As Western currencies turn into toilet paper, Marc Faber is worried about a major China slow down at the same time.
A China crash (hard landing) would have disastrous consequences for industrial commodities, which make up the lion's share of commodities in the world.
Thus investors might need to be very selective when using commodities as an inflation hedge vs. Western economic challenges:
“The economy, for sure, will slow down meaningfully this year,” Faber said in an interview with Bloomberg Television in Hong Kong. “It has the potential to crash because of the overcapacities that have developed, and when loan growth slows down, we don’t know how the economy will react.”
A possible crash in China’s economy will be “disastrous” for raw materials used in industrial production, Faber said. He instead favors commodities including wheat, corn and soya beans and also said he doesn’t see a “huge downside risk” for gold.
“Other commodities haven’t gone up yet, such as the grains,” Faber said. “It may take time until they start to go up substantially but if you have time, you should be long wheat, corn, soya beans or own a farm, which is one way to participate in future food price increases.”
In fact, a sharp China slow-down would most likely be a deflationary force across the global economy due to falling demand and overcapacity. Thus all inflation hedges could feasibly be slammed and few, if any, commodities would be spared.
By Shiyin Chen and Bernard Lo Bloomberg.com