Even QE99 won't help US; India best in Asia: Marc Faber

Even QE99 won't help US; India best in Asia: Marc Faber

Money Control; Jun 06, 2013, 10.13 AM IST

"But at least in India compared to China, you have world class companies that are well run, that have strong growth potential because they have quasi monopolies so they can expand in India in retailing, manufacturing, distribution and pharmaceutical. The markets are not yet saturated, so overall I believe in investing in India. "

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Marc Faber believes that even though the quantitative easing (QE) by the US Federal Reserve does not benefit the common man, yet it is likely to continue. He also cautions of high market volatility in H2FY14

Despite quantitative easing (QE) not really bearing any fruit for the common man, the Federal Reserve is likely to continue with it and go "up to QE99," says investment guru Marc Faber. He strongly feels easy money has not boosted employment for the ordinary people; instead it has given a philip to asset prices owned by very small portion of the population. Property prices over the last 12 months are up 35 percent, but all this has not helped the man on the street, he says.

After Japanese market went up 17 percent between November and two weeks ago and then corrected by 15 percent, Faber cautions investors of the high volatility in the second half of this year.

He feels there has been a remarkable slowdown in economic activity in Asia. Also, there has been a significant slowdown in Indian growth. Europe is in recession. "We are not in a traditional recession where everything is depressed like during SARS in Hong Kong, but it is just not growing anymore and the corporate profits by large are now beginning to disappoint," he says in an interview to CNBC-TV18

Below is the verbatim transcript of Marc Faber's interview on CNBC-TV18

Q: The financial markets globally are obsessed with whether the Federal Reserve (Fed) will withdraw stimulus or not? What is your observation, do you expect the Fed to continue pumping the system with liquidity?

A: First of all, whenever the market is obsessed with one indicator, whether in the 1970s when it was the money supply, or in the 1980s, when it was the deficit, employment, it usually loses its relevance. But, I believe that the Fed will continue to monetise. We had quantitative easing (QE)1, QE2 and now we are in QE3.

In 2009 they started with QE1, (I believe) we would go up to QE99 or there will be an unlimited QE over time, I still believe that. The only thing is that over time the impact of QE or money printing loses its traction. This QE has not boosted employment for the ordinary people but has boosted the asset prices that are owned by very small portion of the population, the 1 percent, it is not even 1 percent, it may be 0.5 percent that benefits from rising stock prices, rising high end property prices in the Hamptons, in the US. Property prices over the last 12 months are up 35 percent, but it does not benefit the man on the street, but they will continue to do it.

Q: The US market has been fairly strong. We have seen the S&P move from strength to strength over the last couple of months. Where will those markets be headed because that would have ramifications for other equity markets?

A: We have gone up to the peak on May 22 at 1687. During the preceding months, we went up by 7 percent, so 7 percent times 12 will give an annual gain of 100 percent. I don’t believe the S&P will go up 100 percent in the next 12 months at all. I rather think that the market is very high and if we make a new high in the next two-three weeks, it will not be accompanied by the majority of shares. However, the market could make a new high just on the back of strengths in IBM, Microsoft, Intel with the rest not moving.

It’s like 2012, until September the NASDAQ was driven by Apple and not by other stocks. So you can have a distortion in the index just because of few stocks moving up but the fact is that a lot of shares are already down 10-15 percent from their highs. The markets for emerging economies by and large peaked out in January. We had strength in Japan until recently, but within a few days it dropped 15 percent from the peak.

Q: How are you feeling about emerging markets as an asset class with specific reference to India? How would you rate it amongst some of its Asian peers now?

A: If you look at the total pool of money in the world that is floating around, there is little money that has been invested in India. India is a huge country; in terms of population; they will overtake China in a couple of year’s time. The government in India is horrible but it is also horrible elsewhere in the world and that is the problem. So India does not standout as the worst government in the world, others are not much better.

Others maybe better in public relations than in India but they are the same. But at least in India compared to China, you have world class companies that are well run, that have strong growth potential because they have quasi monopolies so they can expand in India in retailing, manufacturing, distribution and pharmaceutical. The markets are not yet saturated, so overall I believe in investing in India. On Christmas I said that I did not increased my positions in any Asian markets except India. At that time it was November-December 2012, and I also increased my position interestingly enough in Iraq because the market in Iraq is very depressed.

Q: You mentioned a bubble in asset prices, what did you mean by that? What should investors be prepared for, is there a larger economic problem looming which markets should be worried about now?

A: The Japanese market had gone up 17 percent between November and two weeks ago and then corrected by 15 percent. What investors have to be prepared for is much higher volatility in the second half of this year. Secondly, in terms of economies in Asia there has been a remarkable slowdown in economic activity. For example, if I live in Thailand, I can see the economy at present is not in recession nor is it in depression it’s just not growing any more. The Chinese economy is not growing by 7.8 percent as the government is saying or statistics would suggest. The Chinese economy at present is growing maximum at 4 percent per annum.

There has also been a meaningful slowdown in Indian growth. In Singapore, where the statistics are relatively honest in the Q1 GDP was contracting, in the Q1 its growing at less than 1 percent. This can be statistical aberration. Europe is in recession. Look when McDonald announced that Asian sales are down 9 percent, believe me the Asian economies are not exactly booming. When Caterpillar Tractor reports that sales are down 20 percent in Asia, it tells you something about the Asian economies at present. We are not in a traditional recession where everything is depressed like during SARS in Hong Kong, but it is just not growing anymore and the corporate profits by large are now beginning to disappoint.