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BookmarkIn an interview with ET Now, Marc Faber, Editor and Publisher, Gloom, Boom & Doom Report, speaks about the US tapering, global markets as well as theIndian rupee and equities. Excerpts:
ET Now: The noise for possible December taper is getting louder versus a few days back when it was almost consensus that the taper will only happen in 2014. On the contrary, you did not expect the FED to taper. Are you still sticking to that viewpoint?
Marc Faber: Basically, we will have next year a new FED Chairman, Janet Yellen. In order to gain some credibility, she may decide, as the FED Chairman, to implement a cosmetic tapering that would be, say, $10 billion a month or $20 billion a month. In general, the asset purchases by the FED will not be reduced, but actually increased.
ET Now: So does that mean that Asianequities will continue to attract strong fund flows and could that lead to bubble formation?
Marc Faber: It is very difficult to say whether we have asset bubbles here in Asia in terms of equities. Since 2009, equity prices in countries like Malaysia, Indonesia, the Philippines, Thailand and even Singapore have risen significantly, but the economic prospects have also been quite favourable. If I look at these economies, then I have to say that for most shares, the valuations are not that high compared to zero interest ratewhich you get in the banks. So I can buy Malaysian shares or Singapore shares or Thai shares and have my portfolio dividend yield of say 5%. So compare that to the government bonds in the US or to Singapore government bonds or cash in the bank, and I think the valuations are not terribly stretched. I do not think they are cheap. I do not think these stocks will go up, but at least I get the 5% dividend.
ET Now: So would you advise investors to shift to gold only? Has it bottomed out?
Marc Faber: I have been advising people to have an exposure to gold for the last 15 years or so and the price of gold rose between 1999 and September 2011 very rapidly from $255 to over $1900. We are now slightly over $1300. The price of gold at this level is not terribly high compared to the wealth creation in the world, compared to the expansion of central banks’ balance sheets, compared to the debt explosion. So yes, I continue to recommend people that they allocate some of their money to gold.
ET Now: Would you advise investors to own physical gold or gold mining stocks?
Marc Faber: I prefer physical gold, but I have to say that numerous gold mining shares are now very inexpensive compared to the overall S&P and compared to the price of gold. Theshare market will always have a fluctuation above on the upside and below on the downside. For example, property stocks will go up more than the property price and when the property market goes down, property stocks drop more than the market. Same is the case for gold shares. They go up and down more than the gold price.
ET Now: Coming to India then, is the worst over? Can it get better growth than 5% which is expected?
Marc Faber: In general, I think that India could grow at around 7% if the conditions were there to facilitate that growth. That would mean essentially a significant reduction in regulation and a significant improvement in infrastructure and capital formation.
ET Now: So India continues to battle with high inflation, high interest rates. Currency has improved slightly after correcting sharply. Do you expect some weakness ahead?
Marc Faber: The rupee has been weak since its introduction. I suppose it to be a weak currency, but obviously under the new Minister of Finance, maybe we have some stability for a while.
