World-renowned contrarian investor Marc Faber is known for his big calls.
Key points:
- Contrarian investor Marc Faber says central banks waited too long to act
- He believes a recession is inevitable and will hurt ordinary people
- Mr Faber warns this will lead to an ‘implosion in asset prices’
Just before the largely unexpected global stock market crash of October 1987, known as Black Monday, which saw the Dow Jones lose 23% in a single day, he advised his clients to pull out of the stock market.
Black Tuesday, as was the case in Australia thanks to our time difference with the US, saw 25% of the ASX cleared in one day.
But Mr. Faber doesn’t always get it right.
In January 2015, he predicted that gold prices would rise 30% that year. In fact, they fell 14% at the end of December.
Despite this, when Mr. Faber speaks, many people listen.
His latest forecast is of an “imminent implosion in asset prices”.
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Central banks are too late
Central banks around the world are walking a precarious tightrope as they raise interest rates to head off higher inflation, without going too far too fast to avoid triggering a recession.
The Reserve Bank of Australia yesterday raised Australia’s official interest rate for the first time in 11 years, by 25 basis points to 0.35%.
The US Federal Reserve is widely expected to raise its benchmark interest rate another 50 basis points this week.
However, Mr Faber criticizes central banks for not acting sooner.
“Never in history before, in the 5,000 years of recorded history, have interest rates been so low, as they were in 2020 and 2021,” he told The Business.
“So we now have a situation where central banks are in a very difficult position because if they don’t raise interest rates, inflation is likely to pick up.”
A blow of recession necessary
Mr. Faber fears that many people around the world will suffer from inflation.
“Ordinary people with low wages and high taxes, they are the ones who suffer the most, and rich people, they can cover themselves.”
But he argued that the stimulus band-aid of low interest rates needed to be ripped off.
“Well, if they can clean everything up entirely, I doubt it.”
Uncertainty about how central banks will handle the economic situation the world is currently facing is making investors nervous as they try to figure out where to put their money.
“Lose the Least”
Investing is a bumpy ride – the title of Mr. Faber’s regular report, Gloom, Boom and Doom, is enough to tell you that this is his vision.
“It is better to be realistic than to be a dreamer and think that everything will always go up because history does not show that everything goes up,” he said.
But this vision did not prevent him from investing.
His portfolio is a classic case of investing 101 – diversify.
“I basically have four sectors in my portfolio: one is real estate; then I have cash and short-term bonds, for yield; I have stocks; and I have precious metals. “
In this time of uncertainty for investors, here are some of his thoughts.
On mining, Mr Faber told The Business: “Australia is a resource-rich country, and I would expect commodities to decline less than, say, financial assets.”
On tech stocks: “I think we have to understand that with new technologies, like in mining, you have 100 mining companies, you have 100 tech companies, one will be fine, two will be fine, maybe, but 95% be bankrupt because it’s a very competitive field.”
On digital currencies: “You know, people say, ‘I diversify, I buy Bitcoin,’ well, Bitcoin is very closely correlated to the NASDAQ 100. The NASDAQ 100 peaked on November 22, 2021, and Bitcoin November 26. Since then, NASDAQ is down more than 20% and Bitcoin is down almost 40%.
Mr. Faber argues for investing in something because you believe in it, not because of how it compares to its peers.
“For the past 20 years or so, the idea has always been to maximize your profits, to outdo somebody,” he said.
“But how have they performed lately? Very badly.
“I think as an investor, in the current situation, you should say to yourself, ‘all I have, I want to invest in such a way, that if Marc is right, and we have this implosion in the price of assets, from real estate to stocks to bonds to everything, if Marc is right, I want to be among those who lose the least”.
“That’s the strategy I follow.”
You can catch Marc Faber’s interview with Kathryn Robinson on The Business tonight on ABC News Channel at 8:45 p.m. AEST or after breaking news on ABC TV.