Prepare your portfolio for World War III, says Marc Faber

By James McKeigue Feb 03, 2011

James McKeigue

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If you "want to be hedged for complete disaster – World War III… you are better off in commodity-related investments", says Marc Faber in the latest issue of US financial paper Barron's.

That might seem drastic. But Faber is convinced that China's rise, and its diminishing dependence on America, means that "eventually, we will have a war, big time". In fact he thinks tensions are already building. "Maybe you don't have divisions of tanks facing each other, but it should be clear that China is an active supporter of North Korea and the Taliban. And now with the US endorsing a seat for India on the UN Security Council, the Chinese are getting closer to Pakistan."

Faber is the investment expert behind the Gloom, Boom and Doom newsletter. As that name suggests, he's known for his often bearish, contrarian views. But he also called the bottom of the stock market in March 2009, so he can't be dismissed as a stopped clock.

What should you be doing if you share his apocalyptic view? You "should be in equities and commodities, not government bonds".

He is particularly keen on energy-related themes, especially natural gas. He is not discouraged by the current low price, and the new discoveries of shale gas. "That is precisely when you buy commodities – when there is a glut and prices are depressed. Then you wait."

Faber is bullish on gold but warns against having physical holdings of the yellow metal in the US and the West in general. "You don't want to hold gold in America, where expropriation is a possibility, as happened in 1933." Faber believes that in such a scenario, the US would buy gold from holders at the going rate, before revaluing it upwards overnight. It would then put "enormous pressure on the Swiss national bank and on others to do the same". The gold would be much safer in Hong Kong as the "Chinese will tell them to get lost".

As for equities Faber believes that "some stocks in the West have become attractive". He noted that Swiss and Japanese stocks both "suffer from the same syndrome – a strong currency" and have underperformed in the last decade. Solid companies in both countries would do well if their respective currencies weakened and investors could "prosper by buying what no one else wants".

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Published in Global economy | More articles by James McKeigue

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  • 1. Bernie

    (04 February 2011, 11:35AM)  Complain about this comment

    China being a active supporter of Taliban? The taliban are supporters of XinJiang Independence, what kind of sense does that make?

  • 2. Clive

    (04 February 2011, 11:43AM)  Complain about this comment

    As with the old Cold War US vs USSR, the consequences of a US vs China war are so horrendous (annihilation of both countries) we can be sure there WON'T be a war, at least not in the direct sense.

    At worst, we're likely to get proxy wars, a China-backed country at war with a US-backed country.

    Hardly anything to worry about unless it's very close to home, or in (say) an oil-producing country. However, later is unlikely as China needs oil (and other commodities) at least as much as the US does.

    As today's scare story, sorry, doesn't work for me.

  • 3. Alex

    (07 February 2011, 10:07AM)  Complain about this comment

    I agree Clive. History echoes, rather than repeating itself. WWII as much as anything was due to latent imperialism in Germany which had been unified too late to join in European Global empire building, so they tried to build an empire in the East thinking Western Europe and the US wouldn't care. They were wrong.

    The dymanic between China ( a very old stable empire ) and America a newly formed 'empire' with very well defined borders is very different, there will be jostling for external resources, but neither wants to directly expand the area under it's control, which removes the requirement/incentive for direct invasive warfare.

    In much the same way as predictions of a mass Soviet invasion of Western Europe and a US/USSR WWIII came to nothing.

    Still Mr Faber has to think of more reasons to buy gold. So WWIII is as good a scare story as any.

  • 4. Interesting Enough

    (07 February 2011, 10:40PM)  Complain about this comment

    There is still something to be said about whats going on behind the scenes. If you believe in the fact that a tremendous event is imminent whether WWIII sentiment in this article or the Stansbury US Govt economic implosion, what are the right investments?? There is much uncertainty... Mr Obama, can you or the fed please have a "State of the Currency" address. At least let us know you are going to protect the value on our savings so we dont become a third world nation

  • 5. Kerome

    (12 February 2011, 04:40PM)  Complain about this comment

    While I'd agree that WW3 is a distinct possibility somewhere in the next 30 years, I doubt that Chinese independence will play much of a role. Resource wars - water, food, oil - are a much more likely set of flashpoints for a series of large and small conflicts between regional powers.

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