October 12, 2008

Marc Faber on the global economic meltdown

DR. Marc Faber of Marc Faber Ltd,. has been a favorite guest on many business shows on cable TV because of his often shoot-from-the-hip comments and contrarian investment advice. He was in Manila last Thursday as keynote speaker of the 8th annual Asia Pacific Regional Investment Conference which I attended. His often tongue-in-cheek humor about the global crisis sent many conference tittering. It was of course, pure entertainment. Faber also publishes a regular newsletter called the Gloom, Boom, Doom report available on the web.

Here are a few choice quotes from Dr. Faber regarding the global sub-prime credit meltdown:

WHO TO BLAME: "The Federal Reserve's highly expansionary monetary policy in 2001 to 2007 led to strong money supply growth and storng credit growth.... 70% went to housing and real estate investment. Home prices rose steadily and went way above the trend."

THE DOMINO EFFECT: "Regardless of policies followed by the U.S. government and its agencies, the consumer is in recession and the recession will deepen. Trade and current account deficits will shrink further and diminish international liquidity. The shrinkage of global liquidity is bad for asset prices, including commodities. Also, deleveraging is occurring among financial intermediaries. This is extremely negative for an economy addicted to credit growth. We had an unprecedented global economic boom. A global bust is likely to happen."

ON THE $700-B BAILOUT PACKAGE: "If (Federal Reserve chair Ben) Bernanke wants, he will print money. You just throw money in system. Buy up the bond market and real estate mortgages. You create inflation....The bailout package won't address the real problem, which is too much debt. The debt bubble has already burst."

ON THE U.S. RECESSION: "A U.S recession is not bad. Americans will eat 5% less, obesity goes down."

THE IMPACT ON ASIA: "Where it hurts, will be the people who produce for the U.S. economy (Asia).... Decoupling will not likely to occur. There is a correlation in asset markets. If the S&P drops, most markets will go down. If S&P is up, markets are up. If the U.S. goes into a recession, China and India's growth will probably slow down to 3%. But coming from a fast growth to a slowdown, it will feel like a recession [in these countries]."

WHY ASIAN BANKS ARE BETTER: "Asian banks are in much better shape than U.S. banks. I suspect this is because most Asian bankers are just too stupid to understand structured products. Compared to U.S. banks, Asian banks are rock solid. Even Philippine banks, because they've invested domestically."

IMPACT ON THE PHILIPPINES: “Only a Filipino will believe that the Philippines will be immune from a global slump. Of course it will affect the Philippine economy as already reflected in the decline in share prices already. The Philippine market has been down 60% from its peak in '97. It's not terribly expensive. But before a new bull market emerges, a lot of base building will happen."


• Real Estate: In resource rich emerging countries
Avoid real estate in financial centres

• Healthcare: Pharmaceutical, hospital management companies

• Local Brands: May displace some international brands

• Commodities: Volatile, but uptrend intact. Corrections of 50% are common.
Caution about industrial commodities is warranted

• Tourism: Hotels, casinos, airports, beach resorts. Potential problem is oversupply.

• Financial Services: Banks, insurance companies, brokers in emerging economies

• Infrastructure: Bottlenecks everywhere. Potential problem could be cancellations

• Plantations and Farmland: Indonesia, Malaysia, Latin America, Ukraine

• Japan: Very depressed, banks look interesting

• New Regions: Cambodia, Laos, Myanmar, Mongolia

• Africa as a play on Asia

• Gold and Silver

(Click here for another story from the investment conference.)

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