Cutmore: Marc Faber on Armageddon

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.

In Faber's world the US dollar will weaken, and the Yuan and commodity currencies like the Aussie dollar will appreciate.

Isn't there anything in the US he likes?

With just the slightest hint of irony (check gun sales numbers!) – Marc points to gun and ammunition makers. Prison builders also face better prospects he says – after all where will they put all the politicians!

Given the apparently extreme nature of Marc's calls, the question he poses in his May newsletter gives an interesting insight into his complicated mind.

Apparently he was asked by an Executive Director at Goldman Sachs how he remained so optimistic about life...

He writes in response:

"(he)...saw me smoking and thought that I should have already gone to hell (even under the 'Black Swan Theory', Heaven isn't an option), or because I ride fast motorbikes in Thailand (where there are no traffic rules), drink, and go out in the early hours of the morning? Or was philosophy on enjoy life even in the darkest times and most horrible situations..."

Marc concludes optimism comes from some simple but important principles:

  • The ability to adapt to change: whether economic, financial, personal or social.
  • Accept responsibility when things go wrong that are your fault, and don't blame others.
  • And take comfort in the dynamism and drive of the human race. Marc points to Asia – where he has lived for several decades and witnessed the transformation of lifestyles.

Even if we disagree with his outlook – at least we can agree on his causes for optimism.

Questions? Comments?