Dr. Marc Faber sees World War III that features cyber warfare coming anytime during the 5 year horizon.
From Business Intelligence,
He sees a shift in economic and military power from West to East and is increasingly convinced that the end game will be war. But, so far, he had avoided giving a time frame to the war scenario. Not any longer.
Dr. Faber was amongst 10 investment experts assembled by Barron's last week at the Harvard Club of New York for the Barron’s 2012 Roundtable. The members of the Roundtable discussed the economy, China, Europe, market volatility, investment picks and World War III.
"On an optimistic note, World War III will occur in the next five years," Faber announced to the other members of the Roundtable, in his characteristic contrarian manner.
"That means the Middle East will blow up," he said, without providing any details about specific countries.
When this happens, "new regimes there will be less Western-friendly," he reckons.
"The West has figured out it can’t contain China, which is rising rapidly and will have more military and naval power in Southeast Asia," he explains.
The only way for the West to contain China is to control the oil tap in the Middle East, Faber argued.
The prelude to war will be a "big bust that will see the end of credit expansion," he said in a recent interview. But before this happens, "governments will continue printing money which in time will lead to a very high inflation rate, and the economy will not respond to stimulus".
Cyber war?
"This war will be different from World War I where troops faced each other in trenches or World War II where tank divisions faced each other, he said. This will be Cyber War. A war where you can turn a switch and turn the London electricity supply off. This will be a war where you can stop airplanes from flying and bring the whole financial system of a country to a halt," Faber said in an August 2011 interview.
And during war times, "commodities go up strongly,” he argued.
"If you want to hedge against war, you don't want to own derivatives in UBS and AIG, but you have to own them physically, like farmland and agricultural commodities. That is something to consider for you as a personal safety and hedge. You have to own some commodities," he stressed.
But sees this as having a positive impact on equity prices,
Asked if war will be positive for stocks, Faber told the Baron's Roundtable it would be very positive for stocks and negative for bonds, "because debt will grow dramatically. There will be massive monetization of debt."
"When the U.S. entered World War II total credit equaled 140% of GDP, and there were no unfunded liabilities. Now total credit-market debt is 380% of GDP, and unfunded liabilities make that 800%," he added.
Speaking to CNBC Thursday Faber went further: "Relax. I don’t think that equities will collapse. I think we have major support going back to August 2010 when the S&P was at 1010," he said.
It would seem that the government’s or the nation state’s default option when countenanced with a decadent society emanating from failed policies has been to resort to war. That’s because war has the tendency to divert or distract the public’s attention which pushes the masses to rally around the flag in the name of patriotism.
As Nazi Germany’s Hermann Goering Commander-in-Chief of the Luftwaffe, President of the Reichstag, Prime Minister of Prussia and, as Hitler's designated successor once said in a conversation with Gustave Gilbert during the Nuremberg trial (an Allied appointed psychologist)
Why of course the people don't want war. Why should some poor slob on a farm want to risk his life in a war when the best he can get out of it is to come back to his farm in one piece? Naturally the common people don't want war neither in Russia, nor in England, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked, and denounce the peacemakers for lack of patriotism and exposing the country to danger. It works the same in any country.
Although war is a possibility (I earlier noted that the risk of military confrontation with Iran seem to be increasing here and here), in my opinion, World War III may not be inevitable.
I think that nation states will likely suffer more from internal strife (e.g. revolutions or secessions) which eventually leads to their collapse than from a global war in the scale of World War II. But the latter is an option that cannot be written off.
And if in case this should happen, it is unclear if equity markets will remain unscathed by a warfare dominated by cyberspace engagements. To quote Dr. Faber’s conflicting points: “This will be a war where you can stop airplanes from flying and bring the whole financial system of a country to a halt”. [italics added]
Perhaps Dr. Faber refers to other countries but not the US. But what if the US is the object of such cyber assaults such as the recent case of the FBI and the Department of Justice along with the websites of the entertainment industry (which perhaps could partly reflect on the protest to censor the web)?
The fate of financial assets will entirely depend on how World War III plays out. Thus, there is no straight cut answer to Dr. Faber’s scenario.
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