Saturday, May 26, 2012

Be wary of Marc Faber’s public forecasts

Here’s what Marc Faber is reported to have said in an interview in CNBC and reported in

“I think we could have a global recession either in Q4 or early 2013." When asked what the odds were, Faber replied, "100%."

Marc Faber interviews are a must read for the many fresh perspectives they offer, however be wary in relying too much on his projections, as the overall accuracy of his projections is at around the 50% level. This is also true for many other Gurus by the way.

I love reading Marc Faber interviews. He's one of those folks who don't pull their punches. He has strong opinions and I have always found some new perspective in each one of his interviews. In this same CNBC interview, his point of view is that a Greece exit is likely to be bullish for markets - that's a beautiful point and well supported by the bond market behaviour too.

However, as far as overall accuracy of projections goes, they have a hit rate around 50%. That's more like a coin toss. Every expert would be wrong a certain percentage of the time, and that's to be expected as projections are probabilistic estimates and not crystal ball gazing. But a 50% hit rate doesn't really inspire too much confidence.

Let me clarify - I don't really doubt his ability to make money, based on what I read in the media. My focus is only on the projections that he gives out publicly.

By the way, he does not have any shortage of correct forecasts - he did call the 2008 crash and the ongoing correction accurately; however I couldn't find any level of consistency over a period of time.

Here are excerpts from some of his interviews - (I have restricted my self to reports published in Moneycontrol only for now, but over a period of time I have carried out many internal reviews for self consumption, for many gurus, over many publications).

What he said about US markets (March 2009):
"But I don't think that right now we will make new lows before 666 levels. We may have a rally until the end of April and a total collapse at the end of the year, when it becomes clear that the economy is a total disaster."

What actually happened: US markets went on a bull run and the US economy posted a strong economic recovery.

What he said about China (March 2009)
”I think it is out of the question that China will grow by 8% this year. In fact, I don't think it will grow at all. I think the Chinese economy is in recession.”

What actually happened: This was one of his more outrageous statements. I am not sure that he actually believed what he said and maybe it was said in jest. I mean, China has never posted an annual GDP growth rate of less than 10% for the past decade at least.

What he said about global recovery (May 2009)
"My sense is that the markets will correct now and they will correct for a variety of reasons partly because it will become obvious that the global economic recovery is not very strong or not taking place at all."

What actually happened: There was a strong global recovery, with US and emerging markets leading the way.

What he said about India (May 2009).
"But in general in the case of India we went from less than 8,000 to 14,000. I wouldn't be surprised to see something like 10,000-12,000 in a correction but maybe it won't happen. All I am saying is the risk reward today of buying equities is obviously not as favourable as it was in March."

What actually happened: The Indian market went up by more than 50% in the next one year.

What he said about India (June 2009) India
"There is little potential to grow very strongly. So, there will be disappointments in terms of earnings in the second half of 2009. The gravy is a bit out of markets. India was below 8,000 on the Sensex and has gone up almost 100%. I don't think it is a very good time to make an entry into the markets except for traders.”

What actually happened: The gravy was still there in Indian markets, as it went up by more than 50% over the next one year.

What he said about the financial crisis (Oct 2009)
"So, I think enjoy your ride in asset classes as long as it lasts but I think we are seeding the next crisis and it may happen in the next three months, maybe tomorrow, maybe five years, maybe only in 10 years"

What actually happened: Is there really anyone out there who believes that there won’t be any crisis in the next 10 years??

In summary, do read his interviews for the many new perspective that they have to offer, but be wary of his publicly made forecasts.