We’re starting a regular new feature at TPC in which we’ll summarize some of the most recent macro and micro outlooks from so-called investment gurus.  This week’s edition will start with two investors who have handled the crisis (and recovery) remarkably well:  John Paulson and Marc Faber.   Both have similar macro outlooks:

John Paulson: Paulson made waves in 2008 with his billion dollar gains from the sub-prime crisis.  The master wave rider was short all the way down and then reversed his bearish course in stunning fashion as he went long the very same things he made so much money betting against.  In late February he referred to the market as the “buying opportunity of a lifetime”.   Paulson’s reflation trade is turning out to be another home run.   Paulson clearly believes in the Fed’s ability to reflate us out of this mess.  In the last 6 months he has made massive bets on gold and gold related equities.  In addition, Paulson has put his money on the opposite side of the trade he made a killing in last year – he now owns massive stakes in several large banks including Bank of America as well as the toxic Capital One Financial.   Paulson is even putting together money for a “real estate recovery” fund.

His latest 13-F shows an interesting mix of financials, gold and healthcare related names.  The hedging behind this allocation is quite brilliant.  He owns massive stakes in defensive healthcare names, large stakes in the full blown recovery names (banks) and the gold positions will serve as a hedge against inflation and/or the doomsday scenario.  Paulson, clearly believes inflation is likely to occur in the coming years as his bets on hard assets and real estate show.

Marc Faber: Faber has been remarkably prescient over the course of the last few years.  He was very bearish throughout all of 2008 and turned bullish on March 9th of 2009 – the day the market bottomed.  He even said the market was due for a 6 month rally.

He has a very similar outlook to Paulson (though his long-term outlook remains somewhat different).   Faber is very bullish on hard assets and emerging market equities.  He believes the Federal Reserve is in the process of causing horrible inflation and even refers to Ben Bernanke as a “criminal”.   Faber is bullish on gold, gold stocks and foreign equities (primarily emerging market equities) in the long-term and remains bearish on paper assets such as the dollar and bonds in the long-term.  Faber does maintain that the dollar is oversold in the very near-term and that the Euro is overbought.  He also believes stocks may be near their peak for 2009.

Faber is particularly bullish on Thailand and Singapore where he sees continued value.  In Thailand he likes the following companies: Tipco Food, Samui Airport Property Fund, Thai Tap Water and in Singapore he likes Design Studio Furniture.   In terms of hard asset related equities Faber likes Newmont Mining, Novagold and Sprott Resources.

In the long-term Faber believes the Fed is simply reflating the bubble that helped cause this mess to begin with.  He believes it will result in a total unraveling of the capitalist system.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. Not a pretty scenario. However, I agree that the Fed is trying to re-inflate. This time it will not work. Several key factors are working agianst a re-inflation scheme. First and foremost is job creation. There is little, if any, meaningful job creation taking place. Second, massive Federal spending and debt. Third, massive trade deficits that continue to sap the wealth out of the US. Fourth, consumer spending down due to personal debt reduction and joblessness. Fifth, decreased tax revenue for states and municipalities. As the line from the second Home Alone movie goes; “I could go on and on baby.” Faber is correct. This is leading the U.S. economy on the road to unravel city.

  2. Useful information. Interesting how these two “gurus” differ in longer term outlook.

  3. I think the fly in the ointment of the reflation argument is the bond market. A crashing bond market in 1932 also bought down the stock market. Will the Fed sit on their thumbs if bond yields go to 7-8% and mortgage rates to 10%, thereby doubling interest cost of buying a home?

  4. Sorry TPC,

    But there is no way that Faber is wrong. Even a first year accounting student could access Calculated Risk’s site to total up the debts we owe in all sectors of the economy and come to the same payback conclusion that the pension funds at Mish’s site reached — it will take infinity. I too wish that there was an easy painless way out of this mess, but it is not to be.

  5. If the capitalist system fails I’ll have to change the name of my website and that will be a huge pain in my ass.

  6. Unfortunately, I agree with you. Our situation is akin to pre-Thatcher Britain. Our industrial base has been hollowed out.

    We cannot lose huge cos like GM and Chrysler and not feel it. The Dow is rising on the financials, who thanks to the beating the FASB took, are not showing the true story.

  7. I think the reflation is possible -to an extent- as there is much more “real” but “devalued” Dollars in the system. This time the reflation will not be so much the bubbles of the past, but rather via inflation that will increase the value of all and sundry, but relatively more in the everyday expenses rather than homes and equities.

  8. TPC, what is YOUR outlook? You’ve made better calls than both of these guys over the last year.

  9. HUO, you’re actually wrong. Paulson made about a billion dollars more than I did last year and Faber called the market bottom to the day. I was one day earlier. Sorry.

  10. TPC,

    If you have list of recommended books Marc Faber’s “Tomorrow’s Gold” should be one of them. He nailed almost everything 7 years ago.

    This is what he predicted next: (hyperinflationary) depression wipes out American Middle class. Corporate America controlled Government start Third world wars to divert public anger and to secure last drop of oil from middle east. At the end American will suffer much more than their enemies( I thought he means LOSE, but maybe losing everything is only way to get rid of excessive debt?)

    As things turned out being on right track of his prediction, which sound nearly insane to everyone in the year 2002. And I have no reason to question why rest of his prediction will not come true because step by step we are going to that direction.

    Not trying to be doom and gloom here, but hey in history this movie had been played over and over again.

  11. All I know is the future really looks bleak unless there is something huge that happens (like new technological discoveries). The way this world is heading, it is heading for war and disease and famine and economic collapse within the next 50 years. With that being said, there is a lot of pressure still on the bond market/treasuries. When the Fed slows down the long term treasury debt purchases, they will have to begin dehydrating the equity markets so capital flows into the debt markets because they cannot allow higher rates. Higher rates right now will be the death of the American government and economy.

  12. Hope it’s permissible to ask a question. I’m not knowledgeable in the world of economics, so much that I read I don’t understand. On 14 October James said:
    “Higher (interest) rates right now would be the death of the American Government and economy”. Since I am a rank amateur, that sounds counter-intuitive to me.
    I know I must be missing something here, but many seem concerned with inflation. The more sales (buying) you have, the more inflation. Would not higher interest rates slow down buying, thus slowing down inflation?
    I would be grateful for any explanatory comments to help me understand this puzzle.

  13. Jimbo,

    Higher interest rate will follow inflation. As dollar loses
    its value the cost of goods purchased increases, which results
    in inflation. This in turn will result in higher interest rate.

    You can’t stop buying essentials like food, fuel,rent etc.

    Hope it clarifies the basics. If You want to survive this
    mess and do it profitably , invest like the gurus do.

  14. Gold Coins and Gold Bullion can be conviscated by order 2006 Patriot Act!!!!
    Only Gold Coins over 25 Years out can be kept by the AMERICAN PEOPLE!!!!!!!

  15. According to newsletter author, Nick Guarino, gold is about to crash and we are in a severe deflation. Much of the government stimulus money went back into government bonds because the bank recipients had to build up their reserves and they have stopped much of their lending, especially to the unqualified. The crux of his argument is that the money allegedly produced is not circulating in the economy and therefore not inflationary.

    Nevertheless, the government’s reckless policies will cause heavy inflation in the future and then the national debt can be paid back with cheaper dollars.
    Taxation by local, state and the federal government will increase to even more punitive levels. There is no doubt in my mind that the policies of the last forty years have run our once great country into the ground. Greed, selfishness and stupidity are the hallmarks of our congress and leadership.

    Prtectionsm is a dirty word, but if a country does not protect their own interests, as we have done, it will be at the nation’s expense. If you want to understand what has happened, read Ravi Batra’s books published in the 80’s and 90’s.
    He is an economist and was, maybe he is still there, at Texas Methodist University. “The Myth of Free Trade, The Crash of the MIllennium, and The Great American Deception are three of them.