'm a big fan of Marc Faber, even though I don't agree with everything he says... always love to hear him provide his insight...

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