"The market on [Obama's] re-election should be down at least 50%," Marc Faber told Bloomberg news last week...
"I think Mr. Obama is a disaster for business and a disaster for the United States," he continued. "Not that Mr. Romney would be much better... You also have in the background Mr. Bernanke, who with artificially low interest rates enables the debt to essentially escalate endlessly."
Faber – a legendary contrarian investor – sees a future of endlessly rising government debts in America, paid for by money printing from the Fed. The end result, he says, is inevitable: inflation.
While you might not agree with Faber's views, he certainly knows his financial history.
In 2002, he wrote a book called Tomorrow's Gold. He included an important table in that book, which showed the performance of different asset classes during the period of massive inflation from the mid-1970s to the mid-1980s. Take a look...
I find this table enlightening...
It shows plenty of important things about inflation and investments that are important to take note of today as well...
- U.S. stocks and bonds didn't even manage to keep up with inflation.
- Real,income-generating assets that adjust with inflation (like farmland and housing) far outpaced inflation.
- Gold was king... and silver was not far behind.
- High-end collectibles did very well (i.e. coins and stamps).
I included Japanese stocks in the table above, even though they were not in Faber's book. Japan's stock market was more of an emerging market back then, and it was somewhat uncorrelated to the U.S. stock market. That emerging market soared – compounding at 20% a year (plus dividends).
I expect we'll see some specific emerging-market stock markets do well when inflation hits this time around, too... particularly those that are uncorrelated to the U.S., just like Japan did in the 1970s. India in particular could do very well, for reasons I have previously explained.
I've spoken with a lot of investors in the last week... from CEOs of huge companies to individual investors. They're all worried about inflation. And none of them has the perfect answer.
I think this table of what worked in the 1970s is the best starting point for what could work if inflation starts to worsen again this time around...