Marc Faber, editor and publisher of The Gloom, Boom and Doom Report, was late to arrive to our Tuesday live discussion at Inside the Market alongside David Rosenberg. But we posed some of the questions you left for him in a later telephone conversation.
Before we did, however, we couldn't resist asking him about his views on Canada. Not surprisingly, the famed economist known for his contrarian and often pessimistic bent didn't exactly offer an uplifting view.
"I think Canada is a case where you have huge leverage in the private sector and where the economy is slowing down, where you have a strong currency and where the price levels are now relatively high," Dr. Faber told us from Thailand. "I don't think Canada is very inexpensive any more. I travel there all the time, it's rather on the expensive side. I think there's significant risk to the Canadian economy."
The real estate market is key to his sour outlook on Canada. He thinks the Canadian housing market may very well be in bubble territory, and not just in Toronto and Vancouver, but also in other major cities such as Calgary where there has been significant price gains in recent years. He's not necessarily calling for a crash, but suggests there certainly could be significant depreciation in real estate values ahead.
Dr. Faber says the policies of the Bush and Obama administrations in the U.S. have made Canada look good by comparison as a place for foreign real estate investors to park their cash. But, on recent visits to Canada, he's observed a significant disconnect between selling prices of homes relative to what they really should be worth.
The precarious state of the housing market has made Canadian banks more risky investments. Dr. Faber doesn't follow the Canadian banks that closely, but observed that Canada, like Australia, has higher household debt than in the U.S. "With the higher leverage in Australia and Canada, I think I'd be very careful about any lending institution," he said.
Q: Is it a good time to buy gold? – Jay Bernstein
Faber: Nobody knows whether it's a good time to buy gold or not…as I have repeatedly said in my reports, I buy gold every month and on the recent decline I bought more at $1,400 and I have an order at $1,300 and one at $1,200 and one at $1,100 an ounce. But they were not filled, just the $1,400.
I will never sell my gold, as I repeatedly told people. .... My maximum allocation to gold at present time is 25 per cent of assets."
He believes having a 75 per cent allocation to bonds, cash, real estate and equities is prudent, given it could offset any further tumbles in precious metals.
Q: Mr. Faber, you have indicated you believe there will be a market crash this summer. Can you tell us what might precede such an event? - Bill
Faber: "What was the trigger of the '87 crash when markets fell 21 per cent in one day? What was the trigger of the Nasdaq crash in 2000? What was the trigger of Japanese crash of 1989? What was trigger of 2007 crash that brought global stocks down 50 per cent? We don't know these things ahead of time, but something will always move markets up and something will always move them down. I would guess at the present time, given markets from the 2009 lows have in many cases increased by as much as 100 per cent, that they are no longer very cheap. .... Something could come along, geopolitically or otherwise. I would be very careful being overweight equities. I still have 25 per cent in equities and 25 per cent in corporate bonds."
He said he feels "deeply uncomfortable" with that much allocation to equities, but also doesn't want to shut stocks out entirely given the possibility they could still rise significantly before a correction.
"In the 40 years I've been working as an economist and investor, I have never seen such a disconnect between the asset market and the economic reality ... Asset markets are in the sky and the economy of the ordinary people is in the dumps, where their real incomes adjusted for inflation are going down and asset markets are going up.
"Something will break very bad."
Click here for a transcript of the live chat with David Rosenberg