Marc Faber interview with Bloomberg

Marc Faber is famous for saying controversial things. But since he is an obscure investor, no one really makes a big deal out of it, or even hears about it. Thanks for Naked Capitalism for originally mentioning a Bloomberg interview, which you can access here (approx 20 min interview.)

This time around he is quoted as saying there is a 100% probability of USA facing hyperinflation, just a tad bit below modern Zimbabwe. I don't always agree with what he saying and this is one comment that I disagree on.

Marc Faber also said earlier this year (or maybe last year) that the 'Warren Buffett way of investing' is dead (due to the bear market.) So value investors may want to skip him; but for others, check out my quick notes with my opinion thrown in...

  • Japan... "country of perfection"... some Japanese companies will do very well and be shareholder friendly... as a country, long term doesn't look so good... but Faber says he would go long for next 5 years and think it will outperform other countries... He also says that the low bond yields will help but my view is that Japanese companies haven't been able to use cheap financing to produce much shareholder wealth in the last 20 years. Perhas the most notable thing about Japan in business books of the future will be how businesspeople were unable to produce much profit even though they could literally borrow at 1%.
  • Says Asian region most attractive. I personally am not sold on Asia in the short to medium term. My conern is the potential for China to run into seriou problems.
  • (Not investment-related) A controversial view with nuclear weapons. He is in favour of no one having nuclear weapons or everyone having it... doesn't like the Western view that the West and a select few should have it but others should not... I agree that the only way to get rid of grave threats to humanity from weapons is to completely ban it everywhere or else it will never work. For instance, consider a hypothetical scenario in 50 years. If USA, acting for "the West", develops biological weapons while saying no one else, let alone so-called rogue nations, should have such weapons, will it happen? Of course not. China will develop the weapons as well, since USA is a threat to it. Then you will get India developing it too, since China is a threat. Then you will get Pakistan attempting to develop it as well, since India is a threat to it. Iran, which is generally hostile to Pakistan, will also attempt to develop it. And so on. The proliferation of nuclear weapons can only be stopped if everyone bans it. Then it will be considered "evil" by all humans and it can be dealt with--sort of like how slavery is considered evil and no state, including poor ones that may want to engage in it, do not (I will note, however, that non-state actor, such as criminal enterprises, do practice slavery (particularly in some parts of Africa; and sexual slavery is practiced in dark corners all over the world.)
  • (Not investment-related) Says next war may be biological and strategic terrorism such as poisoning water supplies. I personally don't think biological warfare is anywhere near reality. Nuclear weapons are still the biggest imediate threat. As for increased terrorism, it's possible. The "worst" result of mass terrorist incidents will not necessarily be the injured and lost lives. Instead, it will result in liberties being stripped. This will significantly curb immigration, as well as free trade. Flow of goods and trade will take a huge blow.
  • Doesn't think we'll make new lows this year... says government will print even more money if stocks come under pressure. I think it's misleading to say that governments are printing a lot of money. They aren't. Most of the capital injections and spending is coming from debt issuance. This isn't inflationary. However, it is possible that governments may start printing en masse if they can't issue debt. I actually don't think the problem will be in USA. USA is the richest (major) country and it is an attractive destination so it won't have any problems. But it may crowd out other countries and others may have to monetize debt. Countries like Britain can easily face financing problems. Others like Spain and Ireland may also face huge problems depending on whether EU will bail them out...
  • Thinks we are in a period of high volatility and will see huge moves every year.
  • Marc Faber says markets are not cheap.
  • US won't default but "100% sure US will go into hyperinflation". Not exactly Zimbabwe inflation but says close to it. Yikes :| Highly controversial comment and I wonder if Faber wishes he hadn't said it. This is going to bite him in the future. I definitely don't think USA is looking at somewhat-less-than-Zimbabwe hyperinflation. I don't even think such a probability is over 25% (except in a trade war with China or some similar scenario.)
  • In addressing deflation, which he obviously doesn't believe in, he says that if you are determined to create inflation, he implies it can be done. This is the view of Ben Bernanke as well. I, believe it or not, do not share this view. IANAE and I am not sure this is as easy as it seems.
  • Says gold not a great investment now; thinks equities will outperform. This is a major contrarian call. Goldbugs and those bullish on gold assume that high inflation, which is what Faber believes will occur, means that gold will skyrocket. Faber isn't so sure.
  • Australia will become more Asia-centric rather than the current US-centric nature
  • Believes in peak oil but says it doesn't necessarily mean this means prices will go up in the near term. Comment got interrupted and I'm not sure where he was going with this...
  • Natural gas very undervalued... I mentioned a few months (or maybe weeks) ago that natgas is attractive strictly from a contrarian point of view. However, the things to keep in mind about natgas are: (i) it is very localized, (ii) fundamentals seem bearish. On the first point, it should be noted that natgas is generally not transported across the planet, like oil is. What is produced in North America is consumed in North America and so on (there is some growth in LNG but that is still a small portion.) As for the fundamentals, natgas demand looks to remain weak given how industrial production is low (many manufacturers use natgas to some degree). Furthermore, LNG imports, which are a new thing, are increasing. Cost of production in places like Qatar or Russia are often lower than in North America. Having said all that, natgas is attractive strictly from a contrarian point of view. That is to say, natgas and natgas producers can rise even in the face of poor fundamentals if they are severely undervalued (for example, homebuilders (e.g. XHB, an ETF) are up 30% to 50% from the March low even though fundamentals are still horrible, simply because the market is betting that they are undervalued.)


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