Marc Faber: Short the AUD

June 16th, 2010

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In case you’ve missed it, this is what Marc Faber said in a recent interview:

And as a special tip, I think I would short the Australian dollar, because talking about a housing bubble, Australia has 10 times a bigger bubble than China. In Australia you have what you said we don?t really have in China, namely the low leverage that we have in China, we have the opposite in Australia, very high household leverage. ? So I think a big downfall is about to happen.

The worst case scenario would be a falling AUD in the context of a currency crisis. Our favourite hedge against this will be in gold (see our book, How to buy and invest in physical gold and silver bullion).

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  • Threw

    Marc Faber doesn't know what he is talking about or is bad intended.

  • pb

    Hi Threw, could you please explain a little more on the above?

  • Threw

    Sure – Marc Faber is on the inflation camp (like me). Inflation means a continuation of the growth story in the emerging markets (China, Malaysia, Indonesia, Philippines included). That means a continuation of the demand for commodities – and that includes Australia. More so, Australia's public debt is the lowest between developed markets. I agree that housing is a bit expensive but all the other factors will more then alleviate the bad balance sheet of the population (for the time being). That will make AUD together with the CAD to shine over the coming years. (Btw – I from Canada, so I have no subjective opinions regarding Australia).

  • Dan

    I think your view is too simplistic. You think that everything will go up in a straight line without understanding anything about debt, commodity and business cycles.

  • Faber is assuming Australia's central bank will behave as profligate as the US Fed. If they do not subsidize real estate losses by cranking up the printing presses the AUD could see significant supply contraction. The world ought to be in a big deflationary cycle right now, but central banks don't seem to want to play by the rules of reality.

    btw, I love the David DeAngelo advertisement! Great material…

  • It's possible to undergo an inflationary depression. Economic output need not expand for inflation to exist; it can be a pure monetary phenomenon (i.e. printing more paper). So Faber's presumption is not fully based on Asian growth…