The Japanese Quake and the Mess in the Middle East

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Accumulate Gold and Japanese Shares, Says Marc Faber

Business Intelligence Middle East


Marc Faber the Swiss fund manager and Gloom Boom & Doom editor says a correction in assets prices has begun but the long-term outlook for gold remains favorable and recommends accumulating the precious metal on any weakness. He also recommends accumulating Japanese shares as reconstruction work will push money into equities.

Speaking to Fox Business Network on Thursday, Faber said: "What is happening in the Middle East is friendly for gold, friendly for oil, and other commodities".

"The mess in the Middle East will only increase over time, nothing has been solved; in Libya we have a civil war, it is not necessarily about democracy….. All these things are indicating, including the earthquake in Japan, that central banks will continue to pursue expansionary monetary policy to keep interest rates artificially low and that boosts equities and commodities,” Faber noted.

Highlighting how the earthquake will impact Japanese bonds and shares, Faber said "the key to the performance of Japanese shares is that the Japanese bond market becomes unattractive and that the Yen over time weakens".

"I think as a result of the reconstruction work that may cost up to US$300 billion, that obviously the government will need to monetize, and Japanese bonds in the long-term will become terribly unattractive, and that will push money into equities."

"So, I think Japanese shares are worthwhile to accumulate.”

Faber, who predicted the stock market crash in 1987 and turned bearish shortly before the 2007-2009 bear market, warns a correction in asset markets has already begun.

Precious metals are moving up, he says, "but they are not acting all that well" and he doesn’t expect new highs for now.

What is the magnitude of the correction?

"We live in very volatile times; a correction could be 10%, 20%, he said, highlighting "I would on any weakness accumulate gold."

"The long-term outlook for gold is favorable," the Gloom Boom & Doom editor stressed.

Regarding US equities, he doesn’t expect a breach of the February highs and sees weakness in May, June.

"We peaked out on the S&P on February 18th at 1,344 and usually in April we have seasonal strength but I think it’s likely that the S&P will not be able to make a new high and then we will have a more significant setback in May, June," Faber told Fox Business Network.

In a recent CNBC interview Faber was asked whether the Japan situation would have any impact on the Fed’s Treasury purchases, a.k.a. Quantitative Easing (QE) and whether it would make it harder for the Fed to pull back in June. The Gloom Boom & Doom editor said he expected further equities weakness and suggested the Fed will pull back until the S&P drops up to 15%.

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Dr. Marc Faber [send him mail] lives in Chiangmai, Thailand and is the author of Tomorrow’s Gold.

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