INTERNATIONAL. Dr. Marc Faber the Swiss fund manager and Gloom Boom & Doom publisher discussed this week his 2013 predictions. In a nutshell, he expects a lot of surprises [not on the positive side] for investors. He sees declining markets, a correction in gold followed by higher prices, favorable fundamentals in oil and reiterates that US Treasuries are "undesirable" and the dollar is a "very sick" currency.
Speaking on the phone to CNBC's Mandy Drury Thursday, Faber said equities "after possibly some near term strength will essentially decline in most countries."
He excluded Japan, Vietnam and China from his prediction because "they underperformed over the last 4 years so badly."
Faber reckons there are many reasons for equities to fall, citing in particular that earnings could disappoint and the fiscal issues are not resolved - tax increases and more spending which could have a negative impact on the economy. He also sees many basket case countries "with little hope for improvement that could spillover in social unrest and geopolitical tensions."
In addition, March 2013 will mark the 4th anniversary of the current bull market and he can see trouble ahead: "Lately, we had important shares like GE, IBM, Wall Mart doing badly," he said, pointing out that when important shares "that are reflective of the economy perform this badly, you have to ask yourself about the soundness of the entire market."
In his January Commentary Faber highlighted his concerns about 2013 and advised investors to adopt a prudent "capital preservation" stance. He wrote: "That something is not quite right with the economy is evident from the recent performance of Wal-Mart, Tiffany, Genesco, and Kohl's. What disturbs me about most asset markets is that we had outsized gains since early 2009 (there are exceptions such as Vietnamese, Chinese, Japanese, and European equities, and also US housing).
"In my opinion, investors' expectations about future returns on their assets are far too optimistic. In a world that currently hardly grows investors will need to reduce their future return expectations. I believe 2013 will not be a favorable year for holders of assets. My priority has now shifted to the preservation of the outsized gains I have achieved over the last three years."
But, with this caveat: "I am also mindful that corporations and wealthy individuals are cash rich and since there are very few promising investment opportunities aside from equities, they might one day shift their considerable liquid assets into stocks."
European shares consolidated close to two year highs Friday after Europe's Central Bank expressed cautious optimism on the eurozone's prospects.
I am not selling my gold
I am buying gold every month but I would prefer to see a final sell off to shake out margin buyers and speculators and then I will increase my position again more meaningfully, Faber told Drury.
In an earlier interview with CNBC's Squawk Box Tuesday he quantified the expected drop: "I don't think [gold] will go up right away, and we maybe have a correction of 10% or so on the downside.”But I see that governments will print money… so I want to have gold as an insurance policy."
In his January commentary Faber was more specific calling a bottom for gold “perhaps down to between US$1,550 and US$1,600."
Gold bullion prices dipped back below US$1658 an ounce Friday PM in London.
"I will never sell my gold in my life," Faber told Drury, adding, "as long as I see people like Mr. Bernanke and Mr. Obama and The U.S. Congress, I will always buy every month some gold."
Gold's monetary role & the Fed's QE
Gold bullion could form part of "an immensely important phase in the history of world money," according to a report published Friday by the World Gold Council and produced by the Official Monetary and Financial Institutions Forum.
"Western economies have attempted to dismantle gold's monetary role," the report says,"[but] this has failed."
Recent comments from some FOMC members suggest that "it would probably be appropriate to slow or to stop purchases well before the end of 2013".
"With little sign that core FOMC members such as Bernanke and Yellen are shifting," concludes a note from Standard Bank, "the Fed's QE is likely to continue for as far as the eye can see."
Favorable oil fundamentals
The fundamentals of the oil market are quite favorable, Faber reckons, because emerging economies' demand will continue to increase, even if China and India weaken - very low per capita consumption - and some supply concerns.
"In general, I think that the price will hold and probably even go up," he predicted.
Debt, bond bubble & the sick dollar: "One day, the system would break."
The Gloom Boom & Doom publisher believes there's a bubble in government bonds and investors will realize that their money will lose purchasing power and ultimately will no longer trust to buy government bonds, notes or bills. “I'm ultra bearish on paper money."
The debt burden in the U.S. and other Western countries will continue to increase, leading to a “colossal mess” within the next five to 10 years, Faber said in October.
He argued that the political systems in place in the West allows the debt burden to expand as politicians promise to spend money they don't have. Under such a scenario of never-ending deficits, the Western world racks up huge deficits. "One day, the system would break."
If you have very expansionary monetary policies, you actually encourage the expansion of government, then the fiscal deficits, the transfer payments etc...
In general, US Treasuries are "undesirable" because interest rates in time will go up and the dollar is a sick currency, Faber told CNBC's Drury by phone.
"I hear a lot about how natural gas and increased U.S. oil production will be a game changer but the market doesn't seem to think that way because the dollar is weak against an even sicker currency, the Euro.
One has to conclude that the dollar is a very-very sick currency if it is weak against the euro," Faber said.
In the austerity versus growth pseudo debate, one is reminded that if money printing was a panacea, Zimbabwe ought to have been an economic powerhouse and if government spending was a miracle cure, then Greece ought to have been the most successful eurozone economy.
Food for thought.
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.