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Marc Faber says avoid financials and buy gold

In an interview with CNBC India, international investor Marc Faber says that gold is his commodity of choice right now.

Marc Faber sees demand for commodities to come off in second half of 2008 in India and China. He will rather buy gold at current levels rather than other commodities and sees lot of money shifting to gold. According to him, the problems of U.S. financial sector are much larger than perceived.
-CNBC Transcripts, 27 Jun 2008

With inflation rising, that’s a good call. Gold was up 3.7% yesterday to $915 as the markets tanked.

Faber also sees trouble in financials.

Q: On the financial sector, part of the reason why we saw the sell-down in the U.S. overnight was because of a downgrade for some of the brokers there. There are still lingering concerns about the impact on the financials, not just in the U.S. but Europe as well. You expect about 150 bank failures in the next 12 months. Can you explain this?

A: A lot of banks are already bankrupt. A lot of monoline insurance companies are bankrupt and financial institutions hide their rotten assets in level three asset categories where you don’t really need to value them. But, if you have stock prices like the monoline insurance Ambac and MBIA dropped 95% and then some rating agencies until last week were still carrying a AAA rating. It is a total joke.

These companies are basically out of business. So, the financial sector by and large has much larger problems than is perceived by the investment community. The stock market to some extent is telling you that. It is giving you the price, market signals. It is quite funny that one financial firm downgrades another financial firm and another financial firm begins to downgrade a financial firm that was downgrading themselves. It is kind of a domino effect. It is actually quite amusing to watch it all.

His call for financials to start going to zero is in line with my view. By the end of 2008, the bankruptcy wave and industry consolidation will probably have begun. MBIA and Ambac are going to have to be extremely lucky not to be amongst those in this list.

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Marc Faber Says Commodities Will Fall in Second Half, Bloomberg News, 27 Jun 2008

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.