New York – Marc Faber, an investment strategist and contrarian economist, recently wrote an interim note to subscribers of his firm’s Gloom Boom and Doom Report. According to Faber, gold charts are looking “truly horrible.” With gold at the current level of $820/ oz (key support levels are around $850) Faber believes that this number could potentially drop to as low as $600/oz. His advice to investors is the following. Those with assets in U.S dollars cash should move to the purchasing of gold as the price continues to fall. For investors with the majority of their assets in gold and no cash flow- stay put for the time being.
And assuming the entire financial system blows up, go with equity, Faber says. Large deposits can become worthless instantaneously. However, no matter how low a stock drops, ownership of a company is better than being a creditor with worthless deposits.
Is it really as bad as he believes? The average Joe believes so. A recent poll by The American Research Group shows that 18% of Americans believe the national economy is getting better, 19% consider it the same, and 60% believe it is getting worse.
While Americans have certainly been experiencing economic woes, Faber suggests that foreign economies are also entering into tough times. U.S stocks have had a higher performance than foreign stocks since the start of the year. Yet, this is not because U.S. stocks are going up. The others are just falling faster. Faber writes:
“I have a friend who is an outstanding economist who thinks that the Asian current account surpluses will shrink in 2009 by about 50% from their peak in 2007. In this scenario, globally liquidity would become extremely tight and would have a devastating impact on asset markets including real estate, commodities, non-AAA bonds and equities. Such a decline in the Asian current account surpluses would cut the U.S. current account deficit by half and lead to a very strong U.S. dollar.”
In the coming months Integrity will be publishing a ResearchFocus report covering the Investment Strategy industry. The report will include data collected from buy-side respondents as well as profiles of the different players in the industry. Marc Faber will be included amongst approximately 30 other investment strategists profiled.