The Coming Bear Market?

On 08/03/2011, in Investment Strategies, by Jordan Wilson

Mr. Doom and Gloom, Marc Faber, is predicting that the next major bear market is beginning.

Now Marc Faber is a contrarian investor and often quite pessimistic, so this is not a great surprise. But he is a smart man and I too am deeply concerned with the global markets.

In an interview with CNBC, Mr. Faber discussed a few interesting points. 


A country that concerns me greatly. And one that has a tremendous effect on many other nations.

China has a lot of people, a lot of consumption, especially in commodities, and is a holder of much U.S. debt. Also, China is a country that is not very transparent. This means that it is difficult to accurately assess its economy.

Some believe the country will continue to grow and prosper. Others, myself included, see a strong possibility for a downturn.

If China does falter, then it will have a negative impact on many other countries’ economies. Those in the region. Those that supply commodities to China. Those who borrow from China. Not something that is needed when many countries are already suffering from poor growth and high debts and deficits.

The Euro

I thought his views on the Euro were also interesting although I am not fully in agreement.

I have never been a fan of the Euro. At inception, the Euro let in a few countries that (in my opinion) did not merit inclusion. This is based on their economic strength, questionable policies, etc., that immediately resulted in certain Euro nations being relatively weak. But the Euro needed a critical mass to succeed, so the Greece’s of Europe were accepted.

The problem now is what does the Eurozone do? Creating the Euro was an expensive endeavour. The cost and the embarrassment of eliminating the Euro or even kicking out certain nations may be too much for Brussels to bear. But, at the same time, leaving in Greece and the other weaklings may create even greater domestic issues in the stronger nations.

The next few years will be interesting as the politicians deal with this.

Mr. Faber states that instead of eliminating the Euro, the Eurozone will evict some weaker members and all will be fine.

But is that not the same as some now propose? To have Germany and its satellite states leave the Euro and form their own currency. A kind of Teutonic Mark.

As well, in a recent survey, 49% of the Dutch want the Netherlands and Germany to both leave the Euro. And given recent election results in Finland, the Finns are not too thrilled about bailing out their Euro brethren.

So whether the strong evict the weak and keep the Euro or the strong countries leave and form their own currency, the end result is the same. A tremendous upheaval to the value and mechanics of the existing Euro.

Precious Metals

One area I do agree with Mr. Faber is the value of precious metals.

While they are quite expensive on a historic basis, they might be one of the few safe havens for investors.

Although I am not a gold bug, nothing I am seeing in Europe or the U.S. is convincing me that they are getting their currencies and spending under real control. As a result, there may still be room for growth in assets such as gold.

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