Marc Faber’s Contrarian Play: Cash Is The Most Underappreciated Asset

Admittedly, Faber his call to hold cash is contrarian, and not the type of tip you would expect from a gold bull. Still, thinking about it, he has a valid point. His belief is not to hold cash for the long term. His point is that stocks and bonds are overvalued and not attractive as long term investment. As the markets are likely to be shaken up thoroughly in the coming months, it is wise to hold cash in order to jump on the opportunities that will pass by.

Faber on his contrarian play, via CNBC:

I don’t see any asset that is terribly attractive. The most underappreciated asset is cash. Nobody likes cash. In the next 10 years, you will earn precisely 0 percent. In fact, you will lose money because Ms. Yellen is a money printer like all the others, and she will make sure that the dollar will depreciate in real terms. But for the next 6 months, cash will be most attractive. I don’t want to be in cash, but in the coming 6 months a lot of opportunities will come along.

Faber on (the absence of) inflation:

Inflation is an increase in the quantity of money and credit. The symptoms occur in a variety of forms. You can print money in the US, but it could happen that it does not boost economic activity in the US but only in China or in Vietnam or Indian and so forth. It can boost wages in India, it can boost real estate prices in London, and so forth, because we have a global economy. Stating there is no inflation is an error.

He continues:

In case things turn out bad again, the central bankers have one thing left: money. When they start throwing out money, it will lead to price increases. Nobody can deny that anywhere in the world energy prices are substantially higher than they were ten years ago. Nobody can deny that food prices are up. Nobody in the US can deny that insurance premiums are up. So, to throw money at the system, at some point will lead to some more visible (!) pressure on consumer prices. Stocks has basically done nothing since the beginning of the year. But long term bonds are up 12% this year. Now, during the next downturn, I believe stocks and bonds will go down at the same time.

Faber also explains that we are 30% more levered than during the financial crisis. Total credit, including government debt, corporate debt and consumer debt, is higher than in 2008/2009.

It is really a smart view if you think about.



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