Marc Faber, the editor of the Gloom Boom & Doom Report newsletter, is on the record with a fresh prediction that U.S. and European stocks will outperform emerging stock markets.
The Swiss-born, pony-tailed economist who enjoys the Asian style of life and Mao memorabilia expects emerging stock markets to succumb to headwinds as the result of inflation during 2011.
Faber opines the confluence of the U.S. Federal Reserve and European Central Bank unprecedented debt monetization activities have flooded capital fleeing into commodities–raising substantially the cost of living to lower per capita purchasing parity countries–as the root cause.
Faber’s latest prognostication comes on momentum of his previous call in March of 2009 of a stock market bottom—which, at the time, was a scary call to make amid panic of the real potential of a bona fide global meltdown.
Moreover, his correct calls to sell equities prior to the 1987 stock market crash and the 2000 tech stock crash have cast Faber as an investment guru—with humor and anti-establishment flair as an added attraction to his firm grasp of economics, markets and affects of central banking on investor portfolios.
Contrary to what could be construed as a “recovery” in the U.S. and Europe by his latest prediction, Faber believes otherwise, suggesting enough money printing by central bankers will eventually raise economic metrics as the legendary Austrian economist Ludwig von Mises observed and taught during the days of Maynard Keynes:
“It would be a serious blunder to neglect the fact that inflation also generates forces which tend toward capital consumption. One of its consequences is that it falsifies economic calculation and accounting. It produces the phenomenon of illusory or apparent profits.”
–Ludwig von Mises
In the spirit of von Mises’ teachings, Faber warned not to “underestimate the power of money printing” as the foundation of his trademark contrarian outlook in April 2009 of an imminent powerful stock rally ahead.
So how do investors play Faber’s latest call?
Faber likes commodities, especially oil, as means of protecting wealth from currency debasement (inflation) and fiat paper wars between debtors and creditors. The spot price for oil under the Euro-U.S. coordinated monetary plan to raise nominal GDP will raise prices paid by consumers during the war, explains Faber.
Right out of economics 101, Faber points to the most likely commodity to rise in price during a currency war to the bottom. Oil.
While oil production struggles to satisfy global demand in 2011—this according to Energy Information Agency—the double whammy of tight oil supplies and an inflated currency in which much of the world trades for the black gold are solid “fundamentals” for a rise in its price, which Faber and others such as famed commodities investor Jim Rogers clearly agree upon.
Within the oil sector, a basket of oil service stocks (OSX) has outperformed the West Texas Intermediate Crude (WTIC) and major producers as measured by the XOI by approximately 53% and 67%, respectively, since the crushing bottom in the oil price of the fourth quarter in 2008. Oil service companies should enjoy positive investor sentiment during the bull market in oil, analysts say.
And what if central banks of emerging economies substantially raise interest rates to curtail inflation and GDP growth overseas?
Emerging stock markets will under-perform anyway due to an implied lower earnings profile, Faber suggests. Either way, he says, these stock markets will under-perform the U.S. and European markets.
But Faber doesn’t see a global recession ahead to change his recommendation to move money into the oil patch, nor does he see a stop to the money printing from debtor nations anytime soon.