Faber, Paul urge hard asset ownership

It’s fair to say that a distrust of government is only one of the things that Marc Faber and Ron Paul share in common.

Both men — one, an analyst and author of the newsletter The Gloom, Boom & Doom Report; the other, a Republican member of the U.S. House of Representatives and an outspoken libertarian — advocated ownership of hard assets for investors logging into the online Kitco Metals e-conference in mid-September.

Faber warned about negative interest rates in the U.S. (whereby the Federal Reserve keeps interest rates below inflation), arguing that such a policy steals from savers and encourages spending without creating wealth. For example, even if the Fed increased the federal funds rate from near zero (the current rate) to 4-5%, it would only happen in a 6-10% inflation environment, he said, so the saver would actually lose up to 5% a year.

“You wouldn’t see it so obviously, but this is the purpose of government: to cheat people again and again and again,” Faber said. “I believe in this environment, you have to own assets.”

In a separate webcast presentation, Paul was no easier on the Federal Reserve, calling its near-zero interest rate policy “immoral” and a case of “price-fixing.”

Among the recommended hard assets to own were, of course, gold and silver, but Faber warned investors not to be too dogmatic about their investments, pointing out that there are periods during which the stock market will do better than precious metals. In particular, he sees opportunities in emerging markets.

“There’s a huge shift in the balance of economic power from the consuming United States that wastes its money on speculation to emerging economies that build infrastructure and projects, and boost domestic consumption,” he said. “The result of this is that we live in a world that is unprecedented in modern economic history and the history of capitalism, where emerging economies have become larger than the developed countries of Western Europe, Japan and the United States combined.”

Faber counseled that investors should have at least 50% of their money in emerging economies- related investments, citing health care and real estate in Asia as good bets.

Paul, meanwhile, criticized a movement in the U.S. Congress to get the Chinese government to raise the value of its nation’s currency. This is part of a tendency for U.S. politicians and Americans generally to blame others for domestic problems, he said.

“We have an artificially weak currency — we’re manipulating our currency all the time, and we’re the reserve currency. We destroy the value of the currency, so for us to be telling other people what to do with their currency is beyond me.” In any case, Paul argued such a move would not be in the interest of the U.S. As it is, the Chinese trade their goods for U.S. dollars, and use those dollars to buy the country’s bad debt.

In fact, Paul expressed worry about a possible collapse of the U.S. dollar, in which the world still has a lingering and artificial trust that he predicted wouldn’t last much longer. He believes that trust is creating a bond bubble, with foreigners buying US$400 billion of U.S. debt just in the last year, and predicts that the price of gold will continue to rise to “the thousands.”

See http://econf.kitco.com for the presentations in their entirety.

— The author is editor of Mining Markets (www.miningmarkets.ca)and Diamonds in Canada.