Guru shares his views on the markets, including gold.
[This interview previously appeared on HardAssetsInvestor.com and is republished here with permission.]
Swiss-born and -educated Marc Faber’s distinct voice is a common sound on CNBC and Bloomberg TV when it comes to big-picture forecasting in investments. Publisher of the “Gloom, Boom & Doom Report,” Faber’s views on the markets are highly regarded. HAI Managing Editor Sumit Roy caught up with Faber at his Hong Kong residence and spoke to him about debt, gold and stocks.
HardAssetsInvestor: What are your views on the stock market?
Marc Faber: Following the huge increase in stock prices we had since March 2009, when the S&P was at 666, a 20 percent correction would not surprise me at all. I don’t look at the 20 percent correction as a huge decline in stock prices. In Asia, we’ve had corrections in the order of 20 percent in many markets. We had a huge decline in bond prices in the U.S.
In July 2012, yields on the 10-year bond were at 1.43 percent; we’re now close to 2.9 percent. Yields have doubled. The longs have been hit quite hard. I don’t regard a 20 percent correction in stocks as a huge bear market.
HAI: So no more than 20 percent?
Faber: We have to assess stocks when we are there. We don’t know to what extent the Fed will continue bond purchases, increase bond purchases or even buy stocks. We’re dealing with markets today that are basically manipulated by the Federal Reserve and other central banks. That’s why any forecast is very tentative.
HAI: It’s been awfully quiet in Washington after a series of battles over the debt ceiling and the fiscal cliff in 2011 and 2012. Do you see any political risk lurking either in the U.S. or elsewhere?
Faber: It’s a fair assumption that the U.S. government debt will continue to increase. And it’s also a fair assumption that the U.S. and other central banks around the world will continue with the monetization of the debt.
To what extent there will be a battle in Congress between the Republicans and the Democrats over the debt ceiling and about spending cuts is anybody’s guess. But the facts are that the U.S. government debt took 200 years to reach $1 trillion in 1980; we were at $5 trillion in 2000, and we’re now around $17 trillion. You can clearly see where the trend is.
And the deficit will actually start to increase shortly a) because of the increase in interest rates; and b) because more and more people are retiring, so the entitlement programs will increase. I do not see the debt in the U.S. diminishing. The question is, Will it increase by $1 trillion annually or $2 trillion; who knows?