Dr Doom's financial gloomy predictions

Dr Doom's financial gloomy predictions - 24 January 2011
http://www.bbc.co.uk/news/business-12267742
Marc Faber's nickname is Dr Doom, and his investment letter is called the Gloom Boom Doom report. He sells advice about where to invest to wealthy people, companies and institutions. He is, in the lingo of the financial zoo, a bear. He's bearish about Europe and bearish about China, and he thinks that gold is one of the safest places to put your money. His latest report is titled "The End Game has Begun."

Business Daily's Lesley Curwen spoke to him at his base in Chiang Mai in northern Thailand and asked him why he feels the way he does.

The full transcript is below.

Marc Faber: I am very negative about the world, because I think that what caused the crisis in 2008 was excessive credit growth, excessive leverage in the system, and now the private sector is deleveraging, but governments are printing money, and through huge fiscal deficits are creating even more debt growth. So in other words, what killed the economy is now being applied to revive the economy, and I think this will lead to a disaster. But if you think it through and you believe in the disaster scenario I'm envisioning, then you will be better off in equities and in commodities than in government bonds and cash.

Lesley Curwen: So, what do you think is going to happen in 2011?

Marc Faber: Well, I feel that if the stock market in the US declines 10% or 20%, we would have QE3, in other words more money printing.

Lesley Curwen: You are talking about quantitative easing, QE?

Marc Faber: Yes, correct. We would have quantitative easing three and that will again boost stock prices, but not necessarily the economy of the man on the street.

Lesley Curwen: Now, you have talked a lot about gold and are suggesting that actually it's a good bet to invest in at the moment, why do you feel that?

Marc Faber: Well, I wrote first about gold in 1998 when it was below $300 and then the low was at $252 an ounce in '99, and since then, I have been advising people to accumulate some gold. So, right now, obviously the price has gone up and we had the 10 year bull market, so I am a bit more cautious. But in general, because of the money printing I was referring to earlier, I don't think that there are any sound currencies anymore, paper currencies, and that the only sound currencies are hard currencies like gold, silver, platinum and palladium.

Lesley Curwen: But, gold doesn't do anything, is it? It doesn't add to the economy. It doesn't employ people. It doesn't accumulate wealth except on paper.

Marc Faber: Cash at 0% doesn't accumulate wealth either. The moment central banks implement monetary policies where they keep interest rates negative in real terms, in other words interest rates are lower than the rate of cost of living increases, then it is very difficult to value anything. The only thing I can say is, Mr Ben Bernanke, Chairman of the Federal Reserve, and other central banks, they can print an unlimited quantity of money, but you cannot print gold. Gold is limited by its annual supply of around 2,500 tonnes annually. So it is not that gold is going up, it is that the paper value of money, the purchasing power of money is going down vis-à-vis a unit of account, which is gold.

Lesley Curwen: What is your view about China? In the past, you have said you think it might be about to crash.

Marc Faber: Well, I think in the case of China, we have clearly a bubble, if we define a bubble as an economy where credit growth is very strong and where interest rates are artificially low. But, will it burst tomorrow, in three months or in three years, who knows?

Lesley Curwen: But isn't the argument that if you hold investments in China long-term, at some point this huge potential of this country with its massive workforce and its government will to succeed, is going to win out in the end?

Marc Faber: Yes, that maybe the case, but I think for the average investor, rather than to invest in Chinese companies and stocks where the accounting is frequently very untransparent and questionable, if you really believe in China, then you buy oil or you buy industrial commodities or you buy the Australian or the Canadian dollar, or the Australian stock market. I mean there are better ways to play China than necessarily to invest in China.

Lesley Curwen: Why? How are those connected?

Marc Faber: Well, if there is very strong growth in China, then obviously the demand for commodities goes up and because we have some supply constraints, then the prices of commodities go up and the resource produces benefit.

Lesley Curwen: Let me ask you about the eurozone. What do you expect to happen to the eurozone in 2011?

Marc Faber: Well, I think the euro will survive, but as is the case in the US, the ECB is expanding its balance sheet, and that hates to see the balance sheet because the quality of the bonds they own must be of very poor quality and so, we will have to muddle through. But, in general, I believe some weaker countries or weaker members of the EU like Spain, Portugal, Greece eventually will default.

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Breaking from Moneynews.com

Poll: Gold To Hit $1,520 as Economic Fears Linger

Gold should build on last year's stellar gains in 2011 to hit record highs, boosted by low interest rates, dollar weakness and lingering worry over growth in major economies, a Reuters poll showed on Tuesday.

But prices could plateau in 2012 as the global economy gathers momentum, quantitative easing measures that have flooded the markets with cheap money are reined in and interest rates turn higher, analysts say.

A poll of 65 analysts conducted by Reuters in early January found a median 2011 gold price forecast of $1,450 an ounce, 18 percent higher than 2010's average London Bullion Market Association (LBMA) gold fix of $1,225.60 an ounce.

The forecast is also just above last year's record high of $1,430.95, and clearly outstrips an average forecast of $1,228 an ounce returned by a similar poll conducted last July.

"The same reasons that were behind gold investment in 2010 will also drive prices in 2011," said Bayram Dincer, an analyst at LGT Capital Management in Switzerland.

"You may have some dollar devaluation, and also an expectation that the Federal Reserve won't raise interest rates," he said. "The fact that people will continue to hold gold and further increase investment in gold makes us very bullish for the precious metal."

Historically low interest rates in much of the world have been a major support to gold prices in recent years. Low rates cut the opportunity cost of holding non-interest-bearing gold.

While fiscal deficits and sovereign debt are likely to dog Europe and the United States, rising inflation in fast-growing economies like China, India and Brazil are also likely to lift the metal's allure as hedge against rising prices in those areas, analysts say.

The poll showed analysts expect gold prices to rise throughout the year, from $1,400 an ounce in the first quarter to $1,432 in the second, $1,477 in the third and $1,520 in the final three months of the year.

Tuesday in London, spot gold was last at $1,326.90 an ounce, down 0.5 percent on the day. U.S. gold futures for February delivery were down 1.3 percent at $1,327.00 an ounce. Gold climbed to a record $ 1,431.25 on Dec. 7.

But in 2012, expectations are tempered, with an average price of $1,420 an ounce predicted.

"We see some weakness emerging in the second half and that is a pattern in 2012 as the global economy returns to health," said London-based Credit Agricole analyst Robin Bhar.

"As all the classic measures of financial health start to normalize, the great trade that we've had in gold will start to unravel, and we will see a risk-on mentality."

The same concerns that are seen lifting gold to record highs are set to benefit silver, which is seen averaging $29.83 an ounce this year, up from $20.19 last year. The average 2011 silver forecast returned by the July poll was $19.00.

Silver touched a near 31-year high at $31.22 an ounce earlier in January.

The grey metal, which unlike gold has a large industrial component to its demand base, is also expected to peak in the fourth quarter at $31 an ounce, before easing back in 2012 to around $27.90 an ounce — still a historically strong level.

A recovery in industrial production is expected to benefit silver, which is widely used in electronics manufacturing.

"China and developed countries (are the main regions driving demand), as silver is used in solar power panels, plasma display panels and information technology," noted Koichi Iwanaga, general manager of commodities at Japan's Sumitomo Corp.