Marc Faber Interview – Part 2

marc-faber-3Here and now Marc Faber still can see an opportunity in Hungarian and in Central and Southern European stocks, though he warns that it may be late to invest. He’s been reducing his equity positions.

Zentai Péter: You are saying – obviously with a strong and cynic exaggeration – that the Dow Jones index may climb to one hundred thousand points and the whole depends on the amount of money printing FED is going to do. I think the ECB can also manipulate the leaders of stock market in order to raise stock prices. But – I am asking you – can investors be so stupid, or for them only the possibility of making money „here and now” is important?

Marc Faber: stock market developments, sooner or later, will always reveal the truth. But now we are still in the period of making fast money in stocks. Even if I have a negative forecast, four months ago – for the first time in my life – I also started buying some stocks in Portugal, Spain, Italy and France, only because I knew that the short-term interest of European governments and ECB leaders is, to help those countries which are facing problems. So it was sure that the share prices of these countries would go up. To tell you the truth: I still consider European stocks a good buy. The very obvious reason is that – though they are up substantially since I bought them –, while the S&P index has more than doubled since 2009, the southern European stock markets are below their 2009 level. From that very low level they could only go up and up. This is why I have bought a lot of these stocks.

Z. P.: Congratulations. What about Hungarian shares and bonds? Would you buy any of these?

M. F.: I am not a specialist regarding Hungary. But – after seeing the attitude of ECB and in general the attitude of main line European politics towards the whole problem – namely to keep the eurozone and the EU together by all means – I can say that for the moment there is a great opportunity in the stocks of each European country. The Central European area – as I can see it – can do betterthan the European average, because it started from a lower level in every respect.

Z. P.: Asia – I suppose – has been really interesting because of this for the last ten and twenty years. Compared to Europe and America, Asia has been able to grow from an incomparably lower level, and it’s still very far behind…  But what do you think of the conflict between Japan and China? Can’t that be the overture of a very serious drama? Asia has become the stage of new fights for power, hasn’t it?

M. F.: I don’t think in Asia the situation is so bad. I think it’s better than the general situation in Europe.

China gets 95 percent of the oil from the Middle-East, so the security of strategic shipping lanes is important to China.China pays a very high attention to any possible danger and – even out of historical reasons – considers Japan a potential source of danger.

But to tell you the truth, my opinion is that the USA has a very excessive and bad role in the Asia-Pacific region, because they want to stop the imagined Chinese expansion by all means. If the USA gave up this policyand they didn’t want to have a military power over the whole region, if they gave upall their military bases in the region, then the main Asian countries – Vietnam, Indonesia, Japan, China, Malaysia, South-Korea – in themselves would be able to make a long-term peaceful agreement. But now Asia is being threatened by serious economic problems and geopolitical conflicts.

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Z. P.: But you still live in Asia, after all. Why is that?

M. F.: Where else do you think I should live?

Z. P.: You may live in Hungary, for example. Or in your country, Switzerland. Or in the USA, or in Britain…

M. F.: Here, in Asia I live much better and I have much more freedom than in any of the countries mentioned by you. Here the government doesn’t lay a pressure on me, I pay much lower taxes than in any other country in the West, I can let my fantasy free,no one will stand in my way. After living here for almost forty years I am convinced that I have made the right decision. I have to stay in Asia.

I can’t say, of course, that the Asian stocks at the moment are better than the European stocks. After all, only here in Thailand stocks have soared by 250 percent for the last three years. China’s slowdown deems the Chinese stock market to stagnation. At the moment it is not an opportunity. But these national economies are still „deemed” to a natural development, because they are less manipulated than the American or European national economies.

This region is amazing: for the last twenty-thirty years the living standards of billions of people have grown enormously.Of course there is still a huge number of poor people. But the trend is still on: consumption in this area in the next years and decades will grow, maybe not in a balanced way, but amongst natural relapses. So I don’t expect in Asia such convulsions like the ones which, I think, will happen in Europe.

Z. P.: But you have just said that you consider European markets a good buy…

M. F.: Yes, because markets are manipulated in order to be attractive. Europe cannot grow in a natural way because European governments do not want to put an end to the economically unrealistic welfare systems. They want to restore the old system in which one could live and receive welfare benefits without working. This system does not really urge people to look for a job. Due to this forcedness – if we take all factors into account – the Western European living standards have gone downslowly but surely for the last fifteen years.

Z. P.: But, Mr. Faber, it is merely that in Asia, Latin America and Africa labour force is very cheap. Due to globalization Asia has taken jobs away from Europe. Because of this half of the Spanish young people and one quarter of the European young people cannot find a job.

M. F.: You are wrong. The truth is that, for the last ten and twenty years Europe has „produced” millions of young people with the wrong skills, with needless overqualification. I can see in Switzerland, too, so many people in their twenties, who can’t do anything with their university degrees. And at the same time it’s impossible to find skilled workers which the Swiss industry really demands. There are no carpenters, house painters, mechanics…

On the other hand, parts of the European industry are very competitive. Mercedes and other car factories specialized in high quality production are all competitive. There is a global demand for their products and services, and in the price and value of their products it is not relevant whether the labour costs of the worker producing it is five times or ten times higher than the Asian worker’s labour costs. But the population of Europe has been indulged and privileged compared to the population of other continents.

Z. P.: Maybe in Western Europe this is partly true, but in Eastern and Central Europe people have not been indulged…

M. F.: There is no real job market in Europe. This construction is a forced one, at a greater extent than in America, not to talk about Asia.

This is why I am pessimistic about Europe in the long term. I am more pessimistic about Europe than about America.

We have way too much debt everywhere: corporate debt, household debt and government debt. And, in addition, the government involvement in economy is increasing. All this can have only one result: economical stagnation at best. If the USA could produce a three percent growth – according to my calculations – that would mean a growth between 0 and 1 percent to Europe. Expecting a bigger growth than this in the following years is self-deception. For the time being the European economy will not grow.

Z. P.: So, you also think that America is in a better situation than Europe in every respect. This is a good signal, anyone wins the presidential election.

M. F.: It depends. All this is artificial, and FED is the protagonist with its continuous money printing. This is good for stocks, but is it good for society too? This process will be copied – one way or another – by Europe too. And out of the several negative consequences I have not emphasized the increasing social tensions yet. This is an economic policy which indirectly helps rich people become even richer, as mainly the richest of society are the ones who take a profit from the new money as well. Compared to them, the middle-class suffers a drawback in this respect. This class will sink, their standard of living will continuously go down.

And all this includes the possibility of what has already happened in the Arab world, namely the social explosion. Strikes, street conflicts, and later even riots will threaten the Western world. This will be the price of forced money printing, of the short-term superficial security created around the euro zone, and of keeping privileges alive.

Z. P.: And where do you keep your assets now? What are you buying, what are you selling? What do you think of precious metals?

M. F.: I have reduced my equity position. At the moment I have about 25 percent of my assets and money in real estate, mostly in Asia: Vietnam, Indonesia, Thailand. I keep another 25 percent in cash: USD, EUR, Thai baht, yen, Singapore dollar and Australian dollar. The third quarter is in gold, and I still keep the last 25 percent in bonds and equities.

Z. P.: What is your forecast concerning USD and EUR? And when do you think Chinese yuan will be a real currency?

M. F.: Yuan is a real currency, the currency of a massive economy. Now – parallel with the slowdown – it is trending lower against the USD, which will last a few years. The introduction of full convertibility is only a question of time – how much time, I don’t know yet.

EUR and USD are being manipulated by central banks and governments. Anyway, I expect that euro will trend lower against the USD.