Buy a Farm and a Machine Gun

Some of Marc Faber's old interviews are going around again. Here's one of my favorites in which he recommends buying a farm and a machine gun, and belly laughs at the idea of trusting the U.S. administration. Funny enough, it is 12 years later and the same people are in the new administation...

Euro shorts go all in

Marc Faber sees potential for a euro bounce here and that large short position increases the odds of a counter-trend rally.

Yuan crash possible?

When asked about a sputter or collapse in the Chinese economy, Faber stated, “I live in Asia and all I can say is I observe a meaningful slowdown in business activity recently and increasing corporate earnings that disappoint.” When asked if he was aware of capital flight out of China, Faber replied, “There’s a huge capital flight, there’s no question about this.” When asked why the Chinese are panicking to move their money out of China, Faber responded, “That is a very good question because, you see, the bullish analysts will tell you will tell you, ‘Oh, if the Chinese economy slows down they are going to print money and lower interest rates and ease monetary conditions.’ But if that happens, then obviously capital flight will increase, especially if, unlike all of the expectations, the Yuan or the Chinese RMB begins to weaken rather than to strengthen against the US dollar. So that could actually accelerate the decline or let’s say capital outflows and declining asset values in China.

Listen to the Marc Faber interview at King World News.

Marc Faber on King World News

Always interesting to hear his take on the situation.
Marc Faber, Thursday, April 7

Marc Faber nails the collapsing U.S.

I'm working my way through the Collapse of Complex Societies. Marc Faber has probably read this book, but even if he hasn't, the arguments echo in this segment. It's after the midway point, when he begins to discuss the breakdown of the system.

One of Tainter's arguments (I'm not finished with the book) focuses on the marginal productivity of complexity. As complexity rises, there are benefits to society, but like all things, at a certain point, increased complexity leads to losses. I haven't reached any counter-points by Tainter, but at this point, breaking down the system, such as decentralizing some aspects of society, or reducing the geographic area under control of the society, etc., should produce increased returns. Historically, the behavior of people in similar circumstances shows this to be the case, as pieces of the Roman Empire sought to break away, for example.

Marc lays out the dysfunction in the U.S. system. On the one side, many people do not produce and take from the government. On the other side, there are wealth producers who feel they are cheated by the system. Think about the incentives inherent in th U.S. system. Does government policy create incentives for more unproductive behavior, or less? Does government policy encourage business to invest at home and play by the rules? Or does it encourage them to move business overseas, along with their assets? Think of all the middle layers of bureaucrats needed to operate the system. Think of all recent geopolitical events, such as 9/11. The U.S. spends more money, time and labor on security, for no increased benefit. It now has three wars underway, none looking successful. All of these policies dumping money and blood in the desert are only designed to prevent greater losses, not generate positive returns.

These are some major initiatives, but if you think through the myriad of government policies, you will find the same scenarios repeated over and over. More administrative positions, more rule compliance, etc. Spending more money to deliver the same results, or worse, spending more on a failed program in the hopes of obtaining a better result.

It's not limited to government either, think of the billions in student loans and rising cost of higher education; the higher cost of healthcare; the higher cost of research and development that produces less breakthrough discoveries. Tainter identified these as being at the point of generating diminishing gains back in the late 1980s. On healthcare and education, we are now at the point where spending additional money actually increases the loss to society.

Monetary printing designed to prop up the economy is part of the dysfunction. Without money printing the economy would contract to its sustainable level and there would be "no" wealth for the rich and "no" transfer payments to the poor or the retired. (There would still be money of course, but the amount of losses would staggering. Even now, the U.S. government is borrowing 40 cents of every dollar spent. ) The money being pumped into the economy by Bernanke & Co. is inflating a blown-out tire. Some people are using the time bought by the printing to move assets overseas, some are moving out of paper currency and into stores of value, the ultimate being gold.

China: Boom or Bust? A Faber/Kroeber Debate

Arthur Kroeber from Dragonomics says boom, Marc Faber says bust.
See the Reuters Insider video.

Marc Faber lecture at Mises Circle on May 22

Marc Faber Interview on Alex Jones

Is the rally over?

One thing I like to watch in finance is the trend of opinion. There are a few ways to look at it, from the general sentiment indicators (are money managers bullish or bearish?) all the way down to the individual opinions of those with good track records. There's also the socionomic angle, such as why is Bob Prechter showing up now?

In January, Marc Faber said the S&P 500 could drop 20% after a spring rebound. (He expects Bernanke to print money at that point and halt the decline.)

Tim Knight has posted his latest Big Picture review.

A new short sale rule has ominous implications, not because of the policy itself, but because the government always mistimes its policies, such as passing recession fighting programs once the recession is over. (This time we have a depression and they, like Hoover and Roosevelt, do not know how to fight a depression.)

Economically, things are not looking good. The deadline for applying for extended federal unemployment benefits ends today.

And it turns out that 40% of the banking system and 3000 community banks are exposed to the coming commercial real estate crisis. Many warned about the risks of the housing and subprime markets, but most people do not believe something is a crisis until it is unfolding before their eyes. Therefore, despite the years of warnings, this will not affect the market until liftoff. Even if the market tumbles in April or May, commercial real estate will not yet be a concern—though the slide could trigger liftoff since it could damage the developers' ability to raise capital.

If we see a true deflationary crash, expect gold to tumble along with the markets. Prechter's admonition to load up on cash is appropriate. Also, the U.S. dollar is likely to rally against everything except the Japanese yen. At the end of the slide, the yen may be strong enough to put the Japanese economy at the center of international concern.

I've jumped the gun on the end of this rally so many times, however, that I'm waiting for a clear sign of a break. The previous year of market action suggests a bounce and climb to a new 52-week high and the S&P 500 Index is right at its 50-day moving average. The line is about as flat as it can get, suggesting the next move will bend the 50-day average in its direction. A break higher would be bullish, with the previous high of 1150 as the target for now. A break lower would be bearish, but the S&P 500 would need to drop more than 6% before it reached its 200-day moving average of 1033.

I wonder WHO on Earth would have faith in the US administration. Certainly, not someone who thinks!

More great stuff from Marc Faber. Here's another interview on Indian television where he discusses different markets around the world:


Faber says a correction in oil and materials stocks is already underway, they are below May/June peaks.

I'd also like to point out that the Euro has been trading in a very narrow range against the US dollar. Since June we are at the same level essentially, around 1.4300. And I believe in the next 10 days to 2 weeks, we'll get big moves in markets and I wouldn`t be surprised if the dollar would for a change strengthen and equity markets would correct and possibly quite meaningfully so.

Marc Faber on Deflation & Hyperinflation

For more background on the U.S. policymakers, see:
The Frame of Mind of American Economic Policymakers, part 1
The Frame of Mind of American Economic Policymakers, part 2

Faber's Yen Call

I posted on February 6 that Marc Faber said the yen could go lower.

On that date, CurrencyShares Japanese Yen (FXY) closed at $108.20.

As of today, April 8, CurrencyShares Japanese Yen closed at $99.88, a drop of 7.69%.

Lots of Great Quotes from Marc Faber

About 7:25 into part one of the interview:

Marc Faber: Tim Geithner wants to find and indentify the bad and rotten apples in the system, well he should buy a mirror and stand in front of the mirror himself, with Mr. Ben Bernanke and Mr. Larry Summers, there you have the rotten apples.

Tomorrow's Gold — Asia's age of discovery, 3rd Edition, by Marc Faber

Most investors don't want to work. They want to read an article, watch an interview on CNBC or Bloomberg, and maybe even read a book, but in most cases they are searching for a pick. Gold? Oil? Google? These books and interviews quickly fade because there's no value beyond a timely pick. Perhaps the investment analyst or guru provides information that will outperform for several years, but the investor will probably be searching for new advice within a few months. In Tomorrow's Gold, Asia's age of discovery, originally published in 2002, Marc Faber presents a few general investing themes such as geographically specific real estate, commodities and gold, but spends most of the time explaining why these will outperform.

Faber publishes the Gloom Boom & Doom Report and earned the nickname Dr. Doom long before the current crisis, for his bearish forecasts. The book spends a lot of time on gloom, booms, and doom too. Faber covers topics as wide-ranging as Kodratieff waves, hyperinflation, the life cycle of emerging markets, commodities, the gold standard, economic history, and the rise and fall of cities. All of the discussion occurs in a historical context and provides a sound basis from which the investor can analyze future situations.

At one point in the book he provides an example of how much $1 would be worth today if an investor in Carthage had seen their investment compound at 3% for 2,000 plus years—a mere 142 billion trillion dollars! The point, befitting a man with the nickname Dr. Doom, is that preserving wealth has been very difficult through the centuries. Today's centers of world progress may be tomorrow's sand dune, small rural village, or impoverished urban slum.

Where the book is very timely is that some of the topics covered deal directly with current events. Faber may favor a longer-term investment horizon, but his writing focuses on the crises: bubbles, hyperinflation, deflation, currency devaluation, panic and chaos. Where he covers the bigger trends of emerging markets, he offers the advice that many foreign investors have been taken to cleaners by the natives in emerging markets, often turning to the U.S. as an example.

Tomorrow's Gold won't necessarily provide investing advice you can put to work tomorrow, but it is timeless information that will be useful again and again. Faber offers the reader a new perspective on worn out investment cliches and turns some on their head—and he does so with a wealth of historical examples and a bibliography to match. Readers with an interest in economic history will enjoy this book most of all, as will those who take a "big picture" approach to their investments.

An interview from 2003 with Marc Faber on the topic of Tomorrow's Gold, courtesy of Financial Sense.

Market Direction

On CNBC's Asia Squawk Box (video and article) this morning, Marc Faber repeated much of the same investment themes he's been favorable on for the past few months: inflation, tech companies with the capital to continue R&D through the downturn, Asia, and a possible continued rally in the short-term for the broader market.

A new idea was that the Japanese yen (FXY) could fall versus the dollar, and was a possible short candidate. I'm going to look at this more closely, but it's in keeping with the theme of a market rally, fueled by a reduction in fear. Faber highlighted this theme as well, discussing the performance of iShares iBoxx $ Invest Grade Corp Bond (LQD), a fund that holds quality corporate bonds. That fund fell from $105 in mid-May (about $102 adjusted for dividends) down to $81 ($80 adj.) on October 10. LQD was back over $100 in early January, and has slipped back to $97 as long-term bond yields rise.

Todd Harrison of Minyanville also expects a rally.

Admittedly, part of Harrison's prediction is based on a "gut feeling." But he's
also expecting the next phase of the bank bailout package to be announced soon,
which could provide a catalyst.

One of the first markets to tank in 2007 and early 2008, mainland China, is up 19.8 percent for the year through Friday, February 6. Could a similar rally be in the cards for the U.S.?

If it is led by financials, I'd also expect tech to do well, as it's already outperformed in 2008. Commodity producers also may lead, since a rally may be thought to be backed by the stimulus spending.

The Always Quotable Marc Faber

Here's Faber in the 2009 Barron's Roundtable:

Recently I bought some U.S. stocks for the first time in a long time. If you buy Intel, Cisco, Yahoo!, Oracle and Microsoft, you will do much better in the next 10 years than you would with Treasuries. These stocks will double and even triple -- before going to zero.

Update: Eric Savitz at the Barron's Tech Trader blog

I got a little thrown by the “before going to zero” bit, so I checked in with my colleague Lauren Rublin, who edits the Roundtable, who explained that he was kidding about that part.