INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor says a correction in assets prices has begun but the long-term outlook for gold remains favorable and recommends accumulating the precious metal on any weakness. He also recommends accumulating Japanese shares as reconstruction work will push money into equities.
Speaking to Fox Business Network on Thursday, Faber said: "What is happening in the Middle East is friendly for gold, friendly for oil, and other commodities".
"The mess in the Middle East will only increase over time, nothing has been solved; in Libya we have a civil war, it is not necessarily about democracy..... All these things are indicating, including the earthquake in Japan, that central banks will continue to pursue expansionary monetary policy to keep interest rates artificially low and that boosts equities and commodities,” Faber noted.
Highlighting how the earthquake will impact Japanese bonds and shares, Faber said "the key to the performance of Japanese shares is that the Japanese bond market becomes unattractive and that the Yen over time weakens".
"I think as a result of the reconstruction work that may cost up to US$300 billion, that obviously the government will need to monetize, and Japanese bonds in the long-term will become terribly unattractive, and that will push money into equities."
"So, I think Japanese shares are worthwhile to accumulate.”
Faber, who predicted the stock market crash in 1987 and turned bearish shortly before the 2007-2009 bear market, warns a correction in asset markets has already begun.
Precious metals are moving up, he says, "but they are not acting all that well" and he doesn't expect new highs for now.
What is the magnitude of the correction?
"We live in very volatile times; a correction could be 10%, 20%, he said, highlighting "I would on any weakness accumulate gold."
"The long-term outlook for gold is favorable," the Gloom Boom & Doom editor stressed.
Regarding US equities, he doesn't expect a breach of the February highs and sees weakness in May, June.
"We peaked out on the S&P on February 18th at 1,344 and usually in April we have seasonal strength but I think it’s likely that the S&P will not be able to make a new high and then we will have a more significant setback in May, June," Faber told Fox Business Network.
In a recent CNBC interview Faber was asked whether the Japan situation would have any impact on the Fed's Treasury purchases, a.k.a. Quantitative Easing (QE) and whether it would make it harder for the Fed to pull back in June. The Gloom Boom & Doom editor said he expected further equities weakness and suggested the Fed will pull back until the S&P drops up to 15%.
"We may drop 10%-15%. Then QE 2 will come, (then) QE 4, QE 5, QE 6, QE 7- whatever you want. The money printer will continue to print, that I'm sure," he predicted.
What about oil?.
"[Investors] don't believe in the gold story anymore," declared Kevin Norrish of Barclays Capital on Wednesday, announcing the bank's latest commodity investment survey of institutional players.
"Not one single respondent" chose gold bullion as the likely best performer in 2011, Norrish said.
Crude oil – the survey's top pick for 2011 gains – today ticked back through US$105 per barrel of US West Texas Intermediate.
"I still think in a risk/reward view oil is a very attractive commodity," Faber told CNBC.
"If you take a very optimistic view of the world namely a global economic recovery, demand in the Western World will pick up and demand in the Emerging World will continue to rise strongly, so from a very optimistic point of view you should be long oil," he said.
On the flip side, "if you take the ultra bearish scenario, like I do, where you think everything will collapse, that there will be World War III and collapsing countries in the middle East, then supplies will be curtailed and prices will go up".
"So, in either scenario, you are OK in oil"
Note: Dr Marc Faber was born in Zurich, Switzerland. He went to school in Geneva and Zurich and finished high school with the Matura. He studied Economics at the University of Zurich and, at the age of 24, obtained a PhD in Economics. Between 1970 and 1978, Dr Faber worked for White Weld & Co in New York, Zurich and Hong Kong.
Since 1973, he has lived in Asia. From 1978 to February 1990, he was the Managing Director of Drexel Burnham Lambert (HK). In June 1990, he set up his own business which acts as an investment advisor and fund manager.
In 2000 Faber decided to spend more time writing his newsletters as well as growing his advisory business. He moved back to his home in Chiang Mai, Thailand, maintaining only a small administrative office in Hong Kong.
Dr Faber publishes a widely read monthly investment newsletter 'The Gloom Boom & Doom Report' report which highlights unusual investment opportunities, and is the author of several books.