Marc Faber
Barron's: The first half of this year has unfolded as you predicted: a lousy market in the U.S. and some robust markets abroad. What now?
Faber: The U.S. economy was a bit stronger than I expected. On the other hand, the market was overvalued and had difficulty rising. That will be the case for the rest of the year. Earnings aren't going to recover by as much as the analysts think. There is confusion among investors, or maybe worse, revulsion toward the financial establishment. Let's just say the climate is not conducive to a sustained bull market in the U.S., though you could get a powerful bear-market rally that would postpone the ultimate low to 2003, maybe even 2005. What happens depends, to some extent, on how much money the Fed pumps into the economy. Plus, there are considerable risks in a depreciating dollar.
Q: You mean, foreign investors might take their money home?
A: They might not become sellers of U.S. assets, but they might buy less. By definition, if they buy less in the way of financial or other assets, the U.S. trade and current-account deficits would have to shrink. Between 1971 and 1980, the U.S. dollar lost 70% of its value against the Swiss franc, the deutsche mark and other currencies. This time the dollar will not lose 70% of its value against the euro and the Japanese yen, but it could lose, say, 15%-20% against the euro, maybe less against the yen. The big loss, however, will come from all currencies against a basket of commodities, particularly precious metals.
Marc Faber
Precious metals
Harmony Gold (ADR) HGMCY $14.89
Apex Silver (ADR) SIL $15.40
Pan American Silver (ADR) PAAS $7.86
Minas Buenaventura (ADR) BVN 28.60
Zimbabwe Platinum ZIM AU A $1.30
Indonesia (Rupiah)
Indofood Sukses Makmur INDF IJ 1175
Sampoerna HMSP IJ 4225
Indofarma INAF IJ 305
United Tractor UNTR IJ 600
Commodities Funds
Rogers Raw Materials
Rogers Intl Raw Mat.
Q: They've had a nice run.
A: If the world investment community would put just 1% of its assets in gold and silver, there wouldn't be enough gold and silver and mining companies to go around. So it wouldn't take a lot of money to lead to a really significant rise in prices. My favorite stocks in the metals universe are Harmony Gold, Apex Silver and Pan American Silver. Harmony is run by a friend of mine, who happens not to be a crook. Apex Silver is also run by someone I know quite well who isn't a crook.
Q: Are you implying that most metals companies are run by crooks?
A: All over the world, we have developed a mentality that has led to a lot of companies run by dishonest people. Harmony acquired a lot of companies when gold was depressed, and they are unhedged. You'd have to be crazy to buy a mining company that is hedged if you're trying to take advantage of a bull market in the metals. These companies also have large reserves. At the January Roundtable I mentioned Minas Buenaventura in Peru. It's a super company. These kinds of stocks have all gone up by 100% or so in the past six-nine months, but the risk is not being in gold. Of course, there are lots more speculative issues around the world that have huge upside potential if things work out. Zimbabwe Platinum, which is based in Zimbabwe, but listed in Australia, has a very low valuation. If it were in the U.S. the valuation would be 10 times higher.
Q: What is the bullish case here?
A: Robert Mugabe [Zimbabwe's president] eventually goes. The political situation improves, and you have a mine that experiences a revaluation the way the Russian market did under [President Vladimir] Putin. Shifting to Asia, it's had a mini-boom. I was just in Jakarta and spent a lot of time in Thailand. I have seen a huge pick-up in business over the past 12 months, and equity valuations are tiny compared with the U.S. I still like Indofood Sukses Makmur, the Indondesian food producer I mentioned in January, and Sampoerna, the cigarette company. We've sold Bimantara Citra, a media conglomerate, because the price had run up. We like Indofarma. This is a country of 200 million people with an extremely low per-capita consumption of pharmaceutical products. The growth potentially is high. Eventually, these companies might even be taken over by foreign companies.
Q: How will all these people pay for fancy pharmaceuticals?
A: You would be surprised. I sometimes ask myself, with what do people pay to fill up the coffee shops of luxury hotels and the discotheques of Jakarta? There is a huge underground economy that functions reasonably well. And don't forget that Indonesia is a very rich country in terms of natural resources. You're investing in a huge basket of commodities and mineral wealth -- coffee, rubber, tin and oil and gas. I would buy some real estate in Indonesia and Thailand, too, because the real-estate markets definitely have bottomed. In the next five years Asia will grossly outperform the U.S. -- especially commodities producers such as Indonesia, Malaysia and to some extent the Philippines and Thailand. I am not so keen on markets that have a close correlation to the U.S., such as South Korea, Taiwan and Hong Kong.
Q: How do you feel about Japan?
A: There isn't a lot of good news, though there are opportunities in some individual companies. I am not so keen about the Chinese stock market, either. Valuations are relatively high. The way to play the opening of China is through real estate and a basket of commodities. If the Chinese economy expands, they will become big consumers of raw materials. I would buy companies on the periphery -- mining, plantation and food companies in New Zealand, Australia, Indonesia, Malaysia. In the agricultural sector I like United Tractors, based in Jakarta. If people endorse my view that commodities prices will rise, they will do quite well in Jimmy Rogers's commodities funds. [Rogers, a former Barron's Roundtable member and private investor, developed the Rogers Raw Materials Fund and the Rogers International Raw Materials Fund. Both are managed by Beeland Management and track the Rogers International Commodities Index.]
Q: Jim will thank you for the plug.
A: In January I mentioned that Russia had had a big move. Now I think a correction is under way. Finally, I haven't done the research yet, but I'm interested in some Argentine assets. Real estate in Argentina is inexpensive now, and the country is one of the greatest beneficiaries of rising commodities prices.
Q: Happy travels, and thanks.
FABER
Price Price Percent
Company Symbol 1/7/02 6/14/02 Change
Closed-End Funds
MS Africa Invest AFF 7.20 8.97** 24.58%
Greater China GCH 9.18 10.25 11.66
Japan Equity JEQ 4.94 5.65 14.37
Japan Smaller Cap Equity*** JOF 5.95 7.22 21.34
Jardine Fleming India JFI 7.73 7.28 -5.82
MS India Invest IIF 9.26 9.70 4.75
Indonesia (Rupiah)
Indofood Sukses Makmur INDF IJ 650 1225 88.46%
Sampoerna HMSP IJ 3475 4475 28.78
Bimantara Citra BMTR IJ 1400 2975 112.50
Mayora Indah MYOR IJ 315 525 66.67
Kalbe Farma KLBF IJ 230 435 89.13
Thailand (Baht)
Chaoen Pokphand Foods CPF TB 5.75 5.45 -5.22%
Thai Reinsurance Public THRE TB 32.50 32.00 -1.54
Matichon Public MATI TB 54.00 64.00 18.52
Serm Suk SSC TB 158.00 250.00 58.23
Thai Farmers Bank TFB TB 20.60 31.75 54.13
Siam Commercial Bank SCB TB 19.10 32.50 70.16
Banpu Public BANPU TB 25.75 44.75 73.79
Hong Kong (HK$)
Hang Seng Bank 11 HK 87.50 85.00 -2.86%
Shangri-La Asia 69 HK 5.95 6.50 9.24
H.Kong & Shanghai Hotels 45 HK 3.15 4.00 26.98
Shanghai Industrial 363 HK 15.70 15.60 -0.64
Russia (Ruble)
Lukoil (ADR) LUKOY $54.00 69.25 28.24%
Norilsk Nickel NKEL RU 476.60 554.77 16.40
Latin America
Embotelladora Andina (ADR) AKO/A 9.80 7.15 -27.04%
Cristalerias de Chile (ADR) CGW 19.15 16.95 -11.49
Mining
Newmont Mining NEM 18.93 28.96 52.98%
AngloGold (ADR) AU 18.71 29.55 57.94
Minas Buenaventura (ADR) BVN 20.10 26.65 32.59
** Fund was dissolved in mid-April
*** Name changed from Japan OTC Equity Fund |
