The Big Picture with Marc Faber

from Marco Polis:

In this exclusive interview with Marcopolis.net Marc Faber covers it all: from commodities and China to the outlook on inflation, the Euro and gold. According to him the global economy is not healing. To the contrary, we might find ourselves back into recession within six months or a year. In that case he expects more money printing by central banks, which eventually could lead to high inflation rates and renewed strength in commodity prices.

On the bright side, he sees great economic potential in Vietnam. Also, the Iraqi stock market has good potential now that a deal with Iran has been reached. While mining stocks are extremely depressed we might see defaults before any meaningful recovery.

In your 2002 book “Tomorrow’s gold” you identified two major investment themes: emerging markets along with commodities. That was a great call. As for commodities, they had a great run up until 2008. Then they crashed sharply along with everything else just to recover strongly into 2011. Since then they have acted weakly, and recently commodities even reached a 13-years low. Is this the end of the commodities-super-cycle, as some have claimed, or is it more like a correction?

Well that’s a very good question because obviously the weakness in commodities this time is not due to, like, contraction in liquidity as we had in 2008. 2008 commodities ran up very quickly in the first half until July. The oil prices in 2007, just before they started to cut interest rates in the US were still at 78 dollars a barrel and then by July 2008 they ran up to 147 dollars a barrel. Afterwards they crashed within six months to 32 dollars a barrel and then as you said in 2011-2012, they recovered and were trading around 100 dollars a barrel. Now they have been weak again as well as all other industrial commodities and precious metals.

My sense is that this time around, commodity prices are weak because of weakness in the global economy, specifically weakening demand from China,

because if you look at the Chinese consumption of industrial commodities, in 1970 China consumed 2% of all industrial commodities, by 1990 it was 5% of global commodity consumption for industrial commodities and by the year 2000 it was 12% and then it went in 2011-2012 to 47%, in other words almost half of all industrial commodities in the world were consumed by China.

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ht/MarcoPolis.net