Faber: "my favorite currency remains gold"

There are plenty of documents for me to go through. I just finished reading one of my favourites, by the legendary Marc Faber:

Around the turn of each year forecasts are made for the following year. I find making predictions amidst so much government interventions to be particularly difficult. In addition, we so called “experts” have a horrendous forecasting record. Just as a reminder: in late December 2007 Barron’s published an article titled “A bullish call — Wall Street’s seers forecast more gains for stocks next year” (see Barron’s Online, December 17, 2007) in which 12 well-known strategists listed their 2008 earnings estimates and year-end 2008 price targets for the S&P 500. The estimates were as follows: Richard Bernstein, Merrill Lynch: 1525, Thomas Lee, JP Morgan: 1590, Tom McManus, Bank of America: 1625, Ian Scott, Lehman Brothers: 1630, Larry Adam, Deutsche Bank: 1640, Abhijit Chakrabortti, Morgan Stanley: 1650, Jonathan Morton, Credit Suisse: 1650, Abby Cohen, Goldman Sachs: 1675, Tobias Levkovich, Citigroup: 1675, David Bianco, UBS Securities: 1700, Jonathan Golub, Bear Stearns: 1700, Francois Trahan, ISI Group: 1750. Their 2008 S&P earnings estimates ranged from US$85.30 to US$101.21 per share (the average forecast predicted a climb of 4% to US$92 per share). None of the strategists predicted a recession and Tobias Levkovich believed that stocks were “screamingly cheap relative to bonds” (at the time the S&P 500 was at 1464). Similarly, Abby Cohen noted that the S&P 500 was trading at just 15.6 times average 2008 estimated earnings - well below the average P/E of 18.6 times earnings during periods over the past 57 years when inflation was at similarly muted levels. For 2009, these “experts” now expect the S&P to increase to around 1100.

I need to confess that I have no idea where the S&P 500 will be in a year’s time, but given the catastrophic economic conditions we find ourselves in, I am convinced that governments around the world will increase the intensity with which they will attempt to save the world with monetary and fiscal measures. As pointed out in last month’s report, this will increase volatility and should be “gold friendly” (see also below).

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So, what does it mean for investment markets in 2009? Simply put, it means more and more money printing everywhere in the world and higher and higher fiscal imbalances. It also means a further outperformance of gold, silver and platinum compared to paper assets such as equities and bonds (see Figure 7).

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Finally, since some of my readers constantly ask about currencies, let me be very clear. There is nothing positive about the US dollar, but the same can also be said of most other paper currencies. But along with a rebound in commodity prices, some commodity related currencies (Canadian, Australian dollar and Norwegian Kroner) could rebound while currencies of countries that are experiencing losses in their foreign exchange reserves or are likely to default could weaken further (see Figure 4 and Figure 5). For the longer term my favorite currency remains gold.