INTERNATIONAL. Investment gurus Jim Rogers and Marc Faber agree to various degrees on many issues but the one thing separating them this week is the future direction of the Chinese economy and if this could have a devastating impact on commodities around the world.
Both Faber and Rogers have been warning about the effects of monetary and fiscal policies on the US economy, since the recent rally has been mostly based on printed money, a kind of 'reverse Robin Hood policy' of governments, to steal from the peasants to give to the rich.
As with Faber, Rogers is mostly to be seen being interviewed on CNBC and Bloomberg Asia or Europe as they both live in Asia now and since their views are to put it mildly, somewhat negative on the prospects of a sustainable US recovery.
Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, believes a Chinese slowdown is already under way.
In a phone interview with CNBC Friday, he said that a hard landing for China will have a major negative impact on global commodities and risk currencies, before going as far as saying that he is "more worried about a Chinese economic downturn than a recession in Europe".
For his part, legendary global investor and chairman of Singapore- based Rogers Holdings, Jim Rogers thinks Faber has got it wrong about China.
"Marc still does not understand China. There are going to be several hard landings in the next few years, but China’s will be less hard overall than others such as Greece, U.S..." Rogers told CNBC Friday.
China's manufacturing activity slumped to its lowest level in 32 months in November, banking giant HSBC said November 23, renewing fears the Asian powerhouse is losing steam amid global economic woes.
HSBC chief China economist Qu Hongbin said he expected cooling domestic demand and weakening external demand for China's exports heralded a further slowdown in production in coming months.
"The (Chinese) economy consists of many sectors and I think some sectors are already probably in a recession," Faber elaborated.
"I think growth will be much lower and it is possible that we could have a hard landing with no growth at all," he predicted.
The commodities market, in particular, will bear the brunt of a China economic deceleration, according to Faber.
"I think a lot of people will care if china grows only at 5% rather than 10% or 0% in a hard landing case because china is the largest buyer of commodities in the world," he said.
"If the Chinese economy slows down the demand for commodities slows down and then the economies of brazil, Argentina, everybody is affected and then they can buy less from china and then you have a downward spiral, Faber added.
Rogers agrees the commodity market will have a correction, but rebutted Faber's view that it would be devastating. "Yes, there will be consolidations in the commodity bull market just as all markets have consolidations," he said. "In 1987, stocks declined 40%-80% worldwide, but it was not the end of the secular bull market in stocks."
"If I was always bullish about commodities and completely missed out on the crash in 2008, then obviously, having tied essentially my reputation to commodities, I'd continue to be bullish," Faber had earlier said about Rogers' view on commodities.
"I proclaimed repeatedly far and wide that one should not buy commodities in the run up phase", replied Rogers. "I also explained that I was not selling mine since we were [and are] in a secular bull market," Rogers stressed.
When one’s shorts decline 90%-100%, it is a good year even when one’s longs decline," Rogers added.
According to Rogers, Faber is the one who has made many wrong calls, arguing that he "totally missed" the secular bull market in commodities that began in early 1999.
China's economic growth eased to 9.1% in the third quarter from 9.5% in the second quarter, as government efforts to tame inflation and economic turbulence in Europe and the United States curbed activity.
Vice Premier Wang Qishan, China's top finance official recently warned that China needed to fix "structural problems" in its financial system to cope with a "long-term" global downturn that threatens the world's second largest economy.
"For an economy like China that depends heavily on exports, the key is to understand the situation and put one's own house in order," the state Xinhua news agency quoted him as saying.
Speaking in a subsequent interview on Saturday with CNBC's Simon Hobbs and the Money In Motion traders, Faber reiterated his view: The data can be manipulated, but in general I would say there is an obvious slowdown in the Chinese economy and I think there is a chance for a hard landing.
Faber went on to elaborate on the unintended consequences of easing: "When Mr. Bernanke became fed chairman, the S&P was at 1264 - that was on February 1st, 2006. We're now at 1244. So, the market is lower than it was at that time. In the meantime, gold has gone to US$1,746...The easing may not mean that the economy will do particularly well as the easing can shift money into some sectors of the economy...The stock market in China may rebound, but I don't think we'll see new highs, and I think the economy will weaken because we have a very capital goods oriented economy, and capital spending is very volatile."
We are not selling our gold
But if China and commodities have succeeded in driving a wedge between the two legendary investors, the one investment still uniting them is gold, although they both warn of possible corrections.
Gold prices fell to US$1731 per ounce by lunchtime today in London – 0.8% below where it ended last week.
Faber predicted Friday gold should get some support over the near-to-medium term as he expects central banks in Europe and the U.S. to print more money to prop up their economies.
Gold's recent rally above US$1,900 an ounce shows no signs of a "bubble" as central banks continue to boost money supply that has helped spur bullion to a record, according to Faber.
"I don't think that gold is in a bubble," Faber told Bloomberg in a recent phone interview from Chiang Mai, Thailand.
"When you buy gold, it's an insurance against systematic failure and problems in the financial markets," he said.
The Gold price is cheaper today than 10 years ago, although in nominal terms it is up 4-5 times, Faber argues.
"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," Faber was quoted as saying August 5.
Faber says he is staying well diversified with his portfolio divided equally in four parts between gold, real estate, stocks, and cash and bonds. He adds that he is keeping ready cash on hand to scoop up assets should markets correct further.
For his part, Rogers is still long commodities. "Gold went up 600% in the 1970s and then corrected by 50% scaring a lot of people," he told CNBC Friday.
"It then continued its secular bull market and rose 850%. Corrections are the normal way of all markets."
In an interview with Investment Week, published today, Rogers reiterated gold may be overdue for a stronger correction. "It is very unusual for any asset to go up for 11 years in a row with no correction. I own gold and I am not selling my gold."
“It has been correcting for the past three months so it is overdue for a stronger correction, but I have no idea by how much. It is very unusual for any asset to go up for 11 years in a row with no correction. I own gold and I am not selling my gold.
"If it is going down because the world is going bankrupt then it would need to be priced at US$900 for me to buy it. If there is an artificial occurrence then maybe between US$1,200 and US$1,400," he said.
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.
About Jim Rogers
Jim Rogers has spent a career being one step ahead of mainstream investment thinking. Amongst his many accomplishments, Rogers was co-founder with George Soros of Quantum Fund. During his ten years with the fund, the portfolio gained more than 4,000%, while the S&P rose less than 50%.
Rogers retired from Quantum in 1980 and became a guest professor of finance at Columbia University Graduate School of Business and in 1989 and 1990, the moderator of The Dreyfus Roundtable and The Profit Motive with Jim Rogers.
Underscoring his convictions that future prosperity will come from China, Rogers' two young children speak Mandarin.