Marc Faber: ‘World War III Will Occur in the Next Five Years,’ but Relax, Equities Will Not Collapse
by Constantine Gardner Business Intelligence Middle East
Dr. Marc Faber the Swiss fund manager and Gloom Boom & Doom editor has taken ultra bearishness to a new level. He remains negative about the outlook for the world because policy makers in Europe and the US are trying to solve the crisis created by too much debt and leverage with even more credit and leverage. Eventually when interest rates go up, he says, the cost of financing the failed monetary policies will become burdensome and will ultimately bring a big bust.
He sees a shift in economic and military power from West to East and is increasingly convinced that the end game will be war. But, so far, he had avoided giving a time frame to the war scenario. Not any longer.
Dr. Faber was amongst 10 investment experts assembled by Barron’s last week at the Harvard Club of New York for the Barron’s 2012 Roundtable. The members of the Roundtable discussed the economy, China, Europe, market volatility, investment picks and World War III.
"On an optimistic note, World War III will occur in the next five years," Faber announced to the other members of the Roundtable, in his characteristic contrarian manner.
"That means the Middle East will blow up," he said, without providing any details about specific countries.
When this happens, "new regimes there will be less Western-friendly," he reckons.
"The West has figured out it can’t contain China, which is rising rapidly and will have more military and naval power in Southeast Asia," he explains.
The only way for the West to contain China is to control the oil tap in the Middle East, Faber argued.
The prelude to war will be a "big bust that will see the end of credit expansion," he said in a recent interview. But before this happens, "governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus".
"This war will be different from World War I where troops faced each other in trenches or World War II where tank divisions faced each other, he said. This will be Cyber War. A war where you can turn a switch and turn the London electricity supply off. This will be a war where you can stop airplanes from flying and bring the whole financial system of a country to a halt," Faber said in an August 2011 interview.
And during war times, "commodities go up strongly,” he argued.
"If you want to hedge against war, you don’t want to own derivatives in UBS and AIG, but you have to own them physically, like farmland and agricultural commodities. That is something to consider for you as a personal safety and hedge. You have to own some commodities," he stressed.
Containing oil flows to China
Tensions have been escalating in the Gulf, with Iran threatening to close the Strait of Hormuz, through which roughly 35% of seaborne crude and 20% of the world’s traded oil passes daily, while the US and Europe seek help from Arab and Asian allies to reduce Iran’s oil revenues in the dispute over Iran’s nuclear programme,
Saudi Arabia has reportedly told a senior US lawmaker it stands ready to increase its current oil output of 10 million barrels per day should new sanctions curb Iranian oil exports. Saudi oil minister, Ali al-Naimi, said in Sunday’s edition of his country’s al-Watan newspaper that "Saudi Arabia is able to produce 12.5 million barrels per day to meet the needs of the world market and satisfy any increase in demand from consumer countries."
For its part, China, Iran’s biggest oil customer, has rejected new US sanctions that seek to block Iran’s central bank from clearing oil payments. However Chinese Premier Wen Jiabao was this week visiting his country’s prime supplier, Saudi Arabia, as part of a Middle East tour of oil-producing nations.
"I believe that China is not the only country to buy oil from Iran… Legitimate trade has to be protected if global economic chaos is to be avoided," Wen said while visiting Qatar yesterday, according to a Chinese foreign ministry transcript.
A game of chess
The Iranians already have a "nuclear option," namely, the prospect of blockading the Strait of Hormuz. Doing so would hurt them, too, of course, George Friedman wrote this week in a Stratfor report.
"Each side is seeking to magnify its power for psychological effect without crossing a red line that prompts the other to take extreme measures,” reckons the provider of global intelligence.
"Iran signals its willingness to attempt to close Hormuz and its development of nuclear weapons, but it doesn’t cross the line to actually closing the strait or detonating a nuclear device. The United States pressures Iran and moves forces around, but it doesn’t cross the red line of commencing military actions."
Thus, each avoids triggering unacceptable actions by the other, said Friedman, adding that in that game of chess, "the possibilities of miscalculation, of a bluff that the other side mistakes for an action, are very real."