Monday 7 June 2010

Faber on inflation, war, and physical and financial security

May I recommend that you watch the following video in full, even if you are not an economics buff?

Dr Marc Faber is a highly respected investment and economics commentator. He has a wry sense of humour that verges on what the Germans call galgenhumor - the sort of joke you make when you are about to be hanged. His thesis is that prices have become very volatile because of manipulation of interest rates and the money supply, and that in the West we are now so far in debt that governments will see no option but to create very significant inflation.

Accordingly (he thinks), the things people would usually regard as safe stores of value - cash and bonds - will turn out to be places to lose your wealth. Equities may not make much in real terms - and may well lose a lot at certain points (he looks for example at the Mexican experience from the late 70s to the 90s) - but are likely to recover again. Nimble investors may even do very well by exiting and re-entering the stockmarket at the right points.

Faber also considers how the Eastern economies are coming to dominate manufacturing production and consumption, so that although they seem poor compared with us they are not spending the majority of their money on services, as we do in the West. Further, they are not generally so indebted (if we ignore Japan). Faber thinks that at some stage we should all have a significant proportion (he gives a ballpark figure of 50%) of our investments in the East - though he stresses that's not a signal to get in right now.

He is also bullish long-term on gold, merely because of what he thinks will happen to our currencies as governments in the West try to inflate their way out of the debt trap. Interestingly and untypically of many of Faber's audiences, many of the people he is talking to here themselves hold significant amounts of physical gold. (I have just come back from a haircut here in Birmingham and a shop has just opened next door, specialising in buying gold - not so much an outlet as an inlet, you may say.)

Other investment themes are covered in the last few minutes of the video, and include agricultural land and infrastructure companies working e.g. in India, where the majority of the population is still rural and cities will have to be built.

Faber considers geopolitical aspects as well, and thinks that there will be growing international tensions. He is quite clear and non-humorous about how big cities are very vulnerable and that those who can afford to do so should have somewhere to live far away from them. It's worth pointing out that he has taken his own advice and lives in Chiang Mai, northern Thailand - and close to borders with several other countries.

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