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Ultra bearish Marc Faber says current gold price 'low', investors must prepare for the worst as 'it will come to war'
Source: BI-ME , Author: BI-ME staff
Posted: Fri August 5, 2011 7:23 pm

INTERNATIONAL. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said markets are "extremely oversold" and a "snap-back" rally - 50 points on the S&P - could start as early as today.

However, he sees no new highs for the year, and expects markets to drift lower to a mid-term target of 1,050-1,100 for the S&P by October- November of this year.

In one of his gloomiest predictions, he tells investors to prepare for the worst by buying precious metals on dips.

Markets oversold

Speaking in a phone interview from Zurich with CNBC this morning, Faber said: "The market has experienced huge technical damage. Near term as of today, all markets are extremely oversold, so a rebound will happen.

"The damage technically is so great that the rebound, no matter if QE3 happens right here, is unlikely to lift the markets above the May 2 high on the S&P at 1,370," he added.

Faber has set a mid-term target of 1,050-1,100 on the S&P 500 by October-November of this year. After, "we will have to see if QE3-QE4 will come and whether markets will stabilize."

In general, the renowned investor said he would use rebounds as selling opportunities.

The S&P 500 Index slumped 60.27 points, or 4.8% yesterday, to 1,200.07. The percentage drop was the biggest retreat since February 2009, as concerns the global economy is weakening prompted a global rout.

An index of global stocks entered a so-called correction yesterday, falling more than 10% from this year's high. The seven-day sell-off has wiped out more than US$4.4 trillion from market values worldwide, according to Bloomberg News.

"The world has gone mad," Faber told Susan Li and John Dawson on Bloomberg Television's "On the Move Asia," earlier this morning.

"Investors don't understand that markets are volatile and that they have to be prepared to see stocks drop 30% annually and then rallying 20% and then dropping again. That's going to be the pattern, and anyone who cannot live with that shouldn't be buying anything".

Faber, who predicted the stock market crash in 1987 and turned bearish shortly before the 2007-2009 bear market, expects a snap-back rally - about 50 points on the S&P- as early as today or Monday.

QE3 and Treasuries

"I can already smell QE3. Now we'll see if Mr. Bernanke is a true money printer or an amateur money printer," he said.

"If he is a true money printer, he's going to start printing soon, markets will rally but not to new highs," he told Bloomberg.

"The Treasury market is telling you that the economy is in recession," Faber said in an earlier interview this week.

"So if the bond market is telling you that the economies of the Western world are weakening, but at the same time the stock market is still relatively high, I think the stock market is vulnerable."

"I think Treasuries are still perceived as a safe haven because everyone knows the US has an endless ability to print money, Faber told CNBC today, adding that he US will not default, instead it "will pay the interest in a worthless currency."

He believes that some companies will start to disappoint in the second half of this year and "we might have liquidity problems in the market in terms of financing."

Ultra bearish- It will come to war

Speaking to CNBC on Tuesday, Faber said there is a case for being "ultra bearish about everything".

Explaining his stance, he said: "I see that 10 years ago, a huge shift in economic power began from the Western World - the US and Western Europe- to Asia and emerging economies."

"This shift in the balance of economic power to emerging economies is accompanied by a shift in the political and military power, and that..., the West will not just sit and do nothing about it."

"The Libya expedition is the first shot," he argued.

"I think the West would want to control China by controlling the oil supplies from the Middle East, and then it will come to war," he predicted. 

In war time the one thing you don't want to own is government bonds, he said. "I would prepare for the worst. In a worst case scenario investors are better off in precious metals," he stressed.

Gold price is low

The Gold price is cheaper today than 10 years ago, although in nominal terms it is up 4-5 times, Faber argued.

"But compared with the monetary base, compared to government debt, compared to the increase of wealth in the world, and compared to the increase in international reserves, the gold price today is low."

"Gold and silver became over-bought and are due for a correction, so we can have a period where equities rebound and gold & silver correct on the downside. I would see weakness in gold - a fall of US100-US$150 although not predicted but could happen - as a buying opportunity," he told CNBC.

Chinese growth risks to global economy

Faber also argues that if China disappoints in terms of growth targets or if they crash it could be "a much bigger risk for the global economy than the US because the US is no longer a major commodities buyer".

He believes that the impact of a decline in Chinese growth on the oil price could be critical for major commodities producers like Canada, Australia and the Middle East.

"If commodity prices are falling, then commodity producers will buy fewer goods from China," he pointed out. "This could trigger a vicious circle on the downside and I would say there is a fairly good chance that this could happen," Faber said.

"This is something that the world central bankers wouldn't be able to help with printing money," he added.

About Dr. Marc Faber

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' which highlights unusual investment opportunities, and is the author of several books.


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