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Tuesday, April 18, 2017, 18:07

The contrarian

By Anthony Warren

Renowned economist known as Dr Doom for his bearish market predictions is keeping faith with the Chinese economy

The contrarian
(Ma Xuejing / China Daily)

Marc Faber was halfway through explaining how restaurant receipts are a barometer of the divide between the rich and the poor — how the richest 1 percent grab all the money. Then he paused.

“I’m not saying this because I have a grudge,” he said. “I’m one of the principle profiteers and parasites of society, being in the financial sector. (And) the reality is, the people who have assets, they’ve done very well.” But “young people, the millennials”? He sees their situation as a very different story.

Economist, investment adviser and ex-broker, 71-year-old Faber is perhaps one of Asia’s most outspoken and contentious financial pundits. As editor and publisher of The Gloom, Boom & Doom Report, a financial newsletter, his opinions are much sought-after among high-net-worth readers and corporations.

Prospective investment sectors, good pockets, bad bubbles — the topics covered with China Daily Asia Weekly are varied: Precious metals (“relatively inexpensive”); Singaporean property; the prospect of American money outflowing into Japanese and European stock markets; and Macao’s gaming shares (“A year ago, one of my recommendations was to buy,” he pointed out. “They’ve actually gone up quite a bit. I think they can still move higher, but they probably have to digest the advance.”).

Claimed by many acolytes of laissez-faire Austrian School economic theory as one of their own, Faber’s current opinion on the US stock market is that it is overvalued.

Talking last month to financial newspaper Barron’s, he said he sees a correction on the cards despite shares soaring following US President Donald Trump’s talk of infrastructure stimulus.

In response, he has increasingly focused on the Chinese economy — something that “surprisingly, has begun to do quite well”.

“It would seem that there was again an upturn in the economy,” Faber said. “It’s not the same growth rate we had before 2007, and certainly it’s not as healthy,” he said, referring to the extent that it was debt-driven.

Then again, if you are expecting to hear good news for the free market, Faber is unlikely to give it. He has been described as pessimistic and a super bear, while his own website calls him a contrarian.

He sees widespread ignorance among people in the financial sector today, saying that few can remember a real crash and even fewer bother to study such events.

Since the 1990s, Faber has borne the nickname Dr Doom, due to his dark economic prophecies.

“I predicted, essentially a week before it happened, the (United States stock market) crash in 1987,” he explained. “It happened and it was widely written up. Then I predicted the Japanese market would fall 50 percent.”

He laughed. “It fell almost 70 percent. So you know, there were two or three things where I was right on the negative appraisal of markets. Like the tech bubble and the 2007 bubble.”

He is not the only one to have earned the title Dr Doom. Years later, it was also given to American economist Nouriel Roubini — one of the few economists to have predicted the US housing bubble crash of 2007-08, which reverberated around the world as the global financial crisis.

But on the mezzanine abutting the swimming pool at the Grand Hyatt Hong Kong, Faber, with his soft Swiss accent, does not seem a gloomy visionary.

After 23 years in Hong Kong, Faber now lives with his wife in Chiang Mai, the northern city in Thailand where his main office is located. It has a “more agreeable climate”, he explained.

Despite being proven correct in his prediction of crashes and busts, he is more inclined to point out that his real successes — where the real money lies — have come from long-term discoveries: The undervaluation of Latin America he noticed in 1989; the prospects in Russia following the collapse of the Soviet Union; the so-called Asian miracle.

His best-selling 2002 book Tomorrow’s Gold: Asia’s Age of Discovery was less about gold — and going long on gold is another of his favorite strategies — and more about the rise, not the fall, of China and Asian markets.

“People say (I am) always bearish,” Faber said. “I just don’t think the financial system, such as we have it, is sustainable.”

He has a habit of rocking back on the patio chair when he is thinking.

“People who think stocks will always go up, or property prices will always go up, they live in a fantasy world. It isn’t the case. Here in Hong Kong, in 1997 property prices dropped 70 percent. People have to be made aware that things can also go down.”

Faber, who grew up in Switzerland, became a member of the Swiss ski team in his youth, plunging headlong down slopes likely as steep as any stock market graph.

He was unsure what to do upon finishing school, but his father, a successful orthopedic surgeon, discouraged him from becoming a doctor.

“He said you can study anything but medicine,” Faber said. “He saw the trend toward socialized medicine and he strongly advised us against doing that. You work a lot for comparatively little money.”

By the age of 24, Faber had a PhD in economics, but even then, his future was still unclear.

“When I finished my studies I didn’t know what to do exactly, but in those days — 1969, 1970 — it was still very easy to find a job if you came from what I call a reasonably good family. So I had connections, and through the skiing I knew a lot of people and a lot of people knew me.”

Advertising seemed promising, but a talk with a headhunter ended with him set on working on Wall Street in New York. After some time with the US brokerage firm White Weld, Faber returned to Zurich for a year before being posted to Hong Kong in 1973.

The 1970s were tough on brokers. Some went bust, others merged. White Weld was snapped up by Merrill Lynch in 1978 and Faber left to help open the Asia offices for Drexel Burnham Lambert, one of the top five investment banking firms at the time.

In 1990, he set up his own, eponymous company, advising on fund management and acting as a broker-dealer.

Then in 2000 he moved to Thailand. Besides publishing a financial newsletter, Faber also provides investment advice to corporations and private investors, handles financial institutions’ portfolios and sits on a number of boards.

Away from investment, Faber is vocal about the plight of youth, who he believes are losing out in real terms. Playing with smartphones all the time, this is a community that he describes as less socially savvy and less able to develop necessary skills with their peers.

Compared to their parents at the same age, he said, today’s youth have less money and face higher costs to buy property, meaning people “live at home or in a shoebox or share it with several people”.

When Faber first landed in Asia, many countries were still “dirt poor”. Now a vibrant middle class has appeared, with significant improvement. But while he reckons the region will continue to do relatively well, he argues there is one concern: Peace.

“If the Americans continue to interfere and try to continuously provoke the Chinese and some kind of conflict breaks out, that would be the end of the boom,” he said.

Faber gives the example of US imports of Chinese steel, which Trump threatened to impose high tariffs on, before he was elected.

“Chinese steel exports to America account for only 3 percent of US steel imports,” Faber said. At the same time, “look at it from the Chinese side — Chinese steel exports to the US account for 1 percent of total Chinese steel exports”.

In the 1970s, the saying was: If America sneezes, Asia catches a cold. That is no longer the case, Faber said. Today things are different.

“If the Chinese economy has a big setback — now that is a problem.”

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