Doctor's advice: go for gold
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April 5, 2006
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Marc Faber says that the current bull run in commodities may last for another 20 years. So what should we do? Invest, writes Stephanie Banks.
MARC Faber has been described as the "Warren Buffett of South-East Asia". He is the author of the bestseller Tomorrow's Gold and The Gloom, Boom & Doom Report and now he's in Melbourne with a key message — he's putting his money on gold.
Hong Kong-based Dr Faber will today address the 2006 Financial Services Symposium.
He believes "the current bull run is strongest in commodities and could conceivably last for another 20 years".
Dr Faber regards the present investment scene as most unusual, in the sense that everybody is positive about most asset classes. Equity fund managers around the world are positive about equities in both the developed economies and in emerging markets, while commodity traders are positive about commodities.
Dr Faber is as bullish about putting money into regional real estate investment trusts (REITs) as other property investments and sees outside evidence, with art aficionados bullish about art prices and collectables. He also reminds those who will listen that on the flipside, bond investors are predicting a further decline in yields on fixed income.
That all adds up to an "uncommon" set of circumstances, according to Dr Faber, where there is general bullishness among all asset classes.
Admitting that there is an overwhelming bullishness in the air is difficult for Dr Faber. Like Warren Buffett, he is a contrary investor. He believes in buying value when an asset class, or a company share price for that matter, is underperforming.
"In the US we now have a stockmarket that has risen for over 1100 days without a 10 per cent correction, which is quite unusual," Dr Faber says.
He is cautious, however, concerning the current bull movement and raises concern about this "continuous asset inflation consensus amidst a benign consumer price inflation scenario".
He says he is stunned by the boom that is going on in the Middle East and in their sharemarkets, and if his theories play out, he sees the regional boom leading to disaster, particularly if oil prices collapse.
As another note of caution, Dr Faber feels that a correction in the current rising asset market is overdue and asset markets that are the most extended will get hit hardest. Dubai, for example, has dropped by almost 50 per cent from its peak, as has Saudi Arabia and Qatar, since the end of last year.
He believes the extent sharemarkets will go up will depend on when the US begins cutting interest rates, which Dr Faber predicts will happen during the second half of this year.
"It will be interesting to see which markets have the biggest move," he said.
He sees capital markets being attracted to Asia where, relative to Europe and the US, prices still look reasonable.
"It doesn't mean they're cheap," he says, but in Singapore, Malaysia and Thailand, he'd be "looking at property-related investments, REITs in particular, which are yielding about 5 per cent and outperforming 30-year Treasuries".
Dr Faber says "asset price movements will have to be measured against gold and since 2000, gold has outperformed the Dow Jones by 100 per cent". This is a trend he expects to continue. www.theage.com.au
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