GLOBAL - Swiss-born investment manager Marc Faber believes the recent turbulence of the capital market are a healthy lesson in teaching investors to be more careful when choosing their investments.
Faber, a Hong Kong-based fund manager and author of the doomgloomboom newsletter, has harshly criticised governments for supporting banks which suffered in the subprime crisis, as well as federal banks for trying to stabilise the economy by what he describes as "printing money".
"Recession is a good thing because the capitalist system is built on the basis that those which are incompetent will fail," said the outspoken financial philosopher at a talk in Vienna.
Top on Faber's list of those who should not make it through the crisis are bank managers and the people who invest in them.
"If states save banks like UBS it will lead to people not doing any analysis before investing; if they fail, on the other hand, people will learn to tell good managers from bad ones."
Reality is, of course, not that black and white, as Christoph Ryter, head of the Swiss pension fund association ASIP, pointed out to IPE:
"The weight of UBS in the Swiss Performance Index SPI was at over 10% at the beginning of 2007 and still at 5% at the end of the first quarter 2008. So to completely exclude this stock from a Swiss equity mandate would have needed a lot of bravery on the part of the manager."
Ryter added it was always easy in retrospect to demand better due diligence, especially in the case of UBS where, he said, it seemed "at times not even the UBS risk management team itself was fully in the picture of which risks were taken".
"That means it was very difficult for investors to forecast the drop in UBS share prices from mid-2007," Ryter noted.
For Faber, who is also known as "Dr. Doom", the current correction in the markets is much more than that.
He expects further market drops for several more months and argues they could even "drag on like a water torture over the next two years".
According to Faber, federal banks have only postponed the problem.
"We have reached the zero-hour when printing money no longer translates into real growth. The dollar is plunging and inflation in the US is accelerating and the Fed has to see that, for the average person, it is not important that the stock market goes up but that food prices remain stable," he explained.
If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com
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