Dr. Doom saw it coming.
Swiss economist and investment adviser Marc Faber became known as Dr. Doom after predicting, with varying timeliness, the crash of stock markets in 1987, the Japanese market meltdown starting in 1990, the Asian crisis in 1997 and later the collapse of U.S. technology stocks.
About seven years ago, Faber was ahead of the pack again. From his base in Hong Kong, he foresaw an Asian boom that would raise living standards there and drive up the price of just about every raw material, including oil and gold.
Nations abundant with commodities, such as Canada, would go along for the ride. Meanwhile, mounting debt in the United States would send the U.S. dollar into a long tailspin, Faber predicted.
A Canadian investor who acted on the advice would have profited handsomely.
Today, though, it’s harder to be a contrarian. The trends Faber predicted have played out for a few years now. Many market players are hot for commodities and cold on the U.S. greenback.
Faber says he sees far fewer investment opportunities, and he is urging caution.
Stocks in China and India could fall 30 per cent to 40 per cent on top of recent drops, he warns.
Bonds could tumble in value along with metals and real estate.
"All commodities, in my opinion, are vulnerable to a correction," Faber warned in a telephone interview with the Toronto Star this week.
"I would say that anyone who cannot tolerate a correction of 20 per cent should not be in anything."
Still, Faber remains a long-term gold bull. With prices nearing $1,000 (U.S.) an ounce this week, gold has risen so high in price he says some other bullion lovers he knows have already returned to cash. He has not. He thinks the metal could pass $3,000 an ounce, if only temporarily, like in the spike of the early 1980s. But the price could also fall sharply first.
Prices of commodities were extremely low in the years before Faber wrote in 2001 his book Tomorrow’s Gold: Asia’s Age of Discovery predicting rising commodity prices. Some researchers calculate the prices for energy, minerals, food and other products were the lowest in the history of capitalism.
"If you told people to buy commodities they would say: `Ya, but they always go down,’ because that was correct. They went down for 25 years," he said in the interview from Chicago during a whirlwind global tour this week.
It’s a contrarian bent and unconventional style that makes Faber stand out in the often staid, conformist world of finance.
"As an investor, you have to look for things that are neglected, and once you identify these neglected sectors, then you can achieve high capital gains," Faber said.
Faber writes at his latest home and office, in Chiang Mai, Thailand.
He retreated there for some privacy and enough space to store his collection of books and Mao Zedong memorabilia. The ponytailed prognosticator admits on his website that he’s "smoked a lot of marijuana," but at breakfast he prefers Balinese magic mushrooms in an omelette.
He says his monthly market reports and his publication, The Gloom, Boom & Doom Report, reach about 3,500 mainly wealthy and institutional investors around the world. For his commentaries, he borrows liberally from the research of Canadians: David Rosenberg, an economist with Merrill Lynch in New York, and the editors of Bank Credit Analyst of Montreal faxless cash advance.
This weekend he’s in Vancouver for a quarterly meeting with other directors of Ivanhoe Mines Ltd.
It was Faber’s optimism about recovering metal prices that endeared him to Ivanhoe chair Robert Friedland, an ex-hippie who was lucky enough to strike it rich on the giant Voisey’s Bay nickel find in Labrador, and in recent years on a major copper/gold find in Mongolia.
Faber’s calls are not always perfect, and some of his writing may leave subscribers scratching their heads. He started one report early this year with: "I must confess that I have no idea whether the U.S. stock market will be higher or lower in a year’s time."
Faber says he’s wary the U.S. Federal Reserve Board is prepared to use extreme measures to lift local asset prices, while letting the true value fall by way of a decline in the U.S. dollar.
"Basically in America we have a money printer at the Fed."
Fed chair Ben Bernanke "has written books on the subject and made speeches on the subject."
Faber criticizes central bankers for promoting bubbles in asset prices, and then again for their deathly fear that a steep decline in the price of homes and stocks could set off a downward spiral as in the Depression of the 1930s, and in Japan after 1989.
He argues lower prices can be beneficial, and that governments should encourage investment, not inflation.
"They (fear they) cannot afford to have asset prices go down, because if they go down, it brings kind of a vicious recession. So they print money. When you do that you produce an asymmetrical policy that is inflationary."
A price recovery could make things look healthier at home, but it’s an illusion if the buying power of the dollar is eroded by cutting interest rates, he argues. Foreigners get to buy dollars cheaper, and contribute to the illusion of rising asset values.
One complicating factor, he notes, is that American banks and investors are skittish about losing more money if borrowers default on payments.
So lower interest rates, possibly, are not reaching consumers and businesses.
Market traders expect the Fed will cut its bank-to-bank lending rate to 2.5 per cent shortly, down from 4.75 per cent last September. Already, two-year U.S. government bonds pay less than 1.5 per cent, while consumer prices are rising nearly 3 per cent.
"You don’t know whether the private sector will prevail, or the Fed with its easing monetary policies. That will lead to a lot of volatility," Faber predicts.
"If you are a clever speculator, I am sure a lot money can be made, but you also have to be lucky. I know a lot of smart people that lost a lot of money, because in volatile markets, usually most people get burned somewhere."
Ironically, despite his pessimism about the dollar, Faber still prices his newsletters ($700 a year per person) and market reports ($200) in U.S. currency.
The prices have gotten cheaper for Canadians and Europeans, but he says there is a limit to how much he can charge his American subscribers.
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