Love him or hate him – his utterings on markets and investment in general frequently generate controversy - Marc (aka “Dr Doom”) Faber is often proved right. In quite a few decades of punditry, Faber has called US recessions, gold rallies and the top – as well as the bottom – of many market cycles correctly. He likes to go against conventional wisdom but those who follow his advice claim it pays off, in spades.
His quirky and highly entertaining monthly newsletter, GloomBoomDoom, examines trends on broad macro levels as well on more detailed levels, all in a dry, even flippant, style which occasionally dips over into an elegant rant. He summarises the September 1 issue thus:
A correction in asset markets is overdue. However, any weakness in the economy and asset markets will lead to larger fiscal deficits and more money printing. Following a correction, asset markets should still move higher! Asia remains our favorite investment destination.
So it is not surprising, though noteworthy, that CLSA broker Damian Kestel in a weekly newsletter has resurrected one of Faber’s most prescient pieces of work, dating back to October 2004, on China – not least, perhaps, because Faber is speaking at CLSA’s annual gabfest in Hong Kong next week (along with – yes, Sarah Palin).
We know who we’d rather listen to.
Observes Kestel in his newsletter: “I stumbled across this as I was strolling through our forum presentation archive. It was written five years ago, just as China and commodities were beginning to make their move. It’s almost like he [Faber] wrote the script… ”
Entitled “The teachings of Comrade Faber”, the October 2004 note begins:
You are now all members of the central committee of the Communist Party which meets today for the first time in a year. I am Comrade Faber. Esteemed colleagues it is very clear that if our current economic growth continues at the pace of the last few years we are on a collision course with the United States.
Increasingly, we will challenge the American hegemony … in terms of military might, the US is far superior to our nation. But there is a chance that we can beat them economically.
And continues:
Recently, over the last three or four years, the incremental demand coming from our nation has begun to boost prices in some sectors of the commodities market. This doesn’t mean we are in an inflationary environment…
Now my esteemed comrades will ask me why we at the central bank are so stupid and continue to buy US dollars and US assets? Because it is clear there is a crisis looming some time in the future… My plan is to keep the US dollar very, very strong. First of all this forces our neighbours in Asia to also buy US dollar assets… So the whole of Asia is buying US dollars and by doing so, we keep the dollar at a high level. It continuously undermines and hollows out the manufacturing sector in the US. And our Hindu friends they gradually destroy the services sector that is tradeable in the US. .. At the same time we are buying US bonds and by doing so we keep interest rates artifically low….
…Whereas the US is spending and borrowing we have had this huge increase in capital spending, in net capital formation, where our net capital formation rose until early this year by approximately 50 per cent per annum. It has since then declined and obviously this decline in capital spending will have some multiplier effects through the economy. So we expect a slowdown in the economy.
But still we think this wealth transfer from the US to Asia will continue. Our region is not dependent, unlike in 1997, or before 1997, on foreign capital. We can grow with our own capital…
..We will choose the perfect timing when geopolitical tensions are such that they are very conducive to an economic crisis in the United States. And relatively speaking, we will do better. We will also suffer but far less than in the western world.
Well we wouldn’t put anything past him…
Related links:
So, Mrs Palin, tell us what you know about East Asian finance – FT Alphaville
Party time for CLSA tea-ladies - FT Alphaville