What is the Dr. Marc Faber prediction for gold and silver in 2017? Suffice it to say, Faber is a contrarian economist, which means he’s bullish on both investing in gold and investing in silver in 2017. Even though he’s a broad-based contrarian investor, his reasons for telling investors to go long on gold and silver are rock-solid.
Why should investors care what Faber says? After all, it’s easy to be a contrarian; just grumble about everything. But, to be a good contrarian investor, you need to know what you’re contrary about, and Faber does. A world-class economist-historian, Swiss-born Faber studied at the prestigious University of Zurich, where, at the age of 24, he graduated with a PhD in economics.
When it comes to making stock market predictions, he’s eerily well informed. He warned his clients to get out of the stock market before Black Monday. On Monday, October 19, 1987, the stock market experienced its biggest one-day crash in history. The Dow Jones Industrial Average (DJIA) spiraled, losing 22.6% of its value, or $500.0 billion.
He forecasted the Japanese bubble in 1990, predicted the collapse in U.S. gaming stocks in 1993, and anticipated the Asia Pacific financial crisis of 1997/98, and ensuing global volatility.
In his 2002 book, Tomorrow’s Gold: Asia’s Age of Discovery, Faber predicted the rise of oil, precious metals (including gold prices and silver prices), emerging markets, and China. He also predicted the decline of the U.S, dollar since 2002. As a contrarian investor, Faber is always on the lookout for opportunities. “Dr. Doom” was bullish for the U.S. dollar in mid-2008, just before it recovered.
Like all good contrarian economists, Faber wants his readers to make money, and he often discusses investing in silver and investing in gold. His analysis is based on economic, social, and historical trends, and he warns investors when widely accepted investments have become overpriced and risky. At the same time, Faber looks for opportunities in overlooked, unloved, depressed markets.
His motto, “Follow the course opposite to custom and you will almost always be right,” is just a little tough for most investors to handle. It’s easier to be a lemming and run blissfully toward the cliff than invest confidently based on things nobody wants to hear.
Right now, Faber is warning investors that both stocks and the U.S. dollar are overvalued. With Donald Trump in the Oval Office, investors need to adjust their portfolios and go long on gold shares, silver shares, platinum shares, physical gold, physical silver, and physical platinum. (Source: “Marc Faber: Good Times Ahead for Precious Metals,” Fox Business, January 17, 2017.)
2017 Will Be a Year of Disappointment
Faber does not believe that President Trump will make America great again. Not for lack of trying, though. Faber believes that Trump’s policies will benefit the U.S. economy but won’t be enough to save the stock market in the long run.
Instead, he believes that 2017 will be a year of disappointment for U.S. investors. Dr. Doom does not necessarily believe there will be a near-term sell-off in stocks, but he does maintain that, in light of low-quality economic growth, a number of important catalysts could send gold precious metal prices soaring.
U.S. Stocks Overvalued
First, every major valuation ratio says U.S. stocks are seriously overvalued. According to the cyclically adjusted price-to-earnings (CAPE) ratio, the S&P 500 is overvalued by 82%. The ratio is currently at 29.05; the long-term average is 16. That means, for every $1.00 in earnings, an investor is willing to pay $29.05. It has only been higher for longer twice: in 1929 and 1999. (Source: “Online Data Robert Shiller,” Yale University, last accessed February 17, 2017.)
In October 1929, before Black Tuesday, the ratio was at 30. In 1999, it was at 45. Before Black Monday in 1987, it was 17.68. (Source: Ibid.)
The Warren Buffett indicator (market cap to GDP ratio) is considered to be one of the best measures of stock market valuations. A reading of 100% suggests that U.S. stocks are fairly valued. The higher the ratio is over 100%, the more overvalued stocks are.
The market cap to GDP ratio is currently at 129.8%. The Warren Buffett indicator has only been higher once since 1950. In 1999, it was at 153.6%. It was only at 108% before the stock market plunged in 2008. It was at 129.7 in late 2015.
The Wilshire 5000 to GDP ratio is the largest index by market cap in the world, and is comprised of all stocks actively traded in the United States. The ratio has never been higher. It is at an all-time high of around 140.5. (Source: “Wilshire 5000 Total Market Full Cap Index/Gross Domestic Product,” Federal Reserve Bank of St. Louis, last accessed February 14, 2017.)
U.S. Dollar Overvalued
Yes, the U.S. dollar is strong, but it might be too strong. Over the course of the last year, the U.S. dollar, on a global trade-weighted basis, is up by 20% to 25%. In the weeks following Trump’s election win, the Greenback experienced one of its strongest gains. Since its 2011 lows, the U.S. dollar is up more than 40% against a basket of peers. This has made the U.S. dollar one of the most overvalued currencies in the world.
Why is the dollar so strong? Investors are increasingly optimistic that Trump’s economic policies will strengthen the U.S. economy and be good for corporate profits. Trump’s proposed corporate tax holiday is also bullish for the U.S. dollar.
At the same time, central banks from around the world (Japan and the European Union) continue to favor quantitative easing (QE), which devalues their own currencies relative to the Greenback.
On one hand, a strong U.S. dollar makes imports cheaper, which is less of a strain on American consumers. On the other hand, it makes exports more expensive, which is bad for U.S. companies that rely heavily on exports. S&P 500 companies generate roughly half of their revenue from overseas.
Even Trump has weighed in on the dollar, saying that a strong dollar is bad for the U.S. economy. Trump observed that the strong dollar was “killing us” and that U.S. companies cannot compete with Chinese companies because the dollar is too strong. (Source: “TRUMP: The strong dollar is ‘killing us’,” Business Insider, January 17, 2017.)
Investor Optimism Too High
Investors’ optimism is in overdrive, as is investor complacency. The CBOE Volatility Index (VIX), better known as the “fear index,” is at its lowest levels since 2008. Meanwhile, according to a survey by Bank of America Merrill Lynch, investor optimism is at its highest levels since 2011. Over the next 12 months, almost a quarter (23%) of investors expect an outright boom. The number of those forecasting negligible growth tumbled by more than half to 43%. (Source: “Investors’ Economic Optimism Surges to Level Not Seen Since 2011,” Bloomberg, February 14, 2017.)
Again, investors are optimistic that the U.S. and global economies will take off under Trump’s proposed tax cuts, regulation cuts, and increased fiscal spending.
This isn’t a one-off; according to the National Federation of Independent Businesses’ monthly survey, small business optimism is surging. January saw the highest level of optimism in 13 years.
Keep in mind, U.S. stocks might be at record levels and investors are euphoric, but the U.S. economy is not as strong as the indices suggest. U.S. gross domestic product (GDP) advanced just 1.6% in 2016, which is the lowest reading since 2011. In 2015, U.S. GDP was 2.6%.
Contrarian Way to Play the Trump Presidency
As investors begin to see the significant risks with the dollar, stock market, and U.S. economy, Faber believes that money will begin to flow into precious metals over the next three to six months.
Interest rates are so low that investors cannot make money in bonds as a result. Stocks continue to be one of the only places for investors to make money. Despite nosebleed valuations, investors will send stocks climbing to a “higher diving board.” This means stocks will have further to fall when markets start to correct. (Source: “Trump will soon be begging the Fed for QE4: Marc Faber,” CNBC, January 11, 2017.)
Enter silver, gold, and platinum. Precious metals like gold and silver are considered to be a safe haven in times of economic and political uncertainty. Investors are happy to send stocks to record levels, but that euphoria will only last for so long.
In 2017, Faber expects the U.S economy to stall and deficits to rise. This will force Trump to go “begging the Fed to launch QE4.” This will cause the over-inflated dollar to weaken, stocks to tumble, and “precious metals to go ballistic.”
So, what is the Marc Faber prediction for gold and silver? When it comes to U.S. equities, the only space that Faber likes right now is gold, silver, and platinum stocks. While gold prices are up almost eight percent since the beginning of 2017, they are still down three percent since the U.S. election. Silver prices are up more than 13% in 2017, but are also down around three percent since the election.
Faber believes that physical gold and silver—as well as gold, silver, and platinum stocks—are attractive at these relatively lower levels.
What could investors looking to invest in physical gold, silver, and platinum or in silver, gold, and platinum mining stocks do in 2017? Faber advises his clients to invest 25% of their portfolios in bullion, especially in light of the significant risks facing investors today.(Source: “Marc Faber: Gold Should Comprise 25 Percent of Your Investment Portfolio,” Newsmax, July 26, 2016.)
Investing in gold is protection from the dangerous combination of government debt and quantitative easing by central banks trying to fight off a global recession with a near-zero interest rates.
When it comes to investing in silver, investing in gold, and investing in platinum, Faber likes physical gold, silver, and platinum, as well as precious metal mining shares. He also has an investing horizon similar to Warren Buffett’s: forever. Faber never sells his gold, and buys more every month.
The "very complacent" market is discounting three critical trends that could ultimately lead to a correction, Marc Faber, editor of The Gloom, Boom & Doom Report, told CNBC on Thursday.
The man also known as "Dr. Doom" said on "Fast Money Halftime Report" that foreign currencies, the U.S. economy and the Trump administration could all contribute to a significant dip.
Faber said the stability of the U.S. economy relative to foreign nations' economies has attracted capital to the United States, boosting the dollar and stock prices. But the trend could reverse, he said.
"I believe the time will come when the weakness of the euro becomes uncomfortable for the Europeans, specifically the Germans, and then there will be a reverse," Faber said. "And the dollar will go down, and the money that flowed into U.S. assets will flow out of U.S.assets, and so the market is more likely to go down."
And, while the U.S. economy looks strong relative to other countries', Faber contended that it is still quite weak based on indicators like tax receipts, car sales and personal consumption levels.
"I believe also the policies of Mr. Trump will actually not reduce the government," Faber continued, suggesting that the commissions President Donald Trump sets up to restructure government agencies will actually go against traditional Republican ideals.
"Plus, fiscal spending means essentially an expansion of the government, so that is not pro-growth in my book," Faber added.
And, while Dr. Doom did not shed light on the timing or financial impact of a potential correction, he said that he will share in the effects.
"We have roughly inflated asset markets. I also own shares, I also own bonds, and I also own precious metals. I also own real estate. So if asset prices go down, I suffer like you and everybody else," he said. "But at least I know that it can happen."
Appearing on CNBC's "Futures Now" in February, Faber predicted that a market sell-off could trigger a selling "avalanche."
(Video cannot be embedded, please click image to view)
Investors may be in for a “year of disappointments” and precious metals may prove to be a useful hedge, this according to famed contrarian investor Marc Faber. Known as Dr. Doom for his often pessimistic views, Faber told Kitco News his 2017 outlook is no different to his previously negative forecasts. “As we come into 2017, investors seem to be extremely optimistic about U.S. equities and about the U.S. dollar,” he said. “I think we can have a year of disappointments.”
Faber said investors should look to have exposure in commodities, especially platinum, which he dubbed his “favourite precious metal for 2017.” “The individual investor will find it difficult to trade commodities where he has to rollover his position every month or every 3 months, which is very costly,” he explained. “For the normal investor who wants exposure in commodities, the best is to be in precious metals - gold, silver, platinum.”
In this segment, Jerry visits with world-renowned contrarian investor Marc Faber, Editor and Publisher of “The Gloom, Boom & Doom Report" and Director of Marc Faber Limited, which acts as an investment advisor and a fund manager. Among the key points:
The exceptional performance of the S&P 500 under President Obama
Are we closer to the top or the bottom of the market?
The immense popularity of indices/ETFs
Is Trump merely posturing with China?
Will Trump create prosperity for everyone... or just the corporations?
The Contrarian Investment Philosophy explained Marc's Contrarian bet right now!
Investment guru Marc Faber warns that investors are too bullish about the U.S. and that the American currency is overvalued.
“Investors are too bullish about the U.S. and far too negative about emerging-market economies. I also think they are neglecting Japan and European equities so anything outside the US is probably from my perspective more attractive,” he told India’s CNBC TV 18.
The U.S. dollar “is too strong” and “is probably overvalued at this level already,” said Faber, also known as "Dr. Doom" for his often pessimistic and apocalyptic market predictions.
“It may overshoot further which may then cause a problem for the Federal Reserve because as they said they basically plan to have three interest rate increase in 2017. But if the dollar is too strong maybe they can't do it,” he said.
The Federal Reserve "can have other central banks print money for them for a while and then in 2017 possibly the dollar becomes too strong and the U.S. economy rather weakens than strengthens then they can print again themselves. They have an excuse," he said. "I still maintain that central banks will keep on feeding the world with excess liquidity," he said.
“Valuations in the U.S. are at historically very high levels whereas elsewhere they are relatively inexpensive valuations. So, I would focus on foreign markets and I would focus on sectors that were out of favor for a long time,” he said of investing strategy for the new year.
Oil and mining companies, financials and tech are among his favorite sectors for 2017, he said, adding that he sees a lot of potential in agricultural commodities.
“People will tell you that emerging markets performed poorly in 2016 and that the U.S. was the only game in town. But let me just say that in U.S. dollars in 2016 the Russian index was up 51 percent, Brazil 63 percent, Kazakhstan 66 percent, Thailand 19 percent, Indonesia, 19 percent, Karachi 40 percent, Vietnam 30 percent,” he explained.
“Some markets have actually performed very well. We turn to individual stocks some stocks have done very well in 2016 in particular the sectors that were very depressed like oil and gas and mining companies that is until recently have weakened but on the year they are still up strongly,” Faber said.
If President-elect Donald Trump's rhetoric ends up fueling a trade war with China, it's the U.S. that will take it on the chin, Marc Faber, the publisher of the Gloom, Boom & Doom report, told CNBC on Friday.
"Mr. Trump is not particularly keen on China," Faber told CNBC's "Squawk Box" on Friday. "There may be some trade war escalation or trade restrictions with China, which in my view would rather be negative for the U.S. than for China."
Trump has certainly set his sights on China. On the campaign trail, Trump repeatedly accused China of manipulating its currency in order to give its exports an advantage over U.S.-made goods, and he threatened to slap a tariff of up to 45 percent on Chinese imports.
While China's yuan has fallen against the U.S. dollar in recent months, policymakers on the mainland have been intervening to support the currency, not weaken it.
But Faber, who is also known as Dr. Doom for his usually pessimistic predictions, noted that China wouldn't be easily cowed.
"China does not depend on the U.S. The U.S. is still its largest export destination as a country, but taken together, all the emerging markets are for China much more important," Faber noted.
China exported about $482 billion in goods to the U.S. last year, more than any other country exported to the United States, according to the Office of the United States Trade Representative. The U.S. exported about $116 billion in goods to China in 2015, putting its goods trade deficit $366 billion.
That compared with the 10 members of the Association of Southeast Asian Nations (Asean) alone importing $211.55 billion from China in 2015, while exporting around $134.25 billion to the mainland, according to data posted in November by the trade bloc.
In general volatility will increase though volatility has been quite high in 2016 . At the beginning of last year, we dropped to 1810 on the S&P and then we closed over 2200. So we had a big move in the market and then we had currency moves that were also very strong. Some currencies went down but others appreciated against the US dollar – bitcoins, the Brazilian Real and the Russian Rouble. It was a year where you could make a lot of money and also lose a lot of money depending on how you were positioned.
For the year, I do not know but for the near future, I have essentially three views. First off all, the US economy is like a supertanker or a sailboat. It is not easy to turn it around and come back to where you have been in terms of prosperity. In general, Mr Trump’s policies will fail to lift economic growth rates significantly.
US stocks, compared to emerging markets or European companies or Japanese stocks, are significantly ahead of themselves. In 2017, emerging markets will outperform the US either by going down less than the US or by going up substantially more than the US. So I would essentially avoid the US and rather invest in emerging economies including India.
The second view I have is that recently investors have been obsessed with growth in the United States and with interest rates going up because the Fed has said that they would essentially increase the Fed fund rates three times this year but in the US, the treasury bond market is grossly oversold and for the next three months, we can have a rebound in US treasuries. Short-term and long term interest rates in the US are going to ease again in the next three months. You could get the 5% to 10% upside move in US treasuries.
Numerous people have compared victory of Donald Trump to Ronald Regan who became US president in 1980 and started his job in 1981 and they say well there will be a Trump bull market like the Regan bull market in the 80s.
First of all when Regan got elected the market rallied into November 28 1980 but afterwards it went into bear market for two years until August 1982 and then afterwards I admit it had a huge bull run until 1987, Dow Jones from 800 to 2,700. But the point is that in November 1980 when Regan got elected there was a huge change in leadership.
A wave from oil and gas which at that time made up to 28 percent of the S&P 500 to other stocks to this inflation beneficiaries and regardless of how you look at the world whether you are positive about Trump, negative or positive about the US dollar regardless of that that we are reaching a point which is also supported by the recent market action where we have a huge change in leadership away from stocks like Facebook, Amazon, Netflix, Google to more basic industries to come out of their related companies.
Asserting that the central banks in Europe and Japan will keep feeding excess liquidity to the world, Marc Faber believes that the US Fed is not expanding its asset base. While European Central Bank and Bank of Japan are doing so, flows out of Europe and Japan will lead to weakening of the euro and yen and strengthen the dollar, he said. The editor of Gloom Bloom & Doom Report told CNBC-TV18 that contrary to popular opinion that emerging markets have performed poorly in 2016, any market outside the US looks very attractive now especially in terms of valuations.
Investors are too bullish about the US, negative about emerging markets, and are neglecting Japan and Europe, he said. India is much better placed and has greater potential to grow than Western economies, Faber said. Corporate profits have still room to expand, he added.
Fundamentally, the dollar is overvalued and valuations in US markets are at historical highs, he said. Any further strengthening of the US dollar will curb the US Federal Reserve’s capability to raise interest rates, Faber said.
The Fed on Thursday raised rates by 25 basis points and in the past indicated the possibility of three interest rate hikes in 2017. Oil and mining companies, financials and tech figure among his favourite sectors for 2017, he said, adding that he sees a lot of upside potential in agricultural commodities.