Dear Daily Crux reader, ------------------------------------------ The Daily Crux Sunday Interview The Daily Crux: On that tack, let's move on to the U.S. dollar... If someone were to tell me the S&P will go to 1,300 by yearend – or even within the next two months in some kind of an upside meltdown – I wouldn't doubt it. But I think it's quite likely that almost any stock you may want to buy today will be 10%-20% cheaper within the next 12 months. I tell everybody it's not so important what you own, but how much you own and how much money you have on the sidelines to weather a correction. Ivanhoe, just to give you an example, was at $1.55 at the low in October 2008. It's now $16. So you have to be able to live with that kind of volatility if you're going to invest in exploration companies. Crux: Speaking of Ivanhoe and exploration... are you interested in Mongolia from an investment standpoint, or is the government there just too unpredictable for you? Faber: I actually have friends who started a fund there and bought equities and so forth. I think there are opportunities there... for mining obviously, and there could be opportunities in real estate as well. An exclusive Crux interview with The stocks mentioned here trade primarily on foreign exchanges. 
Today we present the second part of our interview with investment "guru" Dr. Marc Faber. You can find the first part here.
In today's segment, you'll get a great overview of Marc's thoughts on the U.S. dollar, stocks, precious metals, and much more... You'll even learn his thoughts on the best cities in the world for nightlife.
This quick read contains several gems from one of the world's most respected – and entertaining – investors. To pick up where we left off last week, read on...
Good investing,
Justin Brill
Managing Editor, The Daily Crux
www.thedailycrux.com
An exclusive Crux interview with
Marc "Dr. Doom" Faber, part II
Most of our readers are familiar with the idea that the U.S. government's low interest, easy-money policies will likely lead to big inflation. But something that not many people realize - that you've been vocal about - is that the percentage of government tax revenues that must be spent on servicing the national debt is grower larger and larger. It's unsustainable. In your view, what does it mean for the dollar?
Marc Faber: When the percentage of interest payments to tax revenue gets too high, it will become clear to everyone that the government will need to print money in earnest to make these payments. That's when you're likely to see a crisis of confidence in the dollar. There will be no question that dollar is being debased.
The question is will there be a crisis of confidence in all paper monies and what will the reaction of investors be? I would imagine that when the crisis really emerges, you'd see people flee from all paper currencies into precious metals.
There may also be interest in stocks, because they usually offer some protection against inflation, compared to cash at 0% or long-term government bonds, either of which would be a recipe for disaster.
Crux: For someone who wants exposure to equities as an inflation defense, would you recommend the larger, more stable blue chips – like a Johnson & Johnson or an ExxonMobil – or do you see more upside in some of the smaller speculative names?
Faber: Well, you see, I'm not a U.S. citizen... so I'm a little bit cautious about investing in America as an overseas person because I think that Mr. Obama is a very dangerous character.
Crux: We agree.
Faber: I think eventually foreigners may not be able to get their money out of the U.S... or will only be able to get it out with major tax implications. So I'm not overtly keen on investing in U.S equities.
Of course, an American investor is in a different boat, but if I were an American I would seriously consider diversifying my assets.
I would especially ensure I had custody and ownership of some of my assets outside the U.S. If you were to buy foreign shares through a U.S. bank or broker, I would be concerned about what the government may do in the future.
I think from a prudent point of view, everyone should diversify the custody of their assets. In other words, don't have everything you own in the U.S.
In my case, I don't think it's wise to have everything held in Switzerland in a Swiss bank, so I have assets in Asia, I have assets in New Zealand, and so forth.
Now, most Americans will already find it extremely – and I repeat extremely – difficult to open an account somewhere else in the world, because nobody wants their money.
It's possible an American could still open an account with a bank in Thailand, or Cambodia, or Vietnam... one of the countries that aren't on the radar screen of the U.S. at this time. But those countries are now the exception to the rule. And it's safe to assume the U.S. will become nastier toward foreign banks that hold accounts for Americans in the future.
Of course, there are still some things an American can do that are out of reach of the government. Probably the best option is to go and buy real estate overseas. That's something I would definitely consider doing as an American. There's also the option of storing precious metals overseas.
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Crux: Marc, speaking of precious metals... since gold made that jump from $950 to $1,200, it now seems to have good support at around $1,050 or $1,100 per ounce. Each time the price falls to that level, there appears to be some big buyers coming in to support the price. Do you think we'll see $900 gold again anytime soon?
Faber: I really can't say... but I wouldn't rule out a move to the $950-$1,000 level, where gold broke out last year. I think we reached a peak of $1,226 on December 4th of last year, and then we dropped into February 5th and bottomed out at $1,045.
The Reserve Bank of India bought its gold slightly above the $1,050 level. My sense is that if gold went lower than $1,050, the Chinese would come in and buy some. I think they're waiting for lower prices, because they don't want to pay more than the Indians as a matter of pride.
If it dropped below the level where India bought, I think they would jump back in.
But honestly, I'm telling everybody in the world the same thing. I own my gold and I will never sell it, especially when I see clowns like Ben Bernanke, Larry Summers, Tim Geithner, and a very dangerous president...
When I'm looking at all these characters in government, I want to own physical gold.
There are times like now when stocks perform better than gold, like from the bottom in March 2009. The S&P's up some 77% and gold has not gained nearly as much. On the other hand, if you go back to say 1999 or so, then gold has substantially outperformed the S&P, and the Dow, and essentially all markets in the world.
It depends on your time horizon, but I wouldn't rule out that for the next few months stocks might continue to do better than gold... although I wouldn't place a bet on that either.
We're just coming out of a seasonal period where gold is often weak, and heading into a period of seasonal strength, so it's possible gold may start outperforming here.
An interesting note... based on observations and from e-mails I've received... I think many individuals have sold their gold already.
As prices rise in a bull market, investors often try to be clever, and will sell thinking they'll buy the asset back when it drops back down a bit. Of course, oftentimes they never get the chance to do that, and end up missing a large portion of the rise.
You saw this when gold was trading in the $900s last year. When gold finally broke out over $1,000, many people thought it was too expensive and didn't buy.
Of course, so far we haven't seen $1,000 again.
I don't concern myself too much with the price. Many people worry about gold declining to $200 or some terribly low number. I don't worry about that... I can tell you if gold is trading at $200, we'll all have bigger problems to worry about. None of us will have jobs. We'll all be bankrupt.
Crux: Marc, if a year or two down the line we see an acceleration in the decline of paper currencies... the crisis of confidence in the dollar you mentioned earlier... do you see silver having more upside than gold?
Faber: I'm not so sure. I know many people who think silver will go up much more than gold, which is certainly a possibility in a bull market, but I'm skeptical of that over the near term.
I think the probability is relatively high that China will suffer a setback – some of my friends would say a "collapse" – within the next six to 18 months. You don't want to be in things like copper and iron ore when the Chinese collapse happens. You don't want to own industrial commodities. And silver has the character of an industrial commodity.
Crux: What are your thoughts on U.S. stocks today?
Faber: I would be careful right here about buying heavily into stocks. We're up about 80% on the S&P. We've seen a huge market move without a substantial correction.
Crux: Great point. How do you feel about gold exploration stocks? Do you own any of those?
Faber: Yes, I do own several. First of all, I'm on the board of Ivanhoe (symbol NYSE: IVN), so I have involvement there. A few others I own are Gabriel Resources (symbol TSE: GBU) and NovaGold (symbol AMEX: NG), as well as Centamin Egypt (symbol TSE: CEE).Gabriel Resources and Centamin Egypt trade primarily on the Toronto Stock Exchange.
U.S. investors can purchase these stocks through a number of onlineand traditional brokers that specialize in international markets.The Daily Crux does not endorse brokers, but Interactive Brokersallows U.S. investors to buy stocks in over 80 foreign markets. The company regularly receives performance awards from popular financial sources like Barron's.
But you have to understand... I'm 64. My investment time horizon is shorter than some other people's. I have two females in my family – my daughter and my wife – who have no clue about investments and money. I try to keep things relatively simple these days.
Investing in places like Mongolia or Bahrain or Iraq is something I probably would have done 20 years ago... but I don't want to do it anymore.
Crux: Fair enough. How about Japan? Do you see value in Japanese stocks?
Faber: Well, I think the Japanese market is one of the most attractive ones in the world, simply because it hit 30-year lows during the 2008 crash, and it's not trading far from there now.
Purely from a probability point of view, there's more upside there than other markets. Thirty-year lows on the S&P 500 would be around 120. That gives you a perspective of where we are in Japan.
I understand that Japan will not grow a lot. That is out of the question, but the companies can still do very well, and they're relatively cheap right now.
Crux: Lastly Marc, life can't be all about investing and trading. We were wondering if you would share with us a few of your favorite cities for nightlife.
Faber: Well, I think Bangkok and Pattaya are two of the best cities for nightlife by far. If someone is interested in nightlife, these are the best in the world. High quality and unlimited supply.
In Thailand prices have gone up a little bit recently, but if I go out somewhere like Zurich it will cost me 80% more than in Thailand.
That's not to say Zurich isn't a good city... It's actually underrated for nightlife. They have very good restaurants... I would imagine the best restaurants in the world in terms of variety: German, Swiss, Italian, French food. The service in general and the quality of the food is very good. You have great cultural bars that are basically open 24 hours... and you can still smoke.
Now that may stop in May, when some places will have a separate venue for smoking, but at least you can smoke outside in Switzerland.
In America they're so ridiculous. You can't even smoke outside most places. They're absolutely brain damaged.
Crux: Now Marc, when you're forced to travel to the U.S., are there any particular places you enjoy going?
Faber: In America, I don't go out because when I go through immigration they always spoil my mood. Big time. I don't feel like going anywhere.
I was recently at the Chicago airport and I was in transit. So I went to the bar near the gate and ordered a beer. The woman at the bar asked me for my ID. So I thought she was making a joke. But no, before she handed me over the beer she said, "I want to see your ID."
I'm 64!
So I said, "Madam, do you mind explaining to me? I take it as a compliment that you think that I'm younger than 21... but just as a matter of interest why do you have to see my ID?"
Then she said, "Well over the last 12 months this huge crime occurred where two underage individuals were caught drinking alcoholic beverages." Two in one year and now everyone has to show ID.
Crux: Yes, we have quite a few ridiculous rules...
Faber: By the way, I've been to many African countries, and in almost all of them the nightlife is also excellent.
Crux: As a traveler, are there any countries you haven't been to that you'd like to make it to before...
Faber: Before I go to hell? [Laughs]
Crux: Before you check out?
Faber: I'd like to go to Antarctica... I haven't been.
I've been to Argentina, but there is more there I'd like to see.
Also, I haven't been to some central Asian republics like Uzbekistan. I think the city of Samarkand is probably worth a visit.
I haven't been to Lebanon. It's definitely on my list... also Ethiopia, Sudan, and Yemen. These are all countries that I'd still like to see.
Crux: Finally, Marc, you live in Thailand... what brought you there?
Faber: Well, for my taste, there are few places I'd rather be than the north of Thailand. I just love it here, and if worse comes to worse, we have enough land that we could be self-sufficient. The area is very rich in agriculture... it grows right into the city. Whatever else happens, we'll always have food. That may sound silly today, but it could be important.
If you live someplace like New York or London, the supply of food could become a problem one day. These cities are dependent on the shipment of food from elsewhere.
I think having a self-sustaining home or community could be rather important down the road. That's something people should at least think about now, rather than waiting for an unfortunate situation to develop.
Crux: That's a great thought to end this on. Thanks so much for speaking with us.
Faber: Very good. Thank you very much.
Editor's note: If you haven't taken a look at Marc's Gloom, Boom, & Doom Report, I encourage you to do so. It's got something for everyone from the amateur investor to the seasoned professional. Anyone looking for "no BS" market analysis will find it full of great ideas. As I mentioned Part 1-below- last week, the March issue, titled "The Great Reflation" could be the most important thing you'll read about the market all year. You can learn more about the Gloom, Boom, & Doom Reporthere.
You can also learn about Faber's excellent book on the rising economic power of Asia in Tomorrow's Gold: Asia's age of discovery.
April 2010
Stock symbols preceded by "HKG" trade on the Hong Kong Stock Exchange, "BAK" on the Stock Exchange of Thailand, "SIN" on the Singapore Exchange, "BOM" on the Bombay Stock Exchange, and "JAK" on the Indonesia Stock Exchange.
U.S. investors can purchase these stocks through a number of onlineand traditional brokers that specialize in international markets.The Daily Crux does not endorse brokers, but Interactive Brokersallows U.S. investors to buy stocks in over 80 foreign markets. The company regularly receives performance awards from popular financial sources like Barron's.
Sunday 11 April 2010
An exclusive Crux interview with Marc "Dr. Doom" Faber
Marc "Dr. Doom" Faber
Of all the investment "gurus" featured in The Daily Crux, few are more popular or more respected than Dr. Marc Faber.
Nicknamed "Doctor Doom" because of his often dire financial forecasts, Faber is one of a kind. He was born in Switzerland, but now calls Northern Thailand home. He is a money manager, institutional investment advisor, and the editor and publisher of the popular Gloom, Boom, & Doom Report. He's a fixture in theBarron's annual Roundtable discussion with the world's best investors.
Faber has been in the news recently for his claim that we are facing "the end of Western civilization as we know it." That bloated governments like the U.S. have spent far too much money, instituted far too many entitlement programs, and are now debasing their paper currencies in order to pay for it all. Faber expects high rates of inflation as a result.
Faber is much more bullish on Asia over the long term. We recently interviewed the good Doctor to hear some of his favorite ideas on how to profit from the rise of countries like India, China, and Vietnam.
You won't hear about these stocks in the mainstream financial media... And several of the small stocks you'll read about below will be giants years down the road.
The Daily Crux: Marc, before we get started, we wanted to compliment you on your latest Gloom, Boom, & Doom issue (titled "The Great Reflation"). It's fantastic.
Marc Faber: Thank you.
Crux: Most of our readers know the U.S. has built up an enormous amount of debt, and that we're likely facing higher interest rates and inflation down the road.
Instead of focusing on those issues, we'd like to discuss the big trends you see in Asia over the next five to 10 years.
We found our readers are interested in these ideas, but there's a lack of good information available. Could you highlight some of your favorite trends and stock picks?
Faber: Yes, absolutely.
Crux: One theme you've discussed in your writings is the boom in Asian tourism. Could you explain why this is something folks should pay attention to?
Faber: Well, when countries become richer – in other words, when GDP per capita goes up – usually people start to travel. That's often one of the first things they do.
In Asia – as was the case in Europe – the introduction of budget airlines has really helped to increase tourism.
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When Japan opened up in the 1950s and 60s, there were very few Japanese tourists going overseas. Taiwan and South Korea were in similar situations when travel restrictions were removed in the 1980s.
Now the departure rate – the number of individuals traveling outside their country – in Japan, South Korea, and Taiwan is 20% or higher.
But in places like China, it's still 2%. In India, it's probably closer to 1%.
So over time I think that there will be a trend toward more traveling overseas and also more traveling inland. As airport infrastructure improves and more budget airlines come on stream, domestic travel will increase. People will be able to afford to take long weekends… to go away for three days to the beach somewhere or to the mountains or what not.
So I think that this trend is going to last for a very long time. In China, I don't think the departure rate will go to 20% any time soon, but it could easily go from say 2% to something like 10%. So that would be over 130 million Chinese traveling around the world.
Crux: Have you seen a lot of that inflow in Thailand?
Faber: Well, tourists here come from everywhere in Asia, but we have an increasing number of tourists from China, India, Eastern Europe, and especially the Middle East. You see many more Middle Eastern tourists around.
It's very similar to what you see in New York. Fifteen to 20 years ago, you saw very few Indians on Madison Avenue or Fifth Avenue, but today you see a lot of them.
So there's a huge increase in tourism is Asia. In fact, last year for the first time air passengers in Asia exceeded air passengers in North America including Canada.
Crux: We know stock markets around the globe are overbought in the short term, but are there any specific companies you like to take advantage of the trend in tourism?
Faber: Well, we own several hotel companies in Asia, including Shangri-La Asia (symbol HKG: 0069) and also Hongkong and Shanghai Hotels (symbol HKG: 0045).
In Thailand, we have a very successful hotel company called Minor International (symbol BAK: MINT). So there are quite a few choices in that industry that should benefit directly from this trend.
Another sector – you could say a special sector of the hospitality industry – is hospitals. People don't exactly go on a holiday to hospital, but health tourism is a rapidly growing business. It's much cheaper to be treated in Asia than in the Middle East, Europe, or the United States.
So we have a lot of foreigners coming to Asia for health reasons.
Crux: Aren't there a few large hospital stocks in Thailand to play the medical tourism idea?
Faber: There are two large ones actually. One is Bumrungrad (symbol BAK: BH).
And the other one is Bangkok Dusit Medical Services (symbol BAK: BGH). There's also a large one in Singapore named Parkway (symbol SIN: P27).
Another tourism-related sector that I like is the airport companies. Obviously, as tourism increases, the need for airlines increases.
I think there are four great airlines in the world at the present time. There's Emirates, which is based in Dubai, and Qatar Airways, both of which are private companies. Then you have Cathay Pacific (symbol HKG: 0293) out of Hong Kong and Singapore Airlines (symbol SIN: C6L).
Another airline I like is Thai Airways International (symbol BAK: THAI). The company is of somewhat lower quality than the four I just mentioned, but the stock is probably the most interesting at the present time.
Airport companies are another great way to play the trend.
In Singapore, the airport is basically owned by the government, but there are some interesting service companies, like engine maintenance companies and catering companies.
Singapore Airline Terminal Services (symbol SIN: S58) is one I like. SIA Engineering (symbol SIN: S59) is another one… they overhaul engines. That is a world-class company, by the way. The stock has a 4.44% dividend yield, but in Singapore dollars I regard this as a reasonable dividend. I think the stock is a little pricey at the moment, but as a long-term investment, that's a stock I would want to own.
And then in Thailand we have the airport authority known as Airports of Thailand (symbol BAK: AOT). I don't think it's a particularly well-run company, but they have a new managing director who may do a better job.
Another I like is Samui Airport Property Fund (symbol BAK: SPF). They basically own the airport in Samui. It pays a dividend yield of about 8%, and that's a guaranteed dividend.
Crux: That's something you won't find in the U.S. too often, a guaranteed dividend.
Faber: Yes… That's the point. Of course, that doesn't mean there isn't risk. Thailand isn't problem free, but show me a country that is.
In Thailand, we have a lot of companies that still pay dividends in the neighborhood of 5% to 7%.
Crux: That's significantly higher than a lot of stocks in the U.S. Would you say there's a different attitude toward returning cash to shareholders in various parts of the world?
Faber: Well, I think the primary difference is that some countries have a tradition of paying out higher dividends. Exactly why I'm not entirely sure. But in general, when I look at the shares in Asia – in Hong Kong, Singapore, Thailand – the dividend deals are relatively high compared to the U.S.
Crux: That's interesting… something for investors looking for more income to consider.
Marc, would you mind discussing your thoughts on some infrastructure trends and companies in places like India and China?
Faber: In India, the infrastructure plays have gone up quite a lot already, so I would be a little bit careful there. But I would imagine for long-term investors –given the tremendous need for infrastructure in a country like India – that Larsen & Toubro (symbol BOM: 500510) would be a decent play.
There are several engineering companies in Asia that have potential, but honestly, I'm not sure which ones would be the best. I would much rather play the infrastructure trend through water companies, like Hyflux (symbol SIN: 600) in Singapore.
Crux: Is Hyflux a well-run company?
Faber: Yes, I think so.
Crux: Could you discuss the basic business of Hyflux for readers who aren't familiar?
Faber: Basically, they build water processing plants and they also have desalination plants. They have a contract in the Middle East and contracts in China and all over the place. So it's a fairly large, successful company.
There's also a separate play we own called the Hyflux Water Trust (symbol SIN: D7TU), that yields about 8% right now. They basically do treatment systems for water purification, wastewater treatment, water recycling, filtration, and so forth.
In Thailand, there's another promising water company, Thai Tap Water (symbol BAK: TTW). It's a water utility that also own water rights, and the yield is 6%.
Crux: Owning infrastructure through water is an interesting idea… There's nothing more vital than water infrastructure.
Faber: Absolutely.
Crux: How about agriculture and farmland? Do you have any favorite names in that space, for the long term?
Faber: The plantation companies in Indonesia are a decent play. One I like here is Sampoerna Agro (symbol JAK: SGRO).
Crux: Many of the Indonesian agriculture plays produce palm oil, correct? [Note: Palm oil demand in China is ramping up due to its use as a cheap cooking oil.]
Faber: That's right. Malaysia also has several palm oil companies, but they're more expensive because their land is more valuable than in Indonesia. Another agriculture play I like is in Singapore. It's called Indofood Agri Resources (symbol SIN: 5JS).
Now admittedly, I'm not an expert in this area, but I do own Sampoerna Agro. I also own a company in Thailand called Univanich.
Crux: Is that an agricultural company as well?
Faber: Yes… Univanich Palm Oil (symbol BAK: UVAN). The yield on that one is about 6%.
Crux: Those are some great dividend yields.
Faber: Yes, definitely. That was my point earlier. There are some problems in Thailand, but at least you're paid well to wait… and over time the currency is likely to appreciate against the U.S. dollar as well.
Crux: On that tack, let's move on to the U.S. dollar…
Editor's note: As I mentioned in our intro, we'll feature Marc's thoughts on the U.S. dollar, interest rates, gold and commodities, and even nightlife – in next week's Sunday interview edition.
In the meantime, I encourage you to check out the Gloom, Boom, & Doom Report. It's written for the seasoned contrarian investor, but anyone looking for "no BS" market analysis will find it full of great ideas. The March issue, titled "The Great Reflation" might be the most important thing you'll read about the market all year. You can learn more about the Gloom, Boom, & Doom Report here.
You can also learn about Faber's book on the rising economic power of Asia inTomorrow's Gold: Asia's age of discovery
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