Lelde Smits: Hello, I’m Lelde Smits for Australia’s Finance News Network and joining me today is Marc Faber, author of 'The Gloom, Boom & Doom Report'. Marc, thank you for joining us from Thailand.
Marc Faber: It’s my pleasure.
Lelde Smits: Last time we spoke at the end of 2012 you slammed global stimulus policies. In your view - has the situation improved or deteriorated over the past year?
Marc Faber: That depends for whom. Basically we have an economy that is very imbalanced, a global economy that is very imbalanced. The rich have benefitted a lot from the stimulus packages, both fiscal policies and monetary policies. Whereas the average household hasn’t doesn’t done particularly well. And, there is now a meaningful slowdown in emerging economies.
Lelde Smits: You mention emerging markets, they have also felt the force of the Fed’s decision to withdraw stimulus. What is the risk of more downside and which economies do you think face the biggest threat?
Marc Faber: The economies with the largest downside are countries like South Africa, Brazil and Turkey. But, we could have a contagion and then other emerging economies currencies could also weaken.
Lelde Smits: Which countries do you think are currently the most economically stable and which are really at threat of danger ahead?
Marc Faber: You’re asking which country is the least ugly?
Lelde Smits: Potentially, yes.
Marc Faber: I mean basically we have instability everywhere.
Lelde Smits: So there are no bright spots for you?
Marc Faber: Well, in terms of investments the Vietnamese stock market has had a very rough time between 2006 and last year. And, we’ve bottomed out both economically and also in terms of asset prices, real-estate and stocks. So I think that some money will be made in Vietnamese shares.
Lelde Smits: So will you be putting your money into Vietnam?
Marc Faber: Yes, we have already investments in Vietnam both in real estate and equities.
Lelde Smits: If we look at more of your investment advice – Last time we spoke [September 2012] you said, “The best performing asset class will probably be real estate and precious metals”. Since then gold sank about 30 per cent over last year while home prices have continued to rise to elevated levels around the world. How have your views changed over the past year?
Marc Faber: Well the problem with money printing is that it doesn’t lift all assets at the same time. So yes we had a substantial gain in home prices in most countries. And, I think that real estate is now world-wide at an elevated level with few exceptions. But say in the US and in Australia we are at very high levels. All have had a significant correction and I think that we just bottomed out in the price of gold and in gold shares.
Lelde Smits: How have you changed your exposure to both over the past year?
Marc Faber: I have increased some real estate exposure in places where prices are low, say in Thailand and Vietnam. On the other hand I have reduced, say, my exposure to home builders in the United States and I have recently increased my exposure to gold and gold shares.
Lelde Smits: Your recent analysis has recommended 10-year treasuries for a short term trade. What’s the rationale behind this recommendation when US interest rates are sitting so low?
Marc Faber: I think that there is a chance that when equity markets sell off there will be a flight into quality away from risk and that treasuries could benefit. So I am buying 10 year treasuries, or I bought them when the yield was around 3 per cent in the belief that if stock markets go down they will rally. And secondly, if the yield of the 10-year treasury should rise to about 4/4.5 per cent I think it would knock off stock markets.
Lelde Smits: Now Marc you have also predicted equity markets are overdue for a correction of between 20 to 30 per cent. Over what time frame are you expecting this to play out?
Marc Faber: I think this year will probably have a market correction that is more meaningful in the US. We already have this 20 to 30 per cent correction in emerging economies stock markets, but it hasn’t happened yet in the US. So what you have is essentially the US marching up and emerging markets moving down and I think a significant adjustment in the US is likely to start this year.
Lelde Smits: Finally Marc, you have previously said we are in a “gigantic financial asset bubble”. What signs will you be looking at to indicate that the bubble may be about to burst?
Marc Faber: Well that is the tricky part of bubbles. They can get bigger before they burst and it’s never crystal clear that they will burst. But, according to William White who was at the BIS [Swiss-based Bank for International Settlements] before, total credit in the world today as a percent of world GDP is now 30 per cent higher than it was in 2007 when the last crisis occurred because of excessive credit. So I think that the global economy is extremely vulnerable as credit growth may slow down.
Lelde Smits: Marc Faber, thank you as always for your insights today.
Marc Faber: Thank you very much for having me.
Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.