Predicting the highs and lows of the global economy is how fortunes are made and reputations secured, but few people have accurately forecasted major economic shifts with much consistency. However, one man has been doing just that for over three decades. Swiss-born investor Marc Faber has developed notoriety for being a contrarian investor, but despite frequently going against the grain, has successfully warned of impending downturns in markets many months before any of his contemporaries.
Often outspoken, controversial, but more often than not prescient, Faber has cultivated a reputation that’s seen him become a regular commentator on the global economy, touring television studios and conferences the world over. World Finance has taken a look at his career, his biggest predictions, and how he sees the global economy developing in the coming years.
Swiss-born Faber began his career working at financial institutions in New York, Zurich and Hong Kong during the early 1970s. However, he relocated to Hong Kong in 1973, reflecting his enthusiasm for a market that offered intriguing new investment opportunities. In 1990 he launched his own advisory firm, Marc Faber Limited, and is now based in the Thai city of Chiang Mai. He keenly travels the world, advising investors on his differing investment beliefs, while also acting as a fund manager for wealthy private clients.
Faber is such a popular subject for financial journalists because, unlike other economists, he would stick his neck on the line
Gloom, boom and doom
Faber is often labelled a contrarian investor, a strategy that few people are brave enough to pursue. Such investors deliberately take an attitude that is against conventional wisdom, and look to profit from being apart from a herd mentality. While many analysts will be enthusing about a certain stock – therefore driving it up – the likes of Faber will perhaps look at the stocks that were being sold off for value.
The nature of being a contrarian investor is to proclaim ideas that are completely opposite to the consensus, and Faber has certainly succeeded in getting his seemingly outlandish views heard. He has made many of his most notorious predictions about how he sees the global economy developing, alongside his sometimes-colourful way of describing the big issues. He is famed for predicting many of the wild fluctuations to hit global stock markets over the last three decades.
Through the 1980s, while markets were notoriously surging upwards, Faber was a rare voice of caution. He advised his clients in the months preceding the October 1987 crash to withdraw their money from the stock market, saving many of them from the colossal losses that others suffered. He would then go on to make a considerable amount of money from seeing the impending bursting of the Japanese economic bubble in 1990, the collapse of US gaming stocks in 1993, the Asia-Pacific financial crisis in 1997 and the ensuing turbulence it caused to global markets.
As a result of these predictions, Faber became – certainly in Asia – the go-to person for those looking for a unique financial voice. His forthright opinions on how the markets will perform have established him as a solid source for journalists, who frequently asked for his predictions. Hong Kong-based journalist and author Nury Vittachi has worked with Faber over the years, and in 1998 published a book, Riding the Millennial Storm: Marc Faber’s Path to Profit in the New Financial Markets. He told World Finance that Faber is such a popular subject for financial journalists because, unlike other economists, he would stick his neck on the line.
“In principle, we [financial journalists] always loved Marc because he would actually make a prediction. Most of the others came out with the market may go up or it may go down or it may go sideways. He actually had an opinion – whether it was wrong or right, it was a solid opinion from a highly intelligent and analytical source, so it had more value than other people’s financial notes.”
Such is his confidence in his opinion that, according to Vittachi, Faber has staked his treasured ponytail against the performance of the stock market: “…he was so sure of his prediction of a turn-down in the market that he bet his ponytail against it. I was writing the daily financial gossip column in the South China Morning Post at the time and we kept a tight watch on market movements and ponytail length. At one point he had to get one cm cut from his ponytail because the market rose a certain amount.”
Unique insight
Faber recently spoke at an event in London to an audience of investment specialists and entrepreneurs. While many of those in attendance would already have clear ideas as to how they saw the world economy, Faber enthralled the room the minute it was his turn to speak. The event, titled ‘Where next for equity markets and entrepreneurial ambition’, was arranged by global investment firm Meridian Equity Partners in order to help those within the industry get a unique perspective on how the global economy will play out in the coming years.
Meridian’s CEO and founder, Anthony Venus, told World Finance how he first encountered Faber. “I first hired Marc in 1998 for an Asia Business Forecast and watched him go toe-to-toe with Paul Krugman on stage, and it was clear that he had a really unique point of view on the markets, beyond traditional economics. Later in 2003 I hired him again to speak to clients, right after he published a book called Tomorrow’s Gold when the gold price was $400 per ounce, he was urging to stock up on gold. I should have listened back then, although I got in around $600 and still did reasonably well.”
Over the last decade, Faber’s predictions have continued to be accurate, while at the same time pessimistic. At the turn of the century, Faber accurately predicted the sharp rise in price for many commodities, including oil and precious metals. He was also an early proponent of the potential of many emerging markets, most significantly China. In his book, Tomorrow’s Gold: Asia’s Age of Discovery, Faber laid out his belief that the world was undergoing a shift as profound as Europe’s late-fifteenth-century golden age of discovery and the nineteenth-century industrial revolution, pointing to Asian economies as those set to dominate the world for decades to come. By contrast, he also was correct in his prediction of a steady decline in the value of the US dollar since 2002.
The onset of 2008’s global financial crisis led to Faber’s pessimism regarding the US economy, especially in light of the Federal Reserve’s policy of sustaining extremely low interest rates. Such a strategy would eventually lead to the US economy experiencing the sort of hyperinflation seen in countries like Zimbabwe, Faber told Bloomberg in 2009.
Indeed, he has become renowned for his negative attitude towards US economic policy. A staunch critic of the US government over the last decade, Faber believes that the country has outsourced many of the industries that once propelled it to super-power status. In one of his Gloom, Boom & Doom newsletters from June 2008, Faber mocked the US governments’ economic strategy, adding that the country no longer had any serious domestic industries.
“The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy. The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in the US. I’ve been doing my part.”
Asian ascendance
His enthusiasm for Asia – and in particular China – is not unbridled. He sees a housing bubble emerging in many Asian economies, with an influx of foreign buyers taking up residence in cheaper Asian locations. In May he told business website King World News that he highly recommended buying up Asian real estate. “Over the last 12 months I increased my positions in Vietnamese shares significantly. And I also increased some real estate holdings in Vietnam. I think we have kind of a bubble in real estate in Thailand. But I can see that real estate markets are very fragmented, and I’ve seen that in the US as well. So, yes, prices of real estate in Chiang Mai have gone up substantially, but I see zillions of Chinese now coming to [live in] Chiang Mai.”
As well as excelling in real estate, Asia’s new status as the focus of the global economy meant that foreigners were increasingly travelling to all over the continent on holiday. Faber told Barron’s recently that the global economy will tilt towards eastern economies, and that the newfound affluence within Asian countries was spurring the region’s tourism sector. “From Vietnam, Laos, and Cambodia to Singapore, Malaysia, and India, tourism in the region is on the rise, propelled by the Chinese. This year, Chinese tourism in Thailand is up 90 percent. Twenty and 30 years ago, the largest tourist groups in Asia were Europeans and Americans. Today, the Chinese dominate. This is an example of how the centre of economic gravity is shifting to Asia from the Western countries.”
The coming years are not going to be as smooth as many central banks and finance ministers are suggesting, according to Faber. He believes that as Asia takes a central role in global economics, the older Western economies will have to get used to looking east for their income. Indeed, he has likened Europe to merely a museum for newly enriched Asian travellers eager to see the world, and that tourism will increasingly be a crucial part of the region’s economy.
More immediately, he believes that global stock markets are heading into treacherous waters once again, and within the next year could face a crash of the same magnitude as the one in 1987. He told CNBC’s Futures Now programme in May that things are likely to be particularly bad over the next 12 months. “I think it’s very likely that we’re seeing, in the next 12 months, an ’87-type of crash. And I suspect it will be even worse.” While such a suggestion flies in the face of the relatively upbeat proclamations from finance ministers across Europe and the West, anyone willing to bet against him should know that his track record of predicting a crash is almost incomparable.
