Economist Marc Faber warns investors that America needs to go through “a devastating crisis” before a meaningful recovery can begin.
Given his Dr Doom moniker it is hardly surprising that Faber is once-again bearish on the US economy, yet his track record commands respect – he called both the bust and the subsequent stock market rally.
Comparing an economy to a human body, he tells US financial paper Barron’s that “there are periods when rest is required. In economic terms, that is a recession”. Faber thinks the economy still needs a long rest.
He points out that America’s debt problem hasn’t gone away – it has just been switched from the private to the public sector. The only way to reduce public debt would be “to impose a flat tax and cut government expenditures by 50%”. But only a disaster could make that happen.
As for US-listed companies, they’ve already had their disaster. The 2009/10 recovery means US markets look OK in dollar terms – but look at them in terms of Swiss francs, Australian dollars, Japanese yen, gold or silver and they’re down 50% to 80% since 2007.
This has made US equities and properties “inexpensive relative to other countries, but they aren’t the bargain of the century”. Indeed, they could be due a correction of up to 30% from here, warns Faber. If you have to invest, go for consumer staples and healthcare stocks.
More important, says Faber, is to own some gold. “Not to own gold is to trust the value of paper money and the government’s integrity. No one in his right mind could trust the US government any more.”
The 65-year-old also dismisses claims that gold investing is becoming a bubble. The world is actually “grossly underweight gold” but “flooded with US dollars”.