In Fast Money World we're going to Hong Kong to get a little face time with one of the market's most revered sages. Known as Dr Doom, Marc Faber predicted the massive stock market correction in October 1987, the implosion of Japanese assets three years later and the US sell-off in 2000.
He still sees bubbles everywhere, starting 2007 with a prediction US stocks would fall 7-10% because of inflation and a slower economic growth.
Instead we got only a 5% decline, followed by another impressive run higher in recent months.
Do you still expect a bigger correction, or are we in the clear?
“I think that we have strong money supply growth in the world,” says Faber, “And we have the integration of 3 billion people into the global economy. (Those factors) create additional demand for raw materials. And therefore inflation is going to accelerate."
Faber adds “Governments, (especially the US Fed) that focus on core price inflation are misreading the true rate of inflation. What we have is very high asset inflation; very high commodities inflation; but relatively low inflation in consumer goods prices.”
What about the argument that even if interest rates move up a full 1% they would still be very low?
“You are right,” says Faber. "That’s why some people maintain that the US Fed has lost control over M3 growth because interest rates are still artificially low. But if rates are artificially low, inflation will come up at some point.”
“I’d like to mention another danger point,” says Faber. If you have easy monetary conditions and (easy) credit conditions... people are going to do stupid (things), as they did with subprime lending. Then, when these bubbles deflate they create illiquidity in some sectors of the economy.
He adds “In the US the perception is that the subprime lending problem is not a great problem. But potentially it could be a great problem.”
Where do you recommend putting money?
“In general I would rather allocate capital to Asia and to real assets such as farm land and farm commodities and some commodities that haven’t move up yet,” says Faber. In a world where you print money, assets that can not be multiplied…such as oil and gold and other precious metals will appreciate.”
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