Marc Faber, known more for his doomsday predictions, had foreseen the recent crash in the US stock markets too. And if he is to be believed, it would be a while before the markets bounced back.
Faber, Swiss-economist and fund manager, has history on his side. Every boom is followed by a fairly long bearish phase. The bull run in the 1920s was followed by a stock market crash and the great depression. Again, there was a boom in the 1960s with the market moving sideways in the 70s. And now, after almost a two-decade long bullish phase between the early 80s and 2000, the US markets have plummeted.
Author of well-known investment newsletter Gloom, Boom and Doom, Faber has lived up to his reputation in foreseeing bust cycles in advance, be it the devaluation of the Russian rouble in 1998 or the crash in the United States markets a decade earlier in 1987. Cut to the present, he also anticipated the dotcom burst.
He has a word or two for all those who would still want to invest in technology stocks.
"Frequently, new technologies are not the true winners. It is the users of new technologies who are," Faber says. The rapid rate of obsolescence, excessive valuations, competition from new technologies and innovations are some of the issues to be considered when investing in such stocks, Faber adds.
However, he feels, India stands to gain in some measure when the United States or much of Europe is on a cost-cutting spree and moving towards outsourcing a good part of their activities.
Moreover, he says, the Indian economy is "domestic-centric". This would ensure that India is not as affected as the global markets in the current recessionary phase, he adds.
Faber made a presentation on "Is there boom beyond this gloom?" at a function organised by Enam Financial Consultants here on Wednesday.
According to Faber, history has it that rapidly appreciating asset prices lead to additional borrowings, overspending and over-investments. Further, inflation hardly shows up in consumer prices but is concentrated more in equities and real estate prices.
His advice for now is to avoid equities which have fuelled investors inflated expectations. Faber would ask the global fund manager to buy Euro-denominated bonds. "Emerging market securities are relatively cheap, but not compared to old economy stocks in the US," he says.
Elaborating on the peculiarities of the current expansion, he pointed out that commodity prices have been falling. So have the interest rates and real wages in the US. "Profound changes can be seen in the conditions of society's economic life," he says, explaining that poor economic conditions stimulate the search for cost cutting.
