Faber: Own Gold Over Miners; Cash Is Top Contrarian Play

November 10, 2014

Marc Faber is the editor and publisher of "The Gloom, Boom & Doom Report" and the founder of Marc Faber Limited, an investment advisory and portfolio management firm, based in Hong Kong. Nicknamed "Dr. Doom," he is a famous contrarian investor known to scope out deeply depressed and overlooked assets. Dr. Faber has authored several books, including "Tomorrow's Gold: Asia's Age of Discovery." Widely followed by institutions and retail investors, he appears regularly on CNBC and Bloomberg TV.

Dr. Faber recently sat down with ETF.com to discuss the Bank of Japan's latest stimulus. He tells us why gold is favorable in both inflationary and deflationary environments, why he prefers physical gold over gold miners, and the price at which he sees opportunity in oil. Finally, he shares his favorite current contrarian play.

ETF.com: The Bank of Japan surprised markets last week with additional stimulus. How would you play Japan? Do you short the yen? Do you go long the Nikkei? Do you short JGBs?
Marc Faber: That is a good question, because people have been shorting JGBs for the last 15 years and they have lost a ton of money on shorting JGBs. Eventually I suppose they'll be right. But when, we don't know.

Secondly, I think the safest way to play Japan is probably to be long equities in Japan, because obviously if they print money, eventually investors will lose confidence—and they have already—in the yen and JGBs, so they'll go into equities. But I'm not so keen on playing it. I think there are better ways to invest your money than to play essentially a government that is determined to destroy its currency.

ETF.com: Gold plunged immediately after this BoJ announcement, which came only days after the Federal Reserve announced the end of QE. Where do you see gold headed in 2015?
Faber: I think it will go up. But can it go down first? Yes. In general, I would say the game that central bankers are playing is very clear: They start out with QE1 in the U.S., and then that forced essentially other central banks to do the same, to also go QE. They're kind of passing each other the ball. One stops, the other one starts. It's basically a game designed to kill the purchasing power of paper money. I'm not sure they're aware of it, but in my view, this is the beginning of the end of paper money in this century.

ETF.com: That being the case, are you saying you expect inflation? Are you more in the deflation or the inflation camp?
Faber: My sense is that under some conditions, money printing may actually lead to deflation rather than inflation. It may lead to some deflation in some sectors of the economy but inflation in other sectors of the economy. For the last few years—I would say last 10 years—in the U.S., we had inflation in asset prices, especially financial assets. But at the same time, wages, in inflation-adjusted terms, went down.

So this is a very complicated issue. It hasn't been resolved yet how it will end. This is a new chapter in economic history. Usually in the past when they printed money, it didn't end well. But in this case, because everybody does it, it won't end well either. But we don't know when—three years from now, maybe five years, maybe 10 years from now.

ETF.com: Most investors assume that gold is a great inflation hedge. Do you think that gold can do well even in a deflationary environment?
Faber: Let's put it this way: Assuming there is a lot of inflation, gold will do OK. In other words, it will do better than financial assets and other prices in the system. If there is deflation, then we have to assume that there is systemic risk, that the whole system collapses; in which case, if you as an investor have the choice to buy French government bonds yielding 1.21% or gold, you will be better off in gold, provided the safe custody of this gold is good.

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