Monday, February 28, 2011

Marc Faber - We are Doomed - Buy Gold

Marc Faber recently did an interview with McAlvany Financial Group touching on familiar topics to many of you. Over the weekend I was looking at the world and feeling especially gloomy. However bad it could have been in 2008 and 2009 the government has been able to successfully buy a couple of years and make the inevitable that much worse. Faber touches on some of the investment themes that I have talked about in the past. You can read the entire transcript here. A few highlights.

No surprise here. I think it is obvious. It will happen over multiple years but I think the comparison to a computer rebooting is very accurate. The government, Fed, and Wall St have run the system into the ground and it will have to be completely scraped and reboot will have to occur. And as Faber correctly points out it always ends in war.

I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it.

One thing Faber did not mention in this interview that I have heard him say recently is that regardless if your bullish or bearish or a deflationist or inflationist, you should be long term bullish on oil. Because at this point all roads lead to war and oil will move strongly when that happens. Of course he is talking over years and so oil could go down 70% just like in 2008 before rallying again.

And than on gold.

That is why I am advising people to accumulate gold. Can gold have a correction? Yes, there has been a little bit too much euphoria about gold, and we may have a correction, but I do not think we are in a bubble in the price of gold. In fact, I could make a case that gold, at this level of $1400 an ounce, is cheaper than in 1999, when I look at the unfunded liability growth of the U.S., at the credit growth of the U.S., and at the household growth, and at the money printing, and at all the wealth creation that happens in China and Russia.

Finally this is what I think is one of the surest bets in finance over the next decade. How it happens I have no idea. Maybe it is 10k like Faber mentions or maybe the Dow goes to 5,000 or something lower or higher. Either way it makes perfect sense.

In a money-printing environment, it is very difficult to know what is actually cheap and what is expensive. Is the price of wheat high, or is it low? Inflation-adjusted, it is extremely low. In nominal terms, it is relatively high. I believe that, in March 2009 when the S&P was at 666, the market was actually much cheaper than is generally perceived, because of the money-printing, and I do not anticipate that we will see 666 on the S&P again, in nominal terms.

In other words, they are going to print so much money that the S&P could be at, perhaps, 2000, but in real terms, it could be down below the lows of March 6, 2009. Maybe in gold terms, we could one day reach a ratio of Dow Jones to gold of 1-to-1, as we were in 1980. In other words, the Dow could be perhaps at 10,000 or 12,000, and gold could be at the same level.

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