Faber on economy, and safe havens

Economy October 05, 2012 00:00

By Pichaya Changsorn
Prajya Aura

6,641 Viewed

Dubbed "Dr Doom" for his pessimistic views on the global economy, investment guru Marc Faber says he is positive on Thailand, where he has invested substantial sums in stocks and property, although Thai politics and "cronyism" are his concerns. Here i

What is your latest view on the global economy?

We’re sure to have a recession in Europe at the present time. In the US we also have a slowdown in economic activities. I think there’s practically no growth in America.

The Chinese economy is much weaker than statistics published by China would suggest. If you look at reliable statistics, such as on exports from South Korea and Taiwan, these exports are down year on year. Electricity consumption in China is up maybe by 1 per cent year on year. So the Chinese economy has decelerated from an annual growth rate of around 10 per cent 18 months ago to now, in my view, a maximum of 4 per cent.

So the whole world has decelerated dramatically. But as I always point out, stock markets, gold markets, and the bond, currency, and real-estate markets will tell a different story.

The economy of the rich people is doing very well – by the way also in Thailand – and the economy of people on the streets – of the lower middle class, the poor and the workers – is not doing very well. Because they may have a salary increase but at the same time you have the cost of energy increasing. Energy, food, insurance, education, healthcare – all these prices are going up very strongly. I’m not complaining, because I’m in the financial sector and I’m benefiting from rising real-estate prices, stock prices, bond prices.

Where should investors put their money?

If I travel around the world, what strikes me is that properties in Thailand are still reasonably priced. We have here in Chiang Mai a real boom in property prices at the moment because there are a lot of foreigners coming here, and there are people from Bangkok who buy second houses here in the North.

But to tell you the truth, when I was in Atlanta and Phoenix four months ago, I sold properties, homes that were cheaper than similar properties [would cost] in Thailand. Because the prices of properties have collapsed. There are a lot of foreclosures, and now some people come in and buy these homes, fix them up and let them out. I’m not interested in doing that because I live here and don’t want to have too much money in America, for a variety of reasons.

Do you still see gold as a safe haven despite its current valuation?

Nothing is safe, because when you have money printing and when the central banks push the interest rates down to in essence zero as in America and in Europe, asset prices have been badly distorted.

I don’t know where the right prices will be. The central bankers are going to print and print and print. Not only in America, Europe, China. So we don’t know where asset prices will go. Maybe at this level gold prices are still very low. Because I look at the increases in government debts over the past 10-20 years. I look at the increase in international reserves over the past 10-20 years, increase in the quantity of money. And I look at wealth creation. I will never sell my gold.

I kind of like Thai shares because I can still find in Thailand many companies that pay dividends of around 5 per cent per annum. I have a lot of investments in Thai stocks. I have had them since the lows in 2003 and again in 2009 I increased [them]. Thailand has been very profitable for me in terms of investment. I have a continued cash-flow and dividend-payment steam, and the share prices have performed actually fantastically well over the past few years.

Initially I invested quite a bit in hospital management – Bumrungrad and Bangkok Dusit Medical – and also CP All and Charoen Pokphand Food. I still own some of these shares but then about 18 months ago I invested more in telecom because at that time they were yielding 7-8 per cent in dividends. Then I own real-estate-related companies, and I look around also for companies that could be taken over.

How can investors prepare for a world economic collapse?

I’m not sure it will collapse. But sooner or later – maybe in three, five, 10 years, nobody knows – there will be a systemic failure. I happen to believe if you have money on deposit in Thai banks, it’s much safer than if you have deposits with Citigroup, UBS, Royal Bank of Scotland or so on, because Thai banks don’t have huge derivative portfolios. JPMorgan has trillions of dollars in derivatives. Nobody knows how to value this garbage. But if you take the view of an investor, you should have the view that "I don’t know anything about the future".

In the environment where the central banks print money, equity tends to adjust on the upside, but irregularly. As you know, in America the market is still lower than in 2007, it’s about same as 12 years ago. In Europe most markets are slower than in 2000. In Thailand, Indonesia, the Philippines, if you measure in dollar terms in 1997 when we had a big devaluation, they are about the same as they were in the 1990s. So stocks don’t always go up and for a long time move sideways.

But as I said, in Thailand you get dividends ... so I can wait.

In a way I would say some money should be invested in equity. I don’t trust paper. This whole financial sector is vulnerable to a big setback. I also want to have some real estate – not only in Thailand but also in other countries. Then I have corporate bonds, and some gold.

The role of the US dollar will in essence diminish. I personally don’t trust the dollar for one second, for the simple reason that they can print money, and they will print money. I have US dollars because other currencies like the euro are probably even worse. If you look at purchasing power, what $1 was worth in 1950 and $1 today: no value any more. If you bought property in Bangkok or in Chiang Mai 30 years ago, today you would have to spend maybe 30-50 times more.

I can also say my property is the same as 30 years ago; now its cost is 30 times more than in 1980. So the purchasing power of money has gone down.

What do you think about the future of Thai economy?

Thailand is unlikely to be a dynamic economy. It’s not going to be South Korea or Taiwan. It can do reasonably well. It could easily grow at 4-5 per cent per annum for the next 10-20 years unless the whole global economy collapses ... The question is really will politics messidog?

It’s like in the US: Tension between the Democrats and the Republicans are very high, they just can’t agree on anything. In Thailand I don’t know … the red shirts, the yellow shirts. Both have probably some good and bad points. There is still too much corruption, and the country should liberalise more instead of interfering like with the rice-support programme. They should liberalise the markets, not support or control them.

Basically, every price-support mechanism distorts the free market and there are unintended consequences. It can lead to artificially high prices. And rice is not endemic to Thailand. Rice is a commodity traded all over the world. If the price should be fixed for rice, it should be fixed all over the world.

What would you do, or not do, if you were the prime minister of Thailand?

I think that to be quite honest, I as an investor, it concerns me that, for instance, the government has appointed principally people connected to Mr Thaksin [Shinawatra] for, say, Thai [Airways] International. Maybe he is the best man; I don’t know, I never met them in my life. As an investor, to me it sounds very strange that people who run large companies are appointed by the government and that the government then favours people who are supportive of them.

There is still a lot of so-called cronyism. In other words, I have political power and you’re a businessman or you are someone who was in the party before, and I give you a good job and a position of power.