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Tuesday, June 29, 1999

Meet Dr. Doom, Asia's most interesting analyst

RIDING THE MILLENNIAL STORM: Marc Faber's Path to Profit in the New Financial Markets, by Nury Vittachi. John Wiley & Sons, 1998, pp. 241, $29.95 (cloth).

Great combination. Hyperkinetic Hong Kong scribe Nury Vittachi, author of 10 books and countless newspaper and magazine columns, and Marc Faber, "Dr. Doom," congenital contrarian, pundit and market analyst. Few writers could hope to capture the flash and flair of the pony-tailed, bar-hopping, history-minded investment adviser; Vittachi does the trick. (He also makes it clear that the two are pals; the cover notes this is an "authorized profile of the man and his ideas.")

Faber is a fascinating guy. Apart from the rebellious, devil-may-care persona he cultivates, he is literate, honest and right (most of the time). He is as inclined to rap on history -- one of the longest chapters in the book is on the fate of great cities, the vast majority of which have vanished -- as market fundamentals. More accurately, Faber uses history, and not just market-oriented stuff, to make his judgments about investments.

"Faber is more likely to turn up to a meeting with a picture showing the number of rings in a recently felled oak: Nature's own long-term record of weather conditions that could yield useful information on crop futures. His predictions are less likely to be underpinned by 40-day moving averages or this quarter's leading indicators than by examination of the fortunes of preindustrial cities in the 15th or 16th century. His understanding of how organizations grow and acquire their competitors is more likely to be illustrated with the record of a recent military skirmish than a textbook flow-chart of acquisition procedures," explains Vittachi.

Sprinkle the serious arguments with personal tidbits -- Faber once promised to parachute off the top floor of the 70-story Bank of China headquarters if it was fully leased when it opened (he won the bet) -- and you have a fun finance book to read.

Faber is hard to dislike. He is candid. In one letter to investors, he conceded that "As far as the first half of 1987 was concerned, I was totally wrong." Clients note that he tends to err on the side of conservatism: He takes profits too early. Hard to fault that.

Critics say he gets an unfair amount of publicity. One rival complains that Faber predicted "20 of the last 10 crashes." But even then, they still read him. He is an innovative thinker in a pretty straitjacketed industry.

So, what are Faber's guiding ideas?

First, many of the tenets of conservative investing are wrong. Over the long term, prices don't always climb. Similarly real estate. "Real and even nominal prices for some important commodities have been in secular downtrends for more than 100 years. It is all very well to tell the investor to hold on and be patient, but there are limits."

A study of railroads has made him skittish about infrastructure investments in developing countries. "One can be sure that any number of state or provincial commissions will keep rates down."

On the strategic side, Faber believes "stocks perform best following a period during which growth expectations are low; conversely, they perform poorly during a time of great optimism regarding future growth."

Human psychology is a key factor here. Faber argues that waves of optimism sweep markets not at the beginning of an era of prosperity, but at the end. The old adage is that it's time to get out of the market when taxi drivers and housewives get in.

Faber believes in cycles, especially the Kondratieff cycle. More importantly, however, Faber clings to a simple credo: "History shows that things go wrong. It must happen. Established economic equilibrium is disturbed from time to time."

Remember Changan? Akkad? Babylon? Ctesiphon? Each was the greatest city of its time. Today, they are relics for historians. Shift happens.

There is much more in "Riding the Millennium Storm." There are discussions of the Asian crisis that began in 1997, the fate of Hong Kong, the coming crash in the U.S. stock market, and lots about China.

In a final exercise, Vittachi has Faber giving a speech in 2017, the message of which is distilled from his writings and their conversations. By then, Shanghai is Asia's most important commercial, industrial and financial center, surpassing even New York and London. Its market exceeds the combined value of all U.S. and Japanese equities. That shouldn't be too surprising since, in Faber's world, Wall Street crashed at the turn of the century. And even in 2017, Japan's best days are still ahead.

Hong Kong collapsed and economic dynamism in China returned to its traditional centers near Shanghai and Manchuria. Elsewhere in the world, Africa has become a great investment opportunity.

Far-fetched? Maybe, but Faber's logic and analysis make his arguments impossible to dismiss out of hand. Find out for yourself, but don't be worried: Few books on finance are as entertaining, educational and as easy to read as this one.

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