Marc Faber, Jim Rogers Clash Over China and Commodities, Agree on Gold

Business Intelligence Middle East

Investment gurus Jim Rogers and Marc Faber agree to various degrees on many issues but the one thing separating them this week is the future direction of the Chinese economy and if this could have a devastating impact on commodities around the world.

Both Faber and Rogers have been warning about the effects of monetary and fiscal policies on the US economy, since the recent rally has been mostly based on printed money, a kind of ‘reverse Robin Hood policy’ of governments, to steal from the peasants to give to the rich.

As with Faber, Rogers is mostly to be seen being interviewed on CNBC and Bloomberg Asia or Europe as they both live in Asia now and since their views are to put it mildly, somewhat negative on the prospects of a sustainable US recovery.

The clash Marc Faber, the Swiss fund manager and Gloom Boom & Doom editor, believes a Chinese slowdown is already under way.

In a phone interview with CNBC Friday, he said that a hard landing for China will have a major negative impact on global commodities and risk currencies, before going as far as saying that he is "more worried about a Chinese economic downturn than a recession in Europe".

For his part, legendary global investor and chairman of Singapore- based Rogers Holdings, Jim Rogers thinks Faber has got it wrong about China.

"Marc still does not understand China. There are going to be several hard landings in the next few years, but Chinas will be less hard overall than others such as Greece, U.S…" Rogers told CNBC Friday.

China’s manufacturing activity slumped to its lowest level in 32 months in November, banking giant HSBC said November 23, renewing fears the Asian powerhouse is losing steam amid global economic woes.

HSBC chief China economist Qu Hongbin said he expected cooling domestic demand and weakening external demand for China’s exports heralded a further slowdown in production in coming months.

"The (Chinese) economy consists of many sectors and I think some sectors are already probably in a recession," Faber elaborated.

"I think growth will be much lower and it is possible that we could have a hard landing with no growth at all," he predicted.

The commodities market, in particular, will bear the brunt of a China economic deceleration, according to Faber.

"I think a lot of people will care if china grows only at 5% rather than 10% or 0% in a hard landing case because china is the largest buyer of commodities in the world," he said.

"If the Chinese economy slows down the demand for commodities slows down and then the economies of brazil, Argentina, everybody is affected and then they can buy less from china and then you have a downward spiral, Faber added.

Rogers agrees the commodity market will have a correction, but rebutted Faber’s view that it would be devastating. "Yes, there will be consolidations in the commodity bull market just as all markets have consolidations," he said. "In 1987, stocks declined 40%-80% worldwide, but it was not the end of the secular bull market in stocks."

"If I was always bullish about commodities and completely missed out on the crash in 2008, then obviously, having tied essentially my reputation to commodities, I’d continue to be bullish," Faber had earlier said about Rogers’ view on commodities.

"I proclaimed repeatedly far and wide that one should not buy commodities in the run up phase", replied Rogers. "I also explained that I was not selling mine since we were [and are] in a secular bull market," Rogers stressed.

When ones shorts decline 90%-100%, it is a good year even when ones longs decline," Rogers added.

According to Rogers, Faber is the one who has made many wrong calls, arguing that he "totally missed" the secular bull market in commodities that began in early 1999.

China’s economic growth eased to 9.1% in the third quarter from 9.5% in the second quarter, as government efforts to tame inflation and economic turbulence in Europe and the United States curbed activity.

Vice Premier Wang Qishan, China’s top finance official recently warned that China needed to fix "structural problems" in its financial system to cope with a "long-term" global downturn that threatens the world’s second largest economy. "For an economy like China that depends heavily on exports, the key is to understand the situation and put one’s own house in order," the state Xinhua news agency quoted him as saying.

Speaking in a subsequent interview on Saturday with CNBC’s Simon Hobbs and the Money In Motion traders, Faber reiterated his view: The data can be manipulated, but in general I would say there is an obvious slowdown in the Chinese economy and I think there is a chance for a hard landing.

Faber went on to elaborate on the unintended consequences of easing: "When Mr. Bernanke became fed chairman, the S&P was at 1264  that was on February 1st, 2006. We’re now at 1244. So, the market is lower than it was at that time. In the meantime, gold has gone to US$1,746…The easing may not mean that the economy will do particularly well as the easing can shift money into some sectors of the economy…The stock market in China may rebound, but I don’t think we’ll see new highs, and I think the economy will weaken because we have a very capital goods oriented economy, and capital spending is very volatile."

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