Ongoing market volatility and a US economic downturn are on the cards, predicts contrarian investor Marc Faber, but the prospects in Asia are looking bright.
There is no end yet in sight for global market volatility, which will affect all asset classes, says Faber, nicknamed ‘Dr Doom’ for his self-admitted tendency to be “ultra-bearish about everything”. For those who can’t handle volatility, he advises: “Better not to get out of bed in the morning.”
The alternative to volatility would be grave, Faber opines. “The worst is a lengthy bear market,” as it drives away investors and leads to a lack of liquidity.
Efforts by the US government to spur growth through economic stimulus, which he describes as “helicopter dollars”, are making matters worse, according to Faber, who spoke at CLSA’s Investors’ Forum last week. “The consequence of easy money is the growth of credit.”
The availability of easy credit, he believes, has pushed down asset prices and created market volatility. However, he foresees it as part of an ongoing trend in the “credit-addicted economy” of the US.
“The [US Federal Reserve], in the long term, has no option but to print money. When you print money, it loses its value.”
He adds: “Asia should send a thank-you letter to [Federal Reserve chairman Ben] Bernanke” for stimulus policies that have been an “utter failure” for the US but beneficial to Asia.
"We had, essentially, a bank failure in 2008 and the financial system in the Western world went bankrupt. Then it was bailed out by governments and the banks have learned nothing. “
Government intervention in private finance will have a damaging effect to the US and European economies over the long run, he predicts. “In 2008, the financial sector [went] bust, and in the future, the [Western] governments will go bust.”
In contrast, “the Asian banks are in a good shape”, says Faber. “Asia reacted well in the 1997-1998 crisis. A period of deleveraging followed. Businessmen became conservative. They paid down debts and the banks became very cautious in terms of their lending.”
As a result, he has more confidence in Asian banks than their Western counterparts. “I would deposit money with a Thai bank, no problem. They will pay me back. They don’t know what derivatives [are], because the derivatives salesmen never get through the traffic in Bangkok,” he quipped.
“I would rather stick to emerging economies than Europe and the US.”