• Reading time:6 mins read

Marc Faber: PH stock market among bubbles to burst

And who is Marc Faber? Well, he’s a big Swiss investor and adviser to gigantic investment funds. He’s considered one of the experts in emerging markets. He lives in Thailand and runs his investment business out of Hong Kong.

Of course, he’s just one the world’ many investment analysts, and you could cite the fact that he has been dubbed Dr. Doom, for his contrarian gloomy forecasts at certain times in the past decades. But consider his track record:

He advised his clients to get out of the stock market just before the October 1987 crash. He was one of the few economists (he has a Ph.D. in that field), who forecast the rise of oil, gold, and even emerging markets in the early 2000. He also saw, as early as 2007, the collapse of the global financial system in 2008.

The market’s price chart: Correction or collapse?

The market’s price chart: Correction or collapse?

He’s bad news for the Philippines, especially for our inane analysts who think that President Aquino’s “governance” is the biggest factor that has pushed up our stock market to dizzying heights.

On January 9, 2013, Faber in an interview with the US network CNBC, said: “Markets that have performed well since the lows in March 2009, in other words Malaysia, Indonesia, the Philippines, Thailand, . . . are not going to do particularly well in 2013. On the other hand, if I look at the markets that have performed very badly such as Vietnam, China, and also Japan until recently, and that money will shift from the relatively high value markets to these markets that had horrible performance. So as an investor, if you need to own stocks then I’ll be in Vietnam, China, in particular Japan, and you may also be in Ukraine.”

Last March 27, Faber in an interview with Bloomberg TV, said in an amazingly succinct explanation of recent financial history:

“When you print money, the money doesn’t evenly flow into the economic system. It stays essentially in the financial service industry, and to people who has (sic) access to these funds, mostly well-to-do-people. It doesn’t go to the worker.

From time to time, this money will lift markets like Nasdaq between ’97 and March 2000. Then it lifted home prices in the US until 2007. And then it lifted commodity prices in 2008 until July 2008, when the global economy was already in recession.

More recently, it lifted selected emerging economies. . . of Indonesia, the Philippines, Thailand “. . up four times from their 2009 lows.

So we’re creating bubbles and bubbles. These bubbles would have to come to an end.”

Faber’s ideas becomes clearer when you read Barron magazine’s interview with him on June 1 :

“I own equities, and I should thank Mr. Bernanke [chairman of the US Federal Reserve]. The Fed has been flooding the system with money,” he added. “The problem is the money doesn’t flow into the system evenly. It doesn’t increase economic activity and asset prices in concert. Instead, it creates dangerous excesses in countries and asset classes.”

Money-printing fueled the colossal stock-market bubble of 1999-2000, when the Nasdaq more than doubled, becoming disconnected from economic reality. It fueled the housing bubble, which burst in 2008, and the commodities bubble. Now money is flowing into the high-end asset market—things like stocks, bonds, art, wine, jewelry, and luxury real estate. The art-auction houses are seeing record sales. Property prices in the Hamptons rose 35% last year. Sandy Weill [the former head of Citigroup] bought a Manhattan condominium in 2007 for $43.7 million. He sold it last year for $88 million.

Money printing boosts the economy of the people closest to the money flow. But it doesn’t help the worker in Detroit, or the vast majority of the middle class. It leads to a widening wealth gap. The majority loses, and the minority wins.

Although I have been a beneficiary of this policy, I can’t approve as an economist and social observer.”

“The majority loses, and the minority wins.” Doesn’t that sound familiar? Make that a very tiny elite wins, in our case.

Our stocks have become one of the most expensive in Asia, trading at over 20 times their price-earnings ratio. One luxury condominium developer reportedly paid celebrities like Paris Hilton and Donald Trump $5 million each just for using their names in his projects. That developer’s 36-year old son is reported in a Vanity Fair article that he commissioned a renowned Dutch architect to build another residence for him that would cost $15 million (P645 million). The house is especially designed to also be his very own art museum in his honor, as it would be filled with two dozen portraits—of him—he has commissioned to be done by famous US and European artists costing $3 million.

Makati condominiums—even before the first brick is laid down—are selling at P150,000 per square meter, as expensive as a Manhattan flat. Stock market brokers have been the biggest buyers of Audis and BMWs, while their bosses not to be outdone, are now inquiring about the Manila elite’s latest toy, Rolls Royce cars. They just doesn’t sell at P26 million each; they require P120,000 monthly “maintenance” expenses, or the company will not repair it if by some chance, gets stuck in a Manila flood.

All these First World luxuries in a period of worsening unemployment (7.5 percent) and underemployment (19.2 percent) as well as declining foreign investments (by 8.5 percent) and exports (by 11.1). And the most miserable times for residents of Metro Manila suffering the floods after just a few hours of rain.

Note that Faber’s forecasts were made several months before June 13, when our stock market (going by its PSE index) plunged 6.75 percent. It seemed to recover after that though, but is it a dead cat bounce? Judge for yourself: yesterday, the index fell 2.9 percent.

To the young investors trading through the internet Philippine Stock Exchange President Hans Sicat boasted indicates its strength: Just don’t get caught holding the empty bag.