Marc Faber on passing the baton to emerging economies
Marc Faber participated in a roundtable discussion on CNBC this morning about the dreadful figures coming out of Europe (see articles here and here).
At one point, the German CNBC correspondent made a very good comment about Eastern Europe getting killed by a falloff in internal demand due to a severe banking crisis and this being compounded by a falloff in external demand as Germans and others increase their savings. She asked whether over-indebtedness and excess consumption was what caused the problem. Why should that now be the solution?
Faber used this as an occasion to promote his thesis that much of the geopolitical tension and economic turmoil is associated with a passing of the baton of economic leadership from the west to Emerging economies. Whether you agree with his sentiments, it makes for a lively discussion. The video is below and runs about 7 minutes. Take a look.
There is also an associated blurb from CNBC Europe’s anchor Geoff Cutmore about the discussion that reads:
Prepare for War, the Death of capitalism and Bankruptcy of the US Government (not necessarily in that order)
A vintage performance from the author of “The Gloom, Boom & Doom Report”. This morning – living up to his reputation for bearishness – Marc Faber forecast a litany of unpleasant events ahead.
His key message is: buy real assets. He thinks it will take years for the global economy to recover, but when it does the effect of governments’ printing money will ultimately reignite inflation.
“If you’re in any field, you should own a farm because one day you will be grateful that you are able to grow your own agricultural produce.”
Recovery will be slow because government meddling in the markets will postpone it. He argues that the final low for markets and for growth will only come when the debt and losses have been cleaned out of the system.
Unless the system is cleaned out of losses, “the way communism collapsed, capitalism will collapse.”
“The best way to deal with any economic problem is to let the market work it through.”
The Fed is destabilizing, it’s creating “enormous volatility”.
Marc thinks the yields in government bonds bottomed out in December 2008 – rather than lend money to the US government he suggests buying a portfolio of large, quality blue chip stocks. They will grow and survive – and reposition to take advantage of the rising importance of the emerging economies.
“I think we are living through a major transition in the world… the economic bloc of emerging countries will be more meaningful than before.”
“I think that in Asia we have lots of sectors that are quite attractive. The banks, they don’t have the toxic assets that we have in the rest of the world.”
While not an optimist on the Chinese economy near term – Marc likes Asian currencies, and banks ex-Japan. He also thinks the real estate markets are improving. Both Russia and Turkey get a positive mention.
Cutmore follows this up with a summation of Faber’s market calls related to this view. See the link at the bottom for those calls.
Source
Cutmore: Marc Faber on Armageddon – CNBC
Chinese banks are making loans for real estate that remains empty and infrastructure projects that are unnecessary. How does it not end badly? I have respect for Faber, he’s a very smart guy, but I would not buy Chinese banks right now at these high multiples of book value.
All those who are bullish on Asia – China in particular – has yet to explain to me how the enormous drop-off in consumer spending in the US will impact. There are huge fleets of empty ships of the shores of Singapore, hollow containers and scores of idle/closed factories in mainland China because American’s aren’t buying the crap anymore. At the same time they are engaged in the same type misallocation of capital into real estate etc as we had here. Unless the Chinese begin consuming more themselves (which they won’t – partly because many of them are losing their jobs), they will not become a true power.
That the Chinese government is doing a bang-up job keeping things under wraps doesn’t change the facts.
Faber’s comments seem somewhat inconsistent to me. He touts farm ownership, which is consistent with owning stuff like farmland, fertilizer plants, potash, oil, and the like. Then he touts blue chip stocks, which would seem to be at great risk for serious problems with pricing power in an atmosphere in which only commodities have pricing power (i.e. workers and suppliers are at the mercy of those with CASH).
Am I all wet here?
Barry