Marc Faber: I’m Buying Gold Because I’m Fearful of a Systemic Crisis

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Dr. Marc Faber the Swiss fund manager and Gloom Boom & Doom publisher believes markets will punish central banks, at some stage, for their extensive monetary easing. This could materialize as a bonds market collapse or a stock market bubble.

He reckons investors should enjoy the rally while it lasts, and says he is already unwinding his long positions because when ‘euphoria’ builds up and everybody is investing, markets turn down. He also thinks investors who don’t own gold are in "great danger".

Market correction

Speaking on the phone to CNBC’s "Closing Bell" on Wednesday, Faber told Maria Bartiromo: "I think it [a correction] can start any day. We are very overbought but it’s also possible that we have a mild correction in February and then a further increase in stock prices."

He sees a possibility of a lot of volatility this year in equity prices. "I’m selling shares at the present time. I’m reducing positions because there is euphoria building up."

Faber concedes it is difficult to pinpoint the timing of the correction as investors have no immediate alternative to owning stocks because of plenty of corporate and institutional money on the side lines. "That is why, maybe the market goes up first strongly but that would be a major embarrassment for central banks to have a real stock market bubble while unemployment isn’t going down and the global economy isn’t growing."

But the bigger embarrassment he says, would be when finally the stock markets crashes because they [central banks] can’t cut interest rates any further or bond prices really sell off, in other words, "for the market to push up interest rates".

"The central banks aren’t going to boost up interest rates, but the market may boost it up," he reckons.

From a global market perspective, Faber at the present time thinks "Ukrainian stocks are very low, Vietnam is inexpensive, and Chinese stocks are relatively speaking inexpensive.

In terms of US stocks he sees mining companies and resource companies as relatively cheap. On the other end of the spectrum, builders and technology are vulnerable and may lead the sell-off

Be careful about stocks when you can’t see why they can go down

In a live interview on CNBC Asia’s "The Call" with Bernie Lo on Thursday, Faber further elaborated on his prediction of an upcoming market correction: " When you print money, the money doesn’t flow evenly in an economy. It flows to some people or to some sectors first, and in this case, it flowed into equities, and until about five months ago, bonds… I believe that markets will punish central banks at some stage through an accident."

"For the first time in four years, since the lows in March 2009, I love this market because the higher it goes the more likely we will have a nice crash, a big time crash," he added.

Answering the "why should stocks go down, everything looks perfect" calls, Faber explains: "A year ago, the mood in Europe was horrible and nobody could see how stocks could go up. Now since May 2012, less than a year ago, Portugal, Spain, Italy, France, are up 30%-40% and Greece has doubled."

Reminiscent of the famous Warren Buffet quote, “Be fearful when others are greedy and greedy when others are fearful," Dr Doom told Bernie Lo: "You need to buy stocks when there’s no reason to buy them…and I will be careful about stocks when you can’t see why they can go down."

The S&P 500 has seen its best start to a year since 1997, rising 5.2% last month and the Dow topped 14,000 today for the first time since October 2007.

"With the US fiscal cliff behind us, but automatic spending cuts due on 1 March, there is a risk that the US equity market will give back some of its recent gains ahead of the deadline for implementation of cuts" Mark McFarland Chief Investment Strategist, Private Banking, Emirates NBD, the United Arab Emirates biggest lender by assets, said in a note.

"It is quite clear that President Obama does not fully appreciate the extent to which US welfare and retirement budgets are unfunded on a long-term basis. This fact alone makes the likelihood of a near-term resolution, as opposed to a quick fix, much less likely. Thus our US equity weightings for conservative clients have been paired back to under-weights."

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

© 2013 Business Intelligence Middle East

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