OilPrice.com: A number of our readers
have been enquiring about the recent oil price increases, where a few
weeks ago we saw them rise to a ten month high. Where do you see oil
prices going from here, and what do you see as the main reasons for the
rapid increase?
Marc Faber: I think there is a risk that oil prices will go much higher.
At the same time, the bullish consensus on oil is now at one of the most
elevated levels it's ever been. In other words, from a contrarian point
of view, you shouldn't buy oil right now.
I think it may go down somewhat.
In general, if trouble breaks out in
the Middle East, or if there is a war, I think the price of oil could go
much higher.
OilPrice.com: What are your 3-5 year projections for oil prices?
Marc Faber: Well, you’ll have to give me a second.
I need to call Mr.
Ben Bernanke and ask him how much money he will print. Commodity prices
were in a bear market from 1980 to 1998, and since then they've gone up.
But because of expansionary monetary policies and artificially low
interest rates they have increased more than would have otherwise been
the case.
We don't know exactly how long this asset bubble will last -
but say if you had interest rates in real terms, of five percent,
instead of negative five percent, then I think all commodity prices,
including gold, would be lower.
OilPrice.com: Obama is being pressured by the Democrats to use the
Strategic Petroleum Reserve in order to flood the market with a large
supply of oil in an attempt to drive down prices. Some commentators seem
to think that this will help, although only in the short term because
low supply isn’t the cause of the high prices.
Do you think it’s
sensible advice to use the reserves now to lower short term prices or
should Obama remain strong and only use the stockpile for what it was
designed for?
Marc Faber: I think selling down the reserves would be a useless
strategy as one of the main reasons prices are rising is due to
international tensions.
It’s possible for an increase in supplies to
drive down the price a little bit. But in emerging economies like China
and India, the demand continues to go up. Now, it may not go up every
year by the same quantity it did in the last 3 years, because in the
last 15 years, oil demand in China tripled, from 3 million barrels a day
to 9 million barrels a day.
So it's conceivable that in a recessionary environment in China, oil
demand will not go up substantially for one or two years.
But because
the per capita consumption is so low in countries like China and India
compared to say the U.S. and Japan and Western Europe, I think the trend
will continue to increase.
OilPrice.com: There's a great deal of political theater going on around
the Keystone XL pipeline. Do you see the pipeline as being essential to
U.S. energy security and something that has to be pushed through at some
point?
Marc Faber: Yes, I think it would be important to have the pipeline. But
as you say, there's a lot of political pressure and so forth. I think it
would be very desirable for the U.S. to become energy self- sufficient.
Some observers and forecasters say they can achieve this goal within ten
years, due to advances in natural gas extraction. I don't believe it,
but I have to respect the view of some
experts.
OilPrice.com: The media has been full of reports on the coming
shale gas
boom. What are your thoughts on shale gas? Is it the energy savior we
are hoping for?
Marc Faber: I doubt it. But as long as the market believes it, we have
to translate every forecast and every view into investment
opportunities. I think a lot of people believe in shale Gas’s potential
and so this may underpin some strength in equities and currencies.
But
as I said, I don't believe it.
OilPrice.com: Do you think the shale boom could lead to a change in U.S.
foreign policy priorities?
Marc Faber: Well, I don't really believe it. But as you know, Mr. Obama
has engaged in more foreign policy initiatives in Asia. For what, I'm
not quite sure. The thinking is in the U.S. is that China is a threat.
Therefore, they have to increase their cooperation with Asian countries,
such as India and the Philippines.
Personally, I think it's an ill-timed move, because I don't think that
China has any military ambitions in Asia. But put yourself into the
chair of China's leadership. What is the top
priority? China obtains 95% of its oil from the Middle East.
The top
priority is to make sure that this oil continues to flow and that the
supply is secure. So they have to secure the oil shipping lanes, from
the Middle East, past the southern tip of India, through the Straits of
Malacca, up the Vietnamese coast, into China.
Each time they do that or attempt to do that, America and it allies in
Asia perceive it as a threat. So the tensions increase.
OilPrice.com: You just mentioned that you don't believe China has any
military ambitions in Asia, but we're seeing quite a lot of tension in
the South China Seas, especially the Spratly Islands and the energy
resources located there. How do you see the situation playing out
between China and its small neighbors in this region who all have a good
claim on the resources?
Marc Faber: As I just mentioned, China's a huge country.
They have
certain views about territories in Asia, and I think the U.S. would not
react particularly positively if say China or Russia or any other nation
had numerous military and naval bases, in the Caribbean or in the
Pacific, and military bases in Canada and Mexico.
You have to look at the world from the perspective of the Chinese. I'm
not saying that because I'm super-bull about China. On the contrary, I
think the Chinese economy faces numerous problems. But I'm saying that
if you put yourself into their position, a top priority is to secure a
regular supply of oil, iron ore, and copper.
If you look at the
Kondratiev Cycle where Kondratiev said it's not a business cycle. It's a
price cycle, and certain things happen during the downward wave, and
certain things happen during the upward wave.
During the upward wave, we have rising commodity prices, which is a
symptom of shortages. Then countries become more belligerent, because
they begin to be concerned about the supply of commodities, and so
tensions increase.
I'm not saying war will break out tomorrow. I'm just saying the
conditions have improved.
OilPrice.com: Aside from the South China Seas, where do you see the
potential flash points in the world over resources?
Marc Faber: Well, I think a big potential flash point is obviously the
Middle East and Central Asia, because neither Russia nor China wants
permanent American military bases in Central Asia and to be encircled.
The Chinese are encircled by the Americans in the Pacific with naval
bases, plus the Americans have 11 aircraft carriers. The Chinese have
just one.
Plus, in the last 12 months, Mr. Obama has made initiatives to have
India as a strategic ally. The result of this is that China, which
always had good relationships with Pakistan, has
strengthened their relationships with Pakistan.
This of course has
increased tensions in the region.
OilPrice.com: Moving off fossil fuels, what role do you see renewable
energy playing in the future? Do you think government should help
innovation in this area?
Marc Faber: This is a very difficult question to answer.
Basically, I'm
convinced that, over time, to drill a hole in the ground in the Middle
East or in other emerging economies and then bringing that oil through a
pipeline onto a ship into the countries that consume oil is not an
elegant solution to the energy problem.
I think eventually this will go away. But in the meantime, alternative
sources of energy are extremely expensive. Unless the oil price
collapses to like $50, most alternative sources of
energy will not be profitable.
If someone says to me, we need alternative sources of energy for
security reasons, yes, I agree. But for profitability I doubt it.
OilPrice.com: As an investor then, are there any renewable sectors
you're bullish on? Or would you stay away from the space entirely?
Marc Faber: I would stay away from it.
OilPrice.com: Following
the Fukushima disaster Japan has now shut down
54 nuclear power plants. The population’s trust in nuclear energy has
been shattered - but do you think this is only temporary and how would
Japan make up the energy shortfall - as before Fukushima Japan met
around a third of its energy demand with nuclear?
Marc Faber: Well, I guess they’ll lean towards more natural gas and more
oil so they can offset this shortfall of nuclear energy.
Now I don't
think that this will change the nuclear energy prospects long term in
the world, because other countries like India and China will build their
numerous nuclear energy plants.
In the case of Japan, I think the power
plants which had the problems were antiquated. In other words, they were
not up to modern standards.
OilPrice.com: Iran has finally offered to resume talks about its nuclear
program and has agreed to allow UN inspectors from the International
Atomic Energy Agency to visit its Parchin military complex where a
nuclear weapons program is suspected of be being developed.
How do you see events developing here and how can investors protect
themselves from an escalation in this region?
Marc Faber: Well, if there are escalations, then obviously you have to
be long, oil and gold.
My sense is that the Iranians are playing the
same game the Japanese played in the '70s and '80s. They always
negotiated but never did anything about the changing balances - they
just want to delay the hour of truth. Every day, I think the Iranians
are getting closer to having nuclear weapons. I can understand why. The
whole world is hostile towards Iran, and they are encircled.
In the west, France has nuclear weapons and Britain and the U.S., and
their neighbor Israel, towards the west. Then in the east, India and
Pakistan and of course China.
So why shouldn't they have nuclear
weapons?
Mind you, either there is all around abandonment of nuclear weapons by
all the powers, or every country should be allowed to have them. We in
the Western World, we have the misguided belief that we are there to
judge which countries may have and which countries should not have
nuclear weapons.
But maybe our view is wrong. My view is that if I were looking after
Iran, for sure I would want to have nuclear weapons. For sure!
OilPrice.com: Okay. So on to investments - you've mentioned oil and
gold, but which other sectors are you bullish on, and what would you
advise investors to avoid?
Marc Faber: Basically, since March 2009, equities have doubled in value
by and large.
Some have gone up more than 100%, some a little bit less,
we’ve had a huge bull market. Last year, almost a year ago on May 2nd,
the S&P reached a high of 1,370. Then we dropped into August and into
October, and we bottomed out on the S&P at 1,074 on October 4th. Since
then, we have a 25% rally. The mood in October and November of last year
was extremely negative.
I think this is the time to be rather cautious. Personally, if I had
heavy exposure to equities, I would take some money off the table.
OilPrice.com: Where do you see the best opportunities for investors in
Asia at present?
Marc Faber: Right now, for the next one or two months, I don't think
that stocks will go up a lot. I personally think they will correct.
But long term, I still like Asia.
My concern is if the Chinese economy
slows down meaningfully that we could have economic weakness spreading
around Asia as well, as well as in countries that supply commodities to
China, like Australia, Brazil, Argentina, and so forth.
Right now, say for the next two months, I'm very cautious.
OilPrice.com: I was looking through some of your previous interviews as
well, and in one of them, you mentioned Barack Obama. You said he was by
far one of the worst presidents that the U.S. has had, and that you
still believe he'll be re- elected.
In what ways do you think he is
unsuitable as a president? I mean, are you fundamentally against his
ideas and position on certain topics?
Marc Faber: I don't want to get into an overly political discussion, but
I think that first of all, we have in the U.S. and elsewhere highly
expansionary fiscal and monetary policies, but we have restrictive
regulatory policies. In other words, Obamacare is a big problem for many
medium sized and even large companies, because they don't know exactly
how much it will cost them.
That has retarded hirings of people.
Mr. Obama has intervened into the economy massively, left, right, and
center. Every government intervention has consequences. Just to give you
an example, the U.S. government debt - I'm only speaking about the
government debt, not the prime debt - has gone from essentially zero 200
years ago, to a trillion dollars in 1980.
By the year 2000, we were roughly at $5 trillion. Now in 12 years, we've
gone to close to $16 trillion. That excludes the unfounded liabilities.
Under Mr.
Obama, the fiscal deficit has
exploded.
The big question is: Will we ever, in the U.S., have a fiscal deficit of
less than $1 trillion or $1.5 trillion? I don't see it.
Under Mr. Obama, spending has gone up and tax revenue has gone down.
Change, if there was any change under Mr. Obama, it was for the worse.
In my view, he's a very disappointing president.
OilPrice.com: Marc, thank you for taking the time to speak with us. It's
been a pleasure speaking with you.
Marc Faber: It was my pleasure.
