Tuesday, December 23, 2008 2 comments ++[ CLICK TO COMMENT ]++

Cheery thoughts from Marc Faber... Not!

Investors expecting some good predictions for next year may be dissapointed to hear Marc Faber predict a catrastrophic economy next year. However, I think there is some inconsistency in Faber's predictions. He is expecting bad things all around yet is bullish on all the cyclicals such as commodities. He also seems to favour emerging markets, which seem like a bizarre bet if you are bearish on the world economy. Faber keeps dodging the China question. He keeps saying that the situation could get worse but doesn't come out and say to short China. He also seems to favour gold mining companies, such as exploration companies.

He thinks the markets are likely to rally since they are oversold but doesn't expect it to be anything significant. For what it's worth, Faber relies on technical analysis for these calls and I tend to dimiss it for the most part. Oversold or overbought has little relevance to my thinking.

I think the 'inflationists' are going to be wrong. I don't have a strong opinion or evidence yet but I have a bad feeling. I'll post my views after I have formulated by thoughts for the next year.

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2 Response to Cheery thoughts from Marc Faber... Not!

December 23, 2008 at 2:08 PM

i am interested in hearing why your feeling that the "inflationists" are wrong. inflationists are basing their predictions on what happens to economies as they print money with abandon.
kevin

www.bullinachinmarket.com

December 23, 2008 at 2:28 PM

I have to do a lot more research on that issue because it is difficult to figure out. But the reason I am skeptical of high inflation is for the following reasons:

(i) Why can't USA follow what happened in Japan in the last 20 years? Japan has printed huge amount of money and/or spent a whole lot by borrowing; yet no inflation to be seen in Japan. Even if you assume that capital flew out of Japan (through foreign direct investment and Yen carry-trade, and other means) where did the inflation go? Where is the high inflation caused by the Japanese actions?

(ii) The other reason I'm skeptical of the pro-inflation view is because it is, indirectly, a pro-growth view. I am still not confident that the world economy will recover any time soon. Even if we "recover," the growth will be fraction of the past decade due to decline in trade and decline in leverage/debt usage.

(iii) I think there is a high chance of the US$ strengthening or at least maintaining its value. I don't have any proof of this other than simply being a contrarian sentiment. Gold has done really well lately and for the last 5 to 10 years, and I wonder if it is an overcrowded investment.

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