By Economic Forecasts & Opinions

Here is the summary and my thoughts on a trio of Dr. Marc Faber's latest interview where he discussed his 2010 outlook on China bubble, sovereign default risk, stocks and commodities.

Faber is most famous for advising his clients to get out of the stock market one week before the October 1987 crash.   News just broke that Faber, a famed contrarian investor often known as Dr. Doom, has joined Sprott Inc. SII-T as director and member of the money management firm's audit committee.

Euro Death By PIIGS

Faber believes the countries most likely to blow up are the "PIIGS": Portugal, Ireland, Italy, Greece, and Spain. One or more of them will likely default in the next couple of years, which could mean the death of Euro. 

Interest Costs to Triple

According to Faber, the U.S. annual interest costs, currently around 12% of the government's tax revenue, will soar to 35% of tax revenue within five years.  This will force the government to cut spending (an unlikely scenario), and/or frantically print more money

U.S. & Japan - Default in 5 to 10 Years

Excessive money printing and debasing of the Dollar would most likely result in the United States defaulting on its debt within 5 -10 years  Japan could face the same fate as well.  (See more U.S. debt crisis charts from Faber here.) 

Note:  Jim Rogers sees U.K as in danger of an implosion as well. 

U.S. Stocks - Correction Coming

After noting in his January 2010 newsletter that he was bullish on U.S. stocks, Faber changed his mind after participating in Barron's round-table discussion. Faber says the overly bullish consensus worries him. 

He now believes a correction in U.S. stocks could come much sooner than most expect as momentum players could "pull the trigger relatively quickly." Faber is now looking at a 5%-10% rate of return for global investors.

Bonds could be in for a rebound near term, but longer term, investors should look for exit opportunities in Treasuries.

Asia is likely to have longer term favorable growth. Faber favors India and Japan.  In a December 2009 interview with Economic Times, Faber liked Japan as a contrarian play for 2010.  

Faber indicated it is difficult to pinpoint a day when China will implode. But he does not think it will happen right away. However, when it does happen, investors can expect a hit on commodities and emerging markets.

Gold is going through a correction phase and probably will test the lows of $1,050 or $1,100 levels, but is still a long term buy through exploration companies and physical gold holdings.     

Prices may come off somewhat.  Marginal cost of finding oil is around $70.  Longer term, prices are expected to continue rising as demand increases from the developing world.  

In the short term, Faber likes wheat as it is "very, very cheap".  But he advises against buying the wheat ETFs because they're "very expensive" due to the rollover costs. Instead, he suggests play it through companies with farm land and plantations or potash companies.

"It is absurd to say China is in a bubble when the stock market is 50 to 60 percent below its all-time high....After 300 years of decline everything is coming together for China in the 21st century"

“The Chinese will act rationally and they’re not going to kill the market...There’s still a lot of savings in China. Prices are high but I don’t see a crash.”

"Overinvestment and overbuilding is sometimes a prerequisite of an anticipated mass urban migration such as the one China is destined to experience."