Tuesday, March 17, 2009 0 comments

Marc Faber unplugged... Bloomberg chat

Bloomberg had an informal chat with Marc Faber and you can access it by clicking here. It's quite lengthy (I think around 30min) and contains Marc Faber's current outlook, along with his thoughts on various topics. There are way too many topics covered and they are not in detail so I won't be covering it here. The rough feeling I get is that Marc Faber is still bullish on commodities and seems bullish on technology (this is quite important given how he had been superbearish on tech for many years.) As usual, he is happy owning gold although he seems more favourable towards platinum and palladium, and base metals right now.

I still don't see Faber's key justification for commodities. One of his key arguments for commodities is that they are trading at something like 80-year low in real terms. Well, my feeling is that there is no reason whatsoever to expect commodities to preserve their wealth. Except for some special ones like oil and gold (but gold is a quasi-currency and not a commodity,) commodities have historically deflated over time. This is mostly because of technological improvements but is also because most commodities have an endless supply. Even in cases with limited supply, substitutes are easily found. For instance, rubber was a popular commodity 50 to 100 years ago but some of it has been replaced by plastics and various other synthetic materials. Leather was a key commodity a hundread years ago but isn't a big thing nowadays. Even some precious metals like silver has lost the vast majority of their worth over the centuries. So, my opinion is that it is erroneous to assume that commodities are necessarily cheap because they are trading near century lows in real terms. I'm not saying that commodities won't bounce back; all I'm saying is that there is no proof that they will (i.e. can't assume mean reversion or anything like that.)

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